Young adults face housing squeeze

Graham_Devon

HAMISH_MCTAVISH wrote: »

More than they are now.

Despite the slight uptick in 2014, the mortgage famine continues.

This is confusing.

You fly the flag for the private sector being better at everything, yet now you are suggesting the private sector are lending less than they "should". That suggests that you feel a target should be in place.

Yet you detest any targets the other way, such as regulatory limits.

CLAPTON

Graham_Devon wrote: »

This is confusing.

You fly the flag for the private sector being better at everything, yet now you are suggesting the private sector are lending less than they "should". That suggests that you feel a target should be in place.

Yet you detest any targets the other way, such as regulatory limits.

the BoE et al aren't part of the private sector.

danothy

Graham_Devon wrote: »

... if you are a BTL landlord with some funds ...

I find this turn of phrase very curious.

Is it somehow easier to either raise "funds" (i.e. a deposit) by virtue of being a BTL landlord, or indeed easier to become a BTL landlord in the first place, than it is to simply buy as an owner occupier then? The implication inherent in your post seems to imply that it is, by virtue of apparently not being assigned as the ones struggling to find the necessary "funds".

If it were true that it was easier to become a BTL landlord it might explain why there are allegedly so many BTL landlords, as people would simply become BTL landlords themselves after finding that they are not subject to the normal struggles for finding "funds" associated with becoming an owner occupier.

Alternatively, if it seems logically invalid that it would be comparatively easier to find the "funds" by virtue of being or wanting to be a BTL landlord but we still accept that they are inherently comparatively better "funded", one has to ask what it is that BTL landlords are doing differently to generate these "funds" and why people who are not BTL landlords (or intending to be BTL landlords) are not doing it.

I suppose the possibility also exists that the archetypal well "funded" BTL landlord that is pre-endowed with "funds" from an unspecified source that is keeping people who are struggling to amass their "funds" down might be presented somewhat disingenuously, with intent to scapegoat (or escape-goat, as I prefer to call it). However this last option seems highly unlikely to me, what with my trusting nature and all.

Graham_Devon

CLAPTON wrote: »

the BoE et al aren't part of the private sector.

Thanks for stating the obvious.

I'll state another obvious....the BOE are not the ones doing the lending. We are discussing the banks.

Graham_Devon

danothy wrote: »

I find this turn of phrase very curious.

Is it somehow easier to either raise "funds" (i.e. a deposit) by virtue of being a BTL landlord, or indeed easier to become a BTL landlord in the first place, than it is to simply buy as an owner occupier then? The implication inherent in your post seems to imply that it is, by virtue of apparently not being assigned as the ones struggling to find the necessary "funds".

If it were true that it was easier to become a BTL landlord it might explain why there are allegedly so many BTL landlords, as people would simply become BTL landlords themselves after finding that they are not subject to the normal struggles for finding "funds" associated with becoming an owner occupier.

Alternatively, if it seems logically invalid that it would be comparatively easier to find the "funds" by virtue of being or wanting to be a BTL landlord but we still accept that they are inherently comparatively better "funded", one has to ask what it is that BTL landlords are doing differently to generate these "funds" and why people who are not BTL landlords (or intending to be BTL landlords) are not doing it.

I suppose the possibility also exists that the archetypal well "funded" BTL landlord that is pre-endowed with "funds" from an unspecified source that is keeping people who are struggling to amass their "funds" down might be presented somewhat disingenuously, with intent to scapegoat (or escape-goat, as I prefer to call it). However this last option seems highly unlikely to me, what with my trusting nature and all.

It's well documented that many BTL landlords have released equity from their homes in order to invest in a BTL.

Again, not all that confusing or difficult to grasp. Many people who rode the HPI wave over the last decade or so are in a position to withdraw equity and invest in a BTL.

You only have to read the house buying and renting section of this very forum to find many examples of people doing just this. How you think the Wilsons started?

Jack_Johnson_the_acorn

Graham_Devon wrote: »

It's well documented that many BTL landlords have released equity from their homes in order to invest in a BTL.

Again, not all that confusing or difficult to grasp. Many people who rode the HPI wave over the last decade or so are in a position to withdraw equity and invest in a BTL.

You only have to read the house buying and renting section of this very forum to find many examples of people doing just this. How you think the Wilsons started?

Damn them for taking a risk and investing in houses.... Evil we need to stop them Graham!!!

danothy

Graham_Devon wrote: »

It's well documented that many BTL landlords have released equity from their homes in order to invest in a BTL.

Again, not all that confusing or difficult to grasp. Many people who rode the HPI wave over the last decade or so are in a position to withdraw equity and invest in a BTL.

You only have to read the house buying and renting section of this very forum to find many examples of people doing just this. How you think the Wilsons started?

I think that to buy a house, such that its value can rise, and the equity subsequently be released, one must have at least one initial deposit, just like anyone seeking to be an owner occupier.

CLAPTON

Graham_Devon wrote: »

Thanks for stating the obvious.

I'll state another obvious....the BOE are not the ones doing the lending. We are discussing the banks.

The BoE largely determines how much the banks can lend via its control of the banks' capital ratios.


I would have thought you would have know that so I didn't like to state the obvious but it seems I should have done so.

princeofpounds

Is it somehow easier to either raise "funds" (i.e. a deposit) by virtue of being a BTL landlord, or indeed easier to become a BTL landlord in the first place, than it is to simply buy as an owner occupier then?

