FTB expectations too high?

thegibdog

IveSeenTheLight wrote: »

:wall:

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.

But you didn't say the average first time buyer, you were comparing two couples in the same situation apart from the fact one had bought eight years earlier and one hadn't. You were trying to illustrate why people who already own a house should be in a better position to buy an "upgraded level of property" by using a flawed argument. I was trying to make you see this but I give up.

:wall: indeed.

penguine

IveSeenTheLight wrote: »

I think your view is flawed.

If we take a hypothetical situation of a FTBer who bought a property for £100,000 with a £25,000 salary. The second person rents / travels (does not buy)
Lets say in 10 years time the property is worth £200,000 and both the income has increased to £50,000 (keeping same ratios)

So in 10 years property prices have doubled -- what other investment would double in that length of time? Nor would average salaries double.

You're regarding HPI as normal and that's why your view is flawed.

Thrugelmir

IveSeenTheLight wrote: »

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

If there is no sizable capital appreciation where is the profit in being a BTL investor on an interest only mortgage? Don't disagree that there are tax advantages in that interest is offsetable against rental income. However capital gains tax is normally payable when a property is disposed of. So there are other matters to consider when property investing.

On a £100,000 repayment mortgage over 25 years at 5%. The capital repaid in year 1 is only £2,000. So in broad terms would only save £100 in interest the following year, or £60 after tax relief for a high rate tax payer.

Putting the current market aside. An interest only mortgage is like a hedge fund manager placing a one way bet. As there are 3 risks (a) the property value (b) achievable rent (c) interest rates. (B & C could be mitigated if fixed on a long term basis).

Suggest you record Homes under the Hammer (BBC1 10 am). Been very interesting this week with a couple of properties sold at auction last March-July that were revisited later in the year. Yielded their purchasers either no profit or a gross rental income that wouldn't cover a repayment mortgage. So although the market has been falling some 16 months. People have continued to speculate.

I live in area of a lot of similar houses to my own, ie 3 bed 1930's semi detached. Taking the median average for the area houses are on sales on the market for around £170k. Yet renting out at £575 PCM (£6,900) per year. This is only a gross yield 3.9%.

So best to rent here currently . Either property prices will fall or rents will rise to bring equilbrium to the market. Though if property prices fall significantly perhaps rents will fall further.

At the moment local conditions suggest a market which is still unwinding and someway off the bottom.

IveSeenTheLight

Thrugelmir wrote: »

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

The rate on this property is fixed at 5.5%
You cannot work out the yield as you do not know what the property is valued at.
I do not conform to the standard BTL philosophy, therefore rental yield is only a small consideration in my business model. I have always concentrated on reducing the outlayed capital but benefit from tenants who are paying for the property.

In short, I view it as I have taken out a huge personal loan, which I have tenants repaying for me.
I do not need capital appreciation as when the mortgage is payed off, I have ownership of an asset that has been payed for by others

vikingaero

Here's my thruppence:

When I got married 10 years ago I deliberately avoided buying small and trading up. We jumped straight up the rung. Why? Well our culture means that we tend to stay in the first house we buy. So we bought a 4 bed place for £149k. It was a stretch to buy it initially but we've never had to move and I'm glad that we haven't because of Mrs Vikings vast quantity of junk.

Up until last year our house was £400k+. Now - who cares. It's a house not an asset for sale

Thrugelmir

IveSeenTheLight wrote: »

The rate on this property is fixed at 5.5%
You cannot work out the yield as you do not know what the property is valued at.
I do not conform to the standard BTL philosophy, therefore rental yield is only a small consideration in my business model. I have always concentrated on reducing the outlayed capital but benefit from tenants who are paying for the property.

In short, I view it as I have taken out a huge personal loan, which I have tenants repaying for me.
I do not need capital appreciation as when the mortgage is payed off, I have ownership of an asset that has been payed for by others

My observation was only in context of the quoted £100,000 property renting out at £4,800 per annum. As this seems a low return for such a high risk investment, particularly after costs and tax are taken into account.

EdInvestor

Supercharge_Me wrote: »

Im a FTB and earning just above average salary, i have saved what i would consider a fairly large deposit, personally though i consider a flat as a rental property....

Good example of inflated expectations of an FTB who has been able to live in a comfortable flat provided by a BTL investor.

Forty years ago an FTB would be grateful to have the chance of living in a 1 bed flat of his own - the alternative was to live at home with parents (and you certainly didn't get to sleep with your girlfriend there in those days!) or in an extortionately- priced fleapit owned by the likes of Rachman.

It is ironic that there is so much FTB anger directed at private landlords when they provide a service which would have been welcomed with open arms, had it been available when their parents were the same age.

Maisie11

What is the obsession with 2004 prices. What if the house was a wreck and someone did it up. Surely it wouldnt go back to 2004 prices.

Thrugelmir

EdInvestor wrote: »

Good example of inflated expectations of an FTB who has been able to live in a comfortable flat provided by a BTL investor.

Forty years ago an FTB would be grateful to have the chance of living in a 1 bed flat of his own - the alternative was to live at home with parents (and you certainly didn't get to sleep with your girlfriend there in those days!) or in an extortionately- priced fleapit owned by the likes of Rachman.

It is ironic that there is so much FTB anger directed at private landlords when they provide a service which would have been welcomed with open arms, had it been available when their parents were the same age.

Even 27 years ago a new build 2nd floor 2 bed flat was my first step on the ladder. Back then renting similar property wasn't an option. As these weren't properties purchased by BTL investors. Back then splitting houses into smaller units was the name of the game.

carolt

EdInvestor wrote: »

Good example of inflated expectations of an FTB who has been able to live in a comfortable flat provided by a BTL investor.

Forty years ago an FTB would be grateful to have the chance of living in a 1 bed flat of his own - the alternative was to live at home with parents (and you certainly didn't get to sleep with your girlfriend there in those days!) or in an extortionately- priced fleapit owned by the likes of Rachman.

It is ironic that there is so much FTB anger directed at private landlords when they provide a service which would have been welcomed with open arms, had it been available when their parents were the same age.

Actually, my parents both grew up in privately rented flats in this country - security of tenure, low fixed rents - until they bought their own 3 bed semi at 2.5 times the wage of the sole earner (my mother worked but her salary wasn't allowed to be counted) - and my father was a manual worker, so it's not as though we're talking a great salary here.

Same house at peak in 2007 - cost 500K plus. :eek:

I'd be more than happy to go back to either of those earlier situations, frankly - low, secure private rentals, or cheap homebuying.

Were you even alive 40 years ago?

You seem to have only the sketchiest idea of what life was actually like then.