10 yrs on will u be envious of all those 'muppets' that got into B2L now?

neas

The time to get into BTL again would be within 5-10 years after end of recession as george says initially it will be limited and curb HPI....ofc people tend to forget lessons learned as they retire etc and the next generation dont care about recession etcs... thats when to buy imo.

dopester

Conrad wrote: »

I talk to these people day in day out, and at the mo most are pretty much focused on capital growth. Now I'm from the school that puts the emphasis on yield, but on the other hand there is nowt wrong with buying for growth - people get overly narrow minded on the yield thang.

Of course there isn't anything wrong with investing in something for capital growth. Provided the conditions exist to bring about the growth in value. You seem to take it forgranted, and all your love-affair stuff is nonsense. Too many average Joes have no money or are increasingly finding it tough going.

Too many others saw the value of their property rise in value over the years, in line with the rest of the market. Including all the pensioners near us in their 3-bed/4-bed homes. 40+ years in a house, barely done much to it, but risen in value hundreds of thousands of pounds due to higher prices paid for comparable property over time. Many of them might feel wealthier but that value gets destroyed as comparable properties sell for lower prices.

I don't think you've grasped price/value destruction. What makes house prices rise in value, and makes them fall in value. Same as in the stockmarket. It is a terrifying dynamic.

There is a lot less money in the system and many people are asking where is business growth going to come from in the future, now that high city finance has been proven to be full of you know what. To power the economy.

So significant capital growth from current levels is both your expectation, and the clients you mix with. Fine. If they are using their own money, or borrowing to fund their acquisitions. From my p-o-v, sellers are just transferring future losses to come on to the people you are talking to.

mp2

neas wrote: »

The time to get into BTL again would be within 5-10 years after end of recession as george says initially it will be limited and curb HPI....ofc people tend to forget lessons learned as they retire etc and the next generation dont care about recession etcs... thats when to buy imo.

house price inflation will just be inline with normal inflation in the future.

people have and always will borrow as much as they are allowed. if someones earnings increases 20% most people will look to borrow 20% more and get a better house based on what they can get.

so it all comes down to how much people are allowed to borrow by the banks. and it just wont go back to how it was before. it just wont happen.

pre housing boom, no-one wanted to be a landlord because it was a mundane market with low yields, lots of hassle and not much fun. look at germany - without massive capital growth being a landlord is nothing great.

now the loose lending has disappeared it will go back to how it use to be. there are no mortgage backed securities being created anymore that boosted the market.

Gorgeous_George

If you have £100K to invest for ten years, you have many choices but here are two options.

Option 1 - Bank
You could earn an average of 5% after tax. Assume you take no 'income' from the investment over ten years, you would end up with £162,899.50. You'll pay at least 20% tax on that growth leaving you with a return of £50,311.57

Option 2 - House
Assume inflation matches the rate in the bank (and let the rate be after tax) the house will be worth £162,899.50. Using 2 lots of CGT allowances you will have a CGT bill of less than £8K leaving you with a capital gain of about £55,000. Then, add on rental income and subtract costs and providing costs are less than the rental income (which it should be) BTL makes more sense than saving in the bank.

But there will be better options with different risks. Now is probably not the best time to start but who really knows?

GG

dopester

Gorgeous_George wrote: »

But there will be better options with different risks.

Well you maths-heads can do all the narrow, tunnel-vision calculating you want to, if it makes you feel better.

In the real-world, there are so many different unravelling factors which impact on values and rental demand.

Now is a great time to not be anchored to owning a house. We don't even fully know which areas will feel the impact the hardest on property values. Already there are signs there isn't enough money to support maintenance of roads and bridges in even some well-to-do suburban areas on the fringes.

There are calls by some think-tanks to abandon some towns as they are dead-weight on public finances.. and with government money very tight... these views will be increasingly accepted as being logical.

I've studied how suburbia began.. with a migration of the rich from the cities, and studied many other different migrations to build new cities and to foreign lands - sparked by necessity and to follow opportunity.

When opportunity is cut off in one direction, people will move in another. Where there is freedom to move, the process is practically as automatic as that which inclines plants towards sunshine. It is all part of the mechanism through which individuals actively seek their happiness and societies maintain their balance.

Just reading about Ferguson the other day.. and another example of how towns and economies can change dramatically with sudden events and changes elsewhere.

Ferguson knows Govan is a different place today. He added: "If you think of the population before the war, it was 147,000 people. It's quite a big area, Govan - and now it's 20,000.

"That tells you the devastation there was in the shipyards and what that created because it's not just the shipyards themselves.

"It's all the automotive industry, the light engineering, right up Helen Street. It was a massive area of engineering that was lost as soon as the shipyards went."

http://www.dailyrecord.co.uk/news/editors-choice/2009/05/23/manchester-united-boss-sir-alex-ferguson-reveals-how-glasgow-upbringing-helped-guide-him-to-success-86908-21382310/

Too many people have linear expectations in a non-linear world.

There is much evidence that human expectations tend to be linear. Most of the time, most people expect current conditions to continue for the indefinite future. This is why cities are built on floodplains and fault lines. A similar presumption makes the gambler double his bet or the farmer plant additional crops on reclaimed land after a good harvest.

Wherever prosperity exists, it is natural for people to expect prosperity to continue. For this reason, much of the history of human society is a record of astonishment.

Time and again, people have marginalised their affairs, rendering themselves increasingly crisis-prone. They have gone into debt, extending claims on resources to an extreme that could be supported only if current conditions were sustained uninterrupted into the future. Time and again these hopes have been disappointed.

chewmylegoff

Gorgeous_George wrote: »

If you have £100K to invest for ten years, you have many choices but here are two options.

