Saturday, November 15, 2008

Times takes over the comedy club

First-time buyers may lose race to investors

First-time buyers hoping that falls in house prices will mean they finally make it on to the housing ladder may be disappointed — because the size of deposit required by lenders means that by the time first-timers have saved up, buy-to-let investors with big deposits will have snapped up all the bargains. Savills said that it did not expect mortgage availability to improve for first-time buyers until at least 2010, by which time, it predicts that house prices will be on their way back up, meaning that would-be homeowners could miss out on the chance to secure their first home at a good price.

Posted by little professor @ 01:08 AM (1573 views)
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16 thoughts on “Times takes over the comedy club

  • “Buy to let investors with big deposits” ????

    Where are these magic investors going to come from? Where will they get their big deposits from? Existing BTL investors are seeing their LTV margins (and hence their real money) eroded day by day. People with money in the stockmarket are being hammered. High earners have all been sacked from their jobs at investment banks. When the money’s gone, it’s gone. There won’t be any big deposits for investors to buy up houses.

    Let’s look at some hard figures. At the height of the boom, a £200k house could be bought with £10k deposit (5% LTV). If prices crash 50% and LTV ratios pull back to 25% for BTL buyers, an average £100k house needs a £25k deposit. An investor who previously had £100k to invest could have bought ten houses; now he can only buy four houses. That wipes out 60% of purchases.
    Next we’ll assume that the investor has lost money somewhere in the recent turmoil; doesn’t matter whether it’s in property, in shares, or in an Icelandic bank. The average loss for all investors could be 25% (that’s a conservative estimate – the FTSE100 is down over 33% on its peak, emerging markets are even worse). So that brings down the number of houses from four to three.
    Next consider alternative investments. In 2010 or 2011, a savvy investor will look at the world and think “Hey I have £100k to stash, where looks like a good bet?” The chances are, Britain will be pretty low on their list by that time.
    Finally consider the banks. By the time this mess is cleared, banks won’t give BTL mortgages to anyone. Just look at Japan: there are no deep-pocketed BTL investors there despite 0% interest rates. Why not? Because Japanese banks won’t lend to speculators any more. With any luck the government will legislate to prevent another Northern Rock, and housing speculation will be clamped down.

    So no, crazy people of the Times’ property section, buy-to-let investors aren’t going to screw us this time.

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  • What a terrible article by The Times. That newspaper goes lower and lower in my estimation.

    The average house price will be around 50% lower by the time prices hit their bottom. That’s the average. Every house price in UK will be a bargain in comparison to 2007 prices. In reality, a 50% fall will actually represent good value rather than a “bargain”. To get a bargain, we’d need to see a fall of 60-70% from the peak. That will happen to some properties where sellers are forced and perhaps “investors” will be first to learn about these properties because they are insiders. But we will all be able to afford good value homes in a few years time.

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  • Drewster I think the author is looking to foreign investors capitalising on the devalued pound. There has been a lot of talk recently of US and Euro investment in the UK, as everything from French goods sold on Oxford Street to housing and autos is significantly cheaper in the UK now than it was this time last year. All of this depends on those using dollars and euros still having the money to spend, but rest assured there will be a large number of foreign investors looking to invest in the UK, especially when the other central banks drop their rates even further. IMHO. I hope. however that I am wrong, and they all stay away, so that I will be able to pick up a nice semi in southwest London for the same price as a one bed flat at the moment, by middle 2009.

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  • Sneaked into the BTL show at the NEC yesterday. Very poorly attended. All these people looking to use a basic human need to make easy money. Looked like a shiver of circling sharks to me.

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  • A typical ‘amateur’ BTL is a home owner with a large amount of equity in their own house. Today, these people can borrow at 3.99% – so if they can find a 200 000 flat and rent it out for 700 a month or more thay are in profit. Plus they pocket any long term capital growth. You may scoff but where else would you invest ? Stocks – where half your gains are eaten up by fees ? Gold ?

    This is why further falls will be limited – there is a floor to the market.

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  • Blah blah blah! What a waste of paper and ink and trees the Times has become.

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  • What Drewster says.

    Luckyjim – that’s fine in theory, but is it happening? Nope. Thought not.

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  • @luckyjim,
    You are making a false assumption by basing your yield on the purchase price and -ignoring- an additional source of capital loss. Should we have a deflationary recession then a yield of 3.99% does look attractive, but it will be neatly cancelled out by ongoing capital losses. Don’t forget that there is a capital loss on their original home to consider. Your argument seems circular, in an environment which itself depends on ongoing capital losses (deflation) then a yield of 3.99% looks good. For a bond yes, because you get your original capital back, but for a house no.
    Basically any gains are ultimately fake because of the losses against the BTL’s original equity in their nearly owned home. Or to put it another way, I can get a 9K profit on a BTL property but only in a situation where I lose 10K on my own property. I suppose you could argue that the original property is a fixed element. It isn’t though really hence the wisdom of those who STR.

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  • 2008 : Original home worth 200K

    Embark on cunning BTL plan.
    Cook for a decade of housing losses.

    2018: Original home worth 100K + BTL property worth 50K.

    I suppose I meant to say it doesn’t work because all the while your NET worth is going down.

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  • @Luckyjim

    I’m sure there is some truth in what you are saying about BTL landlords who bought in early enough and got their calculations right however I have two observations to make:
    1) 2010 looks a bit early for a recovery. I’m calling it 2011 to 2012 before the worst is over. When prices start rising again is altogether different question.
    2) Amateur hour is over. I don’t expect the banks to go back to the easy lending we saw in the past – just look at how the number of BTL products has shrunk. The banks won’t give BTL loans without proper business plans.

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  • “Savills said that it did not expect mortgage availability to improve for first-time buyers until at least 2010, by which time, it predicts that house prices will be on their way back up”

    Typical estate agent spin – trying to get the fear of missing out into people’s minds.

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  • “bleak prediction” by Savills, desperate and groundless ramping more like

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  • Wadsworth it IS happening. Who is snapping up these flats at auction ?

    Stillthinking, yes there is an assumption that there is an underlying trend in house prices – which most people seem to think is 4 x average incomes. There is also an assumption that the trend is upwards because the economy (and incomes) will continue to grow in the long term. Remember, we are talking about how BTLs investor think. New BTL investors will invest when they believe numbers are in their favour. First time buyers are at a disadvantage unless the government intervenes to make BTL less attractive.

    Quiteguy – I think the days of banks lending millions to housewives so that they can buy half-a-dozen btl properties are indeed over. But there are plenty of people with cash and/or equity which allows them to borrow at a low rate.

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  • george monsoon says:

    Can we have a database with all the removed comments, for those of us that get puerile enjoyment from seeing someone crack..

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  • I wouldn’t have thought it was a good idea to use the equity in your home to finance a BTL – you can’t offset interest against the rental income.

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  • Tenyearstogetmymoneyback says:

    Stillthinking @ 10

    Great comment but you forgot to add

    Outstanding mortgages £175K 🙂

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