Wellignorethatforthemoment。

TheWilsonsstoryisfascinatingforallsortsofreasons。

Butwhatsmostusefultousiswhattheirtaletellsusaboutthecrashof2008,andabouthowthepropertymarketmanagedtoreboundsostronglylastyear。

Mostimportantly,itshowswhyanyrespiteforthemarketcanonlybetemporary

HowtheBankofEnglandsavedtheWilsonsandstuffedsavers

Buy-to-letisabsolutelydeadandwillneverreturn,accordingtoFergusandJudithWilsoninaninterviewintheGuardian。

2008wasntagreatyearfortheWilsons。

ByOctober,morethanoneintenoftheir700orsohomesinKentwasbeinglivedinbytenantswhowereunabletopaythewholerent。

Andwithbankspullingoutofthebuy-to-letlendingbusinessasfastastheycould–thiswasawholeyearaftertherunonNorthernRock–theywerehavinganightmarerefinancingtheirdebts。

Weweregoingtobe,toputitbluntly,stuffed,FergustellsPatrickCollinsonintheGuardian。

Sowhatsavedthem?

TheBankofEngland。

Wheninterestrateswereslashedto0。

5%,theirloansmostlyrevertedtobase-ratetrackers。

Sotheirinterestpaymentbillsdived。

Youcanarguethetossaboutthemoralityofallthis–actually,scratchthat,youcant。

Itsatravesty。

Itsacompletebetrayalofthecapitalistsystemandanyonewhofoolishlythoughtthatthiswashowthegamewasplayed。

TheWilsonstookwhatwasunarguablyastupidrisk。

Theybuiltahugeportfolioofhousesfocusedinonesmallareaofthecountry。

IftheBankofEnglandhadntbailedthemout(andnotethatmanyoftheirhomeloanswerewithaunitofBradfordBingley,andsoarenowownedbythetaxpayer),theydhavelikelygonebust。

Thebankswouldhavehadtohaveafire-saleoftheirhouses,andfirst-timebuyersinAshfordcouldhavehadafieldday。

Instead,theWilsonsarestilltryingtoflogtheirhomesat£180,000apop,andfirst-timebuyersarestilllivinginrentalproperties。

AndtheBankofEnglandissubsidisinglandlordsprofits。

TheWilsonsareofcourse,justthetipoftheiceberg。

Thereareplentyofotherover-stretchedborrowerswhohaveremainedinbusinessonlythankstolowratesandthetoleranceoflenderswhoknowthattheydbestuffedtooifassetpricesfellsharply。

Whowillbuytheirhouses?

Buthowlongcanthislast?

TheWilsonsarenowtryingtoselltheirportfolio,piecebypiece。

Butwhowillbuytheirhomes?

Nototherbuy-to-letlandlords–thecostswouldbetoohigh,particularlygiventhelevelofcompetitioninthearea。

Notfirst-timebuyers–togeta25%deposittogetherona£180,000starterhome,theydneedtoforkout£45,000upfront(nottomentionthe£1,800stampduty)。

Andatwo-bedinAshfordishardlythesortoftrophyassetthatarich,Europeanbuyerisgoingtosnapup。

SpecialFREEreportfromMoneyWeekmagazine:Whenwillhousepricesbottomoutandhowwillyouknow?

WhyUKpropertypricesaregoingtofall50%

Whenitwillbetimetogetbackinandbuyuphalfpriceproperty

IftheWilsonswanttoselltheirportfolio,itneedstobeattractivetofirst-timebuyers。

Soeitherbankshavetolightenupontheirlendingcriteria–hardtoimagine,whenbaseratesareatrockbottomanyway–orpriceshavetofall。

Andthemoresupplythatcomesontothemarket,themorelikelythatis。

Infact,theRoyalInstitutionofCharteredSurveyors(Rics)reportedthismorningthatinFebruary,thenumberofhomescomingontothemarketoutstrippedthenumberofnewbuyerenquiriesforthesecondmonthinarow。

Thisrepresentsthefirstsustainedshifttowardssupplyfortwoyears,saidRics。

Meanwhile,anetbalanceof17%ofagentssaidpriceshadrisenoverthepastthreemonths。

Thatsalotlowerthanthe31%whoreportedrisesinJanuary。

Andsalesperagentfellbynearly5%,to17。

6inFebruary。

Beforethecrunch,thenumberofsalesaveraged25。

Whatwillhappenifthecostoflendingrises?

Butyoucouldarguethatnobodysbeingforcedtosell。

Thatsasmaybe。

Butwhathappensiflendingcostsgoup?

LetsgobacktotheWilsons。

AccordingtoCollinson,oncethebaserategoesabove3。

5%,thecostofservicingtheirdebtwillbegintoexceedtherentalincome。

Judithsresponse?

Interestratesarenotgoingtorisequickly。

Iftheydo,thenthewholecountryisbust。

Butwewouldntbesoconfident。

KateBarker,amemberoftheBankofEnglandsinterest-rate-settingMonetaryPolicyCommittee,isstartingtoworryaboutinflation。

Itisnoteasytoreconcilealargenegativeoutputgapwithrecentupwardsurprisesoninflation,shesaidrecently。

Toexplain,thenegativeoutputgapjustmeansthatthereseemstobeplentyofsparecapacityintheeconomy,whichshouldnormallyswampanyinflationarypressures。

ThefactthatthisisnthappeningsuggeststhattheBankmighthavegotitssumswrong。

Britainseconomylooksmorevulnerablethanmost

Werestillnotcompletelydecidedonwhetherinflationordeflationisthegreatestthreat–wellbegettingapanelofexpertsinnextmonthtotrytohammeroutthedebateonceandforall。

Butitsfairtosaythatifoneeconomylooksmorevulnerablethanalmostanyotheratthemoment,itsBritains。

MycolleagueDavidStevensonhasalreadypointedoutthatifinflationcontinuestobeaproblem,theBankmayhavenochoicebuttoraiserates,regardlessofwhatitbelievesthelong-termoutlookis。

AndasJamesFergusonpointedoutinarecentMoneyWeekmagazinecoverstory(Dontbefooledhousepriceswillfallagain),ifinterestratesdontrise,itllonlybebecausetheeconomyisheadingforadouble-diprecession。

Thatwouldmeanhigherunemployment,andmoreforcedsales。

(Ifyourenotalreadyasubscriber,subscribetoMoneyWeekmagazine。

)

Onewayoranother,Britishhousepricesaregoingtofall。

TheWilsonshadbetterflogthosehousesfast。

Ourrecommendedarticlefortoday

Emergingmarketsthealternativesafehaven

Traditionalsafe-haveninvestmentsarefailing,saysBengtSaelensminde。

Everyclassofassetisrisingandfallingasone。

Butonelittle-knownemergingmarketfundcouldprovideasafealternativetotheWestsvolatility,whileproducinginflation-bustingreturns。

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