Yes, it is easier. I don't think it is permanently easier at all points into the future (i.e. anyone starting BTL now will not experience the same returns), but it will be permanently easier for this entire generation of BTL landlords who have been gifted large amounts of capital by market movements.

Unless we are allowed to build more houses (the way a free market would resolve the situation), then we basically have to wait until the older generation die off or liquidate assets for retirement to compete, and even then inheritance can perpetuate the inequality.

It's a bit like arriving at a monopoly game with the £1500 starting money, when the other players are already playing with £10000, and being asked to compete.

I think the crucial thing to understand is that they are richer, not just because they are older (that will always be a factor), but because they happened to be born at the beginning of an economic wave.

There is a difference - the baby boomers had no problem competing with the wartime generation, who suffered massive economic destruction through WW1, WW2 and the Great Depression. You could still build houses back then too; most of my village was built in the 60s, and renovations aside has not been permitted to expand its boundary since the 70s.

In addition, it was genuinely easier to raise a deposit in past and 'get going' on the housing ladder (more like a housing rocket).

Whilst houses were cheaper in the past, interest rates were higher, which meant that buying a first house didn't feel any easier at the beginning. I always believe boomers when they say it was hard at first. The cost of mortgage payments relative to wages has been fairly consistent.

But because house prices (rather than debt servicing costs) were so much cheaper relative to wages, building up that first deposit from earned income was much easier. House price to earnings ratios for first time buyers more than doubled from about 2.2x to 4.6x from 1993 to 2013. In London, they have almost tripled.

If you need a 10% deposit then, you need to save 22% of your income in 1993 to buy a house. Now you need to save 46%. It's simply much harder to achieve through earnings alone.

It's also important to understand that higher interest rates and inflation (the two are linked) made the stress period for mortgages pass much quicker. After 5 years of 5% inflation, the inflation-adjusted value of your mortgage drops by 28%. 5 years of 2.5% inflation and it drops by just 13%.

So previous generations found it much easier to make payments after just a couple of years, allowing them to build more savings to trade further up, even if you put aside the increasing house prices boosting equity. You scrimp and save for 5 years and you are sorted, whereas now that period can last a decade. That 'struggle' to buy a house drags on for years longer than the boomers faced.

Furthermore, don't forget that BTL landlords are allowed to offset the interest portion of their mortgages in their business and charge it as a taxable expense, thereby paying it out of pretax rental income.

Owner-occupiers have to pay their mortgage interest payments out of post-tax income, although they don't have capital gains tax on moving.

Mind you, with proper tax planning, it's possible to pay very little tax on BTL at any point.

ukcarper

princeofpounds wrote: »

Yes, it is easier. I don't think it is permanently easier at all points into the future (i.e. anyone starting BTL now will not experience the same returns), but it will be permanently easier for this entire generation of BTL landlords who have been gifted large amounts of capital by market movements.

Unless we are allowed to build more houses (the way a free market would resolve the situation), then we basically have to wait until the older generation die off or liquidate assets for retirement to compete, and even then inheritance can perpetuate the inequality.

It's a bit like arriving at a monopoly game with the £1500 starting money, when the other players are already playing with £10000, and being asked to compete.

I think the crucial thing to understand is that they are richer, not just because they are older (that will always be a factor), but because they happened to be born at the beginning of an economic wave.

There is a difference - the baby boomers had no problem competing with the wartime generation, who suffered massive economic destruction through WW1, WW2 and the Great Depression. You could still build houses back then too; most of my village was built in the 60s, and renovations aside has not been permitted to expand its boundary since the 70s.

In addition, it was genuinely easier to raise a deposit in past and 'get going' on the housing ladder (more like a housing rocket).

Whilst houses were cheaper in the past, interest rates were higher, which meant that buying a first house didn't feel any easier at the beginning. I always believe boomers when they say it was hard at first. The cost of mortgage payments relative to wages has been fairly consistent.

But because house prices (rather than debt servicing costs) were so much cheaper relative to wages, building up that first deposit from earned income was much easier. House price to earnings ratios for first time buyers more than doubled from about 2.2x to 4.6x from 1993 to 2013. In London, they have almost tripled.

If you need a 10% deposit then, you need to save 22% of your income in 1993 to buy a house. Now you need to save 46%. It's simply much harder to achieve through earnings alone.

It's also important to understand that higher interest rates and inflation (the two are linked) made the stress period for mortgages pass much quicker. After 5 years of 5% inflation, the inflation-adjusted value of your mortgage drops by 28%. 5 years of 2.5% inflation and it drops by just 13%.

So previous generations found it much easier to make payments after just a couple of years, allowing them to build more savings to trade further up, even if you put aside the increasing house prices boosting equity. You scrimp and save for 5 years and you are sorted, whereas now that period can last a decade. That 'struggle' to buy a house drags on for years longer than the boomers faced.

Furthermore, don't forget that BTL landlords are allowed to offset the interest portion of their mortgages in their business and charge it as a taxable expense, thereby paying it out of pretax rental income.

Owner-occupiers have to pay their mortgage interest payments out of post-tax income, although they don't have capital gains tax on moving.

Mind you, with proper tax planning, it's possible to pay very little tax on BTL at any point.

But the majority of boomers were not first time buyers in the 90s when I first bought in the 70s earnings to price ratio was almost 5x compared to almost 6x now.