Tuesday, July 8, 2008

Credit crunch leaves homeowners with no way out

Deadlock in the auction room

For this desperate homeowner the view was not a welcome one - there were no bidders for his flat. Auctions across the country reveal the same picture with auctioneers and vendors deadlocked. The former are telling the latter that if they want to sell their houses, they have to lower their prices significantly, but sellers can't afford to do it. Auctioneer Andrew Binstock said, "I'm telling people if they think their property's worth £100,000, then put it up for £70,000 or £80,000." Charles Smailes, auctioneer at Feather Smailes & Scales in Harrogate, said: "Demand has dropped to nothing. It's like the property market has fallen off a cliff."

Posted by little professor @ 08:10 AM (2290 views)
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26 thoughts on “Credit crunch leaves homeowners with no way out

  • I think the insanity of people’s actions, in buying, is beginning to hit them.

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  • it_is_going_with_a_bang says:

    Well all I can say is ….

    “The Shoe is on the other foot”

    … and it’s a really good fit…

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  • This is pobably the important bit:-

    ”…Oliver Gilmartin, senior economist at RICS, said: “We forecast repossessions to increase by 50% by the end of the year. Therefore, lots should increase but we expect success rates to decrease because of funding issues due to lack of available mortgages on the market.”…”

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  • ”…Well all I can say is ….

    “The Shoe is on the other foot”

    … and it’s a really good fit……”’

    Me too….though it’s taken a bloody long time.

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  • The article shows the size of the gulf between the nationwide figures, which still cause concern to mainstream reporters, and the reality of the situation.
    I held on when people were borrowing like mad, suffered the pitying smiles and the veiled accusation of lack of ambition.
    Now my mortgage on my 3 bed house in a notsobad location would pay the rent on a studio flat in a crack den block of flats.

    Yes, the shoe is on the other foot!
    Time to get saving methinks!

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  • “Let’s start at 50, anyone for 50?” asks the auctioneer. The packed room remains silent until one angry man runs breathlessly through the crowd and stops the proceedings in their tracks. “No,” he shouts. “I told you I can’t take less than 55.”

    Well that’s just stupidity … The auctioneer was to blame here. He should have pointed out he meant £50, not £50k. I think the auctioneer should be made to that angry man his lost fiver.

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  • EI Group’s stats are looking quite terrible – especially considering we are still in the denial phase and not yet the despair stage of the crash.

    For the 3 months ending May 2008, on an annual basis, the number of residential lots offered is up 3.6% whilst the percentage sold is down 20% and the money raised down 35%.

    http://www.eigroup.co.uk/newsletters/2008/June.html

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  • Entirely predictable – who wants buy a property now, when they are likely to be cheaper in a year’s time?

    Yet this is the factor that so many ‘experts’ – not all of them with vested interests – failed to see.

    When property prices are rising, people chase the market; either because they are hoping to secure an investment, and make a capital gain, or because they are scared that if they don’t act quickly, they will be unable to afford a home. At the same time, those who own an excess of property, but have no immediate need of funds, elect not to sell.

    But when prices are falling, people run away, and those who have more property than they need, try to offload.

    The problem is compounded by the mortgage lenders. With or without a credit crunch, mortgage lenders will not want to offer high LTV’s in a falling market, thereby excluding the many would-be FTB’s who have no savings.

    When the dust settles, government must recognise the need for mortgage regulation. If there had been statutory maximum LTV’s and income multiples, the property bubble would not have inflated to the same extent, and the mortgage lenders would be in a position to deal with the current credit crisis, without having to visit it on their customers to such an extent.

    It also needs to be acknowledged that the BTL party was an accident waiting to happen from the outset. Anyone with half a brain cell could see that an investment scheme that depended on house prices rising faster than wages would eventually come unstuck. Moreover, the subject matter of the investment was too socially important to be used as a speculative toy.

