FTB expectations too high?

thegibdog

IveSeenTheLight wrote: »

My point was that someone who bought previously and now looking to upgrade is in a far better position than someone who wants to jump straight onto the upgraded pproperty (unless as you point out that they have been putting away the equivalent capital outlayed in the mortgage, which let me remind you will not be the average FTBer)

So your point appears to be:

People who haven't saved / paid down a mortgage / invested their money wisely won't be able to afford an "upgraded level of property" as much as people who have saved / paid down a mortgage / invested their money wisely?

Your insight astounds me.

tara747

daveb975 wrote: »

I can't remember if I posted this in this thread or another one, but it is totally area dependent.

With a joint salary of £64k, and a £20k deposit, you could reasonably be looking at houses upto £180k. In some areas, the 'average' 3 bed semi never came down to that money even in the depths of the last crash. Equally, you could probably buy a 4 bed detached house now in a lot of areas for that amount.

A certain property type can't be average IMO. A tiny studio flat in Chelsea is still an above average property because it would cost way in excess of the national average house price.

Well yes, that is true. Obviously things are different in London. I live in Belfast incidentally, you would not believe how mad the prices went here!!! But they're down over 1/3 so far and still dropping. :beer: So we do expect to buy a decent gaff when the market bottoms out (not for a good while yet imho).

cupid_s

IveSeenTheLight wrote: »

Actually it would only be 8.006% per year.

It was a theoretical example and you would notice that I equally increased the wages by the same percentage

If you want a lower percentage how about a 3% rise in both houses and wages

£100k house after 10 years is worth £130,500. Wages increase to £32,600 (remember before tax)
With these lower wages, would the average FTB have saved up circa £70,000 extra than the homeowner in the 10 years?

It would actually only be 54k (buying a 100k house, with a mortgage at 5% on 90k you'd still owe 66.5k after 10 years).

And I think it would closer than you'd imagine. When you consider that at the moment I could rent that same 100k house here for £400 a month - quite a bit less than the mortgage would be. You also have no upkeep costs and lower house insurance and miss out on buying and selling fees on the first house. Obviously though the rent would go up whereas the mortgage shouldn't vary too much but you'll be gaining interest in the money you're saving each month.

But another issue is that at the moment house prices are falling. So whilst my wages are going up 3% a year, the value of my house is dropping by more than 3% a year. I have no idea when these decreases will stop but I don't imagine my house will be worth anymore than what I paid for it after 10 years. It will certainly not be worth 30% more because that would involve a 45% increase in value in the next 5 years. Not very likely!

IveSeenTheLight

thegibdog wrote: »

So your point appears to be:

People who haven't saved / paid down a mortgage / invested their money wisely won't be able to afford an "upgraded level of property" as much as people who have saved / paid down a mortgage / invested their money wisely?

Your insight astounds me.

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We were discussing an average FTBer, obviously there are exceptions to the rule.
Going to stop now as I am getting a sore head banging it against a wall trying to reason with you on the average FTB and whether they would have tens or hundreds of thousands in savings.

Thrugelmir

tara747 wrote: »

So, in conclusion - sure, there are some periods in history when it has made sense to buy with massive wage inflation necessary to reduce the burden of your mortgage. Now is not one of them. People who are currently renting and saving are in a brilliant financial position and those with crippling mortgages and negative equity are, well, not. IMHO.

My view is that the explosion of BTL investors in the past 7 years has changed the rental market.

More recent BTL investors have purchased property on interest only mortgages. Providing their net rental income covers the mortgage repayment then they are content. In their minds the real profit was to be made from the capital appreciation in the property, ie increasing property prices.

These highly geared BTL investors in the future will need to increase rents in order to discharge the outstanding capital they owe.

In the context of my comments I am referring to property let as a whole. Not property which is subdivided into smaller units which is a different business model.

IveSeenTheLight

cupid_s wrote: »

It would actually only be 54k (buying a 100k house, with a mortgage at 5% on 90k you'd still owe 66.5k after 10 years).

