It seems like the mega-real-estate bubble in the UK is still blowing and Bloomberg published this amazing report about it:
Feb. 9 (Bloomberg) -- Mortgages that helped fuel speculation during the U.K.’s housing boom by turning homeowners into aspiring property moguls are making a comeback.
Investor demand for bonds backed by so-called buy-to-let mortgages surged last week by the most in almost two years, according to JPMorgan Chase & Co. New lending to rental property investors rose 40 percent last year to 14.1 billion pounds ($22 billion), the Council of Mortgage Lenders said today. [...]
The extra yield investors demand above benchmark rates to hold 3-year senior bonds backed by U.K. buy-to-let mortgages contracted to [...] 3.3 percentage points, JPMorgan data show. That’s narrowed from 11 percentage points in June 2009 and is the least since August.
“There’s a realization that buy to let is a prime credit- quality risk,” said John Heron, director of mortgages at Paragon Group of Companies Plc, which lends mainly to landlords with more than 10 properties.
Paragon raised 163.8 million pounds in November by selling bonds backed by buy-to-let loans, its first issue since July 2007. The mortgage provider has climbed almost six-fold in London trading since November 2008 after losing 97 percent of its market value during the previous 32 months. [...]
Landlord financing became easier to obtain starting in the 1990s, when the government allowed more companies to provide mortgages. That fueled a 19-fold increase in buy-to-let lending in the decade ending Dec. 31, 2007, during which U.K. home values tripled, Savills Plc estimates.The government, by allowing fiat-currency, partial reserve banking, and the absurd mortgage laws created the mess. The banks are working downstream the government.
TV shows promoted rental property as a way to diversify savings. In the final years of the investment boom, buy to let developed a reputation for get-rich-quick schemes as property investment clubs offered seminars to persuade novice investors to put savings in new residential development projects.
[...] “A small minority gave buy-to-let a bad name,” said Law. “People didn’t use it to fund a landlord business, but as a speculative way of making lots of money.”
The boom ended with the freeze in global credit markets triggered by the U.S. subprime mortgage crisis. Companies scaled back or withdrew from the market after a 15 percent slide in U.K. property values in the 18 months through March 2009.
[...] While property values fall, investor demand for buy-to-let loans has increased because of the attractive income rental properties generate compared with other financial assets.
“Now’s a good time to invest,” said Richard Blanco, 45, who plans to buy a property a year to add to the 10 rental homes he already owns in East London and Nottingham. “Prices are depressed and people are struggling to get finance so there’s less competition.” [...]
Increased competition has led some lenders, including Clydesdale Bank, to start offering mortgages with only a 20 percent down payment requirement for borrowers instead of the 25 percent deposit prevalent since 2008.
[...]“The tests are still to come for buy-to-let, when interest rates start to rise,” said Jonathan Livingstone, a senior analyst at Moody’s, who covers U.K. residential mortgage-backed securities.Shortage of property? Right? Well, Findaproperty.co.uk lists 918,441 properties for sale and rent from 13,586 estate agents. Close to 1 million properties on the market, for a country with about 55 million inhabitants. Does that sounds like shortage?
[...] A shortage of properties to lease lifted rents by 4 percent last year, LSL estimates, based on a survey of more than 18,000 homes in England and Wales. Countrywide estimates that 3.3 people competed for each rental property on its books in the final quarter of last year and it took less than two weeks on average to lease a home.
[...] “Buy-to-let came through the recession showing it was much more resilient that many thought,” Charcol’s Boulger said. “What appeals to lenders is the higher margin for less risk.”Higher interest rates mean more risk, and not the opposite. Only someone living in a bubble can make the above comment. "Market is resilient", "margins are high" and "risks are low" should all be seen as flashing red light by any rational person.
Thanks to my friend SS for sending me that report.