Btl - R.i.p

[neilawuk]

ferret, of course this is all speculation. I am quite happy to take the gamble of losing on my 20% discounted property. There is a big IF in all of this as you quite rightly state, if we take the worst possible scenario then it wont just be houses we will be in trouble with, recession brings with it unemployment. IF for some reason I had to sell my properties I might lose on some but have lots of equity built up in others to offset loses to a point. OF course if I had to sell I'd sell one with equity not one I would be guaranteed to lose on....common sense....

On the matter of rentals, not sure I agree with you analogy. People wont rent them if they cant sell them if they are owner occupier as they themselves still need somewhere to live. OK they could rent out their house if it doesnt sell but then they will have to rent negating your argument of lots of rentals available and oversupply.

[neilawuk]

one more comment, dont assume that a 30% correction in the market would leave all BTL investors in a bad place. You cannot guess how much equity an investor has in a property, I stopped remortgaging two years ago to give myself a buffer. Even if I get a 30% correction I can still sell everything and retire....

PS - as with all recessions they start with doom sayers, people talk themselves and others into a recession. Scaremongering costs us all dearly...

[ferret]

ferret, of course this is all speculation. I am quite happy to take the gamble of losing on my 20% discounted property. There is a big IF in all of this as you quite rightly state, if we take the worst possible scenario then it wont just be houses we will be in trouble with, recession brings with it unemployment. IF for some reason I had to sell my properties I might lose on some but have lots of equity built up in others to offset loses to a point. OF course if I had to sell I'd sell one with equity not one I would be guaranteed to lose on....common sense....

On the matter of rentals, not sure I agree with you analogy. People wont rent them if they cant sell them if they are owner occupier as they themselves still need somewhere to live. OK they could rent out their house if it doesnt sell but then they will have to rent negating your argument of lots of rentals available and oversupply.

When you see that the average long term wage to loan ratio is 3.5 and it currently stands at around 6 (maybe even more) then it suggests that the market is hugely over-valued and some would argue that even a 20% reduction is not enough. I personally don't think there is a big IF, I think it is a dead cert that we are in for an almighty drop in prices. Bet you a tenner

If you had to sell then you may not be able to get a buyer if the current news is anything to go by. Buyers (even the thick ones) are now pulling out or gazundering.

Rental analogy - BTL landlords who want to sell but can't will still rent - and anectdotal evidence suggests rents are being dropped to secure tenants. Houses left as part of a deceased's estate are being let out as they cannot sell. Lots of Eastern Europeans going home - more rental properties on the market. This is what I meant. Yes, some people are selling and moving into rented but a lot of people are still of the mindset that you need to own your own home and will sell and buy at reduces rates rather than take a gamble.

[ferret]

one more comment, dont assume that a 30% correction in the market would leave all BTL investors in a bad place. You cannot guess how much equity an investor has in a property, I stopped remortgaging two years ago to give myself a buffer. Even if I get a 30% correction I can still sell everything and retire....

PS - as with all recessions they start with doom sayers, people talk themselves and others into a recession. Scaremongering costs us all dearly...

I understand not all BTL investors will be stung by this - only those who bought at over-inflated prices and got into it recently.

Just as I cannot guess at how much equity an investor has in a property I don't think the investor will themselves. Those Y-o-Y gains went negative today - and these of course will be from sales that went through at the tail end of last year / beginning of this when all the news was still relatively positive about house prices.

If we get a 30% correction then you can put your houses on the market - whether they will sell or not will be dictated by the market at the time

PS - I have been a doom-monger since 2002! Houses have been over-inflated for a long time and the natural balance of the housing market is now being restored IMO. Banks being bailed out, record levels of debt in the country, "credit crunch" drying up all that money that was sloshing about, inflation soaring (don't believe the official figures do you?) Yeah, none of these make for a recession do they? Just people like me giving a different opinion to you makes it all happen. Repeat after me: "It will be alright, Gordon will save us."

