Property !!!!!! A Nation Hypnotised? Blog Discussion

zcaprd7

Let me spec out an example of my previously rented flat - I only use it because the Landlady was prepared to sell as well as rent - whoever made an offer first:

The rent was £825 a month and the asking price was £220,000 (it was a two bedroom flat in Epsom).

Assume a 6% APR mortgage and the interest payments alone are £13,200 a year or £1100 a month, so a rough saving of £275 a month.

On top of this I had no buildings insurance, no maintenance costs (there was a leak in the shower that required several visits from lots of different plumbers) and a very low transaction cost (£150 for a credit check by the letting agent).

I had no exposure to property prices i.e. no risk (if I wanted exposure I'd do a controlled spread bet on property prices with a smaller sum) and could upsticks after 6 months if my job required me to do so. Let alone the difficulty in getting a £220,000 mortgage and also affording the extra capital aspect of the monthly payments.

And all this whilst interest rates are at historic levels (sidenote, I've read a report that suggested many people in the UK believe a 1% rise in interest rates means a 1% increase in their monthly repayments - those guys are in for a shock!). Of course, if the rent vs. interest equation shifts the other way I would consider buying - I'm not obsessed with renting like some people are with buying.

The money saved from all this renting should be (I'm using it to pay off student debt) shoved into equities (maybe even some with exposure to the property market to control my own exposure as and when) which have outperformed housing over the long term...

billion25

nemo183 wrote:

.

I live in the South East, and in my part of the world I'll fight new housing tooth and nail. All our local schools are oversubscribed. Our water supply and sewage systems are in crisis. It takes 2 weeks to see the doctor. There is no NHS dentist. Our roads are a danger to walk along.

If life is so unbearable in the South East....the long-term implication is that housing prices will fall as everyone tries to escape!

vishpatel

Thanks Martin.

Always wondered if/when you'd wade in with your thoughts on this national obsession. From the sounds of it, you're just getting started

Interesting timing. Maybe the top is in or near?

I really hope homebuyers, especially younger ones heed your advice. After all, buying a home is the most important financial decision of their lives.

One more thing Martin (if you don't mind me asking). What is your current property situation. Do you own? Any investment properties?

Personally, I will buy property when everyone else says it's a bad move.

MSE_Martin

One more thing Martin (if you don't mind me asking). What is your current property situation. Do you own? Any investment properties?

I can see why you think this would be relevant. Though to be honest I wouldn't let my personal situation impact this.

I own my home and am very luckily mortgage free on it. I dont have any other property investments.

inmypocketnottheirs

Just a thought, more tenants = more demand = more rent?

ReportInvestor

daviesm001 wrote:

I recall in 2003 there was a professor at (I think) Warwick university who was urging people who owned property to sell and rent instead with a view to buying back in when his predicted price crash happened. When I give talks on property investment I occasionally meet people who followed his advice and are devastated about how much they've lost.

As Martin says, nobody has a crystal ball but we need people to stop the kneejerk reactions and take a long term and considered view.

Hi Maria,

You're thinking of Professor Andrew Oswald
"...In November 2002, he wrote: “I think we are about to go through the great housing crash of 2003 to 2005.” He had been right about the end of the 1980s boom, he pointed out. The coming crash would be even more hellish. “I advise you to sell your house, and move into rented accommodation,” he wrote, before ending on the dramatic note: “Panic will then set in.....”

I think the original property bear is Bob Beckman, who was advising people in 1996 how to make their fortune by selling up & renting. He kept peddling his ideas for a hell of a long time.

But Bob now makes his living advising people how to buy property :rolleyes:

Do you get anyone mentioning his influence? I think, from memory, that his theme was "The Downturn".

F_T_Buyer

Having spoken with Andrew Oswald, he's basically took a big step back from giving public house price predictions, not because he was wrong, because how he was portrayed by the media.

Remember, this is the guy who predicted the 80s bust, the dot com bust, and is now still predicting a coming bust.

But you really have to look why he predicted the bust, and what has happened since. The risks has not gone, they have got worse.