Option 1 - Bank
You could earn an average of 5% after tax. Assume you take no 'income' from the investment over ten years, you would end up with £162,899.50. You'll pay at least 20% tax on that growth leaving you with a return of £50,311.57

Option 2 - House
Assume inflation matches the rate in the bank (and let the rate be after tax) the house will be worth £162,899.50. Using 2 lots of CGT allowances you will have a CGT bill of less than £8K leaving you with a capital gain of about £55,000. Then, add on rental income and subtract costs and providing costs are less than the rental income (which it should be) BTL makes more sense than saving in the bank.

But there will be better options with different risks. Now is probably not the best time to start but who really knows?

GG

you've been a bit simplistic on option 1, as tax is deducted every year and therefore you don't get the effect of compounding on the tax - so it would only be £48k return. further, if you have £100k sitting around, the likelyhood is that you're a 40% tax payer. tax at 40% would leave you with a return of just £34k (i.e. 3% pa compound after tax).

i guess this is what makes investing in property for capital growth attractive to higher rate tax payers - with £19k of annual exemption to use up if the property is in joint names and 18% flat rate of tax, the property only needs to appreciate £37.5k in capital value for the post-tax return to be £34k - i.e. the same as earning £57k of gross interest for a higher rate tax payer. so property capital values only need to increase by 3.2% per annum to give you the same return as 5% per annum bank interest, due to the favourable tax regime.

ok you'll have some purchase and sale costs, but, unless you're a complete muppet, you should be able to buy something that you make some kind of rental profit on which should at least adsorb those costs over 10 years of ownership.

of course the model all goes wrong when you buy at the wrong time and the bottom falls out of the property market, which takes anywhere between 10-20 years to recover. which is why i would always just leave my cash in the bank.

Conrad

dopester wrote: »

There is a lot less money in the system and many people are asking where is business growth going to come from in the future, .

To give some context here, I am not a properdeee lover at all, and indeed my instinct was to sell my B2Ls in 06/07 for a small profit.

My instinct is driven by my daily encounters with new clients and Bank representatives.

It's very noticable to me that clients have and are continueing to adapt to the new lending environment.

I part company with uber bears when it comes to the Human spirit. In bearfest world caution and money ticket preservation are paramount, which is fine.
But the majority of us Humans are generaly optimists. This is crucial to decipher direction. Humans are simply adapting and finding new ways of borrowing.
Furthermore, foreign money from the likes of sovereign wealth funds will !!!!! the current lending status quo into action.

It really is a bit foolish to think property boom has been bannished.

mp2

Conrad wrote: »

To give some context here, I am not a properdeee lover at all, and indeed my instinct was to sell my B2Ls in 06/07 for a small profit.

My instinct is driven by my daily encounters with new clients and Bank representatives.

It's very noticable to me that clients have and are continueing to adapt to the new lending environment.

I part company with uber bears when it comes to the Human spirit. In bearfest world caution and money ticket preservation are paramount, which is fine.
But the majority of us Humans are generaly optimists. This is crucial to decipher direction. Humans are simply adapting and finding new ways of borrowing.
Furthermore, foreign money from the likes of sovereign wealth funds will !!!!! the current lending status quo into action.

It really is a bit foolish to think property boom has been bannished.

i have to say im a bit suprised you overlook the source of the property boom in the first place.

every bank left right and centre went bankrupt and only survived because of state intervention.

all investment banks were bankrupt, those remaining were rescued and have changed form.

all of these 100 year+ institutions went bust because they were manufacturing the housing boom. their entire histories were undone in the space of 4-5 reckless years.

if you havent noticed the events over the past 18 months, the boom has gone. it wasnt market forces, or supply and demand - it was manufactured. and now its gone.

chucky

mp2 wrote: »

i have to say im a bit suprised you overlook the source of the property boom in the first place.
every bank left right and centre went bankrupt and only survived because of state intervention.
all investment banks were bankrupt, those remaining were rescued and have changed form.
all of these 100 year+ institutions went bust because they were manufacturing the housing boom. their entire histories were undone in the space of 4-5 reckless years.

if you havent noticed the events over the past 18 months, the boom has gone.

you're thinking one-dimensionally here and only taking in information from one source that suits your agenda.

have a read of this.

These secondary banks, like the larger institutions, had been lending based on the then recently rising housing prices in the late 1960s and early 1970s, and borrowing heavily to hold the loan assets. The rise in housing prices was seen as the last hurrah of the British Post-War boom. A sudden downturn in housing market prices coupled with hikes in interest rates and the jump in Oil prices caused by the 1973 Yom Kippur war left these smaller institutions holding many loans secured by property with lower value than than the loans. The Bank of England bailed out around thirty of these smaller banks, and intervened to assist some thirty others. While none of these banks were left unable to pay depositors, the Bank of England lost an estimated £100 million.[1] The downturn was exacerbated by the global 1973–1974 stock market crash, which hit England already in the midst of the housing price crash.

http://en.wikipedia.org/wiki/Secondary_banking_crisis

it's not also a coincidence that all of the graphs that are posted never include any data or information pre-1975 when a similar situation to today arose.

shortly after 1975 there was HPI - why would it be any different now?

Conrad

mp2 wrote: »

all of these 100 year+ institutions went bust because they were manufacturing the housing boom. their entire histories were undone in the space of 4-5 reckless years.

if you havent noticed the events over the past 18 months, the boom has gone. it wasnt market forces, or supply and demand - it was manufactured. and now its gone.

The major fault line was American financial instruments, not lending ion the UK per see, afterall less than 1% of all mortgages in the UK ar e3 m + in arrears.

Investors will sniff out the high spreads to be had from UK lending in the comming years and that will drive the market