One million homes face Interest-only remortgage threat

chucky

IveSeenTheLight wrote: »

Not really, property investment is shown to be a better vehicle than simply putting your money in a savings account, even without HPI

HPI is only a bonus.

investing in property is not a gamble - the house always wins... :eek:

IveSeenTheLight

DervProf wrote: »

I might argue that this isn`t true in all cases.

In fact, yes, I will argue that fact.


And I`ll also debate the "without HPI" thing too, if you like.

Let battle commence.

Been there, done that but let's put the simple model on show again :rolleyes:

Let's say I have £30k.
I put it in a bank and get 5% (pretty good given today's rates) compounded interest over the 25 year.
After 25 years, I have £101590.60 (note I'm not deducting any potential tax on the interest that may be applied, so the 5% is nett, even better)

My brother invest his £30k into a property valued at £150k (20% deposit) and rents it out to tenants.
I know certainly in my experience that the rent covers the mortgage repayements and more, but let's assume in a worst case example, the rent only just covers the expenses)
So no profit over the 25 years.
At the end of the 25 years however, my brother owns an asset worth £150k (no HPI) and sells.

Bank interest = £101k
Property value = £150k

Property is already worth more than if it was invested in savings + gives a better return if continued renting than would be achieved from the bank interest.

Note no HPI and no rent increases over 25 years.

Simple example but sometimes you need them in these debates.

Over to you sir.

RenovationMan

It's nothing to do with me, but I'm bored at work and waiting for 4:30 to arrive before I get my train, so here are my quick observations:

What happens with the BTL landlord when mortgage interest rates go up and the rent doesnt cover the mortgage? Lets also not forget electricity and gas checks, annual maintenance, insurances, agency fees, void periods, legal fees to remove bad tenants and squatters, etc. etc. are these included with the rent?

Are you sure that over a 25 year period a motivated saver could only obtain 5%? I seem to remember that even HBOS had an account paying 10% in 2007. With a 25 year lead time, the saver could get all of the £30k into a cash ISA and have his returns tax free.

The person investing in property would have to sell the property to release the cash and would therefore get hit with estate agent and legal fees.

Just changing the savers interest rate average to 6.5% and having the BTL landlord pay fees to sell his house changes the 'winner'.

JonnyBravo

RenovationMan wrote: »

It's nothing to do with me, but I'm bored at work and waiting for 4:30 to arrive before I get my train, so here are my quick observations:

What happens with the BTL landlord when mortgage interest rates go up and the rent doesnt cover the mortgage? Lets also not forget electricity and gas checks, annual maintenance, insurances, agency fees, void periods, legal fees to remove bad tenants and squatters, etc. etc. are these included with the rent?

Are you sure that over a 25 year period a motivated saver could only obtain 5%? I seem to remember that even HBOS had an account paying 10% in 2007. With a 25 year lead time, the saver could get all of the £30k into a cash ISA and have his returns tax free.

The person investing in property would have to sell the property to release the cash and would therefore get hit with estate agent and legal fees.

Just changing the savers interest rate average to 6.5% and having the BTL landlord pay fees to sell his house changes the 'winner'.

And you chose the savings rate as the unrealistic bit to change/challenge???
What about the zero HPI over 25 years???

Add 2% HPI to your sum for 25 years...... who "wins" then?

chucky

i haven't seen Harry for a while - i actually miss him

DervProf

IveSeenTheLight wrote: »

Over to you sir.

Ok, but I`ll have to reply later.

IveSeenTheLight

RenovationMan wrote: »

Just changing the savers interest rate average to 6.5% and having the BTL landlord pay fees to sell his house changes the 'winner'.

I've kept it very simple and you bring a lot more calculations into the equation.
I agree with every one of those additions, but here's the deal.

I've already said that the mortgage more than covers the rent, I'm not calculating in the extra rent received.

Remember the savings rate used is nett, a 6.5% nett would need to achieve 7.8 Gross and that needs tobe compounded.

Interest rates may go up, but generally the mortgage products are fixed to ensure expenses are known. Note also I have not taken any rent increases over those 25 years.
What was rent levels 25 years ago? Wre they the same as today?

You say HBOS has a 10% tax free account. Can you show a link please?

Remember in all of this, no HPI is taken into account and no rent increases.

Graham_Devon

IveSeenTheLight wrote: »

Bank interest = £101k
Property value = £150k

150k - capital gains, for starters.

chucky

IveSeenTheLight wrote: »

Bank interest = £101k
Property value = £150k

Graham_Devon wrote: »

150k - capital gains, for starters.

tut, tut... it's the same value...

IveSeenTheLight wrote: »

My brother invest his £30k into a property valued at £150k (20% deposit) and rents it out to tenants.

IveSeenTheLight wrote: »

At the end of the 25 years however, my brother owns an asset worth £150k (no HPI) and sells.

how do you manage to need to pay Capital Gains Tax on a properdee that has not changed in value - do you not understand?

Graham_Devon

Well thats a fair point, if that's how it works.