This ghastly expression "The property ladder"

jyonda

westernpromise wrote:

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

If you're doing it right there wont be any taxable income. As a pension investment a BTL landlord won't need the 'profit' to live off, just a nice little nest egg growing and growing in value. If one property pays more income than needed just plough it into another property and so on so the 'business' consistently breaks even whilst accruing masses of equity.
This is what makes it hard for a FTB to compete with and keeps them trapped in rented.

Cannon_Fodder

This £100K savings - so by definition that £100K must come from somewhere - you say it is the difference between rent and mortgage...

- so that £100K is being lost by the landlords...?

I don't think thats happening, somehow.

lynzpower

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

Me too WP. In my enquiries about rented property I, as I said had a hell of a lot of offers around the 700pcm mark, which is ridiculously low.

I did however, get an email from a chap saying hes awaiting completion on a flat in E11 ( cheaper areA IME) and wanted 900 per motnh unfurnished. As hes bought at the peak of the market, this is what hes gonna have to charge to break even/ scrape a profit/ whatever. I emailed him back saying sorry Ive had loads of offers around the 700 mark and one at 650 so theres no chance I'll pay it. Hes bought at the top of the market, and needs rental income to match. Many BTLers buy properties that are shells, or from auction that a FTB couldnt really buy or have the finance to improve, plus bring the property back into use, which is a good thing for society generally.

Lets also not forget the many BTLers who sell thier properties to thier tenants. Ive seen quite a few people asking about that too over the last few motnhs.

goldbyron

Just wanted to post regarding the idea of a 'property ladder'.

The original post stated that any gains (equity) would be from inflatino which is lost through subsequently purchasing a new (also inflated property). This is very true however...

1. If you remain in a property for a period of time, say 5-10 years, you will also pay off a sum of capital which you do not get to do when you are renting. Thus this sum is no longer included within the next property purchase.
Example - you bought for £100k - paid off £30k capital in 8 years. You sell for £175000 (£75k inflation and £30k capital off) and net a profit (sorry for bringing it down to this!) of £105k. This is more than the price of inflation and allows you to move up the 'ladder'.

2. You buy in an expensive (gentrified - maybe) urban area (most of London) and later buy in a cheaper but nice rural area (Norfolk/Lincolnshire) - it is very easy to move up the ladder as prices may have risen far more in the urban than rural area.

Just a thought.

manofthemoment

I think it's a bad expression as well, but I heard a worse one the other day. I think I was watching that Trevor McDonald programme or something like it about the difficulties facing FTB's and a woman said that she was "desperate to get on the mortgage ladder." I don't know if the use of this expression is widespread, but I think its use in this case is definately a symptom of widespread financial mis-education.

For me, it doesn't make any sense to start climbing "a property ladder" or "a mortgage ladder", i.e. starting off with a small property by taking out a 25 or 30 year loan to pay for it. If you look at it as climbing a ladder then the next rung would be to move "up" into a larger property, which is bigger, in a nicer area, with a bigger garden and probably more expensive. The next rung on the ladder is an even bigger and better house which is even more expensive. With each move you borrow more money, pay more interest and you are probably take out a new 25/30 year loan in the process, which means it would take even longer to pay off your mortagage, if ever! Doesn't seem to be a recipe for achieving financial freedom IMHO.

My fiance, who unfortunately is not interested in looking at fantastic websites like this one, is desperate to do just what I have described and I am trying to convince her otherwise. I would prefer to do it the German way and rent, keep monthly expenses down and invest in stock market in some way and then buy the house we want 10-15 years down the line. We would pay less in interest in the long run. However the problem I have is that she has been brainwashed by this conventional financial thinking which I think is badly informed. The expression "property ladder" was born from this ill informed way of thinking. If there is such a thing as a property ladder I would prefer to buy the whole ladder in 20 years time rather than struggling to climb it one rung at a time from the bottom, only to get knocked off when we reach the top!

lynzpower

Cannon_Fodder wrote:

This £100K savings - so by definition that £100K must come from somewhere - you say it is the difference between rent and mortgage...

- so that £100K is being lost by the landlords...?

I don't think thats happening, somehow.

No what WP saying is that 100k is likely to be the savings that a renter would make by not paying maintainence, new kitchens/ bathrooms/ boilers etc on properties as the LL pays that.

In 2 years on a 2 bed new build flat Ive spent a good couple of grand, which I WOULD have been able to save if I had been renting the property as the LL would have been liable for decoration & maintainence.

