Falling prices and BTL opportunities

HammersFan

Some really interesting debate here and fascinating to see how people view the same info differently. Surely gearing using at least 30% deposit, getting a good deal on the price, buying in a good area, and avoiding flats is still a decent strategy in any market. People keep on about the credit crunch, but the only impact I see so far is a reduction in my monthly mortgage payments (but I am sure to be told that I am 100% doomed by taking this view). Also, the people that tend to do really well are those that take calculated risks and buck the trend e.g. people who bought in 93-94 when most people had a massive downer on property.

Rover

Agreed.
But is now the trough - the time to buy. Or is it just the start of a slide ?
Answers on a postcard to :

Michael Coogan
Council of Mortgage Lenders
North West Wing, Bush House, Aldwych, London WC2B 4PJ

The lucky winner will receive a 4 bed detatched house, with a 30 year mortgage and 10 years of negative equity.

Incidentally, I think this Coogan character is to the housing market, what Dr Harold Shipman was to geriatric care. And should be burned at the stake as soon as possible.

epz_2

HammersFan wrote: »

Some really interesting debate here and fascinating to see how people view the same info differently. Surely gearing using at least 30% deposit, getting a good deal on the price, buying in a good area, and avoiding flats is still a decent strategy in any market. People keep on about the credit crunch, but the only impact I see so far is a reduction in my monthly mortgage payments (but I am sure to be told that I am 100% doomed by taking this view). Also, the people that tend to do really well are those that take calculated risks and buck the trend e.g. people who bought in 93-94 when most people had a massive downer on property.

gearing works the other way as well, if prices keep droping you expose yourself to a lot of risk and if something bad happens like unemployment (more likely in a recession) and a bad tenant then you are basicly bankrupt.

ManAtHome

HammersFan wrote: »

People keep on about the credit crunch, but the only impact I see so far is a reduction in my monthly mortgage payments

But in the wider view - we have a major bank on life-support, lenders increasing every rate they can, and increasing premiums and charges on BoE-linked products, and the central banks pushing staggering sums into the market (EU seem to be slinging more money around than the US and UK combined).

Most of the 'high street' are elbowing each other to get into 'The Sale' - suspect they're trying to get the cash in at almost any price (January to Easter are normally lean times for retail).

Who knows what will happen to immigrant labour and non-doms - currency devaluation and rule changes could have a significant effect unless we can continue to beat the tax concessions offered in not-quite-EU-land (Switzerland mainly). Not sure how the proposed (last budget) "let the small companies pay for the big ones" corporation taxes will pan out, especially when you factor in the small long-term company CGT tax hike unless they sell out before April.

Don't know about you, but doesn't give me a warm fuzzy feeling.

However, the good news is that UK-land seems to have avoided the inflation that the rest of the world is suffering - maybe we do have a miracle economy (great business opportunity to show the rest of the world where they're going wrong with all this prices going up stuff)...

HammersFan

epz wrote: »

gearing works the other way as well, if prices keep droping you expose yourself to a lot of risk and if something bad happens like unemployment (more likely in a recession) and a bad tenant then you are basicly bankrupt.

Yes, for sure - however, unless there is negative equity you hand back the keys and lose your deposit. Which is not good, granted. But not bankruptcy. And for most BTL'ers a hell of a long way off.

But no investment is without any risk at all. The way I look at it, if the plan is to hold the house for 5-10 years, and there is a bit of cash to ride out getting rid of a bad tenant, the the odds look pretty good.

In any case, holding cash in the bank is a risk - taking into account inflation returns are pretty small and the chance of a big gain is nil.

Generali

HammersFan wrote: »

Yes, for sure - however, unless there is negative equity you hand back the keys and lose your deposit. Which is not good, granted. But not bankruptcy. And for most BTL'ers a hell of a long way off.

That's one of the big risks with BTL - you've bought an asset using borrowed money. You can't just 'hand the keys back', you have to repay the debt.

For most people, that means selling and selling houses takes ages in this country and the market can be illiquid.

Selling an asset falling in value in an illiquid market is hard. It's something that's bankrupted more than one investor in the past (see Amaranth for an example of that - different asset, same principle).

I'm sure most BTLers will be fine - the average deposit is 40% I think so there's a long way to go before the average investor is wiped out. Prices are set at the margin though and it's forced sellers that really start to drive asset prices down.

HammersFan

Generali wrote: »

That's one of the big risks with BTL - you've bought an asset using borrowed money. You can't just 'hand the keys back', you have to repay the debt.

quote]


If you have no negative equity (and as you say most BTl'ers have 30% deposits) then you can just hand the keys back. There more likely forced sellers are those that withdrew loads of equity to spend on cars, TV's, holidays etc., and now can't get their hands on any more to service the debt.

Generali

HammersFan wrote: »

If you have no negative equity (and as you say most BTl'ers have 30% deposits) then you can just hand the keys back. There more likely forced sellers are those that withdrew loads of equity to spend on cars, TV's, holidays etc., and now can't get their hands on any more to service the debt.

If that becomes a mass phenomenon, you can bet that the banks won't just 'let it go'. They don't want people's houses, they want cash. They'll start to charge heavy fees for selling on reposessed houses (IIRC there was a scandal about fees charged for reposessions in the 1990s).

Banks are pretty hot on moral hazard (for their clients anyway).

dolce_vita

HammersFan wrote: »

Yes, for sure - however, unless there is negative equity you hand back the keys and lose your deposit. Which is not good, granted. But not bankruptcy.
.

You were obviously not "around" during the last crash and have just heard stories of people "handing their keys back".

The only people that did that were the stupid and the desperate.

HammersFan

dolce_vita wrote: »

You were obviously not "around" during the last crash and have just heard stories of people "handing their keys back".

The only people that did that were the stupid and the desperate.

unless I missed something, we don't have a crash (yet). It looks like interest rates are on the tumble too, with slightly softer asking prices around, this is not a bad time to buy (if the deal is right).