Wednesday, February 27, 2008

Lambs to the slaughter

BTL mortgages hit 1 million as house prices tumble

Nearly 1,000 buy-to-let mortgages were taken out every day last year, pushing the number of the loans to a record one million. The figures emerged as evidence grows that the decade-long house-price boom is over, with prices falling across the country. Britons have taken out a total of 1.04m BTL mortgages - up from fewer than 30,000 when records began in 1998. This was despite the fact that experts predict house prices have stopped climbing, and the average gross annual rental yield (rental income expressed as a percentage of a home's current value) is negative for the first time, according to ARLA.

Posted by little professor @ 07:35 AM (1991 views)
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35 thoughts on “Lambs to the slaughter

  • That figure is an absolute disgrace.
    BTL practice should simply be limited & then greatly reduced. Far too may Britons have jumped on this bandwagon. There should be greater emphasis on home ownership and houses should be rationed, if there is a shortage. No-one should be allowed to own more than 2 houses.

    Though I would say, most BTL’ers will probably give up after the first year. Running a BTL property is hard work, that most simply won’t be able to cope with.

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  • Disgrace? No its just a reflection of a bubble – Joe Public always sucked in at the top. You dont need to limit it – it will be self limiting via a deflating / bursting (depending on your definition). We are in a cycle – the BTL is just a reflection of the extremes of the upward portion of the cycle. I would speculate that if there was no BTL there would still have been bidding up of HPs to unsustainable levels. There has been a shift to private rental sector from public. That has both pros and cons.

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  • More fool them. No-one can say they didn’t see it coming. There are collective heads in the sand I’m afraid.

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  • Hurry_up_and_crash says:

    You can’t legislates to limit house ownership to 2 houses per person. It is simply undemocratic. Market forces will limit such activities as we are begginning to see now.

    I would argue that yields in real terms have not covered BTL mortgages for some time and not only now. You cannot take 12 months of gross yield and compare that to your mortgage. For a real figure you must take into accout any agents fee for letting, downtime with no tenents (especically during end of 6 month agreeements) and general maintenance and repairs (tenants do not look after a property like you would your own).

    Properties have not covered rent for sometime now, BTL have only clung on in the hope the long term capital gain is greater than the loss from subsidising you tenants rent. Many BTL (like myself) have realised the situation was not viable and sold out last year and sold on to a bigger fool to take the hit.

    The market is on a balance at the moment with first signs on falls – once this balance is tipped to fall be will very serevere with more BTL landlord flooding market to save their investments only leading to a vicious circle of over supply and lack of demand.

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  • Vaild comments techieman – the housing market will re-balance itself particularly price wise – the end of cheap credit and much tighter lending will over the next 3-4 years have a dramatic impact and prices will (IMO) fall back more or less in line with the days of more responsible banking/lending.

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  • How about this for Orwellian doublespeak at its best

    “This was despite the fact that the majority of experts predict house prices have stopped climbing”.

    Such mixing of tenses…..

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  • “houses should be rationed,…”

    Jeez, not more government intervention please. It’s the lack of a proper FREE market, backed by a sound monetary system, that is responsible for this mess. What has the government done? Consistently put pressure on King et al. to lower rates which meant that people were sucked in.

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  • Techieman makes a good point. It’s only in Britain where we think BTL is such a bad idea – the French government subsidises it to encourage a healthy private rented sector.
    BTL is not the cause of the housing bubble, it’s a symptom. Britain has a very amateurish approach to business generally, and BTL is an ideal amateur money-making scheme for people who don’t know any better. Give ’em enough rope and they hang themselves.

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  • Landofconfusion says:

    I almost feel sorry for the people who brought while the prices were high. Now that prices are dropping and the cheap mortgage deals have gone they are really screwed. And then there’s those who brought a house as a ‘pension’…

    I’m so glad I’ve never voted Labour.

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  • Landofconfusion says:

    > 4. harold said…
    >
    > It’s the lack of a proper FREE market, backed by a sound monetary system, that is responsible for this mess.

    I don’t agree. It’s not the intervention by Liebour that’s the problem it’s their sheer incompetence and willingness to sacrifice long term stability for short term gain. And that’s not to mention the ineptitude of the FSA.

