Buy to Let landlords face extra Margin Call payments

brit1234

With the news today that Abby National is invoking Margin Calls (extra payments when LTVs fall below a certain value) on some of there mortgages buy to let is at far greater risk. In October MoneyWeeks Editor-in-chief Merryn Somerset Webb who has long predicted the crash predicted the demise of buy to let through these Margin calls.

Could this be the ruin of the buy-to-letters?


I appeared on BBC Breakfast last week with a buy to let investor who was convinced he was very rich. He had, he said, made £8m out of the buy to let boom. Further chat revealed that he had properties valued at £8m but £5.5m worth of debt. So he is on paper ‘worth’ £2.5m. You might think that sounds like a reasonable margin of error but I’m not sure its enough: property can turn nasty fast. Many of the reasons not to invest now (the main one being the fact that yields are lower than interest rates) have been widely discussed but here’s one more reason to steer clear. Buy to let mortgages deals tend to contain little read covenants regarding the loan-to-value ratio of the mortgage. In a rising market this isn’t the kind of thing borrowers take notice of but in a falling market they may find that it is the ruin of them.

It works like this. The loans allow lenders to periodically revalue properties (at the borrowers expense naturally). If the value has fallen and the loan to value ratio has, as a result, risen above the level required by the mortgage (say from 80% to 85%) the lender can then ask the borrower to come up with more cash to get it back down. The result, says my lawyer friend, will be that as capital values drop, buy-to-let investors will start to receive letters from the lenders along the lines of 'Dear Mr Bloggs, I should be grateful if you would restore your loan to value ratio by sending us a cheque for £25,000'.

This, most mortgaged-up-to-hilt investors will be utterly unable to do. The result? Panic selling and not just from the market’s new entrants. People who have been in the market for more than a few years are keen to suggest that they will be immune from any drop in prices thanks to the equity they have built up. But most of them – the man I met on the BBC sofa included - have also bought new properties in the last year. If margin calls – for this is what they are - start coming in on these how are they going to come up with the cash? No one’s immune.

http://www.moneyweek.com/investments/property/could-this-be-the-ruin-of-the-buy-to-letters.aspx

:eek:

ad44downey

We should tax the Buy to Let vultures out of existence once and for all.

silvercar

Poor tenants, who get evicted through no fault of their own.

JonnyBravo

brit1234 wrote: »

With the news today that Abby National is invoking Margin Calls (extra payments when LTVs fall below a certain value) on some of there mortgages buy to let is at far greater risk.

I know it doesn't quite fit your preferred message but the news was that they weren't enforcing margin calls.... they had thought about it... sent letters and then decided not to do it.

Still, why let the facts get in the way of another of your favoured routines!? :rolleyes:

sabretoothtigger

This is a nice advantage normal home owners have, negative equity can just be a virtual problem for them, Im not surprised banks are tougher on businesses and/or second homes

JonnyBravo wrote: »

I know it doesn't quite fit your preferred message but the news was that they weren't enforcing margin calls.... they had thought about it... sent letters and then decided not to do it.

Still, why let the facts get in the way of another of your favoured routines!? :rolleyes:

Its too bad if they arent actually doing this because it would make for good prudent practice, ah well

JonnyBravo

sabretoothtigger wrote: »

This is a nice advantage normal home owners have, negative equity can just be a virtual problem for them, Im not surprised banks are tougher on businesses and/or second homes


Its too bad if they arent actually doing this because it would make for good prudent practice, ah well

What rot.

Abbey were talking about normal OO mortgages.
This story isn't linked to BTL other than they too can be held on mortgages :rolleyes: so brit thought he'd link to a story from Oct 2007.... it's one of his pet projects.

Why on earth would any bank jeopardise a mortgage which is paid up to date with a demand for £x,000, whther that be a BTL or OO mortgage?
The most I can see is a request for the money... but to go to a reposession over it?
No chance.
IMO.

real1314

ad44downey wrote: »

We should tax the Buy to Let vultures out of existence once and for all.

Why?

Are they top of your list of hated business?

Are you some sort of convenient socialist who believes that anyone who makes a profit should be taxed out of existence?

brit1234

JonnyBravo wrote: »

I know it doesn't quite fit your preferred message but the news was that they weren't enforcing margin calls.... they had thought about it... sent letters and then decided not to do it.

Still, why let the facts get in the way of another of your favoured routines!? :rolleyes:

That was Abbey not HBOS and Bradford & Bingley. Don't let the facts get in the way of your reply.

It is also specifically for Buy to Let rather than residential. Margin Calls are common in the business world and buy to let is a business after all.

ad44downey

real1314 wrote: »

Why?



who believes that anyone who makes a profit should be taxed out of existence?

Pimps and drug dealers make profits too. That doesn't mean they're doing right though

HammersFan

ad44downey wrote: »

Pimps and drug dealers make profits too. That doesn't mean they're doing right though

That is really funny. It only took about 10 posts for BTL landlords to be compared to amoral arch criminals. Brit, your OP works again (despite being a load of twaddle).

sabretoothtigger

Some landlords are exploitive (in the worst areas even comparable to what ad44 says) but thats a reason to encourage sensible home ownership rather then restricting free trade and private business