London Has Peaked

cells

chucknorris wrote: »

That is one scenario, there are others too, only a fool doesn't consider all the possibilities. That scenario is an optimistic one, IMO far too optimistic, especially as it:


a) Discounts a market correction within the 15 year timeframe.
b) Ignores the affordability for owner occupiers, and assumes property is valued only as an investment.
c) Assumes that the Gov would sit by and passively watch this happen, I'm not saying that they wouldn't. But Gov intervention would become more of a risk (intervention could be subtle, just simply something that dampens prices).

There are also pessimistic scenarios and others in between. As Thrug was saying above, risks need to be considered. I don't make plans on optimistic assumptions, I would rather tread more carefully and be prepared to be pleasantly surprised.

what is optimistic about it?

somewhere around 5 million BTLs now AND its growing by around 250,000 a year.


market correction. well there are only two factors. rents and interest rates. which will or could "correct" in your view?

affordability for owners. I think as time goes on affordability will get worse and worse and the owner sector as a result will shrink. In my local area of Hackney the owner stock is now ~25% and the rented sector ~75% so if its possible in hackney why not London as a whole or even elsewhere

government intervention. yes this is a risk, and yes the higher the price the higher the risk gov-intervention has. however i dont think many BTLers will price this in so this wont be a limit until it happens

padington

I reckon, now we've got the forecasts to double in 15 years, London property will double much quicker as the investors pile into what is believed to be a sure thing.

Already time to make a new forecast.

I for one will be making a call to the bank this week.

cells

chucknorris wrote: »

It sounds to me like you re-market your properties at the maximum possible rent, if you routinely have voids. I prefer to market my properties under the market rent, it doesn't necessarily cost anything (i.e. a 4 week void is equivalent to a 7.7% decrease in the rent). It also gives me a wider choice of tenant, which I consider very important. I always strive to build up a good relationship with my tenants, that doesn't mean that I roll over for them, but I don't expect them to roll over for me either, mutual respect is the goal. Our tenants do tend to stay on, last month a long standing tenant moved out after 11 years. I also think that it is very good for the existing tenants to show the prospective tenants the property, because the prospective tenants can ask them about both the property and us, if you have voids, then this isn't possible. They do also occasionally give us great feedback too about the potential tenants (both good and bad).

I think the type of tenants will play a big part in this. To date I have only had young people who were sharing together. As far as I can see there is often no "glue" which keeps them together and as a result they often move out at the end of the 12 months and go their separate ways

chucknorris wrote: »

Of course health is a lottery, but you can do things to increase your odds, I don't smoke, eat extremely healthy and exercise regularly (walking, swimming, cycling and running). But I am retiring very soon, probably this December, for the very reason that health is a lottery, i.e. I don't know how many years I have left. Additionally I can still afford to live very well without working any longer. My whole attitude to work and retirement changed 2 years ago when my dog was diagnosed with cancer, I realised that no one can guarantee that they will not suffer a terrible death, and that things can change very quickly, this underlined the importance of getting the most out of life while you can to me.

yes indeed
unfortunately like yourself most people only truly think about their mortality if they have someone close die when we should all consider it young or old

chucknorris wrote: »

But at the same time, it would be idiotic to plan to spend my wealth by the time I am 70, the best plan is to amass enough wealth to last you for a long life, and this is what I have done.

my reasoning was down to the fact that you can lose your mind well before you lose your body. As I mentioned one old man i know of lost virtually all of his substantial life savings to a gang because he was not quite capable of seeing what was clearly a scam

And I didn't say I planed to spend everything by 70 but put everything in order. which would mean giving away what needs to be given away and just keeping enough to see me through.

chucknorris

cells wrote: »

what is optimistic about it?


market correction. well there are only two factors. rents and interest rates. which will or could "correct" in your view?

I told you what I thought was optimistic about it:

a) Discounts a market correction within the 15 year timeframe.
b) Ignores the affordability for owner occupiers, and assumes property is valued only as an investment.
c) Assumes that the Gov would sit by and passively watch this happen, I'm not saying that they wouldn't. But Gov intervention would become more of a risk (intervention could be subtle, just simply something that dampens prices).

Don't get me wrong, I wouldn't turn down a huge boost for my retirement fund, I'm just not as optimistic as you are (my opinion is just as valid as yours though, especially to me).

