Falling prices and BTL opportunities

DreamBreaker

Oppppssssssssss looks like we can't be civil as i just receieved this in the house prices accelerating forum from no otehr than dolce vita!!!

dolce_vita wrote: »

Dreamer - I'd just like to add this to the abuse you've been recieving:

You are an idiot and I think you should fvck off.

(You can quote me on that)

Lovely person that!

HugoSP

Yep,

That .25% cut in interest rates must be really getting to him.

dolce_vita

Hugo - I take it your last 2 posts were aimed at me. even though you couldn't bring yourself to name me as your target.

Anyway, without responding to anything in particular,in all my posts I'm just talking from experience.

I can see the similarities from the last crash and I wish someone had explained it to me when I was younger.

And no I don't like seeing families out on the street.

And neither do I like to see families being unable to afford a home in the first place; unable to not because they don't work hard enough, or because they spend all their money on i-pods, or because they are unwilling to start at the "bottom of the chain".

By any historical measure, house price affordability is at its worst.

So the way I see it is those that have maxed out the most during the boom lose the most during the bust. And those that through luck or good judgement or a mixture of both come out unscathed and another cycle begins.

But each cycle seems to get a bit tougher and I'm glad I'm not starting out now.

Generali

Gorgeous_George wrote: »

You cannot 'just hand the keys back'. The loan must be repaid and therefore the house needs to be sold. If prices are falling it will be difficult to attain a price high enough to cover the whole debt plus costs. The residual debt still needs repaying and BTLers risk their own homes. It's part of the game.In USA, I believe the debt dies when the keys are returned. This is a significant difference and is why the American housing crisis is such an issue.GG

I think you are right as far as you go but you're missing a rather nasty sting in the tail.

The difference between what you borrowed and what was repaid by the foreclosure sale (repo) is treated as a gain by the IRS and is thus taxable.

Would you rather be chased for a debt by 1st Bank of Ohio (who can blacklist you and send you scary letters) or the IRS who can (and will) sling you in gaol?

HammersFan

Great post Hugo SP. The delight that some seem to take in others' possible future misfortune / bad luck / poor decision making has really amazed / saddened me. Maybe its just the way they express themselves, but the posters who brag about how well they have done, what wise people they are etc. remind me of that Harry Enfield character "you don't want to do it like that!".

People that buy houses now - I say good luck to them, that's a ballsy decision and ballsy decisions sometimes really pay off.

People who sit and wait - I say good luck to them, that's a ballsy decision, it might pay off IF prices fall (sure to provoke someone into telling me that I am mad / stupid / foolish for not accepting that a 7% gain over the past 12 months is a fall).

HugoSP

dolce_vita wrote: »

Hugo - I take it your last 2 posts were aimed at me. even though you couldn't bring yourself to name me as your target.

I did consider it but I didn't feel it was necessary.

Anyway, without responding to anything in particular,in all my posts I'm just talking from experience.

I can see the similarities from the last crash and I wish someone had explained it to me when I was younger.

Thanks for raising some good points. I too can see simularities with the last crash, I too owned a house that rocketed in value then fell back by 10%. Fortunately we were not stuck in negative equity. I do think that some of the causes of this downturn are different - ie it seems to be more of a credit crunch than a stockmarket crash this time around.

And no I don't like seeing families out on the street.

I honestly didn't think so but any inexperienced chat room browser could IMO have misinterpreted your motives for posting, especially after what you said to dream breaker in another thread - there was no need to be so rude. Personally I think you owe him an apology, that post was out of order by anyones' standards.

And neither do I like to see families being unable to afford a home in the first place; unable to not because they don't work hard enough, or because they spend all their money on i-pods, or because they are unwilling to start at the "bottom of the chain".

I don't think anyone does. I can see why these people hope for a fall in houseprices to give them a leg up, and to make life easier for them. I an ideal world I would like to see a good 10-15% average reduction in house prices followed by a further cut or two in rates that the banks are forced to hand on in full. Coupled with this I would like to see a much more responsible lending approach, plus the general public need to be more savvy when it comes to spending and borrowing - one of the reasons why this site exists is that banks etc are screwing the public into recession as we speak.

By any historical measure, house price affordability is at its worst.

That really depends who you are and what you are buying. Flats in many aras are dirt cheap at the moment, so people could find themselves a pad, but it's the 3 bed houses that can be a problem. My estate agent reckons that they finding people coming out the woodwork to buy their first flat who wouldn't otherwise be coming out, purely down to the fact that they are cheap. The reductions in price have more than made up for the extra mortgage payments they would have to make if prices were static.

It's for this reason that I believe BTL will continue as a lot of them are cash buyers so they are reaping the benefit without having to suffer increased interest payments.

So the way I see it is those that have maxed out the most during the boom lose the most during the bust. And those that through luck or good judgement or a mixture of both come out unscathed and another cycle begins.

But each cycle seems to get a bit tougher and I'm glad I'm not starting out now.

That's true, if they don't put themselves in a position where they need to realise their assets when prices are down. My neighbour was in NE when prices fell the last time - he didn't need to sell so he was not in a sticky situation. He sat tight until prices rose about 12 months later, then reviewed his options.

The same is true for buy to let, unless like some are saying, banks get jittery and ask borrowers to repay some of the debt. Whilst this may work on a one by one basis, a run on banks doing this could cause another crash in years to come as LLs sell their properties to repay.

If banks are sensible they will not want to be left with loads of repossessed houses on their hands that they will make a loss on and never recover it. They will let LLs pay off their mortgages over the term, unless LLs get into significant arrears. My guess is that they will have enough to worry about with your maxed out investers defaulting on payments, especially if the tenants miss rent payments. The agent who runs our flat has reported that a few of their LLs have been reposessed because the tenants have missed rent payments.

