Why Do Investors Not Sell Underwater Buy-to-Let Property?

Karl Deeter, Marie Hunt and Brian Lucey have a new paper on this here, with some of the results of their survey abstracted here.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

10 replies on “Why Do Investors Not Sell Underwater Buy-to-Let Property?”

Some off it is a bit stating the bleeding…..but still interesting,h/t Indo good reporting on it.
“The interrelationship between house prices and mortgage credit has been one of the more compelling issues to warrant attention after the recent financial crisis. Considerable financial innovation and liberalisation of wholesale international funding markets over the past 20 years greatly increased the ability of banking sectors to extend credit to the real economy. Almost inevitably many countries experienced significant house price booms over this period. The rate of house price appreciation in Ireland outstripped that of most in the OECD. Availing of two new related databases of Irish mortgaged households, this paper, firstly, quantifies the respective contribution to house price movements of changing credit conditions and, secondly, estimates an index of mortgage credit availability in the Irish property market, (MMCI), over the period 2000 – 2010.”

cheat sheet…
“In the latest publication, Moody’s discusses the credit positive implications for Irish RMBS of revisions made to the Irish Code of Conduct Mortgage Arrears and Law on Repossessions. Irish lenders expect that the revisions will increase repossessions and reduce long-term delinquencies among “not cooperating” borrowers. An increase in repossessions and a decrease in delinquencies would be credit positive for Irish RMBS noteholders.”
research note-not sure if any interest but “Performance Overview: CELTIC RESIDENTIAL IRISH MORTGAGE SECURITISATION NO. 9 PLC” is also out,but may be behind paywall.

The situation could possibly change dramatically if the ECB starts to raise interest rates from 2015.

While property may be cheap at present in Ireland…. the average BTL mortgage on the market now is around 4.5% to 5%. And that’s with the ECB at 0.5% rate.

What will happen to these BTL mortgages when the ECB raises rates sometime after 2014, perhaps 2015?

Will we see BTL mortgages increase to 6%, 7%, or even 8% from 2015 onwards?

If so then it is possible that there will be a flood of BTL property on the market in 2016 as rising ECB rates will “flush out” landlords which are barely surviving today.

Add in the “hostile” attitude taken by the DoF and the Revenue Commissioners against Landlords… in my perspective… Landlords are in for a uncertain and bumpy ride even if todays property is at rock bottom prices.

@ Sporthog: “While property may be cheap at present in Ireland…”

I would beg to differ on this one. Sure, in the boonies, but still over-priced in urban sector that needs another -50% fall, on current selling prices, to get to the ‘bottom’. Now if interest rates did rise to 5% – 7% range (and I expect they will – just not soon!) that’s when you will see the bottom come into view! And it won’t be a pretty site (sic).

There is a deep political problem with any rate rise – think spraying ‘green shoots’ with Roundup! We already have money inflation, but this is being artfully masked, so its lend and pretend time. The new money is going into financial assets – acquiring property assets requires borrowing to resume. So where are all those eager borrowers then?

Interesting case in Kerry. The Registrar is looking for the gory details of how mortgage loan applications were ‘stressed-tested’ by the originators – before they were shoved off onto borrowers. Should be interesting.

We’ll be back at this one.

@ Brian Woods Snr,

Some people tend to look upon a 375K house as cheap. Yet the same such people have no idea of how much interest they will pay over 25+ years. One is looking at 80 to 100% of the original capital.

A lot of people don’t even know how long it takes to pay back 100k after taxes and interest are applied.

I agree with you that in certain areas of Dublin… property is still way way over priced. However it’s possible to pick up a 3 bed terraced property in Tallaght for between 65 to 105K.

I spoke to a bank manager about stress testing, and it was a figure of 2% above the current ECB rate for that time.

Most mortgages are now 3.5 to 5% above the ECB rate, and that’s ECB at 0.5%…. interesting times ahead as you say!!

little paper/article here on Europe v US mtg. defaults-quick read.

“The first panel of the table compares changes in mortgage defaults in Europe and the U.S. for periods when the change in prices was similar. From 2008 to 2009, prices declined almost 7 percent on average in Europe. As a response, default rates increased, but only by 11 percent. In the U.S., from 2007 to 2008, house prices declined on average by almost 8 percent. The corresponding increase in mortgage defaults was much larger: more than 93 percent.”

I own a property I rent out. I initially bought it to live in, but the ultimate intention was to rent it. I figured it would be one component of my retirement income several decades from now.

I bought it for 215k, I owe 170k and it is worth 80k in the current market. So I have a simple question in response to the one posed in this article:

How? Does someone have 90k kicking around that I can have so that I can sell it?

I suspect not.

Also, until I sell it there hasn’t been a loss.

Comments are closed.