Friday, September 28, 2007
Property prices and buy to let after the credit crunch by Lettting Focus
What will happen to property prices and what will happen to buy to let and property investment after the credit crunch?
Well, now we know that the Bank of England was now thrown a lifeline to the Northern Rock and has in effect underwritten its deposits.
And much money has been made and lost in the city on trading in the shares of NR as well as Alliance & Leicester, Bradford and Bingley and Paragon - which have all seen huge gyrations in their share prices. (Expect a wee enquiry into these gyrations at some future point! I can’t help but smell a rat here!)
But back to property!
Money Markets and Buy to Let
As you may know, not all lenders raise as much cash from the money markets as Northern Rock did.
Nationwide and Halifax Bank of Scotland only get about a third of cash in this way, though that’s still been enough for lenders like these to raise their standard variable rate by up to 0.2%.
Other banks who have used the credit markets more to raise money are Bradford & Bingley and Alliance & Leicester – and their stock market prices have sea-sawed along with Northern Rock, though not quite as much.
Mortgage Trackers
If you took out a Bank of England base rate mortgage tracker for a long term, then you can sit back and relax. Your rate will not go up unless base rates do.
But if you are on a mortgage linked to the standard variable rate one or one where the fixed term expires soon, then be prepared for a hike in your rate right now.
Back in 1988 I took out a loan with a lender that raised funds on the money markets – and not linked to central bank base rates. There then followed a credit crunch and my rate went up.
I learnt my lesson way back then.
However, lots of landlords have borrowed from lenders who raise their funds in the money markets. I have not seen figures on this, but my guess is that it is a much higher proportion than on standard residential mortgages.
Mortgage Rate Hikes
Therefore, mortgage rate hikes for landlords could be particularly high and may force some to sell property, opening up an opportunity to others to buy property cheaply. (And if the private rented sector declines, rents will surely rise)
But what does this all stuff mean for house prices?
Well, lenders have already tightened up their lending criteria. They will look much more closely at (and may refuse) to lend on “risky” deals like ex council, new build flats with gifted discounts in oversupplied areas or at loan to values much over 75%.
It could also mean the “no money down deals” may only be available to experienced investors with good track records who are known to a lender.
Oversupply of Property
Now, for a long time I have said there is still an oversupply in some areas.
I forecast falls in house prices in areas that are heavily oversupplied with too much of one kind of property.
Sorry folks, but many cities in the North have too many flats for the current state of their local economies and I predict prices will come down by at least 10% in these towns over the next 12 months.
I’m not alone here. Anne Ashworth, writing in the Times today, cites Liverpool as a good case in point.
However, other areas which are not oversupplied will do well and see prices and rents hold up and indeed go up.
But while all this interest rates stuff is important it is actually a bit of a side show because the real factor that is driving up the UK’s house prices is the expanding population and the lack of housing supply.
Northern Ireland
Take Northern Ireland as an example. Why did prices surge 50% in 12 months in Ulster recently? True there was a bit of property speculation, and the peace dividend also played a part. But another story that you won’t hear about in the press (well you may in the Daily Mail) was a large migration to Ulster from mainland UK by workers mainly from the new EU.
Now, if the UK economy becomes less attractive to workers from the new EU relative to other places in Europe, then much of the inward migration could fast turn the other way as workers return home or move to other better economies.
I don’t think this could happen anytime soon, but if it did, that really could put the skids on house prices and rental levels.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
MAIN PAGES AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!
Have You Seen this Article on Tenancy Agreements - Is Yours Fair? http://www.lettingfocus.com/pages/myarticles10.html
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?
TO VIEW RELATED POSTS select a “Category” at the bottom of this page.
WANT TO ADD A COMMENT OR VIEW OLD COMMENTS?
To add a comment to this post, simply click on “link to this post” to add your comment and to view comments of other people.
Click here to listen to me on BBC Radio 4 Money Box programme: http://www.bbc.co.uk/radio/podcasts/moneybox/ and then click on “Download episode for 22nd September”
What’s unique about lettingfocus.com is that we are unbiased and independent, because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2007. This blog is updated every week.
Well, now we know that the Bank of England was now thrown a lifeline to the Northern Rock and has in effect underwritten its deposits.
And much money has been made and lost in the city on trading in the shares of NR as well as Alliance & Leicester, Bradford and Bingley and Paragon - which have all seen huge gyrations in their share prices. (Expect a wee enquiry into these gyrations at some future point! I can’t help but smell a rat here!)
But back to property!
