Tuesday, December 4, 2007

BTL scavengers… it’s a chain reaction when there is no liquidity to back valuations

Buy-to-let is not dead - just much tougher

"And Lahrie, a former shopkeeper from Sri Lanka, is raising money to add to his portfolio of 150 properties. He says spring, when normal seasonal housing transactions resume, will unearth real weakness." ahha hahha ahhahahh ahhahahhahah

Posted by confused76 @ 09:58 AM (1941 views)
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26 thoughts on “BTL scavengers… it’s a chain reaction when there is no liquidity to back valuations

  • little professor says:

    “Buy-to-let is not dead, whatever the headlines say about falling property values and stricken amateur investors.

    That is the resounding message from landlord lenders, buy-to-let mortgage brokers and, crucially, landlords themselves.”

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  • Well he’s getting phone calls from estate agents asking if he wants to buy properties, so obviously they aren’t getting people coming through their doors to buy them.

    People like him can only stem the flood of properties on the market for a few months at most before things really come tumbling down.

    Remember, the crash hasn’t started yet, it is just at the turning point, ready to start soon.

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  • ‘will unearth real weakness’…yeah,in his own portfolio

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  • Hmmm, this is the part of the equation that worries me. There are probably hundreds of these types out there waiting in the wings for the sudden downturn who will then be snapping properties up for a song on the strength of their already established portfolios. This in turn could create another hike in prices as a mini buying frenzy occurs……..

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  • Hmmmm could there be a problem here ? Prices start to drop but banks are still reluctant to lend money to buy property in an uncertain market. Greedy, parasitic low life scum like Jeremy comes along with his ill gotten gains and increase his all ready massively bloated portfolio.

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  • crash bandicoot says:

    “The golden rule for me is that it has to stack up” “I haven’t bought any property for the best part of a year.”

    So after five interest rate rises, the withdrawal of half the BTL mortgages and further increses in the price of the remaining ones, it makes sense to buy a depreciating asset. Something doesn’t stack up to me! These guys are self deluding fools,trying to reassure themselves that they are doing the right thing. The only way that their business model will work is if they buy all of the available property on the market to keep FTB’s etc. priced out. Once prices fall far enough for everyone to buy, their rental demand will evaporate, together with their property empires.

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  • it_is_going_with_a_bang says:

    Where do they find people like Jeremy Kent-Baguley?

    So let me get this right – he was unwilling to buy property when it was going up over the last year, but now prices are going down hes looking to invest. What he is actually doing – having a large ‘vested interest’ – is trying convince everyone that all is ok and that investment and hence ‘confidence’ in the market should remain.

    A nice try though.

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  • Loneranger – yes, that’s what’s called a “bear trap”, buying into the market on the fall trying to call the bottom, but a fair few other people are too, but not enough to turn the market and so the fall carries on until everyone but the truely savvy believes “prices only ever go down, what’s the point?”

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  • Well, providing they still have excess equity to release, a positive balance sheet on their rents, and they can find a lender who will offer them a competitive mortgage, a few of the larger BTL players may pick off some of the depreciating properties, but I wouldn’t see it as a huge, market moving event. And, if they do it sooner rather than later and the market goes down by 20%, they’ll lose on the deal. With rental yields going up (relative to sinking house prices), there will be pressure in the renting market for lower rents, e.g. one effect could be second homers whose properties are devaluing and who can’t get a buyer may push one of their properties onto the rental market, increasing supply and therefore decreasing rental incomes.

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  • Loneranger – thats called a market. One difference between this crash and the previous late 80s / early 90s CORRECTION is I think that it will go in 3 main waves as an A-B-C pattern. We are at the start of the A. This will give you a certain percent fall, there will be a retracing B wave bear trap (when everybody says hey nows a time to buy) and THAT will be the difference as then the market really plunges after the B wave momentum falters. It aint like it is before. The only alternative is we have a blood bath starting now. My view is that a market that has grown over a long time will not be corrected in a short < 2 year time frame. It wont be for the faint hearted.

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  • “This is your chance to think like a professional investor and buy at the (temporary) bottom with a 10 to 15 year view of selling near the top and, what’s more, rents will pretty much cover your mortgage straightaway making this a ‘free carry trade’ as the city boys would say.”

    This guy’s a nut case!

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  • I don’t think there will be much of a bear trap / dead-cat bounce.

    The trap was mid-2005 to mid-2007. Now the banks have closed up and are refusing to lend on property, at least not without a massive deposit. There are actually very few landlords with enough spare cash to jump in and buy when prices dip – even the richest landlords usually depend on some amount of bank funding. Companies selling “get rich in property” seminars encouraged investors to buy one property with an 85% mortgage, then when prices increase 15% use the new equity as deposit on the second property, and so on. This was multiplied by the developer-discount trick, whereby the developer would give 15% back to the buyer thereby giving them an instant new deposit for their next property, without having to wait for the appreciation. Banks have now clamped down on this trick, but it’s a case of shutting the stable door after the horse has bolted. Big institutional investors (pension funds, insurance companies) are now running scared from all property-related investments (commercial, residential, new-build flats, old terraces, RMBSs, REITs, etc.). This in part caused the credit crunch. Thanks to the credit crunch and the UK’s pitifully low savings rate, the banks simply don’t have the cash to lend any more.

    Nearly all buyers need credit, even professional landlords. As credit is withdrawn, prices will fall. It’s as simple as that!

