Could this be the ruin of BTL ?

mystic_trev

I'll let you read the article and decide. Basically what it's saying is that over geared BTL Investors could be in for a shock if the Property market has a 'correction' Like other geared Investments, the lender can make a 'margin call' If the Loan-to-value ratio goes against the Investor. Those with the highest LTV's are the most exposed, as it would only take a small correction for a'call' to be made. Here's the full article from Merryn.http://www.moneyweek.com/file/36564/could-this-be-the-ruin-of-the-buy-to-letters.html

silvercar

Why would it be in a lender's interest to call in part of a mortgage?

Especially in a falling market where there would be a danger that the lender wouldn't get all his money back.

Anyone heard of a lender asking a borrower to pay for a re-valuation in order to see if the lender should ask for a return on some of the capital?

Guy_Montag

I guess that's the point the lender may feel it's better to get their money back in small chunks than take the risk in a falling market that if they repo they will only get 70% back.

E.g.*

Market falling 10% pa, your 90% 100k btl after year one is worth 90k, bank asks you to pay back 9k (perhaps over the next year) to maintain the ratio, for fear that if they have to repo the year after they will lose that 9k. If that pushes you to the brink, well it probably wasn't viable anyway.


*Easy numbers, not real numbers

IveSeenTheLight

I can understand this for lenders who have only recently loaned money for BTL, for BTL's a few years old however: -

lender loans 90% or 90k of a 100k valuation
Year 1 sees a 10% increase in valuation while the capital is reduced by a years payments. thus 88k left with the valuation at 110k
Year 2 sees a similar 10% increase meaning 86k left with the valuation at 121k.
Year 3 now sees the valuation correcting by 15% meaning the capital is now 84k with the valuation at 103K.
This is still above the inital 10% initial deposit paid

* Again easy number not real numbers

mystic_trev

silvercar wrote: »

Anyone heard of a lender asking a borrower to pay for a re-valuation in order to see if the lender should ask for a return on some of the capital?

Had anyone heard of people queueing to get their money out of a Bank / BS a couple of months ago? With the Credit crunch we're in a totally different envionment - Lenders are more cautious about 'protecting their backs' !!!!
Anyway 'margin calls' are standard practice for other forms of highly geared investments - why not BTL ?

m00m00

the problem with your maths is that BTL mortgages are on usually always on interest only, so there is no capital reduction taking place.

BobProperty

silvercar wrote: »

Why would it be in a lender's interest to call in part of a mortgage?

Especially in a falling market where there would be a danger that the lender wouldn't get all his money back.

Anyone heard of a lender asking a borrower to pay for a re-valuation in order to see if the lender should ask for a return on some of the capital?

I've had this happen to me, sort of. Part of the borrowing on a property was secured on another property (as with anyone with a "portfolio" and a lending "facility", but in my case it was only two properties). When I sold one of them I had to pay down the mortgage on the other with some of the proceeds to keep the LTV / proportion of loan / Loan to Rent in line with some rules of the lender. Someone with a series of properties built on the basis of borrowing on the equity in the previous deals could be in for a nasty surprise when they sell one (and that doesn't include the CGT comp either)

tr3mor

m00m00 wrote: »

the problem with your maths is that BTL mortgages are on usually always on interest only, so there is no capital reduction taking place.

And all the MEWing.

IveSeenTheLight

m00m00 wrote: »

the problem with your maths is that BTL mortgages are on usually always on interest only, so there is no capital reduction taking place.

Nice to assume.
My BTL's are capital and interest so there are BTL's out there on similar repayment option.
Therefore my maths does add up.
Even without capital repayment, depending on when the property was bought, previous valuation increases may cover any price correction.
Look at the hypothetical figures I used again without capital repayments:rolleyes:

macaque_2

silvercar wrote: »

Why would it be in a lender's interest to call in part of a mortgage?

Especially in a falling market where there would be a danger that the lender wouldn't get all his money back.

Anyone heard of a lender asking a borrower to pay for a re-valuation in order to see if the lender should ask for a return on some of the capital?

History shows that lenders tend to be ruthless about this. In past recessions, lenders would foreclose at the drop of a hat. I suspect BTLs with multiple loans could be in the most danger as lenders will compete with each other to get their money out first.

kennyboy66_2

I think this is highly unlikely. I have never heard of a lender seeking a valuation in the middle of a mortgage term which is being paid on time every month. The glacial speed of most lenders plus the usual arguing over the right valuer to use means that this process would be slow to say the least.

Much more likely is the effect of more stringent conditions when one deal expires & the BTL tries to re-mortgage. I can see this causing some 'forced selling'.