200,000 buy-to-let investors lose up to 90% of their cash

geoffky

A cliff of negative equity: House prices are falling at their fastest since records began

Around 200,000 buy-to-let investors have lost up to 90 per cent of the cash they put into their properties, new research shows.
With house prices falling at their fastest rate since records began in 1973, these losses are set to get even bigger in the coming months.
The findings signal that Britain's buy-to-let bubble has burst - a disaster for those who had counted on property to be their pension.
There are about one million buy-to-let loans in the UK but, worryingly, around 200,000 were taken out last year at the height of the boom.
Many of those were amateur investors acquiring their first buy-to-let property with no professional property experience.
After a decade of booming house prices it must have looked like a one-way route to riches.
But a report by financial advisers Hargreaves Lansdown reveals that they now face negative equity, which means their mortgage is larger than the value of their property.
The research examined those who made a buy-to-let investment just before prices peaked last October.
This group is most at risk as their property started to fall in value almost instantly and has been going down ever since.
The report gave the example of a £200,000 home bought in September with a ten per cent deposit, which has lost 9 per cent of its value since October and it is now worth £182,000. The unfortunate buyer has lost £18,000 of his or her £20,000 deposit - a 90 per cent loss.
Laith Khalaf, pensions analyst at Hargreaves Lansdown, said: 'If you are in this worst- case scenario, you are staring over the cliff edge of negative equity. Just a further one per cent fall in house prices will push you over.'
Even if the investor put down a 50 per cent deposit they would have lost 18 per cent of their investment.
If they put down the average buy-to-let investor's deposit of 15 per cent, they would have lost 60 per cent of their money.
Around one in five buy-to-let investors could be in negative equity within a year, according to the ratings agency Standard & Poor's.
This prediction is based on its forecast that house prices will fall a further 17 per cent.
Yesterday the accountants Baker Tilly said its insolvency division is getting an increasing number of enquiries from professional buy-to-let landlords.
A recent survey of 8,000 landlords by Britain's biggest buy-to-let lender, Bradford & Bingley, found 46 per cent said their reason was to 'provide a pension.'
But Hargreaves Lansdown said its research highlights the danger of this approach.
Mr Khalaf said: 'For the vast majority of the population, buy-to-let should not be seen as an alternative to making regular savings into a pension.'
Before the housing boom a decade ago, there were less than 30,000 buy-to-let mortgages.

link

http://www.mailonsunday.co.uk/news/article-1040681/200-000-buy-let-investors-lose-90-cash.html

amcluesent

I wonder how many of these too-late BTLers also piled into .com shares in late 1999?

The amateurs always buy at the top and sell at the bottom. The time to buy is when you never see the asset mentioned in the popular press or on TV.

Walletwatch

The information is useful to know, but the headline, as usual is sensationalist and nothing else. What it wants to say is that over 200,000 buyers are very close to negative equity, but expresses it by saying that they have lost 90% of their cash. It is nothing but a cheap tactic by the periodical, and in my opinion, not exactly responsible balanced reporting.

Obviously, at first glance, the reader would (mistakenly) interpret this as BTL-ers having lost 90% of the value and only later, if at all, realise that it was the deposit that the article meant.

geoffky

Its a good article that points out the shoeshine boys are always right..

Megatimbo

Hello geoffky interesting article on property, as far as i understand negative equity is only an issue when a person for what ever reason has to sell in a crash or down ward market,otherwise it has no effect on the person who owns the property,as values can vary widely,this happened to my sister in the 90s crash,she just rode it out until markets picked up again.

Also its how you look at property and what side of a mortgage deal you are in if you are a borrower then a property can be a liability,also at the same time its an asset to the financial institution that is being paid the mortgage every month,because its generating income for the bank or whoever.

This only goes wrong when a person no longer can afford the mortgage so the financial institution is left holding the keys as well as a bad debt.

Listened to a good radio article from the BBC world service about what is happening in the States,many people are going into negative equity but are not riding it out,it was reported that many American home owners are "walking away" from their property,also the laws in the states enable the former property owners not to be pursued for any mortgage debt owing.