[ratewhore]

Your 20% discount now will be in -ve equity in a couple of years if the trend continues and could take a decade to reach the level you have just paid. Not the best move I think - but then I am not an expert like you

Not according to HBOS:

The new Halifax forecast today means it believes house prices could fall by 20% in real terms from their peak at the end of last year, with no recovery until 2010. Even with a swift recovery, it could be 2011 or 2012 before prices get back to their levels of 2007.

[neilawuk]

to an extent I think people do talk themselves into recession. Inflation is a bit tricky agreed but people can be putting off buying things like property and large purchases on the basis that others are saying "you'll be sorry, its all gonna go wrong". Not everyone can take a balanced view and roll the dice either way. Of course we cant control things like utility fuel and petrol prices (which incidentally are the main reason we have inlation at the moment). But if enough people tell other people not to buy a house cos its too risky then they just might not. and that is when we start the stagnation, drive down demand and start the spiral....

And yes people like you (no offence intended) have been saying since 2002 it will all end in tears and if you keep saying it for long enough, statistically you will hit the jackpot. People I have challenged in the past have said "well it didnt happen this year granted but wait til next year" next year came and went with no crash, repeat infinitum....

and for all that sitting on the hands some people I know have done has cost them in lost potential a vast sum of money. If you had bought in 2002 even with a 30% reduction that people are suggesting the property if it were London based would have at least doubled in value. You would be looking to make a 70% return. And if as you say you couldnt sell it then take it to auction and only make a 50% return, poor thing!
lets make it £20?

[ferret]

to an extent I think people do talk themselves into recession. Inflation is a bit tricky agreed but people can be putting off buying things like property and large purchases on the basis that others are saying "you'll be sorry, its all gonna go wrong". Not everyone can take a balanced view and roll the dice either way. Of course we cant control things like utility fuel and petrol prices (which incidentally are the main reason we have inlation at the moment). But if enough people tell other people not to buy a house cos its too risky then they just might not. and that is when we start the stagnation, drive down demand and start the spiral....

And yes people like you (no offence intended) have been saying since 2002 it will all end in tears and if you keep saying it for long enough, statistically you will hit the jackpot. People I have challenged in the past have said "well it didnt happen this year granted but wait til next year" next year came and went with no crash, repeat infinitum....

and for all that sitting on the hands some people I know have done has cost them in lost potential a vast sum of money. If you had bought in 2002 even with a 30% reduction that people are suggesting the property if it were London based would have at least doubled in value. You would be looking to make a 70% return. And if as you say you couldnt sell it then take it to auction and only make a 50% return, poor thing!
lets make it £20?

My Dad told my brother it was not the time to buy in 2001 - he bought anyway, due to waying up the pro's and con's. I do not see though how FTBs can get on the first rung now - average wages are still in the low twenties so even with a combined income at 3.5 times one plus the other you are still looking at a sensible borrowing amount of £112,500 for a couple on £25k each (which would be above average). When you can hardly buy a one bed flat for this something is badly out of kilter.

Luckily the banks have had to act due to credit drying up so first time buyers, even if they wanted to get a stupidly priced house, could not now as no-one will lend to them. With no first time buyers the whole pyramid collapses. This is not due to people "talking it up" just the way things have gone.

Yes, people have been saying it will end in tears for years - mainly because historically that is what has happened. Every bubble like this has ended eventually. A lot of people called the market too early, I remember reading about a financial advisor who sold to rent in 2002. Missed out on a hell of a lot of growth and, if lucky, might be able to buy back at the kind of price he sold for.

Fair enough, £20 says we will see a plus 30% drop in house prices (from peak) within 36 months. Come back in April 2011 and tap me up if I am wrong! I am really hoping they don't drop much more than this as, like you said, this will be bad news for all in terms of recession, repossessions and negative equity for a lot of people and that makes for a miserable life for all...

