Friday, Sep 25, 2009

Seems the Wilsons have done their maths.

Bloomberg.com: Landlord 'King' sells before rate rise slaughter

The Wilsons - Buy to Let 'Kings' are selling because they expect Landlord will be slaughtered over future interest rate rises.

Posted by will @ 10:49 AM (3154 views)
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40 Comments

1. Neil B said...

Correction - The Wilsons are selling because they know that house prices are about to plummet and they dont want to be left with Millions in negative equity.

Friday, September 25, 2009 11:04AM Report Comment
 

2. jack c said...

I listened to Mr Wilson on live radio recently (either BBC 4 or 5 from memory) and it became apparent (fair play to the interviewer) that the reduction in interest rates had kept him and his portfolio afloat - so I guess he has done the simple Maths and he needs to get out now before rates rise because one of those landlords that will get slaughtered (to use his words) is him !!

Friday, September 25, 2009 11:18AM Report Comment
 

3. mrmickey said...

It seems to me that the raising of interest rates will be the final coup de grade for the UK economy, most people just cannot live with interest rates much above zero, the economy is on life support even with rates this low. With Sterling now crumbling the end cannot be far off.

Friday, September 25, 2009 11:29AM Report Comment
 

4. Ken Derby said...

As they're in the 1000 rich list, why not just pay off what few morgages they must have and sit back and still take the rent? Or is it that their equity in these properties is about equal to their total mortgages held, and any futher fall in prices will result in their removal from the rich list.

Friday, September 25, 2009 11:34AM Report Comment
 

5. smugdog said...

I expect no upward movement in rates until well after May 2010. Now downwards, that's another story.

Friday, September 25, 2009 11:38AM Report Comment
 

6. Ken Derby said...

Mrmicky, what a one sided view you have. I know lots of old people who relied on their income from savings and dividends just to make ends meet, now all that has gone. As you say if interest rates stay this low for much longer, then for them the end cannot be far off.

Friday, September 25, 2009 11:43AM Report Comment
 

7. happy mondays said...

Why will interest rates rise ?

Friday, September 25, 2009 12:01PM Report Comment
 

8. Adarmo said...

to keep the pound from wrecking.

Friday, September 25, 2009 12:30PM Report Comment
 

9. need-a-crash said...

I actually agree with smugdog on this. We've all been saying that interest rate rises will bring about our hpc but obviously Mervyn and the Government know this as well, so they just won't raise rates! Even the Tories who oppose QE say they support ZIRP so even after the election I expect rates will stay low.

The result will more likely be a lost decade rather than a housepricecrash.

Friday, September 25, 2009 12:32PM Report Comment
 

10. Steve said...

This is what the tax-payer funded bailout has been all about - protecting risk-takers like the Wilsons.

Friday, September 25, 2009 12:33PM Report Comment
 

11. smugdog said...

"At any cost" we are informed "At any cost". Yes Happy Mondays, for what reasons would they raise rates? World Statesman of the Year no less, therefore he will do anything at any cost to keep his crown.

Friday, September 25, 2009 12:37PM Report Comment
 

12. mrflibble said...

Cannot see interest rates rising for a long time - it would prevent our zombie economy from lurching forward.

The last thing we need right now are mortgage holders getting out of their depth and ending up repossessed. You can have anything you want from Gordon's Shop Of Horrors but falling house prices isn't one of them I'm afraid.

Friday, September 25, 2009 12:40PM Report Comment
 

13. mark wadsworth said...

Hang about one second.

The government (whether Red or Blue Wing of Home-owners' party) can keep BoE deposit rates as low as it wants for ever, and no doubt they will do it.

This will protect people on Variable rates for as long as they are tied in. But that has little or nothing to do with actual interest rates paid by new borrowers or remortgagors or people whose cut price deal has ended (remembering that the rates for BTLers is even higher than for FTB's). We looked at some actual figures here recently that said as much.

So what this does is increase the wedge between sellers (who are under no immediate financial pressure to sell) and purchasers (who have to pay staggeringly high real interest rates if they want to buy) so the stalemate in the house buying and selling market will remain, and no doubt Rightmove will be advertising one million properties for sale in a year or two (rather than 650,000 as at today, which is approx. one year's sales = average time on market one year).

