Property crash, just maybe it really is different this time

[sancho panza]

14 minutes ago, Balding Badger said:

My understanding is that he plans to move into the most recently purchased one. I know from conversations in the Spring that he was telling family that he had trouble scraping together the deposit for this as he had recently committed to the Spanish flat and had used all his cash for the deposit on that. I assumed there was a re-mortgage of something to get the deposit for the fourth btl.

I genuinely don't know if he has paid anything off the older buy to lets. The oldest one would probably be about twice the price when he bought it but I had assumed that increases in value were being leveraged through re-mortgaging to release capital for further buys as per the BTL playbook.

I have to say that he doesn't talk to me about it at all as before he started out building his empire we had a conversation about the whole buy to let craze and I may have given him cause to think I wasn't entirely supportive! I know I didn't tell him exactly what I think from a moral perspective but I did question some of the business sense of it. Clearly, the ultra low interest rates for the last twelve years bailed him and his like out but it seems that he hasn't learned the right lessons.

My thinking is that he thinks that he can use the cash from the sale of his house to cover any shortfall on the mortgages of the other properties as they come up for re-mortgage as their fixes end. The danger must be that this is likely to continue for far longer than he thinks it will. Also, the value of the BTLs will be falling as the crash develops. If he finds himself forced to sell this will realise actual losses that will take his cash quite quickly. I  don't feel sympathetic for him as he is convinced that the government has his back (his parents are telling people that the government just have to lower taxes (!) and everything will be fine so you can see the level of thinking) but I am concerned that he could lose pretty well everything in due course, if things play out badly. Although he and his partner have looked down on the rest of us for years I know I am going to end up having to bite my tongue and not speak the brutal truth. I think he may have wrecked his families future though.

He sounds pretty screwed to be fair unless something magical happens and IRs drop back to 2% for the next ten years.

WHilst I've been a property bear for years,I'm not against lending on it as long as it's suitably collateralized but we've had a few people approach us over the years and they're always hoping I don't know the cost of bridging finance

'I thought we could jsut add a coupleof points to the base rate ' etc etc.

But given the hassle ,sols fees etc,if we're going to do it,then it has to pay us otherwise it's not worth the hassle.You'd be amazed how many of these types think you'll jsut lend on a handshake,'what do you mena,default risk?,it's me....insert name....our families have known each other 20 years.'

Generally in my experince,LL's go one of two ways,they build out to 3 to 4 hosues and then rapidly pay down the debt.These are shrewd punters and good people to do business with in whatever sphere.The other type,use the equity and then roll it into the next trade or three or four.QUite often,tehy don't even have the vaguest concept of what leverage is and how quickly it can unwind.Then before you know it,they're tapping people for laons.

[GTM]

30 minutes ago, Balding Badger said:

Clearly, the ultra low interest rates for the last twelve years bailed him and his like out but it seems that he hasn't learned the right lessons.

This was always the biggest issue with the reaction to things blowing up in 2008. Moreso than the money printing it was bailing out many people who had batshit crazy business plans. Because they didn't think, that was lucky and pull their horns in. Instead they thought they were financial geniuses who survived the global financial crisis. So they were always going to double down on the batshit crazy business models and create bigger and bigger issues down the line.

Sometimes you need to let the odd person end up under the wheels of the bus to warn others not to be so dumb.

Edited October 19, 2022 by GTM
Missing words

[Balding Badger]

1 minute ago, sancho panza said:

Generally in my experince,LL's go one of two ways,they build out to 3 to 4 hosues and then rapidly pay down the debt.These are shrewd punters and good people to do business with in whatever sphere.The other type,use the equity and then roll it into the next trade or three or four.QUite often,tehy don't even have the vaguest concept of what leverage is and how quickly it can unwind.Then before you know it,they're tapping people for laons.

The sad thing is I used to think he was a decent bloke but now BTL and money seem to be the purpose of his life. I know that he took tens of thousands (don't know the exact amount but a figure of £50k has been mentioned) off his parents as a downpayment on his inheritance a few years back as the deposit for the second BTL. If he goes back to them then it will be his siblings' inheritances he will be taking.

The inherent danger of leverage is exactly what I think he doesn't understand. As the saying goes, "It's your friend on the way up but your enemy on the way down". I just don't think he realises how quickly it could hurt him.

[Wight Flight]

1 hour ago, sancho panza said:

'To keep these properties solvent, these London landlords will have to raise rents by 37pc, cut their loan sizes, or face selling up.

Sell up to someone for at least 37% less.

Oh dear.

(Yes I know my maths doesn't work, but you get the point)

[MightyTharg]

7 hours ago, Formerly said:

I think it was @MightyThargwho kept stating they're making out like bandits because inflation is making them £20k per year on that £200k loan.

I do wonder how long they can keep raking it in before they run out of money

I really don’t understand why most people can’t see how well The BTL folks are doing. Rents are up, house prices are up, negative total tax on BTLs, negative real interest on their mortgage, stamp duty slashed. BTL Chancellor focused on making things even better for them.

