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  • Debt & Negative Equity

    Surviving a recession with your portfolio

    It is and always will be all about leverage. The bigger the leverage the bigger the risk.

    It’s obvious really but so often forgotten when it’s leverage that underpins the whole industry. The global financial crisis would have provided a harsher lesson on this but property (BTL and resi alike) was effectively bailed out by ultra low interest rates.

    Those interest rates can’t really go much lower so the question now is not how to survive a recession but how to survive the next cycle when those interest rates go up, and I mean really go up.

    No leverage no problem, 65%, 75%+... rather you than me.

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    I am finding this really interesting, I have read very little about the dangers of leverage being risky, I have viewed it that a property yielding highly enough will pay for the mortgage and there would be relatively little downside.  I hadn't considered a bank may call in the loan or why they may do this?

    I guess people generally like to talk about the positives rather than dangers, especially though with a vested interest such as course providers, seeking 'JV' capital, etc.

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    I guess they wouldn’t call in the mortgage whist ever you can make the repayments so you’re correct that a property yielding enough will be fine.

    It’s a question of what is enough and who defines that. The problem might come when a yield that’s enough in this ultra low interest rate environment might not be in the type of inflationary environment that clearly can (and likely will) happen.

    There must be a fairly large percentage of people who have never experienced this. Leverage means you’re at the mercy of those who you owe Money to and they’re at the mercy of the global economy. The only real control you have is to not use leverage.

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    Banks repossessing a property is really the last resort.

    If you keep your mortgage payments up to date, maintain your property, an adhere to the T & C's of your mortgage then you don't have much to worry about imho.

    Some people become emotionally attached to their properties, and that is dangerous:



    If you start to struggle with paying your mortgages, then act quickly and try and stop the rot by seeking professional advice.

    In many cases, landlords can hang on to at least some of their properties.

    I maintain that if you run your mortgage account correctly, there is little banks can do.

    Some related topics:

    "Crooked as hell": Ruined landlord speaks out against bully banks 

    Bullied by the banks: Chris and Denise's story

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    After the last recession a law was brought in to give tenants 2 months to find a new home in a lender is trying to reposess. in some circumstances. I think it mostly applies when there is no consent to llet.

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    Thanks very much, the video and links to the related topics are brilliant!

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    As Landlordy states what you are suggesting to do is I suggest a bit risky at the moment.

    But of course it is your business view that counts ultimately

    I would just suggest that with the BoE seemingly hell bent on stupidly increasing IR that having fewer properties at lower leverage would be wise.

    More can be less!!

    More is something that used to be a very viable thing to do before S24 etc.

    Having more when prices are increasing makes eminent  sense.

    I consider that for property to even recover to where they were a year ago will take about 10 years.

    There are great storms ahead and for me I consider battening down the hatches is a far more viable business strategy.

    It is of course just my opinion and no more valid than anyone's else's

    But as has been suggested never has the PRS been under attack like this since 1945.

    I suggest there is a lot more to come.

    I intend to reduce my property  debts and it is highly unlikely I will return to buy more.

    I am on a debt reduction strategy.

    If you intend to be in the game  for another 20 years then perhaps expansion could be considered.

    If you want to do that wait for the full effects of S24 and then a possible Labour Govt and watch prices collapse.

    Then you can pile in and buy double from what you can buy now.

    Keep that powder dry!!

    You will be able to use it very effectively when all the highly leveraged S24 LL are forced to sell up.

    Highly leveraged means 75% LTV!!

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