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  • Drewster – I kinda agree with your analysis – the only thing is you cant have a bear trap / dead cat bounce when the trend is a bull!?! Surely the 2005 move was just a minor correction against the trend as new highs were established thereafter. I agree that prices will fall but you have to anticipate that the market doesnt and wont go up/ down in a straight line. Now the interesting thig is what will “they” do to try to reverse the inevitable initial decline. My guess is that something will be done to encourage the banks to loosen. In fact once prices fall to lower levels perhaps banks will be willing to provide credit (that is their reason d’etre after all). That depends really on the state of the economy at that time.

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  • Drewster – Spot on post – current breaking news on BBC – Lenders ‘must prepare for worst’. UK mortgage lenders have been urged to assess and test their businesses against a possible worsening of the global credit crunch. The Financial Services Authority (FSA) said that there was “a very real prospect” that conditions would worsen next year. A stemming of liquidity in the light of the credit crisis caused massive problems at Northern Rock. The FSA said lenders needed contingency plans against the “worst outcomes”.

    It will be interesting to see if the FSA now insist upon “stress testing” all lenders for a 40% drop in residential house prices as they did with Northern Rock?

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  • 150 properties? Why the heck don’t we tax the hell out of people with more than one ( or maybe two) properties? Can someone explain please? I just don’t get it.
    What sort of society lets greedy people like these get away with ruining the future of the younger generations? Who benefits from this non-interventionist policy. Governments should govern not sit back and blame fate.
    Rant over, boy am i gonna enjoy the slaughter!

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  • Ahh memories! – I smell the air of denial that was so prevalent in 1990..

    Make a note of that guy’s fancy surname – look out for it in the bankruptcy lists in a year or two..!

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  • Confused what is that Stuart Law bloke on about? His last paragraph though (except “temporary”) is correct

    “Professional investors in any market act against the crowd. If, like most people, you’ve ever bought and sold shares, you probably found yourself buying near the top and selling near the bottom – unfortunately it is natural human nature of buying when you feel good and selling when you feel most despondent. The real money is made when you sell when you feel good and most optimistic and buy when you feel pessimistic but it isn’t natural human nature. This is your chance to think like a professional investor and buy at the (temporary) bottom with a 10 to 15 year view of selling near the top and, what’s more, rents will pretty much cover your mortgage straightaway making this a ‘free carry trade’ as the city boys would say. ”

    So hes called a bottom?!?!? But prices havent declined or have i missed something. There is no blood on the streets and no real pain YET, Astonishing!! Jackanory Economics Mr Law. Remember calling bottoms gives you dirty fingers. Free carry trade? My ar**.

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  • Magnifico – you have hit the nail on the head. OK so he has 150 properties. But what happens when the price falls with no support? If he has no rental cover he cannot weather the storm and has to become a distressed seller. How we got here? Im afraid we would have got here anyway, the BTLrs are a symptom not a cause (i agree its perhaps made the bubble bigger but we would have got to a bubble anyway) – its the greed in the banking sector thats the problem and – in reality – thats just caused by the nature of people. They dont have BTL in the US and they didnt have BTL in Japan but they DID have loose credit………………

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  • Course it should be picking bottoms gives you dirty fingers- obviously i had too good of a lunch!!!

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  • That Assetz guy is fantastic, even knows who Warren Buffet is. Anyone know how many UK BTL houses Warren bought this month?

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  • in fact it is a temporary bottom – because it has further to go before its the permanent bottom -but thats not what i think Mr Law meant!

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  • Reading the last few Assetz articles the guy Stuart Law (CEO) is a real dreamer.
    Prices going down – good for BTL
    Prices going up – good for BTL
    London prices dropping – good for BTL
    Undersupply of property – good for BTL
    Oversupply of property – good for BTL
    Rise in repossessions – good for BTL
    Struggling sellers – good for BTL
    “Below market prices” – good for BTL
    Sudan crises solved – good for BTL
    Missing man returns – good for BTL

    (Actually I made the last 2 up, just as Assetz did for the others)

    In summary – to quote Assetz:

    Should I be buying with all the bad news in the press? Now that you’ve asked, and had answered, all of the above questions, can you think what the bad news people talk about actually is ?Is there indeed any real bad news or is it just bad sentiment ? Or indeed is it, in fact, good news for property investors and new homeowners alike? Rents are rising and a short-term opportunity exists to be “greedy while others are fearful” and buy at much better prices than has been possible for a couple of years or so from forced sellers (some developers and people who need to move house very quickly). Buying cheaply in a strong rental market will significantly enhance yields for buy-to-let investors and allow mortgage costs to be covered relatively easily and relatively quickly.

    You’ve been thus been advised by Assetz, property ramper numero uno – fill up ye boots………………………with debt & trouble !!!!

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  • dohousescrashinthewoods says:

    drewster, spot-on.
    loneranger – that depends on whether those bloated portfolios are worth anything on aggregate when they want to start buying again.
    Jack c, that is too cute – are you intentionally referring to last year’s warnings (from the FSA I believe) that lenders should stress-test against a postential 40% fall (whilst assuring that they weren’t predicting such a fall)?

    I think anyone who has bought this millennium will have their equity wiped. In fact, back to 1998 wouldn’t surprise me, [for emotional reasons] if only because it would be a delightful irony that that is how long I have been priced out for – always just behind the wave and unwilling to make a waz of myself with a silly mortgage.

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  • @confused76

    I had a look at the assetz blog out of morbid fascination.
    All the articles are property bear articles but you knew that already.
    The one that really caught my eye was “Is the US market ready to invest in again?”

    http://investors.assetz.co.uk/blog/?postid=37

    I’m lost for words.
    What a prophet.
    What a sage.
    Mr Law is providing us with a very valuable resource: read his advce carefully and do the exact opposite.

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  • I’ve a feeling that the banks will effectively shut down BTL lending by repricing the loans to reflect the risk in the new environment.

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