UK Property investors face margin call

[Springtime]

I know it's the UK and not here, but I didn't think this happened ever.

Did this ever happen in Australia before?

http://www.ft.com/cms/s/2/cdc24a48-2078-11de-b930-00144feabdc0.html

Wealthy borrowers are being given as little as one month’s notice to pay £1m off their mortgages, as banks take ever more dramatic steps to cope with the housing downturn.

Charles McDowell, a prime property consultant in London, told the Financial Times that lenders had asked some of his clients with large buy-to-let property portfolios to come up with more cash after falling prices slashed the level of their equity.

NatWest had asked the owner of a £5m property portfolio in London to hand over £1m in a month to compensate for a 20 per cent drop in value, even though there was no evidence the client was likely to default on the loan.

 

[Rolf Latham]

Hiya Spring

Different country, diff world

But..............if we start to have similar economic winds, be prepared

ta
rolf

 

[Nathan]

I expected we could see this, it apparently happend in 1992, and seen that this is in loan contracts that they can be recalled at any time...

 

[piNoob]

AFAIK it's is happening in some East European countries of as well.

 

[geoffw]

I hadn't actually heard the term, so I looked it up on wikipedia. From that it appears that some of the benefits of negative gearing in Australia have perhaps become available to UK investors.

I bought a property in the UK in 1988 which I sold for a loss in 1997. And "negative gearing" (by any name) was not available to me then against Australian income. So I've seen the downside of dropping prices with no tax advantages.

The article talks about "high-valued, highly geared property portfolios".

Typically, in a recession, high value properties are the ones most susceptible to drops. High earners, especially people who have earnt wealth rapidly during strong growth, are the ones who will lose most quickly when things go bad.

"What's the difference between a stockbroker and a seagull? A seagull can still leave a deposit on a Rolls Royce".

 

[JIT]

Having 5 million pounds worth of property with NatWest or 10 million pounds worth of property with HSBC?...ie. with one bank - surely that's a risky proposition in itself, not withstanding what's happening with property values...

 

[AUSPROP...]

can't understand the logic of a 1 month deadline - the investor will clearly be forced to liquidate and the bank's capital put at risk, whereas a 3 month deadline say may be achievable thru rational sales

 

[Sunfish]

Logic and banking should never be used in the same sentence.

 

[Rolf Latham]

Hiya Aus

Expanding on Sunfish's point

1. mr and mrs FHOG buyer, we must have you pay PI because we believe you cant afford IO

2. Mrs Investor, yes we know you have 51 investment properties and one PAYG job, but you see, too much of your income comes from rent, indeed you are rent reliant and we wont extend your loan.

ta
rolf

 

[BV]

They are trying to deleverage and the reason is explained in this very informative video

http://www.mortgagesuccesssource.com/go/markmarket/index.html

 

[Sunfish]

They are trying to deleverage and the reason is explained in this very informative video

http://www.mortgagesuccesssource.com/go/markmarket/index.html

On the other hand:

http://www.pbs.org/moyers/journal/04032009/watch.html

Methinks Barry was defending the indefensible although the basic assumption that they are being forced to reduce leverage is correct.

 

[grossreal]

hi all
it is happening here off market
not as to the point as the article but the same
the lenders are holding and asking clients to sell to get under the 70 or 80% lvr numbers
and some developers are are already being asked to increase both equity and presales to come in line with the market
so its not that much diffeent
just ours are not in the papers
alot of bans are trying to reduce the lvrs and close them

 

[BV]

hi all
it is happening here off market

I was looking at some units on Saturday and the whole building (60 units) had been repossed by the bank and selling off individually.

All units were rented and cash flow positive but they were selling them off

 

[Peter 14.7]

Has happened before and there are some lessons learnt that matter.

Dont have all your IPS with one bank/lender
Dont have all your IPs in on entity

However this would mostly affect those developer highly leveraged types and to be frank, return always matches risk.

Books like 0 to 130 prop in 12months only work when the planets are alligned.
Development the same. I walked away from a 5 unit deal in 2003 because my gut said the market had turned. I was offered land with house and room for 5 units for $1.8M with DA in JV with owner. I told him sell. He did and got $2.1M from third job developers who had only seen the boom of 2001 to 2003. They lost the lot!

