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Who are defaulting. It is not us

The banks are suffering because:

 

  • Commercial Property Companies are defaulting as business premises such as offices and warehouses are sitting empty or leased pubs lack any sort of trade as supermarkets are killing them.

 

  • They bought toxic loans written in the USA which are not worth the paper they are written on.  The borrowers in the USA are simply fleeing their homes and not paying anything towards the debt they took out.

 

  • Russian billionaires business exploits are failing to meet their optimistic projections set out in their business plans submitted to the banks prior to receiving the loan funds.

 

Nowhere are the banks suffering because of UK residents buying UK property. 

 

Nowhere. 

 

You will always get some borrowers getting in to trouble.  The banks know this.  They budget for this.  They even budget for the sort of defaults they are experiencing now.  I am sure they budgeted for an even a worse worst case scenario for us UK residents buying UK property.

 

However what these banks have experienced over the last 18 months has been catastrophic and absolutely NOTHING to do with us.  More specifically buy to let landlords.

 

The banks know this.  They have learnt their mistakes.  The figures never lie. 

 

When you have buy to let landlords defaulting less than residential owners it doesn't take long to see the hierarchy of borrowers:

 

  1. UK landlords
  2. UK residential home owners
  3. Commercial property Companies
  4. Russian Billionaires
  5. USA sub prime

 

I think 2009 will be the year of realisation for lenders.  Buy to let landlords if offered sensible rates will take on the debt and pay it back in full and on time.  Lenders will not get rich quick (as promised by the USA sub prime debt brokers) by lending to buy to let landlords however lenders will earn a sensible income from us.

 

Once banks realise that they will be fighting for our business big time.  Expect borrowing rates to get better.  The margins for buy to let are at a ridiculous 4.5% above base on average at the minute (even though it results in a rather sensible rate of 5%).  Expect that to fall and see sub 3% borrowing rates for buy to let.

 

Are you excited?  Let me know.

 

Ajay

 

 


Posted on: 30th Mar 2009




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