BTL Boom continues

chucky

DervProf wrote: »

In theory, more FTBs will enter the market, and existing homeowners will start moving again.

In practice, I expect that there will also be a rise in BTL investors. This will lead to HPI. HPI will be "celebrated" in the media (and by certain forum members here), and more people will be drawn towards BTL investment, causing more upward pressure on prices. The only thing that will ensure that we don't end up where we are now (prospective homebuyers struggling to be able to borrow enough to buy a property) is that we have a massive building program or the banks will have to be ever more "generous" with their lending practices. Hang on, doesn't something bad eventually happen if that continues ?

Bingo, we have a winner.

As I've always said, when house prices are falling or are low less people are able to buy property.

wotsthat

the_flying_pig wrote: »

assume percy buys a £100k house with a £20k deposit. he's got his eye on a £200k house 5 years down the line.

in scenario 1 house prices stay exactly the same for 5 years. so in 2017 his total equity is about £35k - his initial £20k plus his repayment mortgage has paid off about another £15k. he needs to borrow another £165k to buy that £200k house.

in scenario 2 house prices fall by 20%. his deposit is wiped out. but he's still paid off £15k of his mortgage, so he's not in NE. the more expensive house will now only cost him £160k. so he needs to borrow £145k to buy it.

so percy is quite possibly better off under scenario 2.

OK He's bought the first house at a 80% LTV

Scenario 1 (price stability) - he needs an 83% mortgage

Scenario 2 (20% price falls) - he needs a 91% mortgage

Scenario 3 If we then assume prices rise by 20% his equity is £55k (deposit + repayments +HPI profit). The more expensive house will now cost him £240k so he needs to borrow £185k. He needs a 77% mortgage.

Say he's borrowing from Nationwide and wants a 5 year fix....

First purchase (80% LTV) 4.79%
Scenario 1 (83% LTV) 5.29%
Scenario 2 (91% LTV) 6.74%
Scenario 3 (77% LTV) 4.79%

20% negative HPI dramatically increases finance costs and could make it borderline as to whether finance is available at all. Clearly, the next loan size will be smaller but over time the increased costs of finance will eat away at that gain. The total cost of accomodation needs to be considered not just the initial cost. The price of a house only matters when you buy, sell or try and refinance.

the_flying_pig

wotsthat wrote: »

OK He's bought the first house at a 80% LTV

Scenario 1 (price stability) - he needs an 83% mortgage

Scenario 2 (20% price falls) - he needs a 91% mortgage

Scenario 3 If we then assume prices rise by 20% his equity is £55k (deposit + repayments +HPI profit). The more expensive house will now cost him £240k so he needs to borrow £185k. He needs a 77% mortgage.

Say he's borrowing from Nationwide and wants a 5 year fix....

First purchase (80% LTV) 4.79%
Scenario 1 (83% LTV) 5.29%
Scenario 2 (91% LTV) 6.74%
Scenario 3 (77% LTV) 4.79%

20% negative HPI dramatically increases finance costs and could make it borderline as to whether finance is available at all. Clearly, the next loan size will be smaller but over time the increased costs of finance will eat away at that gain. The total cost of accomodation needs to be considered not just the initial cost. The price of a house only matters when you buy, sell or try and refinance.

Yes, those considerations are relevant - hence the last part of my post (which you did not quote for some reason) which made it clear that price falls would only be unambiguously better where his initial deposit was large and/or where he'd been able to make overpayments, meaning that he'd be in a reasonably low-risk lending category whatever happened.

Note also that I used big numbers (his second house twice as expensive as the first, 20% HPC) just to make the example easy to follow. As per my later post "slow falls" might be safest and best.

wotsthat

the_flying_pig wrote: »

Yes, those considerations are relevant - hence the last part of my post (which you did not quote for some reason) which made it clear that price falls would only be unambiguously better where his initial deposit was large and/or where he'd been able to make overpayments, meaning that he'd be in a reasonably low-risk lending category whatever happened.

Note also that I used big numbers (his second house twice as expensive as the first, 20% HPC) just to make the example easy to follow. As per my later post "slow falls" might be safest and best.

I didn't ignore the last part of your post - I was just concentrating on the maths bit.

For a committed trader upper who continues to save hard then falls will likely be best. For a trader upper who just pays the minimum mortgage amount falls are a danger (and stressful) especially if they were at max LTV to start with - in this case slow rises might be best especially if the trade up is a smaller gap than the example.

SteveV2

Thrugelmir wrote: »

When are you expecting that to happen?

One day it will.

Emy1501

DervProf wrote: »

In theory, more FTBs will enter the market, and existing homeowners will start moving again.

In practice, I expect that there will also be a rise in BTL investors. This will lead to HPI. HPI will be "celebrated" in the media (and by certain forum members here), and more people will be drawn towards BTL investment, causing more upward pressure on prices. The only thing that will ensure that we don't end up where we are now (prospective homebuyers struggling to be able to borrow enough to buy a property) is that we have a massive building program or the banks will have to be ever more "generous" with their lending practices. Hang on, doesn't something bad eventually happen if that continues ?

BTL is only a third of what it was in 2007 and I'm not sure it represents a much bigger share of the market than it did in 2007. I'm also not sure it will be driver of prices going forward especially outside of London.

Also I suspect new lending practises will curb HPI going forward as affordability will create as much a potential problem for borrowers going forward as deposits.

Personally I believe that we need lenders and builders to get together so they can agree on prices of new builds which will allow lenders to be comfortable lending 90% mortgages on them

The_J

Graham_Devon wrote: »

Can you explain to me how you rent AND save the money saved from not buying?

Can you explain to me how a capital and interest mortgage works?
Can you explain to me how renting and an interest only mortgage are similar?
Can you explain to me that if the rental figure and the interest only figure are similar why the capital element would not be the saving element? (Please do not explain that this is not the case, at 90% LTV it is, historically it is)

How many times do I have to say this? RENTING IS NOT A BAD THING.

People constantly say "You're lining the Landlords pockets" WHY DO THEY SAY THIS? The landlord has an interest only mortgage, that money is going straight to the bank (if there is an excess then this is a fair return on equity invested, similar to if he had put the money into a bond or shares). The landlord is then TAKING A RISK with house prices. House prices don't always increase.

Everyone whining about house prices wants to get on the ladder cheaply, then they will be banging a different drum. Fact. It's so pathetic seeing poor people whine.

I have no vested interest in house prices. I have a house, I have investment properties (part of a diversified investment portfolio - that part of it went down in 2008, as did a lot of things!). My vested interest is in stupidity and the ridiculous amount of it shown by the general public. You'd think they don't teach Maths at school anymore.

wotsthat

Emy1501 wrote: »

Personally I believe that we need lenders and builders to get together so they can agree on prices of new builds which will allow lenders to be comfortable lending 90% mortgages on them

You believe that illegal price fixing is the way forward?

Emy1501

wotsthat wrote: »

You believe that illegal price fixing is the way forward?

If I want to sell my house to someone with a 10 percent deposit then the lender has to agree the price. Its the problem with newbuilds at moment. Lenders aren't prepared to agree the valuations so are not prepared to lend on them. Its nothing to do with price fixing more to do with underwriting risk.

The_J

The price of new builds has nothing to do with lending at 90%. New builds lose some of their value as soon as they are bought which in a quieter market is not worth the risk to the banks if they need to repossess. That's why many don't lend at 90% LTV. Doesn't matter if the house is 60 or 600k.

New builds are not systematically being downvalued at the moment.