ONce you look at compound interest, and the fact that most people dont live in NEW houses, then 100k Id say is conservative. My parents have just laid out 8k on a bathroom and last year they spent 10k on a kitchen. they need a rewire and that will be 7 they said. And theyve lived there 5 years, god knows what they have spent on doing up the houses theyve lived in over the years well in excess of 100k Id say.

jyonda

goldbyron wrote:

Just wanted to post regarding the idea of a 'property ladder'.

The original post stated that any gains (equity) would be from inflatino which is lost through subsequently purchasing a new (also inflated property). This is very true however...

1. If you remain in a property for a period of time, say 5-10 years, you will also pay off a sum of capital which you do not get to do when you are renting. Thus this sum is no longer included within the next property purchase.
Example - you bought for £100k - paid off £30k capital in 8 years. You sell for £175000 (£75k inflation and £30k capital off) and net a profit (sorry for bringing it down to this!) of £105k. This is more than the price of inflation and allows you to move up the 'ladder'.

2. You buy in an expensive (gentrified - maybe) urban area (most of London) and later buy in a cheaper but nice rural area (Norfolk/Lincolnshire) - it is very easy to move up the ladder as prices may have risen far more in the urban than rural area.

Just a thought.

1. Provided you have a repayment mortgage and not IO which would cost significantly more than renting in many cases.

2. Hmmm. How many people can realisticaly up sticks and move to rural Lincolnshire to have families (if they don't live there already)? My industry is centred around London and the SE as I'm sure many are. Hence the high demand and prices.

Cannon_Fodder

...but surely "Likely savings" to the renters, MUST be "Known costs" to the Landlord...

I do not think landlords are going into a business without factoring their costs into the rent (unless they are stupid)

Maybe, as your other post says about the guy at the peak of the market, some late-comers/novices are getting caught out forgetting to budget for those things, and they will get burnt in the long run. BUT, Professional Landlords are covering themselves, either in the rent or annual management charges, or 5-7 year "redecoration" funds - where a shortfall in the pot means the renters have to stump up - major thread on that a couple of weeks ago....

No BTLer intends to go in making a loss, they have to pay a mortgage at BTL % rates (maybe not botherng with capital repayment, granted - but that has risks!), cover the maintenance, admin costs in re-letting, etc etc and still make some profit - that SHOULD not be cheaper than a plain mortgage. If there are places where it is, good luck to the renters, I think that it just a sign that the Landlord is relying on the property value to be their nest egg - which we all know is a VERY dangerous thing to do.

Completely agree with comment about forgetfulness of past crashes. I wonder if we will see the BTLers squirm and demand some compensation for "irresponsible lending of interest only mortgages" when the crash hits?

manofthemoment

Looking at this thread from the point of view of a FTB who is considering whether or not it is worth trying to climb the mythical propery ladder I only come to one conclusion: it is not worth it. I am also not interested in investing any money in BTL. The property market will probably grow over the next 20 years but that is immaterial. Unless you can make money each month with a rent that covers the mortgage, allows you to put aside some money for contingency and gives you a yield over and above this, it is not worth doing. To subsidise a BTL with your salary hoping to make a profit from rises in prices just seems ridiculous to me, I don't understand this way of thinking at all. It certainly is not even possible to become a new BTL landlord where I live, you would need a considerable deposit to be able to do the above, and to buy a property to live in is hard because the market has risen so much recently.

Does it not make more sense to rent a nice place from a landlord who does not have to charge over the odds to cover his mortgage? This way he is responsible for all the maintenance, you get nice furniture, furnishings and white goods thrown in, all for hundreds of pounds less than the cost of the hefty mortgage you would need to buy such a place, and with none of the expense involved in maintaining the place. You can then invest the difference in equities, aim for as much growth as possible and make yourself rich instead of the mortage lender. You can start investing your money for growth straight away as you only need £20 a month to start investing in the stock market. You need a lot more than this to make a go of being a BTL investor at the moment.

Cannon_Fodder

manofthemoment - you gives reasons for not being a BTLer (that I agree with) but then say "why not rent its cheaper" - well, who do you think the Landlord is?? Probably a BTLer, who maybe now hitting the factors you describe as putting you off BTL in the first place, because they jumped blindly onto a moving bandwagon that could soon be at its peak - so the rent might not be very cheap...

If you can find a cheap rent, then yes, it could be like you suggest, but maybe, especially if there's a property price crash, some rents will be pushed up as the Landlord realises he needs to change from Interest Only to a Repayment mortgage...

None of the BTL side helps the ordinary person get on the horrible ladder, though. That was my original point. If BTL had been at a consistent level, there would be something over 200,000 properties more easily available to normal (FT)buyers, and less price inflation would have occured.