Money Markets and Buy to Let
As you may know, not all lenders raise as much cash from the money markets as Northern Rock did.
Nationwide and Halifax Bank of Scotland only get about a third of cash in this way, though that’s still been enough for lenders like these to raise their standard variable rate by up to 0.2%.
Other banks who have used the credit markets more to raise money are Bradford & Bingley and Alliance & Leicester – and their stock market prices have sea-sawed along with Northern Rock, though not quite as much.
Mortgage Trackers
If you took out a Bank of England base rate mortgage tracker for a long term, then you can sit back and relax. Your rate will not go up unless base rates do.
But if you are on a mortgage linked to the standard variable rate one or one where the fixed term expires soon, then be prepared for a hike in your rate right now.
Back in 1988 I took out a loan with a lender that raised funds on the money markets – and not linked to central bank base rates. There then followed a credit crunch and my rate went up.
I learnt my lesson way back then.
However, lots of landlords have borrowed from lenders who raise their funds in the money markets. I have not seen figures on this, but my guess is that it is a much higher proportion than on standard residential mortgages.
Mortgage Rate Hikes
Therefore, mortgage rate hikes for landlords could be particularly high and may force some to sell property, opening up an opportunity to others to buy property cheaply. (And if the private rented sector declines, rents will surely rise)
But what does this all stuff mean for house prices?
Well, lenders have already tightened up their lending criteria. They will look much more closely at (and may refuse) to lend on “risky” deals like ex council, new build flats with gifted discounts in oversupplied areas or at loan to values much over 75%.
It could also mean the “no money down deals” may only be available to experienced investors with good track records who are known to a lender.
Oversupply of Property
Now, for a long time I have said there is still an oversupply in some areas.
I forecast falls in house prices in areas that are heavily oversupplied with too much of one kind of property.
Sorry folks, but many cities in the North have too many flats for the current state of their local economies and I predict prices will come down by at least 10% in these towns over the next 12 months.
I’m not alone here. Anne Ashworth, writing in the Times today, cites Liverpool as a good case in point.
However, other areas which are not oversupplied will do well and see prices and rents hold up and indeed go up.
But while all this interest rates stuff is important it is actually a bit of a side show because the real factor that is driving up the UK’s house prices is the expanding population and the lack of housing supply.
Northern Ireland
Take Northern Ireland as an example. Why did prices surge 50% in 12 months in Ulster recently? True there was a bit of property speculation, and the peace dividend also played a part. But another story that you won’t hear about in the press (well you may in the Daily Mail) was a large migration to Ulster from mainland UK by workers mainly from the new EU.
Now, if the UK economy becomes less attractive to workers from the new EU relative to other places in Europe, then much of the inward migration could fast turn the other way as workers return home or move to other better economies.
I don’t think this could happen anytime soon, but if it did, that really could put the skids on house prices and rental levels.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
We are LettingFocus.com - the landlords’ expert and I’m David Lawrenson, the author of “Successful Property Letting” - the UK’s top selling property and buy to let book for the last 3 years.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased seminars for buy to let investors and landlords as well as one to one advice covering all aspects of being a landlord and investing in property.
MAIN PAGES AT OUR SITE LETTINGFOCUS.COM:
Our Events only take place twice a year.
For our NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors click here:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS for landlords too, Click here: Services and Products for Landlords to see our Landlords Resources (Useful Links) page. (Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!)
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
ONE TO ONE CONSULTING click here: Property Consulting
CLIENT TESTIMONIALS from past customers click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!
Have You Seen this Article on Tenancy Agreements - Is Yours Fair? http://www.lettingfocus.com/pages/myarticles10.html
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?
TO VIEW RELATED POSTS select a “Category” at the bottom of this page.
WANT TO ADD A COMMENT OR VIEW OLD COMMENTS?
To add a comment to this post, simply click on “link to this post” to add your comment and to view comments of other people.
Click here to listen to me on BBC Radio 4 Money Box programme: http://www.bbc.co.uk/radio/podcasts/moneybox/ and then click on “Download episode for 22nd September”
What’s unique about lettingfocus.com is that we are unbiased and independent, because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
If a property investment is lousy – We’ll tell you straight and we will tell you all about buy to let and property investment - the good and the bad and we won’t make silly promises that you’ll become a millionaire overnight.
Copyright: David Lawrenson 2007. This blog is updated every week.
Labels: base rate mortgage trackers, buy to let mortgage rates, house price forecasts, House price outlook, house prices and immigration, mortgage funding, oversupply
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