And I think it would closer than you'd imagine. When you consider that at the moment I could rent that same 100k house here for £400 a month - quite a bit less than the mortgage would be. You also have no upkeep costs and lower house insurance and miss out on buying and selling fees on the first house. Obviously though the rent would go up whereas the mortgage shouldn't vary too much but you'll be gaining interest in the money you're saving each month.

But another issue is that at the moment house prices are falling. So whilst my wages are going up 3% a year, the value of my house is dropping by more than 3% a year. I have no idea when these decreases will stop but I don't imagine my house will be worth anymore than what I paid for it after 10 years. It will certainly not be worth 30% more because that would involve a 45% increase in value in the next 5 years. Not very likely!

I can agree with most of your post.
There are a lot of ifs in the way this discussion is going. i.e. in your area you say the rent is £400 on a £100k house, while in my area, I bought a 2 bed BTL in 2007 and I am receiving £850 per month on the property and the interest is only £430 for the mortgage. Therefore the tenants are paying over £400 off in capital each month (lets not get into specifics such as tax, maintenance etc etc etc as I run the BTL on a different philosophy i.e. rapid repayment).
Each area is different and house prices / rental is different in each area and I concede it may be so in some area where it is currently better to rent than buy, but this is not what the discussion was about.
It was about what FTBers expect and I do not see how someone buying their first property can realistically expect to be able to afford to buy the next step on the property ladder when compared to people who bought smaller properties earlier in life and have been paying down a mortgage for a number of years

Thrugelmir

IveSeenTheLight wrote: »

I can agree with most of your post.
There are a lot of ifs in the way this discussion is going. i.e. in your area you say the rent is £400 on a £100k house, while in my area, I bought a 2 bed BTL in 2007 and I am receiving £850 per month on the property and the interest is only £430 for the mortgage. Therefore the tenants are paying over £400 off in capital each month (lets not get into specifics such as tax, maintenance etc etc etc as I run the BTL on a different philosophy i.e. rapid repayment).
Each area is different and house prices / rental is different in each area and I concede it may be so in some area where it is currently better to rent than buy, but this is not what the discussion was about.
It was about what FTBers expect and I do not see how someone buying their first property can realistically expect to be able to afford to buy the next step on the property ladder when compared to people who bought smaller properties earlier in life and have been paying down a mortgage for a number of years

An 8.5% yield is extremely good on a BTL property. Or are you lucky enough to have a low interest rate?

adrian_bond

hi,

me and the missus bought our 1 bedroom flat in norwich in april 2007 for 103k (was valued before we improved it at £105 (new decor, solid wood floor etc)). now worth approx 95k i think (online estimate so probably about £90k ish is but not sure). bah!

however, we have a fixed rate mortgage that will see us through for another 3 years which has a fairly lowish rate (5.5%) which we can easily afford (borrowed 97500k so our payments are £606 a month. Our combined earnings at the time were 35k approx, with a 5k deposit, plus extra for solicitors fees and the like. We now earn more (38k approx), but can save and enjoy our money as we see fit on a monthly basis.

We are very comfortable. we can go on holidays. shop. eat well and spend as we see fit (within reason). both own and drive practical but nice cars (diesel focus & 1.0 litre yaris, both paid for outright), and are doing okay. If something needs doing, breaks or needs replacing it is never a stuggle to find what we want or how to pay for it (we still dont even have a credit card!), provided its nothing major (I.e. wall falling over etc) which hasnt happened yet. fingers crossed.

we had the opportunity to borrow 6 x our comibined salary (210k!!!) at the time, but politely turned it down as after talking to various people about houses before looking to buy, that 3.5 x is really the highest you should ever go unless your a major risk taker (or bloody stupid!). I heeded this warning and didnt want the existance whereby it was cold beans and arguments every night becuase of overspending and ridiculous mortgages.