[neilawuk]

I also think a lot of the new build developers are offering part buy schemes to help FTB's out which is a great idea. One of the larger develops is offering a 75% part buy scheme. Ok you have a lock in period during which time if you sell then you pay them 25% of the profits but better than not having a home you still take 75% of any profits.....I do think that banks and the government will do their damdest to stem a complete crash. Neither the banks nor government can afford a repeat of the early nineties and that only really came about due to the unwise exchange rate mechanism withdrawal at the time.....

I take your point about salary multipliers and think banks will start to reconsider their products criteria if they find nobody is qualifying and they are effectively losing money. All you have to do is look at the recent relaxing of BTL criteria to see they are reacting (it used to be 125% rental income vs mortgage payment, now you can get 110% and even 100%)....

As a business Im suer they would rather risk some people defaulting due to a relaxed lending rate rather than not selling any products and a negative equity position which will ultimately lead to repossession increase as people become cornered....

all very exciting and I cant wait to see where we are in 6 months!

[ferret]

I also think a lot of the new build developers are offering part buy schemes to help FTB's out which is a great idea. One of the larger develops is offering a 75% part buy scheme. Ok you have a lock in period during which time if you sell then you pay them 25% of the profits but better than not having a home you still take 75% of any profits.....

Sounds like desperation to me! Why not just suggest a 60 year mortgage. Or how about you club together with mates rather than getting a home of your own? All of these things pointed towards an unsustainably inflated market.

I do think that banks and the government will do their damdest to stem a complete crash. Neither the banks nor government can afford a repeat of the early nineties and that only really came about due to the unwise exchange rate mechanism withdrawal at the time.....

The Gov has spent our money bailing out Northern Rock and is now stumping up £50BN of tax payer's cash to prop up the banks (and have suggested it may climb to £100BN) and it was the freaking banks who got us into this mess in the first place! They should have restricted their lending criteria which would have helped keep house prices at more sensible levels. The banks will take this money and use it to prop themselves up, not to start giving away 125% mortgages again - this $50BN will not feed back into the housing market. The Gov will not be able to afford to put much more cash in so not sure what else they can do really. Buggered which ever way they turn.

I take your point about salary multipliers and think banks will start to reconsider their products criteria if they find nobody is qualifying and they are effectively losing money. All you have to do is look at the recent relaxing of BTL criteria to see they are reacting (it used to be 125% rental income vs mortgage payment, now you can get 110% and even 100%)....

Not at all - they are fighting to not be the best in the market at the minute, arrangement fees and deposit ratios are climbing like mad. They want to keep their money rather than lend at the minute as they can see the thunder clouds in the distance. I cannot see any relaxing of BTL lending criteria, a lot of the BTL lenders have withdrawn products completely. I cannot see any BTL lenders with a 100% income to payment deal. You also said yours was an 85% LTV so they have 15% of your house already should it stuff up.

As a business Im suer they would rather risk some people defaulting due to a relaxed lending rate rather than not selling any products and a negative equity position which will ultimately lead to repossession increase as people become cornered....

Like I said, my view is that they are happy not to lend much at the minute. They loaned so much over the last few years and have balance books full with lots of money coming in so they have no worries there. They are losing billions from crunch write downs but still have more than enough for themselves. The banks aren't worried, they have shafted us all and are now grinning from ear to ear as the Gov has bailed them out with tax payer's money! Shocking.

Not sure if we will go into full on mass unemployed recession but I do agree with your last line.

all very exciting and I cant wait to see where we are in 6 months!

Interesting times indeed.

[Bagpuss]

I always chuckle at these so called experts telling us whats going on...

I am a BTL investor of 4 years with 8 BTL's...Its a pretty good time to be a BTL investor to be honest unless you need to liquidate your assets....Rental demand is increasing and rents are on the increase due to an upturn in demand for rental property with people not buying due to the uncertain market conditions. So for me as a BTL investors Im seeing more income, I have also just bought a bargain property 20% discount and got my 85% LTV mortgage through Birmingham midshires....so great time to grab a bargain and with a high rental demand and rents on the increase....A bad time for me???

NOT LIKELY!!!!

Hands up who came up with this comedy character?