Saturday, December 8, 2007

It is different this time: unlike in 2004, BTL is a real catalyst of crash

Landlords pulling out of market

“It’s manic, because many traditional lenders in buy-to-let have pulled out. “Landlords are remortgaging into a Woolwich tracker at 0.69% over base rate (currently 6.44%) with no redemption charges, no legal fees, no broker fees and only a £295 arrangement fee. “I think experienced landlords are remortgaging to 75% of current value – to release cash in 2008 to grab bargains from distressed sellers.” Yeah, fine, many BTLers may not be forced to sell immediately... but where will large capital gains come from if the demand at the bottom of the pyramid (FTBs and "novice" subprime BTLs) has dried out? Oh, I forgot the Russians and All-the-stans here in London

Posted by confused76 @ 09:01 AM (1083 views)
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9 thoughts on “It is different this time: unlike in 2004, BTL is a real catalyst of crash

  • “Mr Grandin added that the danger is serious because professional landlords turned much more selective after December 2005; many entering the sector since then are novices and some of their properties could end up in auction rooms”

    Snigger ~~~( S-m-i-l-e )~~~ Grin.

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  • I can see it’s going to be a lot of work collating all the last ditch attempts to reinflate the market over the next few months.Thank you to confused etc in advance

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  • dohousescrashinthewoods says:

    I have been thinking about this for some time now. In previous crashes [corrections?], most people couldn’t move fast because they lived in the properties they owned.

    This time, if 10% of the market owns one or more “investment units”, 10% of properties in the market could sell in the space of a few months. That’s an unheard of turning-speed for a traditionally glacial market (e.g. say, 10% of the market is BTL, average properties per landlord is two and half of those are sold, including some reposessions to round out the numbers).

    I’m really struck about the extent to which it has all come to such a dead halt in perfect concert with the credit crunch. Looks like it was totally driven by credit. Not a whiff of supply, only “investment” demand. That makes it a traditional investment bubble. (I note the FT index, which includes non-mortgaged purchases, like wealthy/downsizers hasn’t tanked as fast as Halifax, which only includes mortgaged transactions)

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  • japanese uncle says:

    I may have sent my comments accidentally: This is resubmission:

    Rents in Tokyo after the 1990 collapse of the bubble has been at best stagnating and still dropping in some areas. In an economy possessed with deflation/recession both house prices and rents are destined to fall.

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  • JU
    rents are falling BY THE DAY here in central london.
    EA’s call with rent proposals and when I say “too expensive” they literaly beg me to bid 10% below the asking price. And I am talking about the mainstream agent Troxtons and very prime areas. Apparently a lot of rents are expiring at the end of 2007 and in addition BTLs are withdrawing properties for sale and putting them back on the rental market.
    Troxtons agents told me landlords won t turn down offers 10 to 20% below asking price, if they can rent out immediately and for min one year without break clause. This takes rentals in Chelsea, Westminster, etc.. back to the levels of 2000 (i mean in NOMINAL terms!!)

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  • It will be very interesting to see how this all pans out.

    In previous postings I have mentioned lenders tightening their lending criteria – this is now twofold i.e. they are not only more discerning on the borrower but also the type of properties they will lend against – they don’t generally have a problem with 3 bed semi’s and 4 bed detached family homes but a growing number of lenders will not touch 1/2/3 bed apartments and indeed those that will already have a restriction on lending against a specific number in a single development. It might not be as easy to offload a BTL property as people think.

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  • @3. dohousescrashinthewoods

    Last time, people moved *really* fast, the bank said “This isn’t your house any more, get the hell out!”

    BTLers will start leaving when rises are consistently less than interest payments, new buyers will stop buying as long as houses seem to be going up less than interest payments. Hopefully existing owner-occupiers will not be forced to sell (by deflation or recession). We need growth to continue to match the rate of immigration and house building to do the same and for house prices to just come down at a slow steady pace until they reach a sensible level (or inflation to push salaries up at a slow steady pace while house prices remain constant – though I’d prefer if real inflation hit 0% to minus 2% – inflation is the enemy of prudence).

    Inflation is targeted to positive nonzero to combat savers so they put their money into the stock market instead. Now, though, people want to save in bank accounts rather than under their pillows, so positive inflation is no longer a desirable thing because those savings get invested anyway.

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  • dohousescrashinthewoods says:

    Jack c, that is interesting indeed. One more factor to add to the perfect storm.

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  • To confused76, I live in central London and rents are INCREASING by the day everywhere…

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