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

geneer

Pimperne1 wrote: »

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).

:rotfl:Well it mitigates you having the cash in your pocket, thats for sure.

[Deleted User]

Given that BTL mortgages are a fairly new product, their popularity especially so, it stands to reason that a lower proportion of them will have been paid off significantly than the owner-occupier mortgages.

Edit:
Therefore they will be more likely to fall into negative equity if prices fall. However this would only be a problem for the BTL owners if they needed to sell before inflation feeds into prices (will probably happn fairly rapidly as lending restrictions ease) which is unlikely as many of them will have other income besides rent and the large rises in rents in the last few years and much reduced costs due to low interest rates means that most of the BTL properties are actually very profitable at the moment.

Graham_Devon

I really need to get into BTL.

It really does seem to be the one investment where it appears hardly anything can go wrong, and no matter what DOES go wrong, you'll always be ok. Either your other BTL chums will all pile into a falling investment to save you, or you'll simply put rents up and have tenants banging on your doors to rent from you. Either way, it seems there is no downside and nothing that can touch the investment.

Where do I start?

[Deleted User]

Graham_Devon wrote: »

I really need to get into BTL.

It really does seem to be the one investment where it appears hardly anything can go wrong, and no matter what DOES go wrong, you'll always be ok. Either your other BTL chums will all pile into a falling investment to save you, or you'll simply put rents up and have tenants banging on your doors to rent from you. Either way, it seems there is no downside and nothing that can touch the investment.

Where do I start?

Plenty can go wrong Graham. The fact is at the moment nothing has. Prices fell and have been fairly flat since, inflation is reducing the value of the debt many purchased the properties with. The low interest rates mean low mortgage costs for most. Not many new homes are being built and people are having to save longer to buy. That has pushed up rental demand and rents accordingly.

We know you hate BTL Graham but until they are suffering on capital gains and rents at the same time you won't be able to enjoy them being in trouble. As the two markets seem to be running in opposing cycles at the moment your unlikely to see this for a good while at least.

Poshbird

Pimperne1 wrote: »

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

Thats without interest rates going back up.

If property falls more than 10% and rates start to go back up then a lot more BTL landlords will become distressed sellers.

rockitup

Graham_Devon wrote: »

I really need to get into BTL.

It really does seem to be the one investment where it appears hardly anything can go wrong, and no matter what DOES go wrong, you'll always be ok. Either your other BTL chums will all pile into a falling investment to save you, or you'll simply put rents up and have tenants banging on your doors to rent from you. Either way, it seems there is no downside and nothing that can touch the investment.

Where do I start?

You should have been knocking on my door in Spring 2008 Graham, the BTL's I sold off all had waiting buyers bidding so no estate agent fees, guess what though? All new Landlords bought them.

They are still rented out but it wouldn't be my choice of investment again, even when growth does return in some years from now

IveSeenTheLight

Graham_Devon wrote: »

I really need to get into BTL.

It really does seem to be the one investment where it appears hardly anything can go wrong, and no matter what DOES go wrong, you'll always be ok. Either your other BTL chums will all pile into a falling investment to save you, or you'll simply put rents up and have tenants banging on your doors to rent from you. Either way, it seems there is no downside and nothing that can touch the investment.

Where do I start?

You'd probably handle a BLT better.

rockitup

RenovationMan wrote: »

Shame you didnt sell a year earlier (i.e. before the crash), you obviously would have made a much better return. Depending on where in the country your BTLs are, the buyers could have gotten a bargain because the depth of the crash was in 2008, with the partial recovery starting thereafter.

Coupled with low rates and high rental demand, 2008 was not a bad time to invest in BTL. Given that the average house price has still not fallen back to the 2008 bottom, these BTL buyers could be 5 years into their investment before prices fall below their purchase price. A lot of equity can be ploughed into a property in 5 years, especially with full rental periods.

How come you bailed from the market at its bottom?

Hi RM,

We talked prices with the new BTL buyers in late 2007 and subsequently gave them a discount of the standard EA fees when it came to time to sell.

2 buyers were next door neighbours and 1 was an existing tenant, all of who wanted to get on to the BTL Bandwagon. We are all still friends and keep in touch from time to time.

We bought in to BTL in 1999/2000 so we did alright, it was only what I thought to be the right asset class as I was bailing out of equities at end of 1999. The deposit on the first house was paid with 2 "credit card cheques" from MBNA and Bank of Scotland so I am a gambler anyway.

BTL will still have it's time again even for new investors but I reckon not for another 6 or 7 years (talking about Capital Growth not income)

For existing LL's who enjoy the business it should provide a decent business for years to come but it is honestly not my cup of tea anymore.

Cheers

tartanterra

Graham_Devon wrote: »

I really need to get into BTL.

It really does seem to be the one investment where it appears hardly anything can go wrong, and no matter what DOES go wrong, you'll always be ok. Either your other BTL chums will all pile into a falling investment to save you, or you'll simply put rents up and have tenants banging on your doors to rent from you. Either way, it seems there is no downside and nothing that can touch the investment.

Where do I start?

No need to start, you have got it completely correct.

Here are the "related links" from the OP's original link:

AVERAGE B2L LOAN SIZE UP 5% IN Q1 2011
http://www.mortgagestrategy.co.uk/buy-to-let/average-b2l-loan-size-up-5-in-q1-2011/1030340.article

NUMBER OF SMALL LANDLORDS UP IN Q1
http://www.mortgagestrategy.co.uk/latest-news/number-of-small-landlords-up-in-q1/1030369.article

TENANT DEMAND UP 51% IN Q1
http://www.mortgagestrategy.co.uk/buy-to-let/tenant-demand-up-51-in-q1/1030214.article

MORE LANDLORDS REPORT TENANT DEMAND GROWTH IN Q1
http://www.mortgagestrategy.co.uk/buy-to-let/more-landlords-report-tenant-demand-growth-in-q1/1030075.article


:T

mcc100

RenovationMan wrote: »

Shame you didnt sell a year earlier (i.e. before the crash), you obviously would have made a much better return. Depending on where in the country your BTLs are, the buyers could have gotten a bargain because the depth of the crash was in 2008, with the partial recovery starting thereafter.

Coupled with low rates and high rental demand, 2008 was not a bad time to invest in BTL. Given that the average house price has still not fallen back to the 2008 bottom, these BTL buyers could be 5 years into their investment before prices fall below their purchase price. A lot of equity can be ploughed into a property in 5 years, especially with full rental periods.

How come you bailed from the market at its bottom?

Nothing to do with this thread Renovation Man, and apologies if it has already been asked, but what has happened to your signature ?