Vacant Homes in U.K. Prove Speculator Nightmare as Losses Mount
April 18th, 2008Via: Bloomberg:
Richard Lee spent 5.3 million pounds ($10 million) buying 20 rental homes across the U.K. with just 150,000 pounds of his own money. Today, the properties are worth about 60 percent less and owned by the banks that financed the purchases.
Lee was one of thousands enticed by one of Europe’s top five best-performing residential property markets during the past decade. Now repossessions are mounting and properties stand empty as many investors fail to find the tenants needed to cover their mortgages after a building boom flooded cities, especially Leeds and Manchester, with apartments.
The unraveling buy-to-rent investment market contributed to a 2.5 percent drop in home prices last month, the biggest since 1992, a report by mortgage lender HBOS Plc shows. Britain is among the countries most likely to follow the U.S. into a housing slump, according to the International Monetary Fund. Prices may drop 10 percent this year and next, said Michael Saunders, a London-based economist at Citigroup Inc.
“Buy-to-let investment was a bubble inside the housing market bubble,” Saunders said. “It’s turning out worse than I thought.”
Home purchases by investors such as Lee helped triple housing prices between 1997 and 2007. The buy-to-rent market in the U.K. increased 19-fold to about 190 billion pounds in the same period, according to London-based broker Savills Plc.
