Buy-to-let borrowers at greater risk of negative equity

geneer

http://www.mortgagestrategy.co.uk/buy-to-let/buy-to-let-borrowers-at-greater-risk-of-negative-equity/1030784.article

Even mild declines in house prices over the next two years could place over 30% of buy-to-let borrowers in negative equity, Standard & Poor’s has warned.






A report by the credit agency says if house prices fell by 5% in 2011 and a further 5% in 2012, 30% of buy-to-let loan balances would be in negative equity, compared to 17% for owner-occupier loans, which it says would reduce buy-to-let borrowers’ financial flexibility and therefore risk a rise in arrears.
Standard & Poor’s puts the difference between the two sectors down to the higher average LTV ratio among buy-to-let loans in the sample it used and the fact that buy-to-let LTV ratios are concentrated in a relatively narrow range.




The paper states that, in the short term, the credit performance of buy-to-let property owners is likely to continue to be more closely affected by changes in interest rates than that of owner-occupiers.
It says: “While record low interest rates and steady rents have pushed landlords’ debt servicing ability to healthy levels, our analysis suggests that interest rates rises - likely to start later this year - could cause the average debt service coverage ratio to fall by about 40% by the end of 2012.
“This means that buy-to-let borrowers would have less of a financial cushion to cover mortgage payments.”
The report adds that in the near term, the buoyant rental market will continue to support buy-to-let borrowers, but interest rate hikes are a risk on the horizon.

I suppose the BTL muppet collective will be too busy saving the housing market to norice.

Pimperne1

In short, if prices fell by 10% nominal in the next 18 months some BtL landlords would be in negative equity.

geneer

Pimperne1 wrote: »

In short, if prices fell by 10% nominal in the next 18 months some BtL landlords would be in negative equity.

Actually, in short.

Buy-to-let borrowers at greater risk of negative equity

Quite a snappy headline eh. :T

Pimperne1

geneer wrote: »

Actually, in short.



Quite a snappy headline eh. :T

Actually in short:

Buy to Let.

geneer

Pimperne1 wrote: »

Actually in short:

Buy to Let.

What?!?

Did you mistake a noun for a command when you snapped up your two bargains in summer 07 then?

Pimperne1

geneer wrote: »

What?!?

Did you mistake a noun for a command when you snapped up your two bargains in summer 07 then?

No honestly, they haven't turned out to be bargains. It'll probably be a couple of years before they are worth what I paid for them. Doh.

PasturesNew

Two words: margin calls.

geneer

Pimperne1 wrote: »

No honestly, they haven't turned out to be bargains. It'll probably be a couple of years before they are worth what I paid for them. Doh.

I think its going to take more than a couple of years before flats regain their 20% falls though (stats courtesy of acadametrics, producers of pimps index of choice:rotfl:).

Still, applying the rules of the bullsheet timing game (which you're a big fan of), you could have bought after the crash. Which means technically you've lost money.

Or are we playing the "houses don't change in value until we buy or sell" game?

chewmylegoff

PasturesNew wrote: »

Two words: margin calls.

It's quite difficult to make a margin call on a mortgage. Unless you're talking about those houses made out of 15,000 ounces of silver that the silver clowns used to harp on about.

Generali

chewmylegoff wrote: »

It's quite difficult to make a margin call on a mortgage. Unless you're talking about those houses made out of 15,000 ounces of silver that the silver clowns used to harp on about.

It wouldn't be so hard on a BTL mortgage as they aren't regulated by the FSA so there is just a contract between you and the bank. They weren't put in the contracts AFAIK though.

The factoid used to be that Bradford and Bingley had margin calls in their BTL mortgages so I rang them up to ask and they said they didn't have that in the T&Cs.

Pimperne1

geneer wrote: »

I think its going to take more than a couple of years before flats regain their 20% falls though (stats courtesy of acadametrics, producers of pimps index of choice:rotfl:).

Still, applying the rules of the bullsheet timing game (which you're a big fan of), you could have bought after the crash. Which means technically you've lost money.

Or are we playing the "houses don't change in value until we buy or sell" game?

No you are right if I had bought these flats after the correction and they would have cost me less (I suppose the fact that I bought them with cash from another sale mitigates this somewhat).