Yes, a few might have some slight cash flow problems, but there is a pile of freshly printed money looking for a home. Borrowing more shouldn’t be too much of a problem. Failing that, they can sell one of their properties for a nice profit.

I should get myself down to the estate agent and buy a few.

[HousePriceMania]

1 hour ago, sancho panza said:

And this is before any economci slowdown

 

'To keep these properties solvent, these London landlords will have to raise rents by 37pc, cut their loan sizes, or face selling up.

But analysts warned many investors will be unable to make rent increases of this size during the cost of living crisis, as tenant affordability is already getting hammered by energy price rises and a record drop in real earnings.

More than a fifth (22pc) of the buy-to-let properties at risk of becoming loss-making are in the South East. These landlords will need to raise rents by 28pc to make their properties mortgageable and profitable.

Landlords will be under pressure to make these rent increases because the soaring cost of borrowing means they will no longer be able to meet their lenders’ affordability criteria.

 

Nearly two thirds of landlords on fixed-rate mortgages will come to the end of their deals between now and the end of 2024. 

If these landlords have to pay mortgage rates that are four percentage points higher than their current deals, 38pc will find that their properties become unmortgageable and loss-making.'

Selling up...Who to ?

 

They are stuck with assets they can't flog or hide.

[Axeman123]

46 minutes ago, sancho panza said:

had a few people approach us over the years and they're always hoping I don't know the cost of bridging finance

46 minutes ago, sancho panza said:

You'd be amazed how many of these types think you'll jsut lend on a handshake

That doesn't sound like an innocent oversight to me, they clearly miss-took you for a mug. Presumably they assume anyone not in BTL is a simpleton.

People like that end up going bankrupt and taking sensible relatives etc life-savings with them. God knows how a divorce court would treat a six-figure loan-on-a-handshake for that matter.

Edited October 19, 2022 by Axeman123
add simpleton part

[Axeman123]

35 minutes ago, Balding Badger said:

The sad thing is I used to think he was a decent bloke but now BTL and money seem to be the purpose of his life.

It is an addiction like whores or gambling IMO. It really does seem to corrode character etc, and just brings out the absolute worst in nearly everyone that gets involved. 

37 minutes ago, Balding Badger said:

If he goes back to them then it will be his siblings' inheritances he will be taking.

Like all addicts he won't even care, or he will rationalise that if they weren't going to do BTL with it then it would have been wasted on them anyway.

[Bobthebuilder]

12 minutes ago, Axeman123 said:

It really does seem to corrode character

This is why I dislike property types, the vast majority of them are just horrible people.

I find property speculation to be immoral, maybe after all these years I am just naïve, nice guys finish last and all that stuff.

[Axeman123]

6 minutes ago, Bobthebuilder said:

This is why I dislike property types, the vast majority of them are just horrible people.

IMO it is the fast money that does it, could be property or anything. Getting money without real labour or serving another person seems to make it hard to stay humble or decent.

It occurs to me that several BTL types I have seen online have claimed to have access to "private lenders" for deposits, it just clicked for me they were talking about exploiting their granny etc as above.

#CEO_life #entrepreuneur #Abundance

Edited October 19, 2022 by Axeman123
trailled off mid sentence

[Alifelessbinary]

46 minutes ago, HousePriceMania said:

Selling up...Who to ?

 

They are stuck with assets they can't flog or hide.

In many cases they don't own the property they are simply holding them for the lender until the loan is paid (claiming a small profit rent to cover maintenance if lucky).

I'm sure there are few large PRS (private rental sector) who are gearing up to hoover these consolidated repossessions over the next few years. While there is a squeeze on rental properties available, landlords are in cloud cuckoo land if they think they can pass on the full interest rate costs in a single hit.  

The courts are already bursting at the seams dealing with Covid related repossessions, so it will take them at least 6 -12 months to gain vacant possession, which will completely destroy all their profit.

For new entrants to the BTL market it's going to be a horror show. The old hands will probably snag a few bargains if they've got the available equity and strong stomachs.

 

[sancho panza]

49 minutes ago, Axeman123 said:

That doesn't sound like an innocent oversight to me, they clearly miss-took you for a mug. Presumably they assume anyone not in BTL is a simpleton.

People like that end up going bankrupt and taking sensible relatives etc life-savings with them. God knows how a divorce court would treat a six-figure loan-on-a-handshake for that matter.

I think it's more that they thought we'd do business on a similar basis to a bank/BS which operate close to base.But for me, a reasonable return collaterlaized with a second charge(remember second charge) means 10%+ before the current run up in IR's plus a minimum return of a nominal sum that jsutifies the effort and cost of potentially excercising the second charge.

I've met some of these punters who were that badly invested they running negative cashflows three or four years ago.Seriously.SOme got away with it but a lot of these will now be trying to squeeze through the exit when everyone else is.

A lot of the leveraged lot in my expereince jsut don't have much of a business brain and with the way banks/BS's have doled out loans over the years,these BTLers have levered up in a manner that two decades back would have been impossible with the checks and balances then in place.When I've explained my reasoning,you could see the penny dropping because they've clearly not considered that the second charge carries a greater risk than first.....it's pretty obvious stuff to me but to some of these people it really isn't.

