How I intend to make £'000s

Alan_M_2

We've reached this situation because of lenders willingness to ignore all their own historical lending parameters.

Facts:

Interest rates are at an historic low.
Lending is at an historic high.
House prices are at an historic high and in some areas still climbing.


As a result of the multiples available (and taken in many cases) coupled with non status borrowing such as self certification. There are a very large number of people heavily leveraged.

Because of this, small increases in rates are causing disproportionate increases in payments.

Crashes or changes in economy aren't always necessarily caused by single catastrophic events, although these do occur. More often than not is will be a multiplication of smaller reasons...rates creep up, lenders tighten the purse strings, repossessions increase and sentiment wanes.

Out of all those points probably the most damaging is a change of sentiment, along with the other changes this can create a butterfly effect that can cause corrections as severe as the rises.

No one can predict when these events occur, but you can have a reasonable guess based on historical information.

roswell

Another fact is small increase`s in interest rates are actualy massive due to how low the rate is,

Eg currently 5 % .. if next increase is 0.5% thats a 10% rise really.

if we were at 10 % interest rate and had a 0.5% rise it wouldnt have a noticable impact on repayments.

Alan_M_2

Absolutely, as many people have already pointed out, rate rises like we had in the early 90's with all the ramifications of the EMU etc just won't happen again, We'll not see 12% rates in the near future.

But the bottom line is we don't need to as the amounts of money borrowed are so much more, smaller rates have the same effect, an interest rate of 7% on current lending could easily be catastrophic.

cwcw

Has anyone tried https://www.home.co.uk? It allows a price analysis by postcode. I just did a year on year analysis of mine, and all looks good apart from the alarming drop in detached prices, but the Sep 05 average will have been skewed by a one off.

Sep 2005 Sep 2006 Change

Detached £473,834 £356,887 -25%

Semi £215,509 £248,728 +15%

Terraced £149,776 £168,205 +12%

Flat £151,890 £181,130 +19%

All £235,843 £241,643 +2%

jamesd

m.smith14, better to buy, since that may cause a short term loss if prices drop but not buying costs you a long term lost opportunity if they rise.

Do you actually need a house, though? You might instead be able to buy two flats, live in one and rent out the other as a BTL. The BTL has the advantage that the interest on the mortgage is deducted from rental income, so in effect you can end up with almost free investment and exposure to rising and falling house prices. That protects your ability to buy a house later if you need one, because you're still seeing swings in value that match the size of a full house loan.

If you take the view that prices are likely to fall very soon by a lot, buying a single flat would be best, since that would get you some exposure to property price changes but not as much, and you'd still be avoiding renting.

One other thing to consider is whether you expect property prices to rise by more than investments in stocks and shares. You can spread your risk and return prospects by each putting 7000 a year into stocks and shares ISAs with at least 7 funds each, in a broad range of regions and industries. That'll use 28000 between you by the end of April, getting you a quick and fairly significant spread. You'll find quite a lot of discussion of investments in the Pensions and Savings and Investments message boards here.

Also, do consider an interest only mortgage. Then you can choose to pay the full repayment mortgage amount if you like, or just pay the interest only amount during any tough times, without having to worry whether the mortgage lender will agree, because they already did. It's an excellent way to get increased flexibility.

The ISAs and higher loan and still big deposit should give you quite a nice mixture of risk so you're likely to end up ahead in one part of the mix.

franklee

jamesd wrote:

m.smith14, better to buy, since that may cause a short term loss if prices drop but not buying costs you a long term lost opportunity if they rise.

Do you actually need a house, though? You might instead be able to buy two flats, live in one and rent out the other as a BTL. The BTL has the advantage that the interest on the mortgage is deducted from rental income, so in effect you can end up with almost free investment and exposure to rising and falling house prices. That protects your ability to buy a house later if you need one, because you're still seeing swings in value that match the size of a full house loan.

If you take the view that prices are likely to fall very soon by a lot, buying a single flat would be best, since that would get you some exposure to property price changes but not as much, and you'd still be avoiding renting.

