Sunday, September 9, 2007

some knock on effects “slowly” kicking in..

Credit squeeze hits buy-to-lets

The results of the negatively reinforced loop are somewhat predictable.

Posted by whiteknight @ 06:42 PM (1177 views)
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9 thoughts on “some knock on effects “slowly” kicking in..

  • I’ve been waiting for this.. 🙂

    Raising the interest rates will sour the game for all the players, and tightening the LTV criteria will frustrate the ambitions of ‘portfolio’ holders who are still intent on buying more.

    Some BTL players will see the writing on the wall and head for the exit, so there’s a sporting chance that net BTL aquisitions will abruptly drop to zero – or even go negative.

    As I’ve said many times before, the market is utterly dependant on the BTL brigade rapidly increasing their holdings. Without that, prices will at first stall, stocks of unsold property will build up, and impatience on the part of vendors will start to drive prices slowly down. The ‘buy to leave empty’ brigade will then start trying to offload, and the downward momentum will increase – then watch the panic spread in the BTL camp…

    We’ve waited a long time for this – fingers crossed everyone!!

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  • I notice that the Landlord associations website says the complete opposite, though that’s hardly surprising.

    His best VI quotes are:-

    ‘The UK property market is not set for a crash despite recent scaremongering from some quarters.’ and ‘Rightmove says there is no reason to panic despite recent figures suggesting that price growth in the country is slowing down.’

    Mind you his buddies will want to ship some of their less profitable properties before the sheeple do!

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  • stillthinking says:

    How long is this all going to take? I personally don’t need any more convincing that the crash started a while ago and that we are in the middle of the process. What I want to know is the time to the bottom. Seems to me that the 4/5 year period must be shortened by the BTL because they aren’t actually living in the properties they want to offload. However, I have made this point before, and I will make it again, people are reasonably flush and a lot of people can carry an interest rise up to 8/9% (guessing from the BTLs I know). No matter what the temporary inter-bank rate is, given that you can borrow from the bank of england at 6.75 you can still make your profit on top of that. So the inter-bank rate doesn’t seem to be very permanent to me.
    Given that the UK banks are in crisis because they can’t sell on the debts, which are payable in dollars, and that the US are going to help them stay in their homes, presumably the precursor to a housing crash as opposed to a slump will be a dollar crash, which means that the banks have genuinely lost cash as opposed to being unwilling to participate in a firesale.
    Also when we say crash we are talking about flats aren’t we? Think of how many original family homes you go to but are in fact split into flats. Everything is a flat now. Family homes have not only been built, they have been converted out of existence. Thats the home I want, and they seem to be gone. We got so brainwashed into thinking an expensive flat is desirable we seem to have forgotten they are useless for families.
    On another note, I was thinking about the 800,000 homes the spanish built and how everybody says it is a disaster. Is it? In the short term yes, but over the long term new and up and coming generations of spaniards don’t have to worry about rents or homes. They don’t have to transfer earned wealth to property owners. We will though. If you want to live off your assets/weath in spain (ignoring the fact they are in the euro so this is nonsense), you have to invest in companies and start-ups, and not just pull a rigsby.
    Just an idea.

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  • voiceofreason says:

    I love this quote from the article.

    “There is not a single buyer on the planet for mortgage-backed securities, it seems right now.”

    Let us not all forget though:

  • The UK is different, we are a crowded island with fewer houses than we need
  • High immigration & family breakdown means demand exceeds supply
  • You can’t trust pensions, let bricks n mortar sort you out for your retirement
  • Erm or should that read:

  • The UK property market has become just as much of a bubble as the rest of the world thanks to the invention of securitized mortgages and will probably fall back to sustainable levels, 10% to 40% below today’s prices once everyone has woken and smelt the coffee
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  • “Some borrowers who could have secured a mortgage just one month ago will now be turned away”. Is this really a bad thing – for everyone’s sake…!

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  • crash bandicoot says:

    “Our own borrowing rate has got ridiculously high and, unfortunately, this will be passed on to the consumer, who might not be able to afford a mortgage now,”

    I think that that should read more like “Our borrowing rate is returning closer to the long-term norm, unfortunately this will be passed onto the consumer, who might not be able to afford the ridiculously inflated house prices that appear to prevail at the moment”

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  • some people mught be able to carry the extra interest costs, yes, thats true, but you are missing the point, with increased tightening, the LTV and more importantly, the ratio of wages to loan will be enforced to “proper” levels again, this will make all rungs of the housing ladder contract almost imediately, reducing prices more or less at a stroke- with the drop of the first time buyer level being forced down, the rest will collapse in broken chains.

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  • I am really, really worried by the state of the economy at the moment. It’s not just the current shennannegins that concerns, but others, including the increase in general inflation. If the Bank cuts rates to try to encourage liquidity, then I think that there is a real risk of Rate Setting Committee from losing control. Prices for food, fuel and other commodities remain high as demand continues to be robust in China, India and elsewhere. A reduction in rates could encourage still greater inflation which will have a widespread and long-lasting effect on us all.

    We have had ten years of binging on cheap credit, poor lending and investment decisions and cheap imports from China and the only thing that we have to show for it is an unsustainable asset boom.

    Although I want house prices to come back down to sane levels in the UK, there is a real risk of a major downturn in the economy that could hurt not just the housing sector.

    I can’t believe that we have been so stupid….

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  • My overseas 56K modem dial-up connection wouldn’t allow me to connect to HPC yesterday.

    I am cheering somewhat belatedly though. At last, something which might, MIGHT, lead to a reduction in UK house prices. Yipheeeeee.

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