Came across an article tonight that made me wonder about the exposure faced with by buy to let landlords. The UK housing market has been marching on for years with little break. It has become popular to invest in this market as a pension egg or a business. I know dozens of people that have several properties with one having 15.
The Office for national statistics shows that about 6 percent of households earn an income from rentals. 6 percent of 26.7 million households is 1.6 million. I haven't read the new data although it's not needed to grasp the scale of it. last December the sector was sitting at 27 billion in risk. Not surprisingly the Bank of England thought it was necessary to curb. It was recently granted new powers to regulate the buy to let market. The more I think about it the more I wonder if the BOE had a hand in the ex Chancellor's buy to let shake-up.
So what is the risk essentially? Let's say you held a standard mortgage on your house. You might even have released some equity to fund your buy to let empire. Along with savings you have accumulated 2 additional buy to let properties. All the mortgages on these last 10 years have been so cheap that you decide to buy a 3rd. With interest rates going to rise, all we need are the right conditions to set off a debt servicing problem.
The BOE are going to be limited in scope to shelter shocks to the economy. Can you imagine a scenario where the BOE needs to pump billions to ensure stability. Exactly where is the pressure point in the amount of debt we carry and our credit worthiness of repayments (debt is currently about 90% of gdp). If we were downgraded then there will be a ripple affect to lending criteria, availability and scope of mortgage products, and increase costs. What happens if we see a lot of people leaving the UK as a result of brexit and suddenly there is less rental demand. Depending on the portfolio you have,you could be be safe or more exposed. Let's say your flats were at the lower end of the market. Are your tenants able to make payments if the cost of living goes up.
I see problems on the horizon for sure.
The Office for national statistics shows that about 6 percent of households earn an income from rentals. 6 percent of 26.7 million households is 1.6 million. I haven't read the new data although it's not needed to grasp the scale of it. last December the sector was sitting at 27 billion in risk. Not surprisingly the Bank of England thought it was necessary to curb. It was recently granted new powers to regulate the buy to let market. The more I think about it the more I wonder if the BOE had a hand in the ex Chancellor's buy to let shake-up.
So what is the risk essentially? Let's say you held a standard mortgage on your house. You might even have released some equity to fund your buy to let empire. Along with savings you have accumulated 2 additional buy to let properties. All the mortgages on these last 10 years have been so cheap that you decide to buy a 3rd. With interest rates going to rise, all we need are the right conditions to set off a debt servicing problem.
The BOE are going to be limited in scope to shelter shocks to the economy. Can you imagine a scenario where the BOE needs to pump billions to ensure stability. Exactly where is the pressure point in the amount of debt we carry and our credit worthiness of repayments (debt is currently about 90% of gdp). If we were downgraded then there will be a ripple affect to lending criteria, availability and scope of mortgage products, and increase costs. What happens if we see a lot of people leaving the UK as a result of brexit and suddenly there is less rental demand. Depending on the portfolio you have,you could be be safe or more exposed. Let's say your flats were at the lower end of the market. Are your tenants able to make payments if the cost of living goes up.
I see problems on the horizon for sure.
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