Friday, September 25, 2009 12:53PM Report Comment
 

14. mark wadsworth said...

Getting back to the original article, what sort of mug is going to buy from Mr & Mrs King? Certainly nobody who's read that article!

Friday, September 25, 2009 12:54PM Report Comment
 

15. chrisa said...

Most people on here believe that interest rates will not rise for quite some time (unless a currency crisis happens) because to do will result in a massive rise in mortgage holders in difficulty. The Boe and Brown know this. They will no doubt come up with every excuse not to raise rates for as long as they can. Fergus must be selling for another reason. He probably knows this is the end of the bull trap and massive falls are coming.

Friday, September 25, 2009 01:11PM Report Comment
 

16. Exiges said...

-- "what sort of mug is going to buy from Mr & Mrs King? Certainly nobody who's read that article!"

Someone who doesn't rely on mortgage rates.

Friday, September 25, 2009 01:13PM Report Comment
 

17. Sold My Soul To The Never Never Never said...

And which mug is going to pay an average of £257,000 per property for the Wilson's empire when they are selling in Ashford for £150,000 on Rightmove?

See. I can do Maths too!!

Friday, September 25, 2009 01:13PM Report Comment
 

18. symo said...

Weren't they in it for the long term though?

Friday, September 25, 2009 01:14PM Report Comment
 

19. Phil Yaboots said...

@ 8. So as over-supply continues, perhaps the government will give large grants to FTB's bridge the gap between high values and lack of mortgage finance (coz who's going to be able to get a deposit together?). That way everyone's happy. House prices can stay high forever. God bless the gummint! Oh, hold on.... who'd pay for this?

Friday, September 25, 2009 01:31PM Report Comment
 

20. alan said...

Very interesting comments....The UK needs to raise lots of money by borrowing it.

Recently, the UK wanted to borrow even more .....and the £ is slipping.

So, sooner or later people who lend to us will want better Interest Rates (to cover risks of it dropping more)..... won't they?

Maybe our maths teacher thinks this could come slowly or with a bump....but its probably coming in the next 6-9 months.

Friday, September 25, 2009 01:37PM Report Comment
 

21. Tennouji said...

What is this talk of £180,000,000? I thought their "portfolio" (and I so hate that word applied to housing) had dropped to around
£70,000,000 due to the decreasing values of property. I've seen this figure of 70 million in quite a few recent articles on them.

That being the case, after tax and expenses, will they have anything left?

I'm sure he hasn't found a buyer and has just pulled that 180 figure out of thin air - surely that is what they were "worth" in 2007 - to try and get people interested. Worried that he and his gingham-suited missus will soon be slaughtered.

Friday, September 25, 2009 01:39PM Report Comment
 

22. tenant super said...

Forgive my ignorance but can somebody explain how much sterling would need to fall before interest rates will be put up. Sterling has already lost a lot of its value and yet the rates are what they are.

I am too young to remember Black Weds but I understand there were agreed parameters for sterling and it fell below this forcing intervention. How badly would sterling have to fall before the boe thought we were in a currency crisis and raised rates? Or would it be the effect of devalued sterling on inflation that would necessitate higher rates?

Friday, September 25, 2009 01:43PM Report Comment
 

23. chrisa said...

From Alan.......Recently, the UK wanted to borrow even more .....and the £ is slipping.

So, sooner or later people who lend to us will want better Interest Rates (to cover risks of it dropping more)..... won't they?


Are we sure that there are any foreigners AT ALL buying UK debt? If none are buying it is presumeably being financed by QE money. How long could that go on? Anyone have the figures as to how much is really being purchased by foreigners? (and not UK institutions pretending to be foreign buyers).

Friday, September 25, 2009 01:54PM Report Comment
 

24. will said...

The Government will have to raise rates soon.

By raising rates they can start to pay off their huge debt.

It will happen sooner than many are currently telling.

Friday, September 25, 2009 02:04PM Report Comment
 

25. mark wadsworth said...

Actually, there's a typo in that post title, it should read "Landlord 'King' sells before rate rises laughter"

@ Comments 12 - 15, don't confuse cause and effect, horses and carts.

1. A government has to offer higher interest rates on new borrowing if there is a general perception that the currency will fall in future.

