Thursday, May 1, 2008

BoE warns BTL cannot cover investments costs- what a surprise

Bank of England sounds alarm on £5bn commericial property defaults

The BoE warned of on a £5bn-plus wave of real estate defaults which could engulf the financial sector before it has even recovered from the sub-prime crisis. Despite falls of more than 15pc in commercial property prices, banks have continued to pile into the sector and could now face significant losses of upto 10% of profits. The commercial market is in the midst of its biggest crash in more than a decade. However, banks have reported no major write-offs from the slump. The Bank warned this will not persist. The BoE also warned:- many buy-to-let investors are unable to cover their investment costs with rents and households could see their mortgage rates jump by as much as 2.5 percentage points as they are pushed onto expensive deals.

Posted by who stole my pension? @ 07:32 AM (620 views)
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3 thoughts on “BoE warns BTL cannot cover investments costs- what a surprise

  • good post..so its commercial too….property I rent has been losing £2,500 per month and they still have to add money to survive

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  • sold 2 rent 1 says:

    So the banks are massively exposed to the commercial property developers. If they stop lending them money then they will go bust. So the banks think they have got no choice but to lend the developers more.

    “throw good money after bad” is the expression we are looking for.

    When you owe the bank 1m its your problem
    When you owe the bank 100m its their problem

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  • sold 2 rent 1 says:

    “British banks have become highly reliant on commercial property. It accounts for 38pc of their lending to non-financial companies – double the total of a decade ago”

    It would be interesting to know what the percentage of TOTAL lending by banks is on commercial property.

    From Morgan Kelly (UCD) “Just before the Japanese bubble burst in late 1989, construction and property development had grown to a little over 25 per cent of bank lending”

    See full doc here.
    http://www.ucd.ie/economics/staff/mkelly/papers/solvency.pdf

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