May 01, 2007

Buy-to-let lenders in the UK absolutely lose their freaking minds

Ever watch someone with a cocaine addiction grab a hefty bag of the white stuff and jump in? That's what I feel like watching UK lenders go absolutely bonkers in the "buy-to-let" space, loans for would-be property barons (i.e. people who make $40,000 a year) to buy up millions of pounds worth of apartments ("flats").

You used to have to prove you had rental income that represented 130% of your interest payment. Since that's completely not possible these days, as rent covers just a fraction of carrying costs and every flat bought has significant negative cash flow, these brilliant lenders have just chucked the rule. Rent? Who needs rent! Because property values can only go up and up and up and up! Par-ty!

People of the world, I have a message for you: THE INEVITABLE DEBT BUBBLE CRASH IS GOING TO BE THE BIGGEST FINANCIAL EVENT THE WORLD HAS EVER SEEN. GET READY.

Financial Times April 27 - Loan standards for buy-to-lets slide

Lenders are offering mortgages to buy-to-let landlords without requiring any minimum rental cover or proof of income, even though returns have sunk to record lows in the 10-year-old market.

Other lenders are offering buy-to-let mortgage loans of up to £20m to help people build up property empires, prompting fears of a bubble in the popular market.

Multi-million pound loans are being offered to people on modest salaries. Some lenders have begun to offer mortgages to people with poor credit histories, even considering those having just emerged from bankruptcy.

The relaxation of lending criteria comes as landlords struggle to cover their mortgage payments amid higher interest rates and rents that have lagged property prices in recent years.

11 comments:

Anonymous said...

No wonder Prince William (or is it Harry?) wants to go to Iraq. Better than governing a society gone mad. And to think Gordon Brown sold off half of the Brits' gold reserve at the bottom of the market in 2001.

Anonymous said...

So how do you get ready? All your cash in the bank? Are banks safe?!

traineeinvestor said...

You would think the lenders have a complete absence of institutional memory. I am not that old (41) but I have already experienced three significant down turns in financial markets in which lenders took major losses (the 1987 share market crash and following recession, the Asian crisis and the tech wreck). All of them were preceded by lenders lending on increasingly aggressive and risky lending criteria.

It's a good indicator of a market top.

Anonymous said...

PKK

The GREATER DEPRESSION. That's what
it's going to be called. We'll
be in it by 2009.

Anonymous said...

What baffles me is that I thought the Brits had already moved to pop their bubble. Why are they reinflating it? And are the completely ignorant of what is happening to housing in the US?

Any ideas, Keith?

Adam "Slo Hand" Smith said...

HA! Apparently the U.K. is completely ignoring what's happening in the U.S. and Spanish real estate markets right now, much like how the U.S. ignored what happened in the Nikkei Bubble in Japan, or in Australia's run-up in prices, etc. The bubble truly IS worldwide, as even yesterday I saw an article how Berlin is starting to heat up, too.

As the cries of "but we're different here" grow louder and louder, we'll see just how true it is: the way to be different is NOT to go real estate foolish!

I suspect the U.K. must be different, as in MORE foolish, to be blind to what's happening elsewhere.

(although some people are going to get VERY rich off of all of this, profiting off the foolishness of all the FBs who rush in where even angels fear to tread).

Anonymous said...

When the crash does come (and it's at our doorstep) it will make the 1930's depression look like a picnic. The book of Revelations from the Bible, in addition to forecasting the re-emerence of Israel, forecasts a economic calamity of unheard of pain. It supposedly will take a day of labor to buy a day's worth of food.

Anonymous said...

It seems to me that the U.K. is and will be in worse shape that the U.S.A. after the global housing bubble pops....

Ed said...

"BIGGEST FINANCIAL EVENT
THE WORLD HAS EVER SEEN"

Is this in ounces of gold per capita, unadjusted gross US dollars,
pork bellies, or suicide rates ?

Eating worms might no longer be
just a party trick. (got salt ?)

Anonymous said...

There you go again AL-QWEEFER saying THE INEVITABLE DEBT BUBBLE CRASH IS GOING TO BE THE BIGGEST FINANCIAL EVENT THE WORLD HAS EVER SEEN. GET READY.

Going to be. Always in the future. Housing WILL crash. Recession WILL come. Blah blah blah.

Let me guess next year will be simply awful right?

Cypriot Genius said...

The World is run on greed and fear, the more properties one can own and the fear of loosing a buck or pound. The UK is no different than USA or now Spain and the greedy will be humbled again throughout the western world and this period will later be remembered as 'The Greedy Time' The book of Revelations reveal this and be warned the time is near.