Thinking something won't happen, because it hasn't happened is very sloppy thinking.

EdInvestor

Couple of points of information

Also you need to consider is that if you don't currently live in Scotland, are elderly and need residental care the local authority and government will make you sell your house

Only 4% of those over 60 are in residential care - and not all of those will have had to sell their house to pay for it

If you are lucky enough not to need residental care when elderly and manage to stay in your house until you die your heirs, if you don't leave your house to a surviving spouse, will have to pay inheritance tax on your house.

Only 6% of estates in the UK pay inheritance tax.The combined IHT free allowance for a couple is almost 600,000 pounds and no IHT is payable by a spouse.

These are scare stories.

Regarding BTL as an investment, the yield is much the same as what you can get on a good equity income fund or portfolio of high yield shares, plus both have capital growth.

The attraction of BTL, which overcomes its illiquidity,high transaction costs ( stamp duty, etc) CGT and the renting hassle factor is that it is a relatively safe geared investment.

You don't have to invest much of your own money to make the profit - the tenant pays the mortgage. There is little risk with the gearing ( unlike with shares).Without the gearing, most people would not bother.

whambamboo

EdInvestor wrote:

Couple of points of information



Only 4% of those over 60 are in residential care - and not all of those will have had to sell their house to pay for it



Only 6% of estates in the UK pay inheritance tax.The combined IHT free allowance for a couple is almost 600,000 pounds and no IHT is payable by a spouse.

How is it a combined allowance?

99% of the time, one spouse dies, leaves the house to the other, and then the other spouse dies. If your wife dies and then you die, you don't get the allowance for your dead wife.

You have <£300,000 IHT allowance. It's complete rubbish to say there is a combined allowance.

The attraction of BTL, which overcomes its illiquidity,high transaction costs ( stamp duty, etc) CGT and the renting hassle factor is that it is a relatively safe geared investment.

You don't have to invest much of your own money to make the profit - the tenant pays the mortgage. There is little risk with the gearing ( unlike with shares).Without the gearing, most people would not bother.

Safe????

Little risk????

What happens when you buy a house in 1989 for £500,000 and 7 years later it's worth £375k, and the rent is only covering the interest payments. You have £125,000 negative equity and you have a HUGE risk.

Property is far from low risk. Interest rates can shoot up, you can have falling demand for your property, voides, etc.

And at the moment, there is no profit virtually anywhere in the UK. You are only speculating on increases in capital value.

EdInvestor

It is possible to make arrangements to use both IHT nil rate bands.

What happens when you buy a house in 1989 for £500,000 and 7 years later it's worth £375k, and the rent is only covering the interest payments. You have £125,000 negative equity and you have a HUGE risk.

I think the answer to that is you wait a little bit longer People do need to regard property as a very long term investment - 25 or 30 years:7 years is a blip.

There is one main problem with advising today's young generation not to buy a home I think. It relates to the extreme difficulty these days of saving for retirement.

In order to provide yourself with an income of the same level of the basic state pension - 85 quid a week, regarded as derisory by many - you would have to save up 120,000 pounds.

Now that's a lot of money.We are talking nearly half a million quid to provide a pension of 20k p.a.

How do you expect people to save up that kind of money? It's completely impossible for many: they will be lucky to put together half as much.

Unless they have bought their own home and it has appreciated in value sufficiently over the years that they can "trade down" when they get old, and release a lump sum to invest for income to supplement whatever pension they have put together.

That's the outstanding value in homebuying: most people have to pay money to live somewhere. Paying rent gives you a place to live,but buying a home gives you a place to live AND an investment.Yes there is some risk, but over 20-30 years it's pretty negligible, so small that Governments worldwide have always encouraged their people to become homeowners.

Or do you expect people to rent for their whole lives, have no savings and just live on benefits when they are old? Some people do make a personal decision to do this, that's up to them, but I don't think I would actually advise anyone to go this way. Would you really like to live on pension credit, currently 114 pounds a week?

Frankly I'd much prefer to be worrying about inheritance tax.