Landlords could be a threat to banks and wider financial stability

antrobus

CLAPTON wrote: »

..what percentage of all property owners in the grim north are in negative equity and by how much?

According to this source 14%, compared to 1% in London. That's from 2014, so it may well be less by now.

http://www.bbc.co.uk/news/business-26389009

cells

antrobus wrote: »

That's a relief.



No, I think that the statement that "rates of credit loss on buy-to-let loans in the United Kingdom have been around twice those incurred on lending to owner-occupiers" has a very clear meaning. At least I have no problem understanding it.



I can see that you are desperately trying to argue that you were not wrong.

It would be much easier if you just accepted the fact that BTL lending is riskier than OO lending as it carries a higher risk of credit loss.

but just stating a higher risk of credit loss is meaningless

If you lend out £100m half to men half to women and get a spread of 3% (£3m) and you find that the men you lend to default at twice the rate as the women that tells you something. But If you then note that £30,000 of defaults were women and £60,000 of defaults were men that tells you a lot more

It tells you that of your £1.5m spread lent to women you expect 1.47m back. Of your £1.5m spread lent to men you expect 1.44m back

The difference between the two is that men defualt at twice the rate but the underlying impact on your business is that men give you a 96% of your expected perfect return and women give you 98% of your expected perfect return. in this example Both extremely profitable and extremely low risk. Something which is not clear in a simpler statement that men default at twice the rate

antrobus

cells wrote: »

but just stating a higher risk of credit loss is meaningless...

Not if you're a bank it ain't. It's how you price your loans.

cells

antrobus wrote: »

Really?

Looks quite pricey to me. 2.87% in Kensington and Chelsea, compared to 7.98% in Manchester.

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11633681/Buy-to-let-hotspots-for-2015-revealed.html

You need to look at net yield not gross.

For example if you are getting £5k a year for a flat in Manchester bought for £63k or £50k for a flat in Kensington bought for £1.7 million. That gives your 2.87% vs 7.98% gross yeild. But say both the flats have £1.5k a year service charge and also £1.5k a year in other costs (eg maintenance repair your time).

The Manchester flat then falls to a 3.2% net vs 2.7% net for the flat in Kensington. Much closer to each other.

Thrugelmir

cells wrote: »

You need to look at net yield not gross.

For example if you are getting £5k a year for a flat in Manchester bought for £63k or £50k for a flat in Kensington bought for £1.7 million. That gives your 2.87% vs 7.98% gross yeild. But say both the flats have £1.5k a year service charge and also £1.5k a year in other costs (eg maintenance repair your time).

The Manchester flat then falls to a 3.2% net vs 2.7% net for the flat in Kensington. Much closer to each other.

Have you factored in the cost of extending the lease ?

cells

Thrugelmir wrote: »

Have you factored in the cost of extending the lease ?

yes another cost. Also things like survey fees mortgage product fees and time value etc etc makes a simple gross yield misleading.

I would much prefer 2 expensive BTLs yielding say 5% rather than 20 cheap BTLs yielding 7% as the net yield will likely be higher for the expensive rentals

cells

antrobus wrote: »

Not if you're a bank it ain't. It's how you price your loans.

but the figures for both are fantastic hence why BTL mortgages are being priced as low as 2%

Generali

cells wrote: »

but just stating a higher risk of credit loss is meaningless

If you lend out £100m half to men half to women and get a spread of 3% (£3m) and you find that the men you lend to default at twice the rate as the women that tells you something. But If you then note that £30,000 of defaults were women and £60,000 of defaults were men that tells you a lot more

It tells you that of your £1.5m spread lent to women you expect 1.47m back. Of your £1.5m spread lent to men you expect 1.44m back

The difference between the two is that men defualt at twice the rate but the underlying impact on your business is that men give you a 96% of your expected perfect return and women give you 98% of your expected perfect return. in this example Both extremely profitable and extremely low risk. Something which is not clear in a simpler statement that men default at twice the rate

The risk of default is low at present as the cost of credit is low. As interest rates rise it is reasonable to assume that default rates will rise.

I've read a lot of comments about why interest rates are going to go back to historic norms. I'm yet to read a compelling one. This Time It's Different is the most expensive phrase in the English language.

cells

Generali wrote: »

The risk of default is low at present as the cost of credit is low. As interest rates rise it is reasonable to assume that default rates will rise.

what would happen if defaults doubled or even tripped (in either the owner or BTL sector or both together)?

Generali wrote: »

I've read a lot of comments about why interest rates are going to go back to historic norms. I'm yet to read a compelling one. This Time It's Different is the most expensive phrase in the English language.

typo? did you mean youve read a lot of comments about why interest rates are NOT going to go back to historic norms?

Generali

cells wrote: »

what would happen if defaults doubled or even tripped (in either the owner or BTL sector or both together)?




typo? did you mean youve read a lot of comments about why interest rates are NOT going to go back to historic norms?

I did mean that, Typo Alert!!!

Defaults will rise with rates IMHO.