This ghastly expression "The property ladder"

lynzpower

Supply - if you sell the flat you're no longer a BTLer, no. Its that fact you live somewhere, buy something else you don't need - that takes the flat out of supply in the first place...

but it increases supply of rental property- not everyone wants to buy. Having scanned around rental in east london ( adn posted elsewhere asking LLs with voids to contact me- and they have, in thier droves) i believe that whats being offered to me is staggeringly low.

Msers said I was living in adream world - but Ive been offered 6 2bed ground floor garden properties, part inclusive in inner london for 700pcm. too much supply. Rents go down .

Supply - if someone who owns 1 house, decides to use equity within their property to do BTL, then does it a couple of more times in a couple of years and suddenly has a portfolio of 4 houses, SURELY that must be 3 houses out of supply that would previously have been IN SUPPLY....surely?

all properties on the market are only in supply- partic round here for a day! If YOU want to buy somewhere, what difference is it what the supply is, you only need to find ONE property to buy then stay in it for 5 years or whatever the average is.

[QUOTEIf there was no profit to be made from BTL, you wouldn't be doing it - so you must be charging the cost of the mortgage, PLUS landlord costs, PLUS some profit IN RENT...your not charities, are you?
][/QUOTE]

Once you have hung around here long enough mate you will see there are PLENTY of people going into BTL who are subsidising thier BTL from thier own salaries, or one property makes a profit another doenst and the finance spreads around for a break even somewhere - or not. PLenty of novice BTLers come here subsidising their btls to the tune of 100 a month maybe more.

What you also forget is that a BTL LL could have bought when property was cheaper or many years ago, or buy from auctions which for a multitude of reasons dont appeal to the FTB- which is why they can offer property so cheaply.

I think its a really complex area.

ReportInvestor

Don't shoot the messenger

Kirsty's found motherhood.

Although that still leaves Phil and Kirsty's lil'sis as potential targets .

Cannon_Fodder

I agree its complex. Its not just BTLers (I won't go into family breakdown, dinkys, city bonuses etc etc) but they are probably the element with greatest impact.

"Staggeringly low" - so rental is reaching over-supply, how do we find out how widespread this is, it could signal the collapse of the bubble in prices...

"novices subsidising their BTL from salaries" - SCARY. People panicing to join an upward market, is often a sign of the beginning of the end.

"what difference is it what the supply is?" - basic supply and demand.....too much of something the price drops (as you just said with rentals), too little of something the price goes up (as in the number of houses available for sale being limited by BTL, causing house price inflation, keeping the deposit growing ahead of renters ability to save)...

Lending figures show that over the last 5 years the number of loans being taken out for BTL purposes has risen from less than one twentieth (48,000) to almost one fifth of all mortgages (223,800 mortgages).

Thats not just an odd flat or three out of supply, that is ONE HUNDRED AND EIGHTY FIVE THOUSAND properties that COULD be available to house-buyers, instead of in a flooded rental market.

Time to sell, methinks.

westernpromise

Cannon_Fodder wrote:

EXCEPT, they own it at the end and can stop paying the mortgage after 25 years, instead of renting for life.......

Yes - but only if they pay quite a lot more than they would if they were renting it.

If the property is worth £100k, then they'd have to pay that much more over 25 years, plus they'd have to maintain it as well.

If they took that £100k savings and invested it in equities instead of into mortgage capital repayments, then over any 25-year-term there has ever been, they'd have accumulated a great deal more than £100k by the end of it. I.e., enough to buy the house eventually anyway.

Renting is thus a reasonable way of housing yourself cheaply while you put your money to work more effectively than you are doing by paying off a mortgage with it.

PoorDave

westernpromise wrote:

Where on earth did it originate?

The assumption that everyone needs to "get a foot on the property ladder" is one of those bits of received wisdom, like "renting is money down the drain", or "increasing tax levels increases the overall tax take", which don't stand up to five seconds' scrutiny.

Most obviously, this is because there is a no "ladder", as such. Ladder implies upward movement. In fact, for property owners there is rarely (if ever) any actual net upward movement.

What there is, rather, is inflation, which is not a benefit at all but a penalty. If your house inflates in price, you can only access your inflationary "gain" by selling up and going to live in a smaller or otherwise less attractive property.

So although it might feel like free money, you have come by your "equity" only by settling for something less in the way of a house then what you had to begin with.

And if you want to buy a bigger house, well, your house may have inflated by £100,000, but the one you want to buy has inflated at the same rate and hence in cash terms by more than that.

So the difference between your gain and your vendor's gain is a cost you must absorb, and a direct reduction of your personal net worth. You have been impoverished by the "property ladder" in a zero-sum cycle, whose only beneficiary is the Government, in the form of stamp and death duties, and estate agents.

Nobody talks about getting on the train fare ladder, or the food ladder, or the car ladder, or the mobile phone ladder, yet these are all things whose price tens to inflate and which are simply consumed.

So where exactly did this notion come from? Does anyone else - ie. outside the UK - talk about a "property ladder"?

In my head the concept of a "ladder" is not defined as something you can move up by the fact that you do nothing and the value of your "rung" increases.

It's simply that over your life as a homeowner you will (hopefully) gradually move up from your 1 bedroom place you buy when you're young (not getting into issues of whether this is affordable to all), to the more bedroomed house that's desirable if you choose to have a number of children.

I don't think anybody thinks the "ladder" works by price inflation, to be honest, especially not regular posters/readers on this MSE board.

