Friday, April 3, 2009

Margin Call!!!

Borrowers forced to pay down buy-to-let loans

Lenders are now forcing professional buy-to-let investors to inject large cash sums into their mortgages, as sharp falls in house prices have eroded the equity in their properties. Agents said some banks were becoming increasingly nervous as the drop in house prices meant loans they provided two or three years ago were now too large relative to the value of the property. Owners of multi-million pound portfolios have been ordered by banks to top up the equity in their properties by paying off up to 20% of the outstanding mortgage - even if they were not in any breach of their financial obligations.

Posted by little professor @ 07:43 PM (3051 views)
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23 thoughts on “Margin Call!!!

  • I believe this is exactly the case with our landlord. He is a long term BTL’er who has, no doubt, been expanding his portfolio during the boom years. Late 2007 we had a valuation on the house we rent, we presumed for a remortgage. A couple of months ago another valuation was carried out. My partner and myself speculated then that the bank was the bank making a margin call on one or more of the many properties our sharky landlord owns. I’m absolutely convinced of it!

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  • bidin'matime says:

    Anyone heard how the Wilsons from Ashford are getting on?

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  • Dingleberry says:

    ‘She pointed out that this clause existed in buy-to-let loans for large property portfolios but tended not to be applied to mainstream, lower value mortgages. Banks are therefore unlikely to be able to make similar calls on borrowers with loans on their own homes.’

    That’s clearly intended as a soothing sop for BTLers who don’t have huge portfolios, but look again. Borrowers with loans ‘on their own homes’ clearly aren’t BTLers, who have loans on their second (third, fourth and so on) properties. The whole point of BTL was that people bought property other than ‘their own homes’ to make money out of. So, this could theoretically happen to ANY BTLer.

    Posters on housepricecrash.co.uk saw this coming a long time back. Not surprised that it’s finally happening.

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  • Henryweston says:

    This is exellent news, it should help break up a few ‘property portfolios’

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  • Paddles will be opening the Shampers.

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  • Nice find, LP!

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  • So the ‘margin calls’ are starting to trickle through. Sweet.

    Here’s a reminder of one of the first hints this was coming, from Confused76, almost exactly a year ago:
    http://www.housepricecrash.co.uk/newsblog/2008/04/blog-this-is-huge-btl-will-have-to-inject-extra-capital-into-their-homes-under-an-obscure-clause-in-their-mortgage-contracts-12164.php

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  • gone-to-colombia says:

    No sympathy for the BTL borrowers, but the banks that once fed from the pig trough and now feeding from the pig’s arses. Banks, don’t you just love em!?

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  • Absolutely incredible news.

    Come on now,I’ve been harping on about this for ages.

    Tips and Icebergs spring to mind.

    What a wonderful Friday, I knew I was right.

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  • Quiet Guy

    Are you a librarian.

    Well done for keeping a note of that, wish I had. Lovely reading back over the old posts.

    Dingleberry

    Barclays say they”ll only pursue if it looks as though people may have difficulty furnishing they’re repayments.
    A bit late by then in my opinion.

    Also whilst you mention a BTLers own home, that is the only place likely to have any equity now, so in actual fact whilst they may not be after that directly, where else is a BTLer likely to get 5 or even 6 figure sums from ?

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  • Let’s be realistic here – if someone borrowed money to buy rental properties, it would normally be because they didn’t have the cash to buy them outright..

    – OK, there will be a few dipsticks who wanted to get into BTL without cashing in their other investments, but they will be the exception, rather than the rule, and if they were convinced they could make better returns on investments than the interest they had to pay on the mortgages, it is likely they were playing fast and loose on the investment front, and have now lost their shirt..

    In other words, the lenders can attempt to make a margin call; but I very much doubt they’ll receive much cash…

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  • Btl Investor says:

    This is excellent news! Under the terms of my fixed mortgages, I have only been able to pay off 10% per year without penalty. Over the last two years I have managed to move the maximum I am allowed from my savings accounts (Earning sod all interest now) into my property portfolio with interest rates hovering around 5.5% on each property. If they open the doors to allowing me to pay off much more of the loan (20% plus), I will be laughing. This will also lower my monthly repayments giving me more monthly profit. Happy days, oh happy days. 🙂

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  • UT

    The banks are getting into position, they know how far things are going down and that the sooner they repo a portfolio, the sooner they can get it on the market to retrieve their cash.
    Maybe some BTLers will have equity in their main residence and ‘being in it for the long term’ might use that. The banks will take it as a softener. Then be back for more in another 6 months.

