I saw an ad on the tv (BBC I think but could be C4) last night for a show this week mentioning that the BTL market could be the UKs sub-prime crisis. It was in relation to a show coming up this week (sorry can’t remember when it’s on).
Knowing off to recent BTLetters in the Dublin area who are getting into trouble, how plausible would it be to say we could have a similar problem oursleves?
It’s not plausible, it’s a certainty. in large numbers too.
BTL’s in the last 3 years will typically face a refinance problem, and at worst margin calls from the banks to restore their LTVs. Because LTV criteria is much tighter now, it’s much harder to refinance, say by switching lender.
Rent is clearly not covering the whole of the mortgage on a typical BTL, and capital appreciation is negative. Meaning it’s difficult to sell, because you realise a loss and have to repay all to the bank. It’s inevitable that there will be large numbers of distressed sales as a result.
BTL’s have been about 30% of the market for a good few years. Survival of the fittest only as this unwinds over the next few years.
There is no good news on the horizon for this group.
18 months ago, a middle aged lady I know through work, who had considered selling their 1 investment property, decided against it on the grounds that it would be wiser to Diversify. They re-mortgaged it and …
She and Hubby then went and bought 4 apartments in Turkey - off the plans x 3, - 1 already built.
ALL of the usual guff about how they’re doubling in value every 2 years …
The business model went something along these lines.
Decide to buy a flat preferably a new one in a city you don’t know much about, even better a new flat in a city in a country you don’t know much about. Even better again; a new flat not yet built in a city in a country you don’t know much about (you won’t know much about the flat, it not being built like).
Get a ‘discount’ from the developer because he likes the cut of your jib.
Rent out the flat to ‘young professionals’ (if you want to go to the trouble of finding a tenant). If not sit on the thing for a spell like a brooding hen whilst the capital appreciation thang gets busy doing the magic with the numbers.
When the prices stops going up, simply sell up and trouser you winnings.
Why will they face a refinance problem? Assuming the interest rates don’t go up too much, the payments will not increase too much and should still be affordable. AFAIK, there’s nothing in a BTL mortgage contract in IRL (or UK) which states you have to divvy up more cash if the “value” of the property decreases below a set amount. I would be interested to hear if I am wrong here.
I guess exception to this is people who BTL on an interest-only mortgage. AFAIK, these mortgages are of a maximum of 5 years duration. So, yes, they would have to “refinance”. Were they the people you were referring to? Any idea how many of the BTL mortgages in the last, say, 4 years were interest only?
Again, doesn’t matter whether the rent is covering the mortgage. What matters is that the “investor” can pay back the mortgage. Sure, he may be having to fork out €500 per month from his own pay-packet. But the bank won’t care as long as he’s meeting his repayments.
So the issue here will be for those landlords who bought in poorly located places and struggle to find tennants if the renting population decreases - which looks probable, but not yet definite.
Or else the issue is for those landlords currently subsiding the rent, who loose their own job and can no longer afford to make the subsidy.
But I’m sure there are plenty who will survive the downturn. I’m not saying it won’t cost them, but they won’t go bankrupt.
I was referring to magoko101’s: Knowing off to recent BTLetters in the Dublin area who are getting into trouble, how plausible would it be to say we could have a similar problem oursleves?
You are indeed wrong about BTLers not having to divvy up more cash. **BTL mortgages specify a Loan to Value Ratio (LTV). **e.g. BTL mortgage for apartment purchased by investor 2005 LTV 90% Interest only for 3 years. Due for a reset this year then. Payments will increase significantly. The Bank are entirely within their rights to ask the investor to **RESTORE his LTV **if they feel their security has reduced in value. There have been incidents of this happening reported here on the PIN. It’s very real. It may not be common - yet - but it is real. If the investor does not or cannot cough up, then his risk profile is increased and consequently the interest rate charged by the bank increases - they load his rate. Painful.
I don’t know the answer to that. So I’m guessing. 40%.
A reset from IO involves a BIG increase in your monthly payment. Many amateur LL’s who thought they’d sell or refinance or rent or any combination will be caught. The IO period is a real honeymoon.
True. But he is locked in. Can’t sell because he’d have to make up the loss. Can’t Refinance because that would require a VALUATION which would not be favourable. Reset from IO to annuity increases payments. Precarious position. That’s why I said ‘survival of the fittest only’.
Correct. Rents are falling, and the number of properties for rent is increasing. Doomsday scenario for amateur LL who bought in poor location - he’s snookered.
Yes there will. The fittest. i.e Well capitalised and experienced professional LL’s. These guys will re-enter the market as buyers at some point.
Channel 4 tonight had an investigation into Buy to regret. UK, and Irish investors spent thousands on flats in Manchester without even visiting the area. Flat prices now down at least 24%. Sub prime borrowers mortgage products reduced from 1400 products to 5 products. Many mortgage companies only giving 60% LTV. BMV buyers avoiding them like the plague.
Wow, I didn’t know that. When I was looking into a mortgage for a property for myself (PPR, not BTL), I was told about the “special introductory rate”. On further research, I found out that the mortgage you signed had a provision to automatically roll over to a standard rate at the end of the introductory period. E.g. BOI tracker for two years at ECB + 0.95% automatically rolled over to a tracker at ECB + 1.25%. Others rolled over to standard variable rate. There were no other provisions such as checking LTV etc.
So I assumed it was the same for IO BTL mortgages. Automatic rollover to some standard interest & capital product/rate.
So, let me get this straight. You are saying
The, say, 3 year IO mortgage is a stand-alone product with no provisions to roll over automatically to anything else. So at the end of the IO term, the bank can simply refuse to offer you a new mortgage if they think your LTV has gotten too high (e.g. gone from 90% to 100% due to lower estimate of worth of property).
And the only way they’ll give you a new loan is if you stump up 10% of the new estimate in hard cash to bring you back to 90% LTV. And on top of that, you will now have to pay off capital as well - no possibility to extend the IO term.
Or are you saying that even within the provisions and term of an IO mortgage, there is a clause which says that the bank can demand more cash up fromt if, as previously, the LTV has gotten too high (e.g. gone from 90% to 100% due to lower estimate of worth of property). I.e. they don’t have to wait for the IO period to expire before making this demand. A bit like a margin call really.
I’d be curious to know which of the two above scenarios it is - or if it’s something completly different.
I reckon PTSB got caught flat footed by the credit crunch and there are quite a few loans on their books that they were expecting to offload, that are beginning to smell a bit iffy right now, that, combined with the mortgage brokers ‘boycott’ (are we allowed call it that), means it’s sweaty underpants time on the board.