One difference that has struck me though is the government's and the BoE's willingness to at least be seen to take steps to avert a crisis. I'm sure you will remember the last crash was met by John Major saying "If there's no pain there's no gain", just before we came out of the ERM at interest rates of some 16%. I know that this comment will attract a truck load of scepticisim, but we now have a government telling us that this needs to be sorted out, rather than a government telling us that it is just tough luck. I'm sceptical too, but there is a difference in the attitued they at least want to portray.

iazms

If your after making a quick buck in the BTL market then think again, cos house prices are no where near rising enough to allow that. Things may change in couple of yrs time though.

But if your in for the long run then there are several hot locations to invest in.

I helped put up 3 student houses to let for my friends who are also my neighbours. All 3 houses got snapped up within 7 days! And just to give you an example, there monthly mortgage payments are around £650/month and they are getting £1100 rent/month (due to being 4 & 5 bed houses). So clearly more than enough to cover the empty summer periods etc.

You can pick up a 3 bed with 2 reception rooms and separate kitchen house for £125-£135k. This allows you let out 4 bedrooms (by converting one reception room into a bedroom), separate lounge and kitchen. (All students love there lounges).

It's all about location and the tentants you get. Them same houses let to a family would get £500-£600. So clearly this is not as attractive.

Even if house prices do drop, provided you can keep up the re-payments it is unlikely the banks are going to ask some of the debt back. Perhaps people can share there real life experieces regarding this point ? Has this ever happened to you? So just ride the wave, ensure you have a reserve to make the payments during empty periods (eg your normal day job etc) and you should be fine. But its been an interesting read and BTL is certainly not for the faint hearted.

HugoSP

iazms wrote: »

Even if house prices do drop, provided you can keep up the re-payments it is unlikely the banks are going to ask some of the debt back. Perhaps people can share there real life experieces regarding this point ? Has this ever happened to you? So just ride the wave, ensure you have a reserve to make the payments during empty periods (eg your normal day job etc) and you should be fine. But its been an interesting read and BTL is certainly not for the faint hearted.

There were instances where commercial loans were recalled as far as I can make out, purely because banks could not forsee future viability.

I personally do not know of any LL who lost any property as a result of similar actions in the last crash, and I knew a lot of landlords who bought using commercial finance. The properties were making money despite their falls in value as they were in university areas.

It was originally quoted as a theory here in another thread that banks could ask/demand partial repayment to minimise their exposure if prices fell, and is regularly repeated by one HPC poster here. This has certainly never happened with residential mortgages to my knowledge and is probably less likely to happen to BTL mortgages as these types of mortgages are usually a safer bet with regards to the borrowers' abilities to service them, provided they are let and earning money. Even if the tenant finds himself unable to pay his rent due to redundancy or loss of income then the DSS will cough up in time. Homeowner Mortgage payments are on a tough luck basis with the DSS

gallygirl

HammersFan wrote: »

Great post Hugo SP. The delight that some seem to take in others' possible future misfortune / bad luck / poor decision making has really amazed / saddened me. Maybe its just the way they express themselves, but the posters who brag about how well they have done, what wise people they are etc. remind me of that Harry Enfield character "you don't want to do it like that!".

.

TBH HammersFan, I think some of it is relief that what they have been saying for the past 4 or 5 years has come to pass. What they've failed to take into account is that people who bought then have 4 or 5 yrs of capital growth behind then - around 80% increase where I am. Prices have to fall a long way before they are back to those levels.

HOUSE PRICES TO DOUBLE IN NEXT 5 YEARS. Keep saying it & it will come true. Then you can come back here & say I told you so!

Propertysnake in my area is showing mainly 5-8% cuts, which is no diffferent to normal, and there don't seem to be any more than normal. However, I've had a good look on rightmove & there are houses up with multiple agents showing well over 10% differences (on around 250-300k). What you want is to find a house from a HPC'er who needs to relocate - offer then 25% off and watch them bite your hand off.

macaque_2

Gorgeous_George wrote: »

Undoubtedly, house prices are on the way down. This could be good news for potential BTL investors.

Firstly, negative equity and financial stress leads to more reposessions. This means cheaper houses for wannabe BTL investors.

Secondly, in a falling market, people are less likely to buy a home. Renting, therefore, becomes more popular and this increases demand for good quality BTL properties. Rents should rise accordingly.

Anyone who missed the boat last time should be preparing to buy a ticket for the next ride. Just be sure to set sail at low tide.

GG

This reflects the low quality of analysis employed by the average amateur BTL. A good investment decision should rely on more than just a few cherry picked metrics.

Investments have their moment in the sun and BTL is no exception. It has in fact enjoyed a long and glorious summer. This is no surprise since historically it has benefited from a favourable tax environment, an absence of regulation, rising disposable incomes, low interest rates, easy credit and rising population levels. These factors have gone into reverse.

For the past 10 years, the government have used immigration to foster an illusion of prosperity. Millions of immigrants have been imported to feed the UK service sector. This has kept a steady and growing demand for housing. Mewing alone has liberated 10s of billions pa for ploughing back into the economy. The flaw in this model is that we don't have a productive or self sufficient economy. Industry is shrinking rapidly and the credit crunch will be cyanide to the service sector.

At some point Sim city needs more than BTL, MEW and house flipping to sustain itself. It would appear that the tipping point has now been reached. Unemployment is rising, disposable incomes are falling and the MEW tap is being turned off. As work drys up the immigrants will depart for the same reasons that they came here in the first place. It seems highly probable that within 2 or 3 years the population growth will go into rapid reverse. If that happens, there will be two types of BTL landlord; those lucky enough to have a tenant (at any price) and those who don't.