This ghastly expression "The property ladder"

jyonda

manofthemoment wrote:

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.

Exactly right.

PoorDave

Cannon_Fodder wrote:

"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.

But since the BTL LL isn't being precious about wanting this exact house, why would they pay more for this specific one, when another one on the same street that might realise the same rental pcm. I can't see why a BTL LL would find it in any way an advantage to keep paying more in a bidding war. BTL = cheapest purchase price for max rent, in my head at least.

I don't see how a BTL LL "knows they can get their money back at the end" anymore than someone purchasing to live there.

PoorDave

westernpromise wrote:

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.

Some parts of life are all about having the best information the soonest. Picture the difference between how the late 80's/early 90's crash would have been watched by the public - mostly print or broadcast news. These days it will be possible to focus in minute detail on what's going on via the internet.

How will this affect it? Don't know. Will it all be different this time because of this or other factors? The magic 8 ball says probably not.

MSE type knowledge should be compulsory on the National Curriculum, if you ask me, along with lots of other useful stuff we don't teach kids.

I suppose if people see it as their stock rising due to price inflation, the ladder becomes more like an elevator system, where you get a free ride to a higher floor without taking a step. However, when you get out of elevator 1, you find elevator 2 isn't necessarily waiting for you! It's moved to a higher floor too.

lynzpower

Cannon_Fodder wrote:

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.

I fear you are missing the point. As Poordave says they have often bought the property "cheap" , again via auction or many years ago before this stupid bubble inflated.

I dont buy that BTLers have increased property prices. I would anticipate that its
*people living longer in the bigger houses ( my Gps live in a 5 bed house in their 80s and will be living many years yet, unlike years gone by)
*People wanting bigger houses whether they need the size or not ( who knows of people living in a property too big for thier needs- hands up)
* banks lending much more, so "we" pay more for smaller properties as historically we did for larger ones
*splitting up of families, more people living alone etc so what was required for 1 "family" is now double when families split up.

If people didnt pay stupid money, then prices would drop.

THAT is the supply and demand issue as far as Im concerned.

manofthemoment

Cannon_Fodder wrote:

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.

Yes , but I did say why not rent from a landlord who does not have to charge over the odds to cover his mortgage. It is possible to rent from a landlord like this, I am doing so at the moment. There are a lot of landlords out there who are making a go of investing in property, but it is a hard market to get into without some capital to start with. These landlords probably got in at the bottom of the market and many of them are good business people who look after their customers, the tenants. These landlords are the ones who are now doing well from the market which makes it hard for a new BTL investor to get in on the act. They won't put up rents too much or they won't get tenants. BUT, it makes it hard for non investors to buy their own property just to live in because it is now a market which is about making money rather than about us all just becoming homeowners. However, I don't think people should be losing sleep over this.

If you view a house as a place to live, as I do, and not as a means of making money you don't have to worry so much about climbing this ladder. I don't want to spend my life working to pay a mortgage that I am overstretched to pay, I want to get rich as soon as possible! I don't think property is the way to do it at the moment, either as an investor or because you think that buying a house and living in it will make you rich because of the rising market. I would rather learn about business by investing and learning how to get 15% + on my money (which I think is doable) and use compound interest to make my money. I think the landscape is changing, I hope so, I hope people will start to accept that there is nothing wrong with renting your home because at certain times it makes more sense, it certainly does for me at the moment.

lynzpower

manofthemoment- could not agree more mate.

As martin said on telly last night "renting is NOT a dirty word"

Cannon_Fodder

Too many things to "bite" on...will give it a miss!

Agree with some of what has been said, I agreed earlier its complex.

Someone elses turn...

Hereward

jyonda wrote:

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.

If it's an investment for a pension, then at some point the BTL LL will need to sell this property. If property prices continue to rise so that only those with property can afford to buy, who is going to buy the BTL, as most people will be trying to sell their "investment" to realise its gain in wealth. This increase in property to sell would cause prices to drop as the retirees try to find buyers, that is, why buy a property at, £200k if I can get a similar one for £175k? Also you should not forget that any gain in value will be taxable at 40%.

PoorDave

Hereward wrote:

If it's an investment for a pension, then at some point the BTL LL will need to sell this property. If property prices continue to rise so that only those with property can afford to buy, who is going to buy the BTL, as most people will be trying to sell their "investment" to realise its gain in wealth. This increase in property to sell would cause prices to drop as the retirees try to find buyers, that is, why buy a property at, £200k if I can get a similar one for £175k? Also you should not forget that any gain in value will be taxable at 40%.

Doesn't the tax rate depend on your other affairs? I don't think it's automatically at 40%. Also, if it's a simple capital gain, you get taper relief.

Also unlikely all BTL LL's will "retire" and sell on the same day. A few people selling won't make much difference, although i do wonder if there might be a glut when the current generation of BTL LL's sell, although you could argue it's not one "generation" doing BTL, so the effect will be minimal.

Also, suuposing the BTL is still making money, and you're mortgage free on your primary residence (having paid money made per month on BTL off own house), why would you choose to sell on retirement? Might also be mortgage free on the BTL by then too...

PoorDave

jyonda wrote:

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.

And what leaves lots of people hating BTL LL's owning multiple properties!

Also the same system that will give them a bigger problem than those with 1 house if rates rise a lot and they're mortgaged up to their eyeballs.