Property market 'heading for a fall in 2008'

thesaint

Generali wrote: »

As I see it, in a falling market the risks to BTL are 3 fold:

- Pressure being put on rents by rising unemployment. I currently pay about £1k a month in rent. If I lose my job and can't get another then I'll be looking for HB to pay it. If they won't stump up a grand, I have to find somewhere cheaper.
Housing benefit will pay if the rent is reasonable for your local area.
- Rising unemployment causing BTLers that subsidise their properties being unable to do so. It's pretty tough to cover a BTL mortgage on unemployment benefit - those that don't have anything put aside for such an eventuality could well be wiped out by a void of just a few months.
If you are entitled to Job seekers allowance, you are almost certainly entitled to Housing benefit(In a rented property), the thing that disqualifies you would be substantial savings.
- Rising interest rates increasing the number of LLs that have to pay to cover their BTL. If this happens, some wno't be able to afford it, others will just get fed up.
Can't argue with this one, but 'Average Joe' will be in this position with the mortgage on his one and only home.
If you have distressed sellers in a falling market, everything can unravel very quickly. In that situation, you can forget getting a BTL mortgage of 90% LTV, you can probably forget getting a BTL mortgage at all. Certainly, banks would be looking for very big deposits.
My savings would increase relative to house prices, so my 10% that I am saving for a deposit now, will become 15%, 20%, 30% without me having any extra money in my account. Again 'Average Joe' has this benefit.
IMO, you are right to say that if you have low levels of borrowing or none at all, you'll be fine. The 85% mortgage and paying a hundred quid or so on top of the rent guys are taking massive risks with their financial future. If they were a financial firm they'd be stress testing their portfolios with scenarios like - what happens if HPs fall 50% and rents fall 20%. I am not saying that will happen but it is a plausable worst case. House prices in my area have trebled in the last 6 years, rents have moved up by 10 - 15% in the same period. I expect roughly the same in reverse to be true, but i'm an optimist.

I made the decision to stop buying more property about three years ago because the prices simply didn't leave any room to manouvre when looking at rental income.

A price reduction is something I will embrace with a little caution. There is always money to be made in a rising, falling and a stagnant market.

littlesaint

typeractive wrote: »

I think/hope when it comes to any burst properties of around £100k and less will be more desireable to have, as people with the big mortgages will be hit hard, and want/need to sell up to get places smaller/easier to finance.

I certainly think that the effect of any bust will not be uniform, but I think that the size of house will not be the main factor dictating their price. I think following a crash people will become more picky about location and type of house. The forever "up and coming" locations (think Streatham in London) will be hit hardest. New build flats, unless zero carbon or designed to the highest spec, will also be hit hard. The prices of older properties will probably hold up alright though.

epoman

Generali wrote: »

As far as I am concerned, renting or buying a house is a transaction like getting an electricity supplier - another utility that I need that is dull and a lot of hassle to sort out.

Well primarily a house is meant to be a home and there are a lot of people (the majority?) who would say that renting just does not provide the same enjoyment as ownership. When your place is your own you have the option of personalising it, doing in it what you will and if you have a family that grow up there it contains memories that some would not want to leave behind.

Generali

epoman wrote: »

Yes, it's the newbie BTL LL's who have jumped in without doing their figures who are most at risk because they have left no margin to cover interest rate increases/voids etc. If they become distressed sellers then this will have a downward effect on the market. The experienced BTL LL's are in it for the long term and will be able to ride through any correction because they are not having to dip into their own pockets to maintain their investment.

That is true but I do wonder how rigourously even some of the 'old hands' have tested things. Also, how many of them have been paying down their borrowings. I keep reading about how marvellous it is to have the rent and interest payments at the same level so you never pay any tax.

I suspect a lot of very clever people have been borrowing aganist rising prices to build a big BTL empire and so have remained on or near the limits of borrowings. They congratulate themselves for making huge paper profits but it's all an illusion based on asset inflation. Those who have been prudent and used the good times to pay down their borrowings and have good cash reserves should be able to ride out any bad times. Those that haven't will be posting tales of woe.

Sisyphus

Generali wrote: »

I suspect a lot of very clever people have been borrowing aganist rising prices to build a big BTL empire and so have remained on or near the limits of borrowings. They congratulate themselves for making huge paper profits but it's all an illusion based on asset inflation. Those who have been prudent and used the good times to pay down their borrowings and have good cash reserves should be able to ride out any bad times. Those that haven't will be posting tales of woe.

I think this is a very valid point. I'd be interested to know the proportion who are in the former category. I suspect there are many.

epoman

Sisyphus wrote: »

I think this is a very valid point. I'd be interested to know the proportion who are in the former category. I suspect there are many.

I suspect its the majority of those who have bought in the last few years in an effort to jump on the bandwagon.

Guy_Montag

Generali wrote: »

- Rising unemployment causing BTLers that subsidise their properties being unable to do so. It's pretty tough to cover a BTL mortgage on unemployment benefit - those that don't have anything put aside for such an eventuality could well be wiped out by a void of just a few months.

I think it's also worth mentioning, if there's an economic downturn which, despite living in a "miracle" economy is bound to happen sooner or later. Most of these hard working eastern European migrant workers we keep hearing about will head off elsewhere. Ok, there may be some that hang about to claim the dole, but in my experience they seem to prefer to earn money.

Generali

epoman wrote: »

I suspect its the majority of those who have bought in the last few years in an effort to jump on the bandwagon.

It's also all those people you read about in the paper with £5 million quids worth of equity that have been BTLing since the late 90s and keep remortgaging to increase their empire. If you've got £5 million in equity supporting £40 million in borrowing you've got a big problem potentially despite feeling very rich right now.

I guess people with £5 million in equity go to https://www.moneyspendingexpert.com though. Don't need to mix with proles like me. Oh well.

BobProperty

mystic_trev wrote: »

This happened during the last crash and happens during any financial correction. There are people who will try to call the bottom of the market and buy in, to secure a bargain, therefore prices will stabilise and even rise. However a downward trend can continue, again with people trying to buy bargains as the markets decline. As with a rising market it's difficult to call the top, with a declining market it's difficult to call the bottom and often referred to as trying to catch a falling knife!

The broker phrase is "you don't try to catch a falling knife". In other words you wait until you know it has hit the floor before you move in. Might take a few years yet.

cambsman

I dont see BTL'ers, as greedy, i see them as the inevitable result of incompetent government policy on pensions, a few of whom may yet become the victim of incompetent government policy on house prices - Im sure some will go bust - It stands to reason that if most landlords got into the business over the past 10-12 years, they will all have different amounts of pressure to raise rents, if, say interest rates rise.
If you bought 10 years ago you can probably afford not to raise rents in the face of a rates rise and ensure less voids than those who bought say a year ago who are more likely to need to raise prices to cover mortgage payments. These may fail to find tenants. This is why i dont think rents neccessarily directly/immediately follow houseprices.

I think in some areas the demand is 'traditional' and in some areas more 'speculative'. Almost everywhere in the country has experienced 250-300% rises over the past 10 years, but population trends have been very different throughout the country. In the south east, the demand is mostly real, population has in increased, however, in the North East particularly, the population has actually decreased since 1995, and despite more singles living alone, even the number of household hasnt risen, so i fail to see what is fuelling that part of the country other than speculative demand. I reckon if there is a crash, the further south east you go the more benign it will be. With all the cash slushing around London, i really cant see a crash happening there.