2. Once a currency has fallen to rock bottom, it doesn't actually matter any more.

3. Existing bonds already in issue will fall (i.e. be sold, and with it the currency) if there is a general perception that interest rates will increase in future. This in itself leads to rising interest rates, as the same cash interest on a lower market value = the same as higher interest rates.

4. Interest rates on new borrowing and existing debts must move in line of course, as the borrower is the same.

5. If a currency is perceived to be at rock bottom (and yes, the UK economy is in a mess, but so is everybody else's) and there are expectations that it will rise, a government can offer lower interest rates, because it's a bit like index linking (an investor is indifferent between earning money in interest or earning money in currency gains).

6. BoE official interest rates have naff all to do with market interest rates paid by mortgagors or businesses.

You can then do mix and match between all the above - what if the currency is at rock bottom but people expect interest rates to fall further (i.e. kept artificially low by QE)? In that case buying UK bonds is a great idea - you make a gain on the currency (assuming you can sell out of a currency that you expect to fall relative to GBP) and if new bonds are issued at even lower coupons, you make a capital gain on the bonds as well.

Friday, September 25, 2009 03:12PM Report Comment
 

26. house said...

@13, MW wel said and also @25.
Has anybody noticed that Barclays is offering 5.25% on their 5 year bond. Obviously they are expecting interest rate to rise ie. their Bank Rate will be higher than the BoE. Surely the lending rate's, be it for a mortgage or any other lending is going to be higher than the 5.25%.
Mark @13 can you throw some light on this please, ie do you agree or not. Can you put me right.

Friday, September 25, 2009 04:15PM Report Comment
 

27. alan said...

@ Mark W,
Item 6: Some folk are paying mortgages at a (pegged) SVR of around 3.5%, and have done for a while, now. When the BoE rate goes up, the SVR goes with it.

Other folk opted for fixed term mortgages at above 4% (having paid an up front fee). This insulates them from BoE changes in Interest Rates.

Friday, September 25, 2009 04:44PM Report Comment
 

28. ontheotherhand said...

This couple are still going to come out with millions. However, they produced nothing, no invention, no factory, no production. Their story helps to explain the myth of rising house prices 'creating wealth', and debunk these silly headlines that come out saying 'X billions wiped off UK private wealth' these days. The couple borrowed money alonside millions of others borrowing money which made property prices go up which enabled them all to borrow more money. Nothing was created apart from debt.

Friday, September 25, 2009 04:58PM Report Comment
 

29. mark wadsworth said...

@ House comment 26, do I agree or not? Neither, I'm just saying how it is. I defer to Jack C on the nitty gritty. I remember also that HBOS issued some new bonds a year or so ago (before the shotgun Lloyds merger) on which is was paying ten per cent or so.

@ Alan comment 27, sure there are winners and losers from all of this, more or less at random. But the gains and losses accrue entirely to those who gambled correctly on the extent to which the government will rig interest rates and how much of that the government controlled banks "pass on" to borrowers. I'm not sure that we should be running an entire economy on the basis of who guesses correctly on whom the government, i.e. the taxpayer, is going to bail out in future.

Friday, September 25, 2009 05:04PM Report Comment
 

30. This comment has been removed as it was found to be in breach of our Blog Policies.

 

31. techieman said...

Mark W is right with point 13. We can all see that rates aren't determined by the BoE. The "trick" is will the banks be greedy (sorry i mean recapitalised) enough, that they can start to reduce rates and/or keep them where they are now if and when rates rise.

A run on the pound is only relevant with regard to amount AND speed. If it gets to parr with the Euro in 6 months no-one will care and by then adjustments may be able to be made. If it gets there MUCH sooner and looks like its going to sh1t thats a different story. If that happens market rates will increase anyway.

Friday, September 25, 2009 06:03PM Report Comment
 

32. tenyearstogetmymoneyback said...

house@26.

That would explain why a Barclays 5 year fixed rate mortgage is 5.69% or more depending on LTV.
Of course if interest rates shoot up and everyone decides to cash in their bonds they will be in a mess.
Providing interest rates keep chugging along below 5% they will do alright.

I can remember Black Wednesday and being rather smug about the fact that I had an 11% fixed rate mortgage at the time.

Friday, September 25, 2009 06:11PM Report Comment
 

33. techieman said...

tenyears - well you couldnt have been very smug for very long!