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  • Private renting wouldn’t be so bad if there was more security of tenure. I rent and I don’t like the idea that my landlord can kick me out with 2 months notice for no reason at all.

    As far as BTLers go I’m looking forward to all those future programs where poor BTL landlords bleat on about how they’ve lost their pension and will have to work until they drop. While conveniently forgeting to mention how they felt justified to price FTBs out of home ownership so they could make money out of them.

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  • Wage Slave – yes you allude to the pros and cons – e.g. pros -cost of maintenance in the hands of the private sector, supposedly lower Council Tax, more income tax, CGT. cons – private landlord more likely to be strict, no security of tenure. Effectively wasnt that though the very reason for the BTL private sector becoming prevalent. I mean when someone HAD security of tenure – even though for example they paid no rent for prolonged periods – private landlords would be a scarce commodity? I think long term that BTL will reside with the core of smart money and be part of society. The bubble bursts and there is a shift back to sustainable levels – based on a reasonable allocation between “personal” buyers and BTL / Private sector landlords. The shift back also provides the yields that BTL needs to make it sustainable.

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  • @techieman – slightly off topic but I’m hearing rumours this morning that because inflation is now becoming such an issue, there just may be a 0.25% rate RISE to try and deal with inflationary issues – because this is now widely being discussed as a possbility Brent Crude is now @ $98

    Your thoughts please?

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  • converted lurker says:

    a recent report sugested BTL was only responsible for 7% house price increases, nonsense IMHO as the stat fails to take into consideration the overall mania the UK got wrapped up in over the past 5 years..Bottom line 1 million BTL properties = 1 million less FTB opportunities. Shameful. Markets will squeeze these parasites, and in a delicious ironic turnaround those over supplied new build flate, built for the BTL market, will now be offered at knock down prices to FTBs. But here’s the rub, lenders are now beginning to refuse anything other than 25% deposits on some newbuild and disclude incentives, therefore they’ll have to slash by 40-50% to find an affordable level. Marvelous =:¬)

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  • Jack – wow that is off topic – I dont think there will be a rise, if not only because if there is one the MPC will look erm foolhardy, lose all credibility and the markets would take that badly (cant think of a time with cuts and then an increase unless we were at the end of the cycle – maybe someone would like to correct me though?).

    The structure for that increase isnt (yet) in the market either (in my view we go higher looking for 6200 -conservative i think – although i would say that since im long, and i know things have stalled a bit on the HBOS results!). I know people might say the MPC have already lost credibility but thats my view, for what its worth. So although Economically there may be an argument, politically (in the wider sense of the word- and maybe in the more literal sense) I dont think it will happen. But Jack please I dont hold myself out as an expert on these matters and was a liittle surprised by the FOMC emergency cut. Berny i think testifies today – so that may move the markets. Whats your view?

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  • ”…No its just a reflection of a bubble – Joe Public always sucked in at the top. You dont need to limit it – it will be self limiting via a deflating / bursting (depending on your definition). …”

    Explaining it does not make it legitimate; it’s an unstable mess. It should – and could – have been controlled to a degree.

    ”…You can’t legislates to limit house ownership to 2 houses per person. It is simply undemocratic. …”

    I disagree. Every family [should] have a right to a home. The needs of the BTL contingent should support that, NOT prevent it. Moreover, I would not prefer to reduce things to a mere word, which the US seems intent on redefining…depending on whether they like who they are talking about.

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  • @techieman – because this is off topic I’ll be brief and anyway basically agree with your thoughts – MPC would look very foolish and markets would (IMO) react adversely – however Gilt markets are suggesting a rise might be possible

    Your thoughts? do you get involved in this market?

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  • jack bit tied up right now – will revert later. Yes do look at the long end of the curve from time to time, used to trade it and short sterling alot, but when LIFFE was open outcry…

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  • hpwatcher – in a capitalist society that is controlled by market forces – i.e. our society – the market will ultimately decide. An individual has the right to make his or her own mistakes.(you may not want to be in a capitalist society but thats the reality).

    Now socially I agree – there really should be enough social housing so we dont need a BTL sector. But thats not where we are. Now IMO FTB would have been outpriced anyway as the credit/debt bubble reflected in increased asset prices – look at the affordability in the early 90s and there was no BTL then! Look at the bubbles in other places- BTL? – I agree with cyril, BTL is a symptom.

