Return to lender? New-build woes worsen
The property bubble stoked by over-lending and over-supply of new-build flats has been burst by the harsh realities of the market, with many buy-to-let landlords facing the collapse of their investment.
[UKPRwire, Mon Feb 25 2008] The property bubble stoked by over-lending and over-supply of new-build flats has been burst by the harsh realities of the market, with many buy-to-let landlords facing the collapse of their investment. Having speculated on the continuation of the property boom in new urban flats, and in many cases having been offered incentives to buy – such as the payment of legal fees and stamp duty – such owners now face a major crash in cities across the UK.
Factors such as loose lending and valuation practices, the rise of ‘investor clubs’ from the late 1990s, and highly speculative development coupled with inflated price rises in the first half of 2007, have led to an excess in numbers of city centre flats.
Consequently, the value of such properties has seen a sharp decline, with many owners entering a situation of negative equity and with no choice but to sell at a loss or have the property repossessed by the lender. Adding to the crisis for buy-to-let investors is the difficulty in getting tenants in a market where the supply is greater than the demand, forcing some landlords – those who can afford to do so – to top up the rent themselves to meet their mortgage commitment.
According to UK property auctioneer Allsop, a significant proportion of repossessions sold at auction are from the buy-to-let category. Some examples from across the country illustrate the downward trend in new-build prices: in Manchester, a repossessed new build flat bought in 2004 for £178,000 went to auction recently at a guide price of only £80,000. In a Colchester city centre development, flats that were selling for £224,995—£249,995 in 2006 were sold at auction last summer for between £145,000 and £155,000. In Liverpool, a flat bought off-plan in 2006 for £139,000, with an anticipated value of £153,000 in 2007 when the development completed, turned out to be worth only £121,000.
However, elsewhere in the buy-to-let market the outlook is less gloomy, with rents increasing through 2007, and letting agents reporting a notable increase in enquiries. As Lawrence Smith of Decision Homebuyers commented, “For experienced property investors especially – as opposed to novice ones with perhaps unrealistic expectations of immediate high yields – there are still good deals to be found in the new-build sector – not least, low-price repossessions.”
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