On builder/surveyor/banks collusion in London and how to cut firewood from a fallen tree

Thinking of conceptualizer and his comment on  May 16, I thought of writing this post.

If it helps, knowledgeable estate agents in the area told me already about 12 months ago that the major lenders in the West Thamesmead new built scene (namely the Halifax the racketeer) refused to mortgage any property in the area anymore.

Apparently hundreds of properties went to owners of African origin who lived there for a while and never paid their mortgages. So when Gordon Brown was still dreaming of No 10, repos where already the norm in spanking new properties across the City airport.

So let’s see who was making money here and how.

The builder tells the surveyor how much a property is. The builder himself cashes in his minimum 33% premium (the fixer money maker) after giving discounts to the buyer to save him stamp duty and deposit.

The surveyor swallows the ridiculous selling price and gets his fee for no work whatsoever because he doesn’t have anything to compare prices with (it was new built), only what the builder says (the look-away money maker).

At the end of the line, the banks (the master money makers) give away the mortgage after getting hefty admin fees, and after all, mortgaging a property where the buyer supposedly is paying the minimum deposit or even more (remember the discount the builder gave Mr Buyer?)

I guess the paragraph above should be read in past tense, since banks have closed the credit tap, and look what is going on now with the major builders…

But anyway, if the owner willingly or unfortunately didn’t pay the mortgage, the property was repossessed and sold on public auction getting for the bank the original loan matching the real market price of the property.

If the same bank loans the money again for the same property but this time at a lower price, the deposit that the new buyer has to put down will lower the risk comparing to the original mortgagee and once the market has dealt with the bubble-buyer the bank will collect again the monthly payments.

See what happened there? The banks mortgage overpriced properties, get their fees and interest, and once the properties are repossessed they get their full money back and they start again! So the banks win. They are always the smartest of the trio.

Anyway, if you are looking into investing on property on a falling market (doing the contrarian thing never harmed anybody if the fundamentals are correct) I recommend you to have a look to the area, where you can snap up some cheap deals.

Let me help you with the due diligence.

At the moment is a dead zone. Thousands of flats and family homes where built in West Thamesmead but the Greenwich council just finished paving the streets (yes, three years late, I know), so excess demand and amateur and naïf investors fell in the easy-money gone bad trap.

But good news is that they are building the Thames Getaway Bridge linking Beckton and Thamesmead on each side of the river, and the price differential between both neighbourhoods is significant… I expect price raises from 2009 (expected grand opening in 2010). To make things better, DLR will be getting to Woolwich shortly.

Will prices really rise? That I don’t know for sure, who does? But it is true that there are few places in London where you can get 3 year old 4 bedroom houses for under £220,000, and that is what builders haven’t been building during the last years of the housing bubble.

Any feedback will be more than welcome.

.Calvin

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2 Responses

  1. I have to ask for a clarification.
    If as you say the bank sells a reposed property at auction, surely they will get much less in a falling market than they originally lent and make a loss, even taking into consideration their various initial fees.
    What am I missing?
    Thanks for your interesting post.

  2. Concept, I started my replied but I extended so much that I decided to write a new post.
    Tell me if my conspiracy theories stand.

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