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  • Buy-to-Let

    Buy to let Investors please critique my plan

    It's ok to challenge me on anything i can take it: iron sharpens iron.

    So me and my brother (26 and 25 respectively) have a 50% share in my family's house valued at approximately £900,000 which is unencumbered (my mum owns the other 50%).

    I have extensive knowledge in economics and real estate (former lettings agent, property manager, rent collector) and have studied the market for the past 5 years.

    We plan on waiting for the market to collapse as I know brexit is simply a political masquerade where I am watching Australia, Chinas, Canadas and the USAs  housing market which are long overdue for a correction.

    We plan on remortgaging the house for approximately £220,000 through an offset account after the market collapses (to ensure no run on banks and to keep interest low). The remortgage will of course be fixed preferably 5 to 10 years.

    We plan on opening an SPV and purchasing flats or houses into the SPV and building a strong equity base. The mortgages will be at 25% preferably 10 year fixes.

    I am predicting a golden window i hope you investors can agree. Essentially houses prices across the UK to drop significantly over a period 3 three years when there is a crash circa 30%. interest rates will begin to rise causing a further fall in house prices. However, the golden window is to purchase when house prices collapse and to fix the mortgages just before they begin to rise so you have the best of both worlds.

    Yes the houses will continue to fall but to fix in just before it rises will balance out the increase in interest payments to the fall in houses prices. You get security by purchasing at the bottom of the crash i.e. 30%. where a 10% gross yield will build the equity in the portfolio.

    So its just a case of building the portfolio during this golden window. Each flat would cost approximately 30k (deposit/fees) and a mortgage of 75k out of £220k budget. Please critique this and would love advice, also how could we go ahead releasing more cash from our unencumbered house if this is a success, as it depends on income multiples.

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    Hi David,

    I understand what you are saying but i can only make suggestions.

    I forecast the market to collapse in the nearby future possibly this year or next if there are no major interventions to prevent it. This housing bubble is apperant in many key international countries where the trigger could come from brexit or internationally. How much house prices could fall over three years i cannot give a figure. There are too many parallels in the current market similar to that of 2007 to ignore even to the release of 100% mortgages!

    For interest rates I have a feeling there needs to be a disaster to allow them to increase interest rates which a housing price crash would be perfect for. I think the masses have become habituated to such low interest rates. I have a feeling that inflation will begin to rise (or they release the true inflation rate in the economy) which will give them an excuse to begin increasing interest rates under the mantra "taming the wildfire".

    This is just a prediction if you think its wrong please critique.

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    Property values are constantly fluctuating - and any major fall would typically see only distressed sellers going to market - whilst vast majority sit tight.

    Lending would also go in to some degree of drought mode with any significant/prolonged price fall.

    As co-owner your mother would need to consent to any remortgage on family home - which with a value of £900k may well be in London where prices are stagnating/falling.


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    I agree that your crystal ball might need a bit of a re-set.

    With that amount of equity, I would look to bridge against it (subject to you qualifying for bridging finance).  Buy properties in need of refurbishment for cash, add value through refurbishment, and then take out a BTL mortgage to refund the bridge.

    Build a quality asset base with built in equity from day one.

    If you have not already done so, a conversation with a reputable mortgage broker will bring clarity to the direction you can take.  Have you and your brother checked with a broker as to what financial products you can access with your personal circumstances?  The team at Property Tribes Financial Services on 01206 654444 would be pleased to assist you devising the best way forwards with your starting position.

    Finance is the lifeblood of property, so this is the very first thing you should be doing before coming up with strategies.  Otherwise, you could waste a lot of time researching strategies that you cannot actually undertake.  (Forgive me if you have done this - I am saying it for the benefit of the wider community as well as for you).

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    Hi Vanessa,

    Thanks for your response, I had a look into this bridging  my two big concerns here are:

    1. I have no experience in renovations =( where the cost in renovations would equal the equity gain the house possibly.

    2. In a bear market any increase in the value of renovations in a house would be lost to a continuing fall in house prices:

    I might be confused to this but i think it is to get a bridging loan to purchase a house in need for lets say £100k renovate it to increase its value to £160k and convert it to a buy to let mortgage with the £60k price rise. it would be a gamble in a bear market and to inexperienced renovator.

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    Your looking at a total asset collapse and global recession for your prediction to come true. In such circumstances you might find borrowing hard to come by at any level.

    I can borrow at sub 2% and get a 5% yield jn london and 7% outside. Property still makes sense particularly if you are buying a main home to live in.

    Yes interest rates could go much higher ala late 1980s but they could also stay low for decades like in japan. You have to question given. Demographics which is more likely. Always a gamble but at your age would suggest time in the market is nearly always better than timing thr market.


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    Hi Joloughlin

    This was a major concern for me, I always worried that in the circumstance of an economic collapse that lending be it the remortgage stage or the buy to let stage would become almost impossible, but i was reassured by several brokers that during the last economics collapse in 2008 that lending wasnt restricted heavilyfor remortgages and for buy to lets it will be roughly no difference as the buy to let mortgage levels are currently low as it is.

    I dont believe a 5% or 7% yields is ideal, I have heard in the past it was up to 12% to 14% i think our levels of acceptance has been decreasing and we have been rationalizing this as ok. I think that a correction in the market could see the past yields see an overdue comeback. The golden window i talked of a price crash and getting in there just before interest rates kick off is the best of both worlds in terms of yields and interest rates, happy to hear your opinion.

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    I think you need to split between what you would like to happen and what you think willl happen.

    In your scenario you seem to be suggesting that a bank is willing to lend to you at a low rate against a share in a falling asset (i.e your share of a house) to purchase another falling priced asset (i.e another house in this scenario), why do you think the rate would be low in this scenario? the risk from their perspective is very high.

    If they were willing to lend would only be to a low LTV basis and probably not to someone doing BTL without owning their own home.

    Even in 2008 we saw a decline of 15% or so. Not 30% and getting a mortgage in 2009 was fairly tough.

    As for 100% mortgages they are few and far between. BOE affordability tests are much stricter i just dont see the irresponsable lending in the UK right now compared to what we had.

    HTB is a mess but has only really pushed up the price of new builds compared to existing stock


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    Without going into a massive amount of detail about your plan which is clearly well considered and thought through. I do have one thing that may cast a little doubt over your predictions.

    The countries which you use to base your prediction on, differ to ours in one fundamental element. They are all big with swathes of land and property, whereby supply can often outstrip demand and thus produce the opportunity for a correction.

    Our country on the other hand has very limited prospects for building on-mass and it is this fact that has always limited our crashes over the decades. There are very many people in the UK far more than there is available housing stock. This fact feeds into the supply and demand model and therefore while demand outstrips supply market slippage is always limited.

    This is not to say that you will be entirely wrong, I would just suggest you consider this fact and maybe have a backup to the plan of waiting for what might be a unicorn to turn up.

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    Landlord with 25 years’ experience in the property market and a specialist in tenant referencing, ID and credit screening. Creator of identity, credit and anti-money laundering system ValidID.co.uk

    Hi Chris,

    Thanks for this! I am ignorant so forgive me here.  When it comes to the argument of space I have always thought of Japan ( a small country) and their lose decade.  A price collapse mixed in with record high interest rates to curb inflation which stagnated the market for quite a while. Last time in 2008 the UK dropped interest rates and stimulated  the market with government incentives which kept the show going. Can we really do this this time? can we draw parallels from Japan?

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