Moneyweek: Why the buy-to-let carnage is just beginning.

WTF?_2

http://www.moneyweek.com/file/48132/why-the-buy-to-let-carnage-is-just-beginning.html

The chaos and the grim news on profits sent B&B’s shares diving 24% to 67p, and it’s certainly a messy situation. But why did other banks take such fright? For example, HBoS sank 10%, while Alliance & Leicester fell 5.2%.

Well, the main worries for other banks were in B&B’s trading update. The group – which is Britain’s biggest buy-to-let mortgage lender – saw bad debts on its buy-to-let mortgages jump by a staggering 50% between the start of the year and the end of April
More than 3,000 of B&B’s buy-to-let customers are now at least three months behind in their mortgage payments, from less than 2,000 at the start of 2008. Buy-to-let accounts for nearly 60% of the bank’s mortgage book.

Things will only get worse, said the bank. “The tougher economic environment will continue to push arrears beyond the current level.” As Sandy Chen at Panmure Gordon put it: “This is not the bottom. The UK housing market - not just buy-to-let - is turning south.”


It's interesting to see that despite not being such a visible 'bust' as NR, the shameful B&B saga is turning out to be as damaging to the housing market PR-wise as Northern Crock was.

Seems like 'Time' really is being called on the viability of BTL by the media, but about a couple of years too late. Certainly too late to stop tens or possibly even hundreds of thousands of 'late to the party' BTLers from getting burned. (Moneyweek has been warning much further in advance though).

BenL

I wonder when the next B&B update will be, 6 months maybe for another trading statement when we can possibily see these 3 month people being further behind and another load each month getting behind.

At the moment as times have really started getting tougher there will be more defaulters lined up at the 2 1/2 month, 2 month, 1 1/2 month and 1 month behind mark.

Other people will be raiding credit cards and unsecured loans to ensure they keep up with the mortgage payments and will start to show on the figures when it gets too much.

This happened in the USA, unsecured lending starts to go through the roof to enable people to keep up the payment on the secured debt - we can see in the credit card board that a lot of people are getting credit limit reductions.

Dan:_4

Don't you ever get bored?

WTF?_2

Dan: wrote: »

Don't you ever get bored?

Seeing the likes of you take the time out of your busy schedule to read and comment on them makes it all worthwhile.

:rotfl:

ianmr65

BenL wrote: »

I

This happened in the USA, unsecured lending starts to go through the roof to enable people to keep up the payment on the secured debt - we can see in the credit card board that a lot of people are getting credit limit reductions.

At the risk of repeating myself... banks have succesfully applied for an got court orders granting them the ability to place charges, on property, against defualted, unsecured debt. This pretty much effectively makes all debt that a property owner incures secured....

In the upcoming carnage expect banks/ debt collection agencies to use this facillity on a far more widespread basis, than they say they will, now. :rolleyes:

dopester

Dan: wrote: »

Don't you ever get bored?

You have the exact same curt posting style as another "Dan-something" of about 3 months ago.

Lost your details and opened a new account maybe? As I remember that Dan was banging on about the credit crunch being a blip and was full of positivity in his decision to become a FTB.

WTF?_2

In the USA the banks were pretty surprised when people decided to default on their home loans. They had expected people to do pretty much everything they could to keep the house and default on other things first......

However, it looks like car loans and credit cards (in that order) took precedence over paying the mortgage. Hardly surprising when in many 'non recourse' states you can just hand back the keys and the loan is settled. Of course there may be capital gains tax implications but I think that anyone faced with an unserviceable amount of mortgage debt and a house maybe worth less than they paid (or soon to be worth less) is going to see handing back the keys as a 'no-brainer'.

Generali

!!!!!!? wrote: »

In the USA the banks were pretty surprised when people decided to default on their home loans. They had expected people to do pretty much everything they could to keep the house and default on other things first......

However, it looks like car loans and credit cards (in that order) took precedence over paying the mortgage. Hardly surprising when in many 'non recourse' states you can just hand back the keys and the loan is settled. Of course there may be capital gains tax implications but I think that anyone faced with an unserviceable amount of mortgage debt and a house maybe worth less than they paid (or soon to be worth less) is going to see handing back the keys as a 'no-brainer'.

People did this in the early 90s. They couldn't think of what else to do as they couldn't make the mortgage payments so they went into the BS, put the keys on the counter and said, "It's your problem now".

Of course 5 years later when their life was nice and sweet again, the bank came back saying, "Now about that £30k you owe us...".

Dan:_4

dopester wrote: »

You have the exact same curt posting style as another "Dan-something" of about 3 months ago.

Lost your details and opened a new account maybe? As I remember that Dan was banging on about the credit crunch being a blip and was full of positivity in his decision to become a FTB.

Same account since day 1 my friend, but it's been a few years since I was a FTB. As for the credit crunch, the worst will be over by the end of the year.

Credit/Mortgages will still be tight but FTBers who were priced out of the market will be able to buy following the recent falls - prices will remain level as a result.

Generali

Dan: wrote: »

Same account since day 1 my friend, but it's been a few years since I was a FTB. As for the credit crunch, the worst will be over by the end of the year.

Credit/Mortgages will still be tight but FTBers who were priced out of the market will be able to buy following the recent falls - prices will remain level as a result.

It's an interesting theory but my suspicion is that a fall in house prices of a couple of % isn't going to make houses available to FTBs without substantial increases in mortgage lending.

WTF?_2

Generali wrote: »

People did this in the early 90s. They couldn't think of what else to do as they couldn't make the mortgage payments so they went into the BS, put the keys on the counter and said, "It's your problem now".

Of course 5 years later when their life was nice and sweet again, the bank came back saying, "Now about that £30k you owe us...".

It seems to me that bankruptcy would be a very sensible option in this case.

Assuming that the house was in negative equity and the person could service that debt, they might be able to do a deal with the lender and O.R. to keep it.

They have the stigma of bankruptcy of course and lose credit access but they could clear all their other debts which should give them enough headroom to make the mortgage payments. Would have left them set fair for the late 90s in retrospect.

On the other hand, back then there probably wasn't as much of an issue with personal debt other than the mortgage..... shows how much our attitudes have changed when we take it for granted that anyone who can't pay the mortgage must also have a ton of credit card/ loan/ overdraft debt.