Then...

"Supply - if someone who owns 1 house, decides to use equity within their property to do BTL, then does it a couple of more times in a couple of years and suddenly has a portfolio of 4 houses, SURELY that must be 3 houses out of supply that would previously have been IN SUPPLY....surely?"

What difference does it make? Someone else would have bought those houses anyway!

Not like BTL's are bought at a premium - it's a business!

jyonda

The thing that really irks me about BTL is that the rental income going towards paying the mortgage is not taxed because it's a "business expense". YET, as an FTB competing with a BTL'er to purchase the same property I have to pay income tax on my money first. Seeing as I am providing housing for a family (trying to) rather than make yet more money I think I deserve a tax break. I know about CGT but why ever sell when it's earning income? And if ou keep an eye on these boards there's usually some advice on dodging the CGT.

westernpromise

jyonda wrote:

The thing that really irks me about BTL is that the rental income going towards paying the mortgage is not taxed because it's a "business expense". YET, as an FTB competing with a BTL'er to purchase the same property I have to pay income tax on my money first. Seeing as I am providing housing for a family (trying to) rather than make yet more money I think I deserve a tax break. I know about CGT but why ever sell when it's earning income? And if ou keep an eye on these boards there's usually some advice on dodging the CGT.

The income above the mortgage interest and other costs is taxed, though.

Cannon_Fodder

"What difference does it make? Someone else would have bought those houses anyway! Not like BTL's are bought at a premium - it's a business!"

Thats the whole point - SOMEONE ELSE would have bought the house, if the BTLer didn't - that someone else is then on the ladder, NOT renting usually higher than the cost of the mortgage so unable to generate a deposit easily - while a BTLer usually takes equity out of an existing property - ready-made deposit - and as they are doing it as a business they know they can get their money back in the end, so can just push that bit further on price than a FTBer can...not a premium exactly, but just that last £500 that breaks the FTBers budget.
Then the next house in the same street has to sell for that +£500 value or that owner thinks they've lost out, THATS house-price inflation.
When in reality, nothing is really WORTH anything more.

"Yes - but only if they pay quite a lot more than they would if they were renting it."

Maybe in some rental areas, the over-supply has now reached the point where rents are under mortgage costs, but in my location MANY rents are at levels that would earn a good profit on top of your mortgage, or at least break even, which is not all that bad when you own it at the end...after someone else has paid for it!

"Renting is thus a reasonable way of housing yourself cheaply while you put your money to work more effectively than you are doing by paying off a mortgage with it."

Disagree - many rents are still higher than mortgage, or at best level with - and, to repeat, you don't end up with anything at the end of it.

"If they took that £100k savings and invested it in equities instead of into mortgage"

Ummm....WHAT £100K SAVINGS???? - if they have £100K savings they would be sorted - monster deposit or as you say invest, but who has £100K savings in their 20s when looking to start a family....???????????????????????????????????????????????????

Ummm....why do you think so many people got into BTL during 2001/2 - when the markets crashed? Your £100K might not have done as well as you hoped...

westernpromise

PoorDave wrote:

I don't think anybody thinks the "ladder" works by price inflation, to be honest, especially not regular posters/readers on this MSE board.

I think you are completely right about your average MSEer, who is quite likely a bit more money-savvy than most, but I would disagree about the wider public. I think the majority does see housing exactly as you put it, very well, elsewhere in your post: get onto a rung, any rung, because the value of the "rung" then goes up. If this were not the case, why would people be so anxious to get on this "ladder"?

The frightening thing is how fast people forget. I remember talking to a mate of a mate at a stag do in 1998; this guy was 25 or 26, just qualified as an accountant, and was completely convinced that house prices only ever went up and had only ever gone up.

This was just 3 years after they had completely cr@pped out to rock bottom. At that time, in '95, he was just starting to become an accountant and at 22 he sure as he11 should have been reading the newspaper properly - yet the crash had completely escaped his attention.

Perhaps, post-Enron, we shouldn't be surprised at accountants being a bit callow and unworldly. But this did tell me that you don't need to postulate anything very complex to explain the loony attitude towards property that many people have. It comes about, very probably, because most people are rather thick.

westernpromise

Cannon_Fodder wrote:

Maybe in some rental areas, the over-supply has now reached the point where rents are under mortgage costs, but in my location MANY rents are at levels that would earn a good profit on top of your mortgage, or at least break even, which is not all that bad when you own it at the end...after someone else has paid for it!

I'd be truly surprised if there is anywhere left in the UK where rentals exceed capital repayments mortgage instalments. Whereabouts is this?

Ummm....WHAT £100K SAVINGS????

I'm referring to the savings you'd make over 25 years if you were renting rather than buying. On a repayment mortgage you repay capital plus interest, plus you have to maintain the house. If renting, then in most parts of the country you pay an amount roughly equivalent to the interest. So the buyer in my example has to find £100,000 plus maintenance over 25 years over and above the mortgage interest, whereas the renter can stick that difference into equities and will always make more over any 25-year period in equities than in housing.

Ummm....why do you think so many people got into BTL during 2001/2 - when the markets crashed? Your £100K might not have done as well as you hoped...

It was only the UK stock market and the dotcom sector which crashed, the former because of the raid on pensions and the latter because of the hype. That led a lot of people to conclude that equities were a bad place to put your pension so they did other things instead. You don't look at equity returns over 2 years, however.