Wednesday, July 25, 2007

Yadayadayadayadayadayada!

Buy-to-let repossessed

The emperor is naked! "Birmingham Midshires is the latest lender to trumpet the buy-to-let market. It claims the average return for a landlord was 13 per cent over the past year and argues that the fundamentals underpinning the buy-to-let market remain strong. But the survey disguises the harsh reality that properties are being repossessed less than two years after first-time landlords made their foray into the buy-to-let arena and that some new-build flats have plummeted in value by 30 per cent."

Posted by confused76 @ 09:42 AM (642 views)
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15 thoughts on “Yadayadayadayadayadayada!

  • dohousescrashinthewoods says:

    That’s 29% of the properties at the auction which were reposessed.
    It’s a shame they didn’t have accurate fiures for the proportion of those which were likely BTL properties.

    ~237K down to ~142.5K is approximately a 40% drop by my calculation. Albeit I imagine this is one of the more extreme examples they could find.

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  • tyrellcorporation says:

    I have a mate who has openly just said that when his mortage resets in a few months time his costs will almost double. He said he’ll be forced to sell his BTL. The next 6 months is IT folks as the ‘forced sell’ environment develops. With borrowing far more expensive than just 6 months ago and more stressed sellers appearing, the housing market is going into reverse – finally!

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  • The days of 3.5% rates are long gone. The unlucky few who were conned by false promises will now pay dearly. There will be no escape. Borrowers can soon look forward to base rates of 6.5% (at least) and standard variable rates of at least 8.5%. Oh dear 5% difference form that original 3.5% on your loan is going to spoil things. It’s over.

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  • There will always be some idiots who borrowed too much. Anyone with any sense would have budgeted for at least a 1% rise in interest rates given that rents weren’t looking like they were rising. Most BTL’s do not have gearing like this so the number of stressed sellers will not be significant unfortunately.

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  • tyrellcorporation says:

    Maddison, I don’t agree. Just talking to BTL friends they are, without exception, up against it and the pips are squeeking. The resetting mortgages WILL be a big issue and it’s all happening in the next 12 months or so. Yes, they’ve made money but it’s theoretical money and not actually cash in their hands – there’s a big difference.

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  • This article refers to BTL owners fighting for tenants to fill the flats. What happened to the great housing shortage that we keep hearing about. If that was true there would be people queueing up to find a place to live.

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  • Maddison – given that anyone who has bought in the last few years has paid more than the property is worth, they have either already been ripped off (if they paid in cash) or have borrowed too much if they are mortgaged

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  • Maddison,
    Here in Notting Hill it is one giant “for sale” or “to let” sign. Landlords have given notice to just every single tenants that I know in North London, including me. Two reasons:
    a) the “old generation” of landlords have put their property on the market,
    b) the new entrants are trying to raise rents by ~20%
    In case a) they want us to stay (and I negotiated a rent rebate, what alternative did he have?? a void?) until he sells. My property has been on the market for 3 months now.
    In case b) my friends (at least 5 families) have told “stuff it” and will move a couple of miles north… Belsize Park, South Hampstead, Kilburn and pay much less for larger place.
    I asked a few agents in Notting Hill what s next for rentals, and they told me not to be scared by the high asking prices. When it is time to move they will speak to landlords and rebate because of my “credit worthiness”. Apparently the “new generation of landlords” (i.e. the idiots fleeced by the agents themselves in the last few months) have put up unrealistic rental expectations needed in order to meet some mortgage covenant (this is in the own words of the agents). The silly thing going forward is that tenants will soon have to get credit worthiness guarantees for their landlords in order not to be “repossessed” with the property. giving the deposit to the 3rd party agency is a must.
    Another funny thing about Notting Hill is the growing number of overseas landlords who have bought with euro-currency mortgages. They are exposed to all sort of risks, but one certainty: they are fleeced with 10% letting agent fees every year… for the promise of some magical “shor-let” tenancies worth £700/week for one bedroom, up to £1000/week for three bedrooms. Well, shortlet = long voids = higher management fees… poor landlords!

    BTLs are in for the bloodshed/ shaky shaky shaky business.

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  • Some BTL take the view that if they are paying £200 to the tenant it is the same as paying £200 into a pension which historically have not performed well Pensions have given total returns of 5-7% and you can only take out 25% tax free at the end! BTL is still giving TOTAL returns in excess of 5-7%. They will not bail out unless the disparity becomes really uncomfortable. Also interest rates rising are partly a function of high prices anyway. So if interest rates continue to rise it is probably because asset prices and wages (including the wages of BTL’s will rise as well). The big risk is VOID if tenant demand falls then we will see bailing out on a big scale.

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  • Maddison,
    I notice what you are saying but it is plain wrong (pardon my frankness).
    S&P500 (or any other broad equity market index) historical average returns have been 11% per annum. In particular, after the dot com burst, returns have been STELLAR. But you cannot compare apples and bananas, if you invested in the S&P500 levered with 50% debt (or whatever average borrowing you would want to use for BTLs) your historical long term average return would have been 18% per annum (by effect of leverage).
    Since UK housing is a small subset of the world market, and has recently become very liquid, there is NOOOO WAAYYY you can make a better return on housing than on the broad market. And this is OVERALL returns, but there is a huge “distribution” problem with housing that really works against the BTLs: the agents, the plumbers, and the taxman are all stakeholders in this and their demand is going to catch up with your windfall (if any) much faster than you think….
    Think about it, Maddison, you cannot beat the economy (well a lot of people in the past thought they could… but ended up in tears)

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  • the bald man says:

    For me BTL is a fashionable investment. Often done on sentiement rather than economics. As interest rates rise I can only see more and more would be landlords selling up.

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  • Crash Bandicoot says:

    I agree with Maddison up to a point. I think that there is a two-tier BTL market with one camp treating the investment as any other and reaping the yields, and the other using a “something for nothing” approach to a pension. The first lot are effectively loosing money at the moment and can find more efficient investment vehicles elsewhere. The second lot will be more tenacious. As you point out, as long as you have a repayment mortgage and someone else contributes to it you will still have an asset at the end of the term. Even when house prices fall you will still have an asset that you paid less than the current value for. What will kill off these investors will be the point where house prices fall far enough to enable those who are currently priced out to return to the market. This will lead to more void periods as you say, then suddenly paying an overpriced mortgage for an undervalued house doesn’t look like a good pension option anymore.

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  • Wonder what the chattering classes will be talking about in a year’s time instead of how much their house/portfolio
    has gone ?

    Answer: Nothing, because they won’t be to afford to have people round 🙂

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  • bidin'matime says:

    Doomwatch – they’ll still be chattering, but it will be their teeth as they sit in their un-heated bed-sit…

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  • I do blame pensions to a degree for the housing crisis. Its all about perception I am sure confused76 is right about overall performance of stock market but some, not all, pensions have performed appallingly and if the company you work for goes under you can lose most of it!. People don’t realise/appreciate the tax benefits of pensions as opposed to property but they do understand the tax relief you get on property investing which is seen as generous. Another big risk is that all the property pensions want to sell at once or in a short time frame. 20 years from now there could be a glut on the market!

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