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  • @techieman – thanks for the reply – so as not to completely hijack this thread I’ll post a new heading from the BBC as oil has just gone to $102.08

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  • The argument that the ‘free’ market should and will correct the level of BTL and multiple ownership is WRONG for two reasons –

    There is no free market – just becuase some people call it such doesn’t make it so. A market is free when everyone participating has equal access to information and no advantages in terms of tax, advertising, media bias etc. This clearly isn’t the case, and never will be the case.

    This causes the second reason (and as such we know that the market is not free) which is a massive overshoot and huge bubble – in a truly ‘free’ market there would be cycles, but not the peak to the extent we have seen.

    These are peoples homes and the permanent transformation of our landscape we are talking about – not some abstract figures and graphs on a page. The majority of those affected are not willing participants in this market – they have invested a lifetime of money and work in a place to live, not an investment. An overshoot of the market as we have seen causes not only hardship (and in the most extreme cases, death) to these people, but a false ‘shortage’ and therefore overbuilding on green belts, destruction of the landscape and nature and resultant congestion, pollution, stress, flood risk and resentment overspilling into bigotry and in some cases violence.

    In other words, the permanent and massive damage is done before the market ‘corrects’. It is perhaps best to take this into account when lauding the wonder of the market.

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  • One question I do have – from another thread – is if building soc’s are now offering mortgages at 5.25% or 5.50% and the saving rates are around 6.50% – in the case of some, but no lower than 5.45% for most…..won’t they be making a loss??

    Are libor rates crucial here? OR will interest rates HAVE to go above the saving rates so the banks can make money?

    In the last few years, the saving rate has almost always been a lot lower than the intrest rate….anybody know?

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  • shipbuilder – Isnt it time we taught people to recognise bubbles and the items to which you refer in schools? I am not “lauding” the market, i just think people should understand how it affects them. I would like prices to be stable and i think we all agree that bubbles are NOT a good thing, but who causes them and how are they caused? Are they not caused by a combination of people herding and the credit bubble? Shouldnt people try to get an understanding of what the determinants of the market are , free or otherwise?

    When you say the majority are not willing participants I am surprised. The majority of people have thought they have benefitted financially at least . If they have leveraged they have made money from their purchases MEW’d to increase their standard of living etc. Now we may think that that is illusory, but that is their reality. Which people are we talking about? If you mean people that have indebted themselves, to get on the “ladder”, then although i have some sympathy surely they have to take some responsibility?

    Lastly History is littered with bubbles and the bursting of them. Most of them are characterised by greed, but i do grant you in this case when the asset class is housing there are social implications. However this will happen again until and if we change the whole system of the free market, so UNLESS that changes i just advocate trying to understand it.

    So in summary your view is we should never have got here – no disagreement from here. But now we ARE where we are – what happens next? Dont you want a crash / correction to make places affordable so people dont get into so much debt??

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  • Techieman

    I would love to see asset bubbles, cycles and so forth and their implications taught at school. However seeing that most of the nations education is controlled by the government, and that the government has sat atop this asset bubble and used it for it’s own ends for ten years now, and that future governments will continue to do so, I think that this is unlikely.

    A parallel education system that teaches kids and people of all ages the things that they really need to know (and not what the government wants them to know) would be a great thing in my opinion.

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  • ”Isnt it time we taught people to recognise bubbles and the items to which you refer in schools?”

    Not sure that is relevant. Bubbles almost, always come about due to access to credit. House prices should be linked to wages.

    In India, the government has a hand in determining house prices…to stop an absolute mess like this occuring.

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  • My god what a load of tripe you are all still talking about…

    What about the housing of council tenants they do not build council houses anymore the majority were sold to thier occupants. They need to house people and they now rely on private landlords to house them. I have 80% of my portfoilio handed over to the council to house council tenants i have all the guarantees under the sun and very very good rates and yields, i dont see what the fuss is about? tell me why you think housing is overpriced? i make money every month for every property i own if property fell 50% i still make monthly profit every single month… Did you also know the government is making it illegal to house people in bed & breakfast and hotels etc., yes its going to be LAW by end of 2009. Local authorities are now taking action and are offering very good rents to take properties away from private landlords, demand for rented accomodation will increase further rents will increase and the market will slowly be taken over by investors etc.

