Wednesday, May 11, 2011

When will mass repossessions start?

Third of buy-to-lets 'headed for negative equity'

Standard & Poor's (S&P) said that while 30% of investors were expected to be in negative equity by the end of next year, only 17% of owner-occupiers were predicted to be in the same situation, despite levels being similar at the end of 2010.

Posted by ontheotherhand @ 03:46 PM (2591 views)
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15 thoughts on “When will mass repossessions start?

  • sibley's b'stard child says:

    Rather ironic counterfoil to the earlier Bloomsberg article. Carlsberg don’t do BTL…

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  • Another report on this story gave reason for this as generally higher LTV on BTL than on other mortgages. No figures were given. Anybody got any?

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  • sibley's b'stard child says:

    I’m not sure, Jack might know if he’s knocking-about. For what it’s worth, if I remember the latest figures suggest the average LTV for new BTL business is 60%. I vaguely recall something like 40% of all mortgages in 2006/07 being IO though I don’t know what the split was between owner-occupier and BTL.

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  • I’m off out for an hour or so – I’ll see if I can stump up the figures when I get back.

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  • mark wadsworth says:

    Ic, there are BoE figures on how many borrowers have how much LTV (overall), but I’ve never seen a separate split for BTL versus owner-occupied. I would take their figures at face value, i.e. thirty per cent of BTL homes have LTV of 90% or more.

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  • MarkW – the only 30% figure in this report refers to the proportion of BTLs expected to be in nequity by year-end. Is your figure from elsewhere? I think that 30% of BTLs in nequity figure came from an S&P sample but the report I read didn’t indicate anything about how that sample was drawn.

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  • mark wadsworth says:

    Icarus, the article says (if I understood it correctly) that if prices fall 10% over next two years, then thirty per cent of BTL will be in nequity, therefore, thirty per cent must have LTV in excess of 90%.

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  • MarkW – That would be loans in excess of 90% of current value, not necessarily 90+% LTV at the time of purchase.

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  • stillthinking says:

    I am sure that the ones on repayments are not suffering so badly, these BTLers were speculating on the value of property rising, not necessarily looking to coin it from the rental yield.
    The banks misallocated credit on bad investments, but surely the interesting thing is what happens now? If there are going to be no losses for bank creditors, and there isn’t going to be a transfer of these losses to the public purse forcing a UK bailout, then the only thing left is for Mervyn to induce additional credit expansion by holding rates negative and refloat all ships i.e. moderate inflation from now on. I don’t think he can succeed at this. In ftalphaville they made the point that he can’t hold rates down because the cost of holding credit default pushes them up again.
    All of these disastrous investment decisions are eventually going to fail and fall over, simple as that, the UK gov. can’t cover the banking losses so we have a sovereign debt crisis as Jim Rogers suggests.

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  • 9. stillthinking

    If banks keep lending enough to keep this rolling where do you think the money is going to come from?

    Call me stupid, but see a little bit of a problem, more so when their is nil growth.

    The game is very much on for HPCers.

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  • I know some here are missing smuggy, so here’s a sample taster…

    57. smugdog said…Many have no need or desire to sell. All quite nicely supported by the government
    and the kind actions of the vast number of savers.

    In the name of Queen and Country, I salute you all.

    Monday, July 5, 2010 04:39PM

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  • mark wadsworth says:

    Ic, there is no way of working out what LTV was at time of purchase.

    Today’s 90% LTV might have been 60% LTV and prices fell by a third, or it might have been 95% LTV and prices have ticked up.

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  • There will no interest rate hike. We shall have a run on the pound before that ever happens.

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  • markW – S&P gave ‘higher LTV’ as the reason for BTL’s greater % of potential nequity. If they based this on loan to current value this would be a tautology rather than a reason. I think they based their conclusion on some kind of sample but the Mortgagestrategy report (posted here 10th May @ 1.08pm) didn’t specify how this sample was drawn.

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  • An anecdote, but would not be surprised if it generalised. A friend of ours was looking to sell because of a new job elsewhere (for the last two years) and couldn’t without taking a loss, so looking to rent. Theirs is a small flat made from the ground floor of a terraced house, with small back garden. The mortgage, as they had bought in 2007 (nice timing) came to £850 per month. They were advised that £650 per month was realistic rental income. The rule of thumb from the bank, though, was that a BTLer should charge mortgage payments +25% to cover costs of being a landlord, vacancies etc. So they were looking at (best case scenario ie with tenants) more than £400 loss per month if the price of the house was static, and that is before factoring in that the two year low interest rates at the beginning of the mortgage were coming to an end. People who bought at anywhere near the top are already completely screwed. But of course they will not want to sell at a price at which their losses are clear and fixed – there is always the forlorn (tragic?) hope that prices will increase.

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