    This upset is looking very big, and it won’t be forgotton in a hurry. The compliments Gordon Brown enjoyed while chancellor will be largely forgotton by the historians. He will ultimately be remembered as the worst chancellor of all time.

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  • “Demand has dropped to nothing. It’s like the property market has fallen off a cliff.”

    And so it has – what a surprise, not. Who wants to catch a falling dagger?

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  • Stevie Dee says:

    These buffoons deserve nothing less. After the market corrects, the government (possibly conservative) should bring in policies on curbing Buy-To-Let, rationing properties, meaning heavy taxation on anyone purchasing second homes. And for landlords, a license, stricter regulations, accredition fees for these “slave boat merchants”.

    They should have come to House Price Crash!!!

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  • Rental John says:

    The four horses of the house price crash – Denial, Fear, Capitulation, and Despair

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  • UT – “Moreover, the subject matter of the investment was too socially important to be used as a speculative toy”. I am more interested in the regulation – not just of the mortgage market, although i tend to agree relative to sky-high LTVs on the basis of protecting people from themselves, but also the rental market.

    BTL is not a bad thing of itself, but if (as is obvious) its supposed to be a replacement model to social housing then it should have some of the safeguards that would have come with that social housing. In switzerland for example there is a cap (by use of a formula) on rental increases (which i think can go up and down). The government should look at Rental markets in other countries and come up with a plan – which may well be on a hybrid social / private basis.

    Leave the speculation to the spivs – there should be a proper regulated rental sector – that should provide some incentive in the form of a premium over costs to the landlord.

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  • Beartil2010 says:

    @ 7. Uncle tom

    I agree completely – I do njot understand why these ‘experts’ cannot see that people, whilst not necessarily smart, are not complete idiots – they will not buy when they know 100% that it is going to be a loss.

    I think it should be remembred that maximum LTV ratios by legislation not only protect the consumer from the bubble formation, they protect the institutions as well – if all these lenders had greater capital cushions they would be in a better position to weather the storm. Thus this also protects the economy and Britain as a whole. Sounds like a good idea to me.

    Back to saving – as someone else said on another post, Denmark – happiest country in the world – no debt!

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  • Don’t you just love it! I was at the Father Smailes and Scales auction mention in the Guardian’s article. Eight out of ten lots were unsold, two had no bids at all, one of the unsold is now listed as sold afterwards. During the auction Mr Smailes (a genuinely charming man running an excellent business), said “the Harrogate property market has never crashed in my 40 years experience and I don’t see why it should now”. He seems to have changed his tune because today he’s quoted sating “the market has fallen off a cliff”. I admire Mr Smailes because he’s great at what he does, he’s a really nice chap and he has such a honest turn of phrase. His next auction is July 24th and I just cancelled my holiday so I don’t miss it.

    You’ll hate me for this but I’m a one-project-at-a-time developer. I sold my last one at the beginning of 2007 and was looking for another site but even I could see that things had just got ridiculous. Value is what people will pay but people were buying themselves into negative equity. It was the same in BTL. In the last few years BTL was only for people who couldn’t add up. Why they would now express surprise and indignation at losing out amazes me. The correction has been long overdue. If we see a load of Neo-Rachmans losing their shirts as we go then great, bring it on.

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  • This is great news I think it is very significant.
    Once the repossessions start rolling in the Banks will just take whatever they can get for them. They won’t be screaming “55 at the least” They will just want to liquidate.
    Probably at the moment most sellers are “distressd” private sellers

    I had a funny call from Foxtons yesterday about a flat I viewed at 450k in March. I told them the most I would offer would be 300k She wasn’t shocked and said she would get back to me. I have no intention of buying even for that but it is a good idea to destroy the psyche of Foxtons types so they also start driving prices down. After all 3% of 250 is better than 0% of 450!

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  • mark wadsworth says:

    Techieman, there is no need to regulate rents, there has been absolutely no ‘rent bubble’ in tandem with ‘house price bubble’.

