Sunday, September 28, 2008

Buy-to-let: a disaster just about to happen

Britain suffering from a buy-to-let blowout

Unusually, an article about the UK housing market. How bad things are looking and how dependent Bradford & Bingley is on buy-to-let mortgages.

Posted by monty032 @ 09:28 AM (2614 views)
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17 thoughts on “Buy-to-let: a disaster just about to happen

  • From the article – “Jonathan Pierce, analyst at Credit Suisse, said B&B’s riskier buy-to-let lending policies made it unattractive to rescue bidders, even at a knock-down price. “We doubt any major bank will want exposure to a £40bn mortgage portfolio with arrears almost double the industry average and where over 40 per cent of loans will be in negative equity if house prices fall 30 per cent peak-to-trough.”

    Government solution offload £40bn mortgage portfolio onto the UK tax payer and let an.other bank pick up the responsible savers (approx £20bn) – criminal, absoltuely criminal bearing in mind they have had more than a year since the NR debacle to sort this out.

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  • May I repost the following: I think this is the right thing to do.
    —————————————————————————-
    This institution is one of the culprits who caused or at least severely deteriorated the property bubble by promoting BTL mortgages, as a specialist. This was a wrong strategy morally, socially and economically. If NR’s business model was wrong, B&B’s was the worst, and must be punished as such. Now that we have 100% financial protection for savings up to GBP35,000 for the savers, we had better allow this particular firm to go, so that it can rest in peace. In the meantime, reserve for the financial protection scheme must be enhanced by collecting extra premiums from all banks and BSs, to prepare against the next.

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  • “How Britain’s new amateur property magnates will navigate the credit crunch isn’t clear because a buy-to-let market of this scale has never been tested in a recession before.”

    I think people who contribute to this site have a pretty good idea about how these BTL property magnates will sink!

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  • BTLer: Today’s Property Tycoon, Tomorow’s Property Bafoon.

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  • planning4acrash says:

    Yup. The reposessions are yet to begin. My prayers now go out to all those suckered in, who will be villified by the media whilst they suffer, for doing 1/1000th of what the international financiers have done. Lets face it. Had hapless BTL crowd not piled in, Local Authorities and Housing Corporations would have taken up the baton. Oh, they did! If the ponzi scheme and misery it causes is to continue, it will be via socialism or corporatism. Socialism is less likely, given how so many authorities went bankcrupt or nearly in the last couple of decades by taking on such things, so expect Corporatism. Housing Corporations working on cahoots with central government to get squillions from the big banks, via the BOE.

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  • At the end of the article there is a quote: ‘Buy-to-let investors who can stay in for the medium to long term should see a return’.

    This got me wondering. There must be a price (expressed as a yield) that you can buy at, where you will never see a return, no matter how long you wait.

    Has anyone ever estimated this ‘yield of no return’? According to the back of my envelope, I come up with a figure of about 2-3% yield if house prices, inflation and interest rates had remained frozen at Aug 2007 levels. There must be quite a few BTLers who did actually buy at this level of yield, or worse. They would never, ever have made money unless they had been able to find a greater fool to buy their tulips… err, I mean houses.

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  • “Buy-to-let investors, which account for the majority of customers at Bradford & Bingley, have changed the shape of Britain’s property market but many of them, especially so-called “dinner-party dabblers”, are now among the most vulnerable to the credit crunch. Figures from the Council of Mortgage Lenders show that more than 12,000 buy-to-let mortgages were three or more months in arrears as falling prices and an over-supply of flats in soul-less developments leave some inexperienced landlords in negative equity.”

    Does anyone have any symphathy for these vultures? They took a gamble and have now lost big time. Most of them who piled in from 05 onwards obviously are not very bright.The fact that their greed created this huge bubble and in the process priced out a generation of honest, hard working people, makes me sick.
    They will now get their just reward, hopefully the loss of their “property empires” and also if there is any justice their own homes as well.
    I have zero symphathy for these lazy parasites.

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  • “dinner-party dabblers” LOL
    Dabbling in Columbia’s Finest probably.

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  • It’s a bit rich for the ARLA guy to scorn the dabblers, when his own website used to present a highly misleading guidance section for newbies, that completely ignored voids and the myriad of other expenses, simply mentioning the need to allow for ‘minor repairs’..

    ~~~

    The great buy to let mortgage default has barely begun. A high proportion of the 1m BTL loans are in portfolios of ten or more properties. Aside from being financially wiped out from falling house prices, the great majority of these portfolio holders are not netting enough rent to cover their loans.

    When the crash is over, I expect residential gross yields to settle at 6-7% of the property’s sustainable value; higher in yield terms than before, but in actual cash value a drop of 15-25%

    This will crucify those BTLers who try to ride out the storm.

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  • Agree with uncle tom – those with a portfolio of say 10 properties probably started out with 1 or 2 and withdrew the equity to act as a deposit on property number 3 – so on and so forth (onwards and upwards) – but the reverse is also true in so much as you only need a rental void on one property (risk of mortgage default) to poentially “crash” the rest.

    I’d be interested to see if GREENBAY would like to enter the debate to tell us we are again missing something here.

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  • Demand will remain solid if even prices fall (or ‘suffer’ a fall, as Bolton King puts it). This is economic hokum unless he’s talking about the kind of demand a shop assistant has for a luxury yacht, in which case it’s meaningless.

    ‘BTL investors should see a return in the medium term’. Is there a financial instrument which enables me to bring forward that return and cash in next year at a yield that beats a savings account?

    JU – insolvent banks and building societies can’t afford the kind of premia required. Even if they could the money would have to be put to work – and could get lost.

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  • I bet GREENBAY is PACKING it

    har har har

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  • mark wadsworth says:

    I was pleased to see David Cameron (and I am not his biggest fan, not by a long chalk) say much the same as what JU says above on the telly this morning.

    Summary on my blog.

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  • japanese uncle says:

    icarus:

    Exorbitant bonuses and salaries paid to their executives across the banking sector particularly in the US/UK, must be confiscated by the respective state (which is totally justifiable considering this is an exceptional emergency as wiseman Bush and other tycoons are claimouring), to finance the additional premiums.

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  • JU – exorbitant bonuses and salaries are one reason that banks are skint. Agreed – bonuses should be held in escrow and clawed back if bank executives’ investments are later shown to be unsustainable.

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  • I think the disection & analysis of the B&B disaster will not assist NuLab.

    Lots of journalists will begin to ask why this happened. Asset Bubbles, no more Boom & Bust, weak regulation. I’m glad it is all coming out now.

    I feel a bit sorry for loyal cashiers and junior staff at B&B and the Halifax. On the brighter side, I think business models, cover and gearing will feature more in the next round of business studies exams!

    The lack of house buyers should wipe out a few estate agents and bonus grabbing IFAs in the high street.

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  • Autopilotengage says:

    I am outraged that we tax-payers now provide mortgages for BTLetters. I hope we’ll be whacking their rates right up!

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