The latest figures show that mortgage lending by banks slumped by a massive amount from June to July. The number of mortgages approved fell during that period by an astonishing 20%, which is the biggest fall for a decade.
Even allowing for seasonal factors, the number of approved mortgages dropped by 16.6%.
It appears that the bottom is just about to fall out of the market.
In a survey recently it was stated that buy-to-letters were now responsible for 24% of all housing loans. That‘s an astonishing figure and it shows why there was a big boom in housing with that many extra buyers in the market.
However, when you have that many people wanting to buy houses to let then, there are a lot more houses to let, meaning that by the economic Laws of Supply and Demand, the price that they can gain for letting is bound to go down.
The buy-to-letters have been relying on capital gains for their main profits.
However, once the property market starts to turn down then it starts to go southwards remorselessly. Buyers go on strike knowing that they can buy a better house down the line for the same amount of money.
The recent rise in interest rates has made it a little more expensive to finance mortgages and it has also changed sentiment just enough to send the housing market over the top.
If the buy-to-letters disappear from the market (and they can‘t buy every house in Britain) then that leaves a big gap.
It would be even worse (and very likely) if some of them became forced sellers because they are finding it more difficult to finance their buy-to-let projects.
Also, some of them are bound to want to cash in near the top of the market and it may turn out that there may be more sellers in the near future than buyers.
Buy-to-let is a great way for contractors to invest their money. I knew one guy who bought a property at every contract where he worked. It saved him paying out rent whilst he was there.
He then simply rented out the properties to locals when he moved to a new contract. It was pretty much self financing.
He was also able to pack in contracting after a number of years and live just on the income from his properties. He also had the capital gains to give him a nest egg.
This is still a good strategy, but it would appear to be a good strategy at a bad time in the current climate.
The London property market is already falling, and although there is still a good market the further from the capital that you get, that is sure to change too.
They say sell when a market is high and buy when it is low,
That would appear to mean that it would be a good time to get out of the housing market and into the Stock Market.
The Stock Market had a good year last year, starting from about late spring time. So far this year it has moved sideways or even downwards. However, it often does that in the second year of a recovery, as it marks time before deciding if this is the start of another bull run, and because it often gets ahead of itself in the first year – as happened last year.
All the information that we have from IT agencies, for example, is that the IT market is picking up very well and that the market is continuing to improve.
It looks as if the housing market has had its day in the sun and that the Stock Market may be the place to be for the next few years.
They say that the autumn is the best time to invest. The summer is traditionally a quiet time. ‘˜Sell in May and go away, and don‘t come back till Leger Day‘ is the old maxim. Well the St. Leger horse race is held in September.
It could well be, then, that the Stock Market is about to pick itself up after its recent torpor.
It looks, also, as if the housing market has already passed its high water mark.