    Those that can’t come up with any cash will obviously show themselves up as vulnerable. There maybe a bit of poker face involved, but I think the banks are using this as a softener for what is about to come.

    If we have to go to the IMF (which now looks likely) then I assume (maybe incorrectly) that interest rates would have to rise (as I assume the IMF wants to be paid back with a currency of similar value to when it was leant).

    Anyway a rise in interest rates I think would then finish off the BTLers, but also really make everyone else re-evaluate property purchase.

    Just a theory.

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  • honest valuer says:

    This will finish the likes of the Wilsons off. I am reliably informed that they are 85% geared on their whole portfolio including the house they live in – and these are 2006/2207 values! 700+ houses coming onto the market sometime soon in Kent!

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  • I must admit I didn’t expect the banks to enforce the margin call clauses on BTL. After all, by calling margins, they force BTLers to sell up – which in turn will depress prices. Lower prices = more margin calls = a downward spiral. How did the banks not foresee this fairly logical consequence?

    @honest valuer, I seem to recall reading that the Wilsons were 85% geared too – but I can’t find a source for this fact. Can you?

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  • honest valuer says:

    drewster. – inside information! Apparently they are already contemplating selling up – two years too late. Mr Wilson is truly a Maxwellesque type figure and soon all will be revealed!

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  • Drewster

    We had the discussion here on your very point.

    I recall one conclusion at least was that it ends up being a race to the bottom. The first bank to break gets the equity. Those sitting back and waiting will be the ones that will fail to recover any equity.

    My guess is that they’ll way up the situation. The massively over indebted like the Wilsons will give the banks the biggest headaches as I suspect they’ve borrowed all over the place. If no equity is recoverable at this stage they may well not take proceedings and just hope the rents keep covering the interest on the loans.

    I suspect the smaller ‘middle class’ BTLers are at the biggest threat as they are likely to cough up equity from their main residence, as opposed to the ‘Wilson’ type mentality of if you owe the bank 100,000 you have a problem but if you owe them 10,000 000 they have a problem.

    honest valuer

    I thought the Wilsons operated the standard 66% LTV, unless you’re inplying the fall in prices to date has reduced the portfolio LTV to 85%.

    To be honest I’d be surprised if you could cover the interest only element of loans @ 85%, particularly on such a large scale in a concentrated area where you may well have to pitch your rents at 5-10% below market value to keep ‘voids’ to a minimum.

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  • YES YES YES YES YES!!!!!!!!!!!

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  • BTL Investor @ 12

    I shouldn’t rise to it but can’t resist.

    Perhaps you’d be good enough to furnish us with a little more detail to open debate.

    Your LTV for starters would be insightful.

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  • As people have pointed out in the past is the so called business/economic cycle entirely manipulated after all? The banks use fractional reserve banking to lend people money out of thin air and create a boom and then stop giving out credit and call in existing loans and create a bust. The end result is a massive transfer of wealth from the people to the banks and the preservation of the pyramid of wealth with the masses deliberately kept at the bottom of the pyramid supporting a small number of useless and unproductive fraudsters above. It’s like a economic cull that is staged every decade or so.

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  • Maybe is better to sell the portfolio rather than being asked to provide 50% of equity later on. I have been reading that arround 500 000 of BTLs are defaulting so the banks got the message…

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  • Btl Investor says:

    19. str 2007
    I own my main home outright with aprox £240k of equity in it (And falling)
    I own my own business and even in these tough times, we are earning good money each month after tax & VAT.
    In 2005, 2006 & 2007, we bought 4 BTL properties for the long term. I.e. to provide us with a pension plan.
    Due to a progressive illness that will eventually prevent me from working, we decided to continue working hard for between 5 & 7 years and pay off as much of these properties as we can and retire while my health is still reasonable.
    Because we are locked into 5-year fixed deals, we are only able to pay off up to 10% per year and so far, we have paid off the maximum 10% on each of the 4-properties for the last 2-years, but we are still locked in until 2011 & 2012!
    Because we have already been reducing the values of these loans, I doubt they will ask me to pay anything, but it would be nice. I have the next installment sat in the bank right now waiting until the 5th of August (Start of the next mortgage year on 2-properties) so I can pay off some more.
    We are slightly different BTL investors than the norm, because we aim to pay them all off, rather than rely on capital growth then sell them on again when prices are higher. Our tenants know that it really is a long term let we are offering them.
    The rental income is already a grand a month more than our mortgage repayments, so even if we had a void period, it’s not going to wipe us out and even the value of our portfolio is not really a concern as we never intend to sell them.

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