Imagine that happening here

Regards M

PasturesNew

geoffky wrote: »

Around 200,000 buy-to-let investors have lost up to 90 per cent of the cash they put into their properties, new research shows.

No they didn't... they borrowed that money, by MEWing. It's all magical money that doesn't exist but is going to make them a millionaire.



And, where the BTL houses are, there's no crash. No, the crash is for silly people who over-extended themselves. It's not for clued-up, financially-savvy BTLers. Oh no.

PasturesNew

Megatimbo wrote: »

H... as far as i understand negative equity is only an issue when a person for what ever reason has to sell in a crash or down ward market,otherwise it has no effect on the person who owns the property,as values can vary widely,this happened to my sister in the 90s crash,she just rode it out until markets picked up again.

If a LL has his mortgage on a fixed-deal, then in order to secure another fixed deal (which will be at a higher price anyway), they'll have to stump up more cash (bigger deposit)... which they won't have. So negative equity will affect their ability to move to cheaper mortgage products.

Megatimbo wrote: »

... at the same time its an asset to the financial institution that is being paid the mortgage every month,because its generating income for the bank or whoever.

IF they're being paid the mortgage. And it's not an asset if it's worth less than the mortgage. Many rents are lower than the IO mortgage, even before recent rate increases.

Megatimbo wrote: »

This only goes wrong when a person no longer can afford the mortgage so the financial institution is left holding the keys as well as a bad debt.

Which is likely for many reasons now, reasons that didn't exist 1-2 years ago. (higher deposits needed for next fixed deal, higher SVR, rents going down in a lot of areas, possibly LL is in danger of losing their dayjob, or splitting up...)

Megatimbo wrote: »

Listened to a good radio article from the BBC world service about what is happening in the States,many people are going into negative equity but are not riding it out,it was reported that many American home owners are "walking away" from their property,also the laws in the states enable the former property owners not to be pursued for any mortgage debt owing.

Imagine that happening here

Regards M

Yes, Americans can walk away, Brits can't. But there are also tax implications in a lot of cases. So having walked away, an American might still owe some tax on his house... I forget how that works now.

WTF?_2

PasturesNew wrote: »

Yes, Americans can walk away, Brits can't. But there are also tax implications in a lot of cases. So having walked away, an American might still owe some tax on his house... I forget how that works now.

I think it works along the lines that monies obtained through a loan are not taxable. You simply pay back the loan with interest.

However, if you take a large loan and then walk away without repayment because it's non-recourse (ie handing the house over cancels the need to repay) then you liable for tax on the money you borrowed as it's a capital gain for you. (Even though you p1ssed away the cash on a depreciating asset)

PasturesNew

!!!!!!? wrote: »

I think it works along the lines that monies obtained through a loan are not taxable. You simply pay back the loan with interest.

However, if you take a large loan and then walk away without repayment because it's non-recourse (ie handing the house over cancels the need to repay) then you liable for tax on the money you borrowed as it's a capital gain for you. (Even though you p1ssed away the cash on a depreciating asset)

That's the one! Ta.

Banderman

Good news. It's always satisfying to see greedy speculators who try to profit from other people's misery receive their long overdue comeuppance. I hope they all end up in cardboard boxes.

BobProperty

!!!!!!? wrote: »

I think it works along the lines that monies obtained through a loan are not taxable. You simply pay back the loan with interest.

However, if you take a large loan and then walk away without repayment because it's non-recourse (ie handing the house over cancels the need to repay) then you liable for tax on the money you borrowed as it's a capital gain for you. (Even though you p1ssed away the cash on a depreciating asset)

I don't know if it works like that in non-recourse state cases. The principle is that if you borrow x but on sale of the house it only sells for y where x > y, then when the lender writes off the x-y amount, they have to balance that with a 1099 form which is copied to the IRS which says the borrower has effectively "made" x-y. The borrower therefore owes tax on the amount.