Buy to Flip Mortgages

As with a number of these novel financial products they are usually a little behind the game. Let me explain; there is an uneasy feeling amongst developers and investors alike that speculative acquisitions bought in London could be in line for a bruising.

A survey of the various show flats of a number of new developments across London will demonstrate that buyers in certain price ranges are ‘thin on the ground’, particularly, at the higher price range and discounts from asking prices are more the ‘order of the day’ than anything else.

With the Stock Markets in the world crashing, Russia in financial difficulties and China slowing at a perceptible, together with the fiscal changes that will apply in April to Buy-to-Let investors, there could be trouble afoot in this sector.  What looked like an attractive paper gain from the original purchase to the present value could quickly evaporate and morph into a loss.

There is talk of ‘dumping’ of some of these multiple purchases that can only mean one thing – a price collapse.

There is no question that at the moment properties with values between £200,000 and £800,000 are ‘flying out of the door’, with an acute shortage of stock and strong demand. However, in pockets of London’s newly developed areas, where there is a lot of speculative development, the outcome could quickly turn nasty and thoughts of investors ‘flipping’ contracts to fresh secondary buyers may be a thing of the past.

Here the original purchaser may have no choice but to ‘dump’ the initial deposit (of usually 10%) and leave the property with the developer to re-sell at whatever price they can get.

Under these circumstances, given that mortgagees and lenders are generally risk averse and can see the writing on the wall as well as anyone else, frankly I am not sure there will be much traction with these ‘new fangled loans’.

Already the market in London above £1.5million is seeing no growth whatsoever in prices and, further up the scale, they are devaluing by up to 10% with turnover down by 53% so the ‘cracks in the wall’ are evident thanks to the Government’s SDLT changes, not assisted by the exodus of the Non-Doms.

With the prospect of an Interest Rate rise sometime next year, and a slowing of the UK economy in line with the rest of the world, I’m not sure if there is too much optimism at the moment in this sector and, therefore, all this innovation in mortgage lending could be ‘too little, too late’!

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