Change in lending criteria for City workers will hit the property market hard Tuesday, September 30, 2008

Salaries tend to represent a minority of the total compensation received by City workers, with the bulk coming from bonuses. The latter can be several times as large as the salary component.

Historically, bonuses have been a fairly reliable element of income with the result that mortgage lenders tended to include them for the purposes of assessing a person's mortgage capacity. However, the current chaos has prompted an apparent reversal of this policy by lenders who [rightly] consider that bonuses can no longer be assured and henceforth only salaries will be counted in the calculation.

This will dramatically reduce the ability of City workers to borrow. Setting aside any revulsion/envy you may have at seeing such figures, take the example of a banker earning a salary of £100,000 with a bonus of £300,000. Previously, they may have been able to borrow £1.2m, various things being considered. Now the same banker may be limited to £300,000.

Whilst this doesn't affect anyone in a property already, it will effectively stop them from moving or re-mortgaging, since the new policy would be used to calculate the mortgage limit on a new mortgage/property. At a stroke, the purchasing power of City workers, which has undoubtedly contributed to the property bubble, has been slashed. This will feed directly into the property market and push down prices at the top end of the market, by choking off demand.

Related articles by Zemanta
Reblog this post [with Zemanta]

Labels: ,

posted by John Wilson @ 8:43 AM Permanent Link ,

newsvine reddit



Buy-to-let mortgages will be difficult to re-finance Monday, September 29, 2008

The nationalisation of Bradford & Bingley will remove the largest provider of buy-to-let mortgages from the market, since it is highly likely that this will now be run as a closed book of business and run down over time.

In the current climate, it is improbable that many other institutions will be racing to fill the gap it is has left. As a consequence, existing buy-to-let mortgage holders who come to the end of early-years discount arrangements or similar, may find re-mortgaging a considerable struggle should they need to.

Whilst the rental market is proving very resilient, primarily because more people are choosing to rent than buy in a falling market, rental property owners are being hit with falling capital values which also depletes the collateral they can offer to banks for a mortgage. This may force such "investors" to sell their holdings, further depressing property prices.
Reblog this post [with Zemanta]

Labels: ,

posted by John Wilson @ 10:43 AM Permanent Link ,

newsvine reddit



25 year old home owner found guilty of leverage Thursday, September 25, 2008

The media coverage of the financial crisis has introduced the public to bits of City jargon, commonly with a derogatory slant e.g. "short sellers" being bad and "leverage" being a dodgy scheme that caused banks to collapse.

Oddly, most home owners are as "guilty" of being heavily leveraged via the mortages. They have typically used a small deposit for a home and borrowed the rest, with the sum borrowed linked to their apparent ability to repay and their home pledged as security for the loan.

Speculation on the residential property market has been widespread, and for many years it has been seen as and genuinely been a one-way bet. Thanks to low interest rates and easy terms, people have been able to borrow ever greater sums thus giving them more purchasing power [in absolute terms] which has inflated the market. Large profits have been made by property buyers for relatively small financial investments of personal equity, the rest being borrowed on leverage of 9x or more.

Unfortunately, as interest rates have gone up so repayments have become a greater burden to householders; as property prices have fallen so the value of ther security has dropped. In such a climate, the impact is dramatic for individuals. In some cases, it will result in the home being repossessed and the home owner's personal equity in a property being wiped out, coupled with supplementary claims from the lenders for shortfalls on the security provided which failed to cover the loan.

Whilst on a massively greater scale and with far greater implications for the economy, the many leverage similarities between banks and individual homeowners are yet to be fully acknowledged by press, politicians and religious leaders alike or maybe they simply avoid unpopular themes. More significantly, it was and is the widespread belief that the property bubble is bursting, which is expected to lead to greater repossessions and losses on property related loans, that has contributed to the dramatic loss of market confidence.

Labels: , , , ,

posted by John Wilson @ 8:54 AM Permanent Link ,

newsvine reddit



Zoopla! - that's smart communication Thursday, September 11, 2008

I received an attention grabbing member email from Zoopla! today which is the property web-site that
The email opened with a market snapsnot for my postal district, highlighting
It then provided some examples of recent sales near my postcode and details of properties for sale, as well as Tempt Me offers in the area, [more available for each via a link included with the email].

As a "pull" email to get you back on the site, I thought it was almost guaranteed to spark the curiosity of anyone receiving it. With property prices declining and the market reportedly drying up, it is particularly interesting to see what activity there is. Had they not sent the email, I doubt I would have checked back with their site, but once alerted, they succeeded in getting me back to the site for more information. Fascinating stuff. The thought that has gone into the site is impressive and has been well executed.
Reblog this post [with Zemanta]

Labels:

posted by John Wilson @ 11:17 AM Permanent Link ,

newsvine reddit



Property funds - getting locked inside Wednesday, December 05, 2007

Since I last wrote about the moves by property funds to restrict sales on 24 Nov, the situation has deteriorated even further.

Deutsche Bank, UBS and Morley have imposed a 12 months moratorium on redemptions on their £1.3bn, £2.3bn and £1bn funds respectively. The Managers are imposing this because of their inability to fund potential redemptions from fund assets given the time it takes to sell property in a fund. These lock-ins provide the investor with no ability to trade out of the position regardless of price.

I simply fail to understand why Managers resist there being a secondary market when they themselves refuse to operate a liquid market in their own funds. Ultimately, investors looking to sell should be able to negotiate with buyers prepared to acquire their interests and agree a price that reflects the anticipated falls in value and liquidity constraints.

Labels:

posted by John Wilson @ 10:55 AM Permanent Link ,

newsvine reddit



Perhaps you should hold off buying that new property Sunday, September 30, 2007

For the UK mortgage market as a whole an estimated 2 million loans are due to reset by the end of 2008, equivalent to approximately 17% of all mortgages outstanding, S&P says in Payment Shock Approaching For Borrowers In U.K. Nonconforming RMBS.

Looking at the U.K. nonconforming loans backing the RMBS transactions that we rate, we estimate that around £9 billion of fixed-rate loans are scheduled to reset by the end of 2008, representing 23% of total balances outstanding. A particularly large volume of resets—nearly £5 billion—look set to occur during the first half of 2008.

As rate increases filter through, borrowers are going to face increased repayments, which for some people may be unaffordable and will therefore feed through to higher repossessions levels. This is most likely in the case of the buy-to-let property owners, who are usually highly leveraged and look to rental costs to cover their interest payments, whilst looking to enjoy capital gains.

So why does the post title suggest delay buying? Repossessed housing stock is almost always sold at a discount to normal prices, mainly because quick sale is sought by the mortgage lender. Moreover, buyer demand will be weakened through higher interest rates, especially from buy-to-let quarters, thus easing competition for properties. In such a climate, it is inevitable that sellars, in some instances, will be forced to accept lower prices.

This might take 6-9 months to become evident but it looks one of the more probable outcomes following the turbulent summer.

Labels: ,

posted by John Wilson @ 3:51 PM Permanent Link ,

newsvine reddit