We knew the crash was coming, although like all people, didnt know when as everyone has been saying it was coming for the last five years. we were absolutely against renting (believed the hype that you MUST own) as we wanted to live together where our money was being put (even if only slightly) to our long term benefit, not to a landlord. rental experience at uni put me off for life!

i know some people that have had to secure a mortgage by working six days per week, on a 100% mortgage, for the next 35 years. that sucks. that wasnt for us. so we made our decision to buy somewhere we can mangae should the worst happen and have stuck by them.

some people will ultimately disagree with my lifestyle, but we are happy and will move up the ladder when were good and ready (or when the missus gets so broody that its time to expand!). we have set ourselves the timeframe of two years before our next move, so hopefully the market will be a little more stable than it is now!

well thats my current situation, but i would like to pick everyones brain for some advice;

im now in a position that my job security will either be good or bad come the end of march as i can see how full my employers order book will be for the coming year, (i design bits for yachts and superyacts so been hit pretty hard by recession), so will know (within reasonable doubt) how secure my future at my current employer is.

i currently have £2000 saved, and should increase this to approx £3000 by the end of march, which will form my emergency fund if required. i then have some investment options with what to do with say £300 a month of spare cash.

do i;

1. stick the money each month into paying of my mortage early and try to aleviate the negative equity once it hits (if it hasnt already)?

2. save the money to generate as large a deposit as possible (looking to move up the ladder in approx 2 years or when its economically feasible (probably 10 yars!!!)).

3. start a private pension (as my employer sucks and deosnt contribute to the voluntary hole in the ground which is a weak stakeholder scheme). my IFA says its a great time to start a pension and i have to agree!

4. split the £300 three ways or a combination?

5. buy a scooter and sell my car and have fun in the summer if we ever have one again?

any genuine advise would be very much appreciated a im unsure which way to lean. thanks everyone

IveSeenTheLight

Thrugelmir wrote: »

My view is that the explosion of BTL investors in the past 7 years has changed the rental market.

More recent BTL investors have purchased property on interest only mortgages. Providing their net rental income covers the mortgage repayment then they are content. In their minds the real profit was to be made from the capital appreciation in the property, ie increasing property prices.

These highly geared BTL investors in the future will need to increase rents in order to discharge the outstanding capital they owe.

In the context of my comments I am referring to property let as a whole. Not property which is subdivided into smaller units which is a different business model.

Actually, BTL is guided that it is best to have interest only and a high LTV.
This is the best business reason due to tax reasons.
Therefore new / old BTL LL's will lend to high LTV and interest only (note I do not follow this principle personally)

I've seen no data prooving that there is a change from obtaining a rental yield to capital appreciation. This for me is just speculation, based upon people believing that rents do not cover mortgage payments. I don't understand this as when I bought a BTL in 2007, part of the basis was that the rental had to cover 125% of the mortgage, therefore would cover the mortgage

Mr_Matey

adrian_bond wrote: »

i currently have £2000 saved, and should increase this to approx £3000 by the end of march, which will form my emergency fund if required. i then have some investment options with what to do with say £300 a month of spare cash.


do i;

1. stick the money each month into paying of my mortage early and try to aleviate the negative equity once it hits (if it hasnt already)?

2. save the money to generate as large a deposit as possible (looking to move up the ladder in approx 2 years or when its economically feasible (probably 10 yars!!!)).

3. start a private pension (as my employer sucks and deosnt contribute to the voluntary hole in the ground which is a weak stakeholder scheme). my IFA says its a great time to start a pension and i have to agree!

4. split the £300 three ways or a combination?

5. buy a scooter and sell my car and have fun in the summer if we ever have one again?

any genuine advise would be very much appreciated a im unsure which way to lean. thanks everyone

Hi adrian_bond,

Here's my thoughts:

1 - Great option, I'd do this. Reduces your debt and interest payments and provides additional security should your circumstances change.
2 - You're getting a bigger deposit as you increase your equity in option 1, and you're reducing your debt. Not sure why you'd prefer this to 1.
3 - Don't worry about pensions until you've paid off your mortgage.
4 - Don't overcomplicate things. Make the best decision and stick with it.
5 - If you sell your car this would surely pay for the scooter? A lifestyle choice so I can't give you my opinion except that scooters are more fuel-efficient and cheaper to run than cars, but not so good for family trips & in the wet, and let's face it it rains lots here!