Paragon deals blow to housing market
Paragon, Britain’s number-three buy-to-let lender, has become the latest victim of the credit crunch. The lender has been forced to line up an emergency rights issue as borrowing from other banks has become too expensive.
Paragon (PAG), Britain's number-three buy-to-let lender, has become the latest credit-crunch victim. It has warned that borrowing from other banks is becoming too expensive and so it has lined up an emergency £280m rights issue.
Paragon is having to scale back growth, effectively closing to new business from February, noted Philip Aldrick in The Daily Telegraph.
Meanwhile, Bradford & Bingley (BB), the buy-to-let sector's largest lender, has had to sell off £4bn of loans to shore up its balance sheet.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What next for the housing market?
In the past three years, buy-to-let investors have filled the gap left by first- time buyers priced out of the housing market, said James Rossiter said in The Times; thanks to an abundance of cheap deals, buy-to-let loans have rocketed over the past five years.
But the surge is set to "come to a halt". Yields have now plummeted as house prices have soared, with recent investors facing mortgages of over 6%, while net yields are 3.5%, according to James Hamilton of Numis. And now that house prices are no longer rising rapidly, "the maths just does not work", as Credit Suisse put it.
Meanwhile, buyer numbers are likely to shrink now that credit is tightening and Paragon's difficulties presage less lending and higher mortgage rates; Bradford & Bingley, moreover, has said it won't be "charging back into the market" to offer cheap rates.
All this portends more buy-to-let sellers and fewer buyers, with the drop in demand and rising supply denting house prices; with this year's higher interest rates putting upward pressure on repossessions, a jump in forced selling would accelerate price falls. As Hamilton said, it looks as though the UK property market's "massive bubble" is "about to pop".
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?
Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
By Kalpana Fitzpatrick Published
-
What does Rachel Reeves’s plan for growth mean for UK investors?
Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
By Katie Williams Published