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Buy-to-let is now just a rich man’s game, apparently.
That’s what the head of
Chief executive Steve Crawshaw warned that the bank would be looking for better profit margins (that means higher interest rates) and more equity (that means higher deposits) from landlords. Higher costs tend to lower demand, and arguably would shut out amateur landlords, leaving the field to only professionals and the wealthy.
Sounds like really bad news for the buy-to-let business, eh? Of course it is.
But don’t expect them to admit to that…
Bradford & Bingley chief executive Steve Crawshaw yesterday warned the market that buy-to-let is becoming more expensive. Bear in mind that B&B is a key player in this market, accounting for a fifth of outstanding loans.
Crawshaw said: “We expect fewer new people will enter the market. Growth will come from the established landlords.” He went on. “People are now talking about this being a rich man’s game. There’s an element of truth in that.”
OK. So fewer people will be buying into the market. And unless you’ve got a lot of money, you won’t be able to do so. In other words, demand is falling. Falling demand tends to lead to falling prices, and as prices are about the only thing a buy-to-let landlord cares about, falling prices in turn lead to falling demand.
So the market’s in trouble, surely? But remember, this is the
The buy-to-let bandwagon
We doubt it. Buy-to-let is a bandwagon. People jumped on it very quickly when it was doing well. Now that house prices are falling, the stampede to get off will be at least as rapid.
And established landlords aren’t daft. The professionals focus on getting decent rental yields, and making sure they can cover any void periods. So plenty of them bailed out of the market a long time ago, realising exactly where it was headed. In fact, I remember reading in one of the weekend supplements a couple of weeks ago, about a buy-to-let professional who had stopped adding to his portfolio as far back as 2001, because he wasn’t happy with the yields.
Sadly, the housing market has been propped up by a string of buy-to-let latecomers who have overstretched themselves, often to buy dubiously valued city centre flats, who will now find that they are in serious financial trouble. That means repossessions and fire sales ahead. Buy-to-let may now be a rich man’s game, but no rich man who wants to stay that way will pile in now.
This isn’t the only thing B&B has to worry about. In fact, all in all, the mortgage lender’s results nicely encapsulated a lot of the problems likely to beset the
More nasty surprises ahead from the banking sector?
There was the unexpected £144m writedown, due to investments with exposure to US sub-prime mortgages. And bad debt provisions on its own mortgage portfolio tripled to £22.5m, most of that in just the past six months. More than one in 50 of its mortgages is now in arrears or facing repossession. With life set to get much tougher, the forecast bad debt for this year of £30m looks more than a little optimistic.
Rising bad debts, and nasty surprises from sub-prime investments. One thing’s for sure – if the rest of the banking sector’s results are anywhere near as grim as B&B’s, then the stock market has another miserable few weeks ahead.
By the way, I meant to say yesterday – if you have a spare minute, then Jeff Randall’s column from yesterday’s Telegraph is well worth a read. It’s an entertaining, and entirely accurate rant about just how insane the
Turning to the wider markets…
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Bradford and Bingley was the heaviest FTSE 250 faller, down over 23%, whilst fellow mortgage bank Alliance & Leicester led the blue-chip fallers. For a full market report, see: London market close.
On the Continent, the Paris CAC-40 was 14 points higher, at 4,855. In
Across the
Japanese stocks soared by 58 points to 13,626 as economic data out today showed that Japanese GDP grew 3.7% in the fourth quarter, beating analysts’ estimates.
In
Platinum tops $2000
Crude oil had extended yesterday’s gains this morning and was last trading at $933.70 a barrel. Brent spot was also higher, at $93.96 in
Spot gold
had risen to $908.30 and silver was also higher, at $17.38. However, platinum was the biggest precious metals story of the day once again, jumping to $2,002 an ounce, as Impala Platinum Holdings – the world’s second-largest platinum producer – reported a drop in earnings.
Turning to the currency markets, the pound was at 1.9696 against the dollar and 1.3469 against the euro. And the dollar was at 0.6837 against the euro and 108.29 against the Japanese yen.
And in
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