Friday, September 25, 2009 06:17PM Report Comment
 

34. 51ck-6-51x said...

The BoE base rate is a market encouragement to the base rate since it is the rate at which the Banks ( well those in the elite club ) may borrow overnight from the BoE. However, as many point out, it does not determine the market rate.


house,

( Do note that this is a simplistic view, there are further complications )
Banks want other economic agents to both lend to them and borrow from them ( pref borrow short term, lend long term ) - it's how they make their profit; hence banks will compete with each other on both fronts. Barclay's seems to be in a relatively strong position and can access funds cheaper than others due to lower percieved risks, hence it can offer better deals to those it is borrowing from in order to entice their custom.

Friday, September 25, 2009 06:21PM Report Comment
 

35. house said...

Thank you all for your comments to my query.

Friday, September 25, 2009 06:38PM Report Comment
 

36. tenyearstogetmymoneyback said...

techieman @ 33

The key thing was that I knew I could afford my repayments.
On the afternoon of Black Wednesday lots of people didn't do any work at all.
I can remember one bloke saying there wasn't any point in working as
(at the proposed interest rate) there was no way he could afford his mortgage.

The actual deal I had was a Bristol and West escalator mortgage in which the
interest rate dropped about 0.5% every six months over a two year period.
Whoever worked out the figures at B&W must have had a very good crystal ball
as over those two years I ended up paying almost the same as the SVR (while
being locked into their deal).

I would be very interested in hearing Jack Cs opinion on the current Fixed Rates
available.

Saturday, September 26, 2009 09:40AM Report Comment
 

37. str 2007 said...

Basic Calculation

700 houses @ 200k each (max for 2/3 beds in that area) = 140 million. By their own admission they 'had' 15% equity therefore they are underwater anyway.

however giving them the benefit of doubt and saying they achieved 2007 prices that gives them a gross profit (pre-tax) of 140 million x 15% = 21 million.

This article clearly states they have agreed to sell for £180 million giving them a profit of 90 million after tax according to Mr. Wilson.

How is it possible this ournalist couldn't work that figure out and interrogate it.

I don't believe this deal will go through unless they're very lucky with a significant further devaluation of the £.

Further they'll be lucky to walk away with anything.

Saturday, September 26, 2009 11:44AM Report Comment
 

38. Ah-so said...

"And which mug is going to pay an average of £257,000 per property for the Wilson's empire when they are selling in Ashford for £150,000 on Rightmove?

See. I can do Maths too!!"

Exactly - why is no one if the media prepared to do a tiny bit of thinking about this? No one with that much money to burn is going to pay anything seriously above market value. It is preposterous for that man to claim as much. Why should we trust anything that comes out of his mouth?

Saturday, September 26, 2009 12:03PM Report Comment
 

39. jack c said...

@tenyearstogetmymoneyback - "I would be very interested in hearing Jack Cs opinion on the current Fixed Rates
available". Saturday, September 26, 2009 09:40AM

I'll give you my thoughts early evening - just enjoying the clear blue sky's and sunshine this afternoon.

Saturday, September 26, 2009 01:04PM Report Comment
 

40. clockslinger said...

Tenant Super @ 22 At the time of black wednesday the deal was that the pound was pegged within a certain exchange rate range, the ensuing carnage because that rate was seen as too high by the money markets and the UK government attempting to keep the pound within that range by raising interest rates. It is very different now . The policy is to keep rates low to help the profligate borrowers and to let/encourage pound to fall to allegedly aid that enormous export/manufacturing base we've got here in the UK. Inflation isn't an issue, in fact it is what is desired as it also makes your (sterling denominated) mortgage worth less. Course, other lands are at it too...competitive devaluation to inflate away debt. What will bu66er it? Maybe a run on pound, but how likely is that? One factor may be that hinted at by chrisa @ 23, what is the appetite of foreign buyers for UK gilts? Unlike, for example, Japan, we don't have any knickers on ie) a developed manufacturing base to return to keep the foreign buyer happy with financing our debt. Nor are we known for our chaste behaviour as a nation of savers, quite the contrary. Short the pound against the yen and even dollar?

Saturday, September 26, 2009 01:13PM Report Comment
 

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