    You lot sit on the sidelines and watch as your rent increases year on year whilst my interest payments stay fixed.

    You are all wearing blinkers..the government will not allow property prices to crash. i have over 300 properties with council tenants in if i and others alike decided enough was enough and sold up because there were no profits to be made the nation would be full of jobless/homeless people.

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  • The X Y Y Man says:

    Fools.

    Money.

    Parted…

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  • HP watcher,

    You obviously need some education in the banking world, it does not work like that, if thats your understanding of how banks make a profit then its no wonder you do not understand the mechanics of the housing market, governments and the economy etc. I guess the majority of the people on this site are in the same boat hence why its so funny coming here and seeing all the desperate people talking tripe.

    thanks for clarifying your stupidity 🙂

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  • things how to get rich quick will never be taught in schools . it is the secret arcana of the PTB. they want us to stay ignorant!

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  • hpwatcher said:-

    ”Isnt it time we taught people to recognise bubbles and the items to which you refer in schools?”

    its you that needs to be taught before recommending the teaching of others hehehehhahaha

    ive been reading through all your threads in the past, and its simple you have no real idea how anything works, please please stop advising people with bad bad drivel you know nothing about, it people like you that think theres going to be an almighty crash, but your justifications are incredulous…

    another great comment you make on shortages at the start of this blog, regardless if 1 person buys 10 properties you still have the same amount of houses to be lived in, you just havent got any common sense whatsoever… ive got a picture of you in my head a scrawny spotty teenager with a big [email protected] protruding out your forehead…

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  • Greenbay, hi – well someone has to rise to the bait:

    “i have over 300 properties with council tenants in if i and others alike decided enough was enough and sold up because there were no profits to be made the nation would be full of jobless/homeless people.”

    Why will the nation be full of homeless people if you sell up? Your houses/exhouses will still be occupied by someone.

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  • Techieman, I was simply countering the argument in the first few points – I want to see a correction, but the market should have been subject to regulation and legislation in the first place.
    Laissez-faire principles should not apply to housing becuase of the massive social implications and the fact that not all the participants in the market are willing investors (as opposed to the stock market) with the knowledge required. Why should they have that knowledge to buy a roof over their head? Yes people should be more aware of economics, but they should expect to be able to buy somewhere to live.
    Now food is going in the same direction becuase it is an ‘investment’. People could potentially be starving becuase a greedy westerners want a quick buck – disgusting.

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  • ontheotherhand says:

    shipbuilder,

    The other reason it is wrong to call the housing market ‘free’ is that it can’t be sold short unlike the stockmarket. If some equity is obviously overvalued a whole bunch of traders will sell it short and the price will correct down very quickly. Because of this, prices can move very fast in both directions. Houses cannot be sold short, however, and so the reversion to fundamentals (rental yield vs. holding costs and liquidity) is very slow, especially when all the VIs quote annual price figures. This means Jo Average feels housing is safer than stock markets, and if it has been going up, it will go up for ever, right?

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  • shipbuilder – I think we basically agree. all I am saying is this. If i want to make the biggest investment of my life, or the biggest cost of my life (depending on how you look at it) then surely I should spend some time researching what I am buying where I am buying it and what price I am paying for it? That is just common sense to me. Some people spend hours watching Corrie instead :-). Relative to general speculation (which i think is where you are headed here), you need to look at the Commitment of Traders reports where you will find that the market is not small speculators versus large speculators but generally large speculators versus Commercials. In other words the speculators take the other side from the hedging commercials. Its speculators that provide the liquidity to allow the commercials to hedge.

    Greenbay – I assume you are advocating a course in parasitical manipulation of the peeps at University? For my education could you explain how Banking works because i wanted to make sure I wasnt getting it wrong.? Cheers. I like your posts actually, great fun.

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  • ‘I have 80% of my portfoilio handed over to the council to house council tenants i have all the guarantees under the sun and very very good rates and yields, i dont see what the fuss is about?’

    Sounds great. The only thing is in my area 2 bed flat council rents are about £500pm and 2 bed flat private rents are about £750pm. So who’s taking the hit for the £250 difference ?
    I’m off down to my local town hall tomorrow !

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