Still worth knowing but no panic for 99% of us, Peter 14.7

 

[willair]

I know it's the UK and not here, but I didn't think this happened ever.

Did this ever happen in Australia before?

http://www.ft.com/cms/s/2/cdc24a48-2078-11de-b930-00144feabdc0.html

It happened to a few people that i knew in the early 1990's,all the "Bank" did was bring a new Loans person into the local branch for a very short period a simple letter came out in the post they gave you 12 weeks to bring everything into order or they sold you up ,never had MB's back then but the system was different, what you have to look at is the numbers,the UK is vastly different from Australia in real estate terms,this happens all the time,you only have to spend a morning at any auction house in Australia and see the price of what repo's high end cars are selling for
most are 40% below the street car yard price,could the same happen to property,it may have already started,long term just another bump in the road..imho..willair..

 

[josko]

hi all
it is happening here off market
not as to the point as the article but the same
the lenders are holding and asking clients to sell to get under the 70 or 80% lvr numbers
and some developers are are already being asked to increase both equity and presales to come in line with the market
so its not that much diffeent
just ours are not in the papers
alot of bans are trying to reduce the lvrs and close them

Yes indeed, I can confirm this with a Developer friend I have. Banks froze his LOC, revalued his sites and forced him to sell off projects at a loss.

Regards Jo

 

[sash]

Hmmm....there is a message in this....

"Don't be alarmed but be prepared!!"

My take is that we are in for a rough ride and people who don't have parachute via risk management strategies are going to get hurt.

MY view is take management of risk seriously via:

1. Ensure you have a large CF situation to ride out any blips like job loss - ideally 1 years salary would be good! Better still if your properties all CF+.

2. If possible create other forms of income....other than your J.O.B.

3. Shop around for deals on insurance, mobiles, telephone, internet....I saved about $1500 just by doing this.

4. Set-up a offset account and pay salary in and pay most expenses via a credit card. Pay this off every month.

5. Shoot your dogs now!...

6. Look at asset quality and return...it is more important than ever!. Also do not compete against the FHB.....they know not what they do!

I personally think it is possible that banks could call in their loans....but only as a last resort. The issue is more that they will only lend to high credit quality customers in the future...this will put more of a damper on the FHB market!

I know it's the UK and not here, but I didn't think this happened ever.

Did this ever happen in Australia before?

http://www.ft.com/cms/s/2/cdc24a48-2078-11de-b930-00144feabdc0.html

 

[nonrecourse]

Hmmm....there is a message in this....

"Don't be alarmed but be prepared!!"

My take is that we are in for a rough ride and people who don't have parachute via risk management strategies are going to get hurt.

MY view is take management of risk seriously via:

1. Ensure you have a large CF situation to ride out any blips like job loss - ideally 1 years salary would be good! Better still if your properties all CF+.

2. If possible create other forms of income....other than your J.O.B.

3. Shop around for deals on insurance, mobiles, telephone, internet....I saved about $1500 just by doing this.

4. Set-up a offset account and pay salary in and pay most expenses via a credit card. Pay this off every month.

5. Shoot your dogs now!...

6. Look at asset quality and return...it is more important than ever!. Also do not compete against the FHB.....they know not what they do!

I personally think it is possible that banks could call in their loans....but only as a last resort. The issue is more that they will only lend to high credit quality customers in the future...this will put more of a damper on the FHB market!

Gee What a novel idea on SS. Sounds like getting your gearing down to 30% is not such an extreme view after all

 

[Norwester]

All good points Sash.

Time is the killer though.........all that just don't happen overnight.

Wouldn't one be better off by already operating under those forms of risk mitigation - continually, rather than in a reactionary manner??

Given the interest rate situation, putting properties into CP+ mode is anyone actually taking ownership??.............ie paying into the mortgage and aiming to keep the property CP+ against the inevitable IR swing back.

Next month, rather than celebrating a million in debt,I'm cracking the champagne on owning the second........unencumbered.

Thoughts?

ciao

Nor

 

[Learnings]

Lets not get too excited.

Remember that part of it called using OPM?