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  • techie,

    I have no problem with the private rental sector, indeed, I would not be sorry if publicly owned social housing ceased to exist altogether – the private sector will always be more efficient.

    However, I do have a problem with people who become landlords using borrowed cash, with the expectation of profiting from capital growth rather than rental income. Why? – not because I oppose venture capitalism, but because instability in the housing market and excessive house prices are fundamentally undesirable.

    I agree that the rental sector could be better regulated. Landlords need to be able to raise rents to keep pace with inflation, and to be able to deal quickly and effectively with tenants who fail to pay the rent or misbehave. Tenants, on the other hand, need more security of tenure, and protection against excessive rent increases.

    It would not be unreasonable to have open-ended tenancies, and to require a landlord who wants possession of a tenanted house to give three months rent-free notice; to compensate the tenant for the cost of relocation.

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  • if the american market is anything to go by
    expect a 50% drop in 12 months

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  • The stand-off in the auction room is reflected in the falling normal sales. The popular indices from Halifax/Nationwide/HMLR only show sales which have actually gone through. There’s no mechanism for calculating the spread between the asking price and the offering price. It’s only a matter of time before the sellers blink first and cut their prices.

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  • voiceofreason says:

    @12 and @13, yes, back of an envelope calculations of rental yields equating with interest payments puts about a 50% drop on the table.

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  • 11. uncle tom said…
    Landlords need to be able to raise rents to keep pace with inflation

    I disagree. They want inflation to wear away the value of the debt, but with an ever increasing rental income? And most of the dirty *(&$!! keep the interest earnt on deposits, which they rarely give back in full. This is the problem with a private rental sector. They are in it for money. They have a VI in keeping house prices high as possible a) for their own capital gain b) to force as many people as possible into rented accomodation where they can charge the maximum rent because it still isn’t feasible for them (the renters) to buy.

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  • See the full headline to this article. A major reason for the market’s freezing up and keeping a (very weak and temporary) floor on house prices is that sellers can’t afford to sell.

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  • inbreda – you are taking UTs comments out of context, and you are looking at the market as it is now and extrapolating that into the future. What I (I cant speak for UT) am saying is that if you have no public housing stock to rent you either have NO rental sector or a sector that is provided for by the private landlords. Now if you have a public sector rent people will complain that their taxes are being used to provide homes for others, leaving to one side improvement grants etc.

    Of course why would anyone want to be a landlord? There must be an incentive for them to become landlords. However that incentive must encourage “good” landlords over bad. That means that the security of tenure must be in place for a “good” tennant and the tennant must be incentivised to be “good”. So yes i am sorry but to have a rental sector that is efficient and which fulfills a viable long term alternative to a non -existent public sector (thank Mags for that one by the way) you must give landlords a profit. Having said that yes its a risk business so there wouldnt be a guaranteed profit – eg you wouldnt guarantee the property prices so you could have capital losses.

    Mark – i think you missed the point – i wasnt really talking about prices, although my example was just trying to show we need a stable rental sector and as a country we need to grow up and put in place safeguards so that renters are treated with as much respect as owners. My example was that if there is a formula for rent increases / decreases everybody knows where they stand, including teh landlords.

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  • icarus @ 12:41PM,

    Who are these sellers who “can’t afford to sell”, are they people in negative equity? How will they cope when the market falls even further – bankruptcy?

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  • Mark – in any case there has been no bubble in rents – but there may be in the future if we dont provide some form of “fair” regulation and if rents were economic in the “begining” (95 etc.) then the yields would not have encouraged any BTLrs in the firstplace stoking the bubble.

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  • drewster @ 1.04pm Presumably it’s the classic dilemma in a losing gambling situation (do I chase my losses) or a sliding market (do I take a certain loss now or a larger, but not so certain, loss later?). We can sit here and say the market will go down but somebody in the situation may see things differently.

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