There's a couple of switched on LL's knocking around these parts and it really is chalk and cheese when you compare them to these guys I'm tlaking about.

As you say,the sad thing is that they nromally take close family and friends down with them.

Good point on the divroce court

 

Edited October 19, 2022 by sancho panza

[sancho panza]

18 minutes ago, Axeman123 said:

IMO it is the fast money that does it, could be property or anything. Getting money without real labour or serving another person seems to make it hard to stay humble or decent.

It occurs to me that several BTL types I have seen online have claimed to have access to "private lenders" for deposits, it just clicked for me they were talking about exploiting their granny etc as above.

#CEO_life #entrepreuneur #Abundance

Excellent poitn and I'd agree with that @Bobthebuilder. It was the same in the tech bubble ,late 90's.

Can't preach as I'm greedy and lazy as well.

[Bus Stop Boxer]

4 minutes ago, Alifelessbinary said:

In many cases they don't own the property they are simply holding them for the lender until the loan is paid (claiming a small profit rent to cover maintenance if lucky).

I'm sure there are few large PRS (private rental sector) who are gearing up to hoover these consolidated repossessions over the next few years. While there is a squeeze on rental properties available, landlords are in cloud cuckoo land if they think they can pass on the full interest rate costs in a single hit.  

The courts are already bursting at the seams dealing with Covid related repossessions, so it will take them at least 6 -12 months to gain vacant possession, which will completely destroy all their profit.

For new entrants to the BTL market it's going to be a horror show. The old hands will probably snag a few bargains if they've got the available equity and strong stomachs.

 

A few days ago Ireland passed a law banning evictions this winter.

Expect more.

[sarahbell]

16 hours ago, sancho panza said:

They really are screwed.Imagine,they'll be facing hikes on their own mrotgages,rising fuel bills/diesel etc.

And with £24k non property earnings.
Granted some may be self employed and able to declare more but msot of the bottom 50% are liekly a gnats whisker from having to reach into their own pocket to subsidse the mortgage payment

They were only asking for an income of 21k to be able to take out a BTL mortgage the other year. I looked just out of interest. No intention of getting a mortgage.

[JoeDavola]

1 hour ago, Axeman123 said:

IMO it is the fast money that does it, could be property or anything. Getting money without real labour or serving another person seems to make it hard to stay humble or decent.

It occurs to me that several BTL types I have seen online have claimed to have access to "private lenders" for deposits, it just clicked for me they were talking about exploiting their granny etc as above.

#CEO_life #entrepreuneur #Abundance

Yes a while back I realized a pattern in all the ways to 'get rich' i.e. btl, crypto, and various other "just set up a passive revenue stream webiste bro" scams...

...everyone wants to get rich, but nobody wants to actually do much if any work. Everyone wants to piggyback on the work of a bunch of other people instead of actually producing something of value themselves.

[Wight Flight]

32 minutes ago, sarahbell said:

They were only asking for an income of 21k to be able to take out a BTL mortgage the other year. I looked just out of interest. No intention of getting a mortgage.

The funny thing about that is that if that was my income a LL affordability check wouldn't let me rent anything more than £583 pcm.

Room in an HMO for them it is then.

[F150]

prices in kobenhagen have crashed 10% since april

ITS GAME ON!

[Ash4781b]

6 hours ago, sancho panza said:

And this is before any economci slowdown

 

'To keep these properties solvent, these London landlords will have to raise rents by 37pc, cut their loan sizes, or face selling up.

But analysts warned many investors will be unable to make rent increases of this size during the cost of living crisis, as tenant affordability is already getting hammered by energy price rises and a record drop in real earnings.

More than a fifth (22pc) of the buy-to-let properties at risk of becoming loss-making are in the South East. These landlords will need to raise rents by 28pc to make their properties mortgageable and profitable.

Landlords will be under pressure to make these rent increases because the soaring cost of borrowing means they will no longer be able to meet their lenders’ affordability criteria.

 

Nearly two thirds of landlords on fixed-rate mortgages will come to the end of their deals between now and the end of 2024. 

If these landlords have to pay mortgage rates that are four percentage points higher than their current deals, 38pc will find that their properties become unmortgageable and loss-making.'

Time to go violin shopping 

[Plan-b]

37 minutes ago, Ash4781b said:

Time to go violin shopping 

[No One]

On 30/09/2022 at 17:35, No One said:

354 +9 in 3 days

361.. Numbers are beginning to increase again

[Phil]

51 minutes ago, Plan-b said:

Not small enough.

[reformed nice guy]

16 minutes ago, Phil said:

Not small enough.

[Phil]

12 minutes ago, reformed nice guy said:

Fare effort. 

[Ash4781b]

The three leveraged BTL options to cope with rising costs reported I have seen are either alone or a combination of 1. Sell up, 2.Raise the rents (models are suggesting very high percentage increases) 3. Subsidise with own /sourced funds