Property market 'heading for a fall in 2008'

thesaint

Generali wrote: »

<snip>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.

You have hit the nail on the head.

A friend of mine had little idea of the market, went to some seminars and bought about 5 properties on a new build development. She remortgaged to the hilt, in the last year all of her properties have been repossessed.

I have not remortgaged any of mine, I choose to save for the next property instead of borrowing on theoretical money. Each year, my % stake in my properties goes up regardless. It does not bring the huge gains possible, but conversely cushions any losses.

If house prices tumble due to interest rate hikes, there wil be tales of woe from BTL landlords(myself included), but nothing compared to the tales by the humble homeowner with a wife and two kids.

littlesaint

My friend, who works for Citizens Advice, says there are increasing numbers of people coming to her with problems paying the mortgage. They just can't afford to have a mortgage and shouldn't have got them in the first place. There are a lot of dodgy companies offering mortgages out there. Her advice? Sell your house and rent.

RabbitMad

My part of the country hasn't seen 250% to 300% rises ion 10 years.

The property I own was bought for 66K in '96, sold for 90K in 2000 and I hope to get 170 - 175K when I sell it this year. This is 157% rise in 11 years.

As an aside I note that council tax has increase 100% over the last 10 years but you don't hear people saying that its got to crash by at least 20 - 30%, its a bubble that must burst etc. Whilst house prices might be expensive at the moment I don't think they are so over inflated that there must be an imediate correction. I think the papers are just looking for a story. I bet they'll be a story about house prices rising by 50% over the next year within a week or two.

BTman

I make 66K to 175K a 265% rise in 11 years

what a surprise, another BTL numpty who can't add up!!!

Guy_Montag

RabbitMad wrote: »

My part of the country hasn't seen 250% to 300% rises ion 10 years.

The property I own was bought for 66K in '96, sold for 90K in 2000 and I hope to get 170 - 175K when I sell it this year. This is 157% rise in 11 years.

As an aside I note that council tax has increase 100% over the last 10 years but you don't hear people saying that its got to crash by at least 20 - 30%, its a bubble that must burst etc. Whilst house prices might be expensive at the moment I don't think they are so over inflated that there must be an imediate correction. I think the papers are just looking for a story. I bet they'll be a story about house prices rising by 50% over the next year within a week or two.

There's no real market in council tax. You can't realistically choose one council over another on price & quality of service.

Generali

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.

Correct, Saint. My point is that what is seen as reasonable may well fall if demands on the welfare budget become greater. Govt spending can't really increase from here as the country is maxed out on the budget deficit and politically, taxes can't go up any more IMHO.

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.
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.

I clearly didn't make this point well. What I was trying to say is that if a BTL owner loses his job and he doesn't have savings, a short void may well clean him out. That is a potential pool of distressed sellers

Generali wrote: »

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.

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.

My point remains. I don't think many BTLers have looked at a worst case scenario - what that could be and what the effect would be on them. The fact is if you haven't done the sums, you don't really know what your risks are.

mystic_trev

littlesaint wrote: »

My friend, who works for Citizens Advice, says there are increasing numbers of people coming to her with problems paying the mortgage.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/04/03/cnsavings03.xml

"The Bank's own statistics showed yesterday that mortgage equity withdrawal (MEW), in which families borrow against the value of their home, hit a two-year high in the final quarter of 2006, as households increased their borrowing to keep their finances afloat.

MEW rose to some £14.6bn, or 6.7pc of incomes - the highest level since mid-2004. Experts said households could be paying off credit card debts by increasing their mortgages"

thesaint

Generali wrote: »

Correct, Saint. My point is that what is seen as reasonable may well fall if demands on the welfare budget become greater. Govt spending can't really increase from here as the country is maxed out on the budget deficit and politically, taxes can't go up any more IMHO.
What is reasonable is not for the local authority to guess. It is decided on factual rents in the local area. If the rents were to fall dramatically you would be correct. If the council decided they were not going to pay, they would have to find somewhere else to house the same tenant, if they have no available stock...


I clearly didn't make this point well. What I was trying to say is that if a BTL owner loses his job and he doesn't have savings, a short void may well clean him out. That is a potential pool of distressed sellers
Sorry, I thought you meant the tenant being unemployed.
I did my figures with a built in 2 month void scenario, never had a 2 month void due to demand in my area.


My point remains. I don't think many BTLers have looked at a worst case scenario - what that could be and what the effect would be on them. The fact is if you haven't done the sums, you don't really know what your risks are. No one looks at the worse case scenario, if they did there would be no home owners, businesses etc.

I do agree that some will fall away (like my friend), she saw money to be made short term, I look at 20 years+.
I choose to buy with repayment mortgages instead of interest only, which prevents me speculating with money that I should be using to pay off the original amount when the mortgage is due for redemption.

ds1980

What i don't get is that all these people who rent to try and save money. Your gambling just as much as those that are buying.

Someone else is (investing) in my properties. I put in a small amount (deposit, stamp etc) and then someone else pays me for my investment. I'm not bothered about how much my house is or isn't worth but in 25 years (well 10 actually). Someone else has paid off my mortgage for me.

If i do this a few times then suddenly you have houses that you own with no mortgage. Plus you are getting an income of well above the national average wage per year and this can only go up over time like wages.

Meanwhile back in Big Johns 3 bedroom town house that he rents out to colin and zara. Colin and zara are over the moon as theyve managed to save about £100-£200k in savings over the ten years. House prices have fallen and theyve managed to buy a lovely 3 bedroom house round the corner from grandma.

Meanwhile im now able to afford to live in a country estate because ive saved just as much as them plus i have an annual income of rents, plus my wages have gone up etc etc and if i really want to (not that i ever would) sell all the houses ive got for however much equity i can get for them. If I own 10 houses that are collectively are valued at the same amount as say a 6 bed detached house now in a fantastic area then no matter what house prices do this is what ill be able to afford if i ever decide to sell them all and buy the biggest place possible for cash.

I understand there are a lot of stupid people about who think being a landlord is easy and it isn't but to me its a no brainer.

Coincidently no one has mentioned that if interest rates go up why wouldn't landlords just remortgage for a fixed rate until the dust settles?

Its all daunting but its not scary if you know what your doing is it?

Ok your all thinking rental voids etc but theres always going to be a house shortage and theyll always be people wanting to rent your place.....this can only ever get easier aswell because your mortgae.....whilst someone else is paying it for you reduces over time aswell.....the good news keeps on coming don't it.

BTman

ds1980 wrote: »

What i don't get is that all these people who rent to try and save money. Your gambling just as much as those that are buying.

Someone else is (investing) in my properties. I put in a small amount (deposit, stamp etc) and then someone else pays me for my investment. I'm not bothered about how much my house is or isn't worth but in 25 years (well 10 actually). Someone else has paid off my mortgage for me.

I'd like to see your sums.. A renter paying off your entire repayment mortgage in 10 years at todays prices???