One other thing to consider is whether you expect property prices to rise by more than investments in stocks and shares. You can spread your risk and return prospects by each putting 7000 a year into stocks and shares ISAs with at least 7 funds each, in a broad range of regions and industries. That'll use 28000 between you by the end of April, getting you a quick and fairly significant spread. You'll find quite a lot of discussion of investments in the Pensions and Savings and Investments message boards here.

Also, do consider an interest only mortgage. Then you can choose to pay the full repayment mortgage amount if you like, or just pay the interest only amount during any tough times, without having to worry whether the mortgage lender will agree, because they already did. It's an excellent way to get increased flexibility.

The ISAs and higher loan and still big deposit should give you quite a nice mixture of risk so you're likely to end up ahead in one part of the mix.

If this post doesn't Scream House Price Bubble then I don't know what does :xmassmile

nrsql

Or just very confused thinking.
I'm hoping that a lot of these posts are by people who aren't investing on their own account.

jamesd

franklee and nrql, it screams covering all sides, not betting everything on property prices falling. Starting with someone considering investing all their capital in a single house I suggested instead:

• Splitting the risk into two properties, with rental income covering most of the costs of half of the money being spent one property, decreasing the risk with both the income and a pair of investments instead of just one.
• Using stocks and shares investment types for close to half of the capital, again reducing the risk tied to residential property.
• Using interest only mortgages to increase financial flexibility if there are problems later, letting the repayment portion reduce if necessary.

A post suggesting four ways to reduce risk is hardly all about a property bubble.

And yes, it's pretty much my own intent - I recently offered on a flat for me to live in, a BTL flat in the same house and intend to use 7000 a year in ISA investing and use interest only mortgages to reduce my risk level. This against a background of saving more than 60% of my after-tax income. The one for me to live in is at a "reckless" loan income multiple of about 2.2. The pair, assuming voids forever and ignoring the BTL being a business purchase, come to about 4.1. LTV are 90 and 85%. Saved rent will cover about 3% a year of property value depreciation. Assuming interest rates rise, I can handle 11% on both with no rental income indefinitely and 13% for at least a year from cash. Rent at the current level makes that one year interest rate tolerance 17%, the highest rate reached in 1979-80. It seems unlikely that I'll need to handle those rates, though the lower two were regularly exceeded before 1991, so it's possible.

I'm not prepared to gamble everything on property prices falling. Instead I'm going to work on ensuring that I come out ahead regardless of what happens.

Alan_M_2

cwcw wrote:

Has anyone tried https://www.home.co.uk? It allows a price analysis by postcode. I just did a year on year analysis of mine, and all looks good apart from the alarming drop in detached prices, but the Sep 05 average will have been skewed by a one off.

Sep 2005 Sep 2006 Change

Detached £473,834 £356,887 -25%

Semi £215,509 £248,728 +15%

Terraced £149,776 £168,205 +12%

Flat £151,890 £181,130 +19%

All £235,843 £241,643 +2%

Interesting. Out of curiosity I did the same exercise for my postcode and the immediate 4 mile area and came up with the following results:-

Detached £416,125.00 £470,791.66 - 11.62%
Semi £283,966.66 £270,952.50 + 4.80%
Terrace £271,904.54 £215,166.66 +26.30%
Flat £160,534.23 £158,732.35 + 1.35%

All £283,132.60 £278,910.77 + 1.51%

brasso

zkeithz wrote:

I have just revisited my initial posting after the New year break and was amazed at the number of viewings and responses.

Indeed I take on board many of the recommendations/observations.

Re the estate Agents fees many suggest factoring in, I do not intend to use one. I have found a totally free property advertising website: https://www.availablehouse.co.uk, which allows you to post a property advertisement completely free. How they make their money I am not sure, probably from pay per click commercial advertising. Nonetheless I stand to save another £4K if it works.

Regards

Keith

You may strike lucky and get someone interested in your house on a site like this but don't bank on it. There are several of these websites about, appearing and disappearing all the time. Hardly any buyers use them because what's in it for them? Buyers prefer to go through an agent because it costs them nothing, but they get (real or perceived) expertise, someone to keep sending details without prompting, a middleman to negotiate on price, someone to recommend services and tradespeople, liaison re contracts, and so on. All the advantages go to the seller, none to the buyer, unless the seller reduces the property price to take account of not using an agent. But if you do that, you no longer save money, so what's the advantage even to you?