The market correction that I was referring to as referring to was the cyclical nature of house prices, with every boom there will be a later correction eventually.

padington

chucknorris wrote: »

I told you what I thought was optimistic about it:

a) Discounts a market correction within the 15 year timeframe.
b) Ignores the affordability for owner occupiers, and assumes property is valued only as an investment.
c) Assumes that the Gov would sit by and passively watch this happen, I'm not saying that they wouldn't. But Gov intervention would become more of a risk (intervention could be subtle, just simply something that dampens prices).

Don't get me wrong, I wouldn't turn down a huge boost for my retirement fund, I'm just not as optimistic as you are (my opinion is just as valid as yours though, especially to me).

The market correction that I was referring to as referring to was the cyclical nature of house prices, with every boom there will be a later correction eventually.

A wise government worried about the opposition would dampen prices, the worst case scenario, which has happened a few times elsewhere, is that a mega city fails to counter the prices through increasing supply or dampening demand with taxes which inevitably creates a political backlash which ushers in rent control laws after a change in government resulting in a really undynamic council house like market where everyone clings on to what they have for dear life.

However, this government isn't on the back foot, labour is in disarray, the mission is to reduce the deficit and fire up the economy and London's gone labour anyway, there is nothing to lose.

I think things are going to get silly.

chewmylegoff

padington wrote: »

When it comes to the relationship between price and yield, you need to consider how properties are going to become a million pound death tax free wrappers soon. This may change the relationship somewhat as the up to 1 million pound homes become to enjoy a new purpose.

The change in the allowance is going to be to add an extra £175k per person or £350k per married couple of "family home" specific IHT allowance on top of the general existing allowance of £325k each or £650k per couple.

This will not be some kind of game changer for rental yield on houses worth up to £1m. Rather, it will have no impact whatsoever on rental yields.

padington

chewmylegoff wrote: »

The change in the allowance is going to be to add an extra £175k per person or £350k per married couple of "family home" specific IHT allowance on top of the general existing allowance of £325k each or £650k per couple.

This will not be some kind of game changer for rental yield on houses worth up to £1m. Rather, it will have no impact whatsoever on rental yields.

I'm not saying it will increase rental yields, I'm saying it will increase demand for owning houses, which will increase selling prices, so will change the relationship between yield and price as the two diverge.

chewmylegoff

Why would being able to avoid a bit more of a tax that is only payable on death make people more likely to buy more expensive houses to live in? Are you suggesting that granny and grandpa will upsize when they think they are about to pop her clogs in the name of tax efficiency?

padington

chewmylegoff wrote: »

Why would being able to avoid a bit more of a tax that is only payable on death make people more likely to buy more expensive houses to live in? Are you suggesting that granny and grandpa will upsize when they think they are about to pop her clogs in the name of tax efficiency?

If you've got a million quid and you want it to be safe from the tax man for the family when you're getting on, having a million pound UK house suddenly a pretty good bet. That will change the desirability of UK property and that will in turn increase the market price.

How much is debatable, I think it will be considerable mainly because people are suckers for a round number.

Also because London mainly has the million pound houses, London will mainly benefit from this change.

I see this as another sign that dampening house prices especially in London is not on Osborne's agenda at all and I think the market does too.

chewmylegoff

padington wrote: »

If you've got a million quid and you want it to be safe from the tax man for the family when you're getting on, having a million pound UK house suddenly a pretty good bet. That will change the desirability of UK property and that will in turn increase the market price.

How much is debatable, I think it will be considerable mainly because people are suckers for a round number.

Also because London mainly has the million pound houses, London will mainly benefit from this change.

I see this as another sign that dampening house prices especially in London is not on Osborne's agenda at all and I think the market does too.

If you had £1m in cash and no house or other assets and were about to die and were worried about IHT then buying a £1m house would make sense.

I predict that scenario will apply to approximately 0 people a year plus or minus 0.

For most people the practical situation will be that they have a mixture of assets including a residential property that they already live in, the "family home" if you like. If the total of those assets exceeds £650k in value then they will be able to shield up to an extra £350k from IHT by selling their house and buying a more expensive house.

I should think the number of people who decide they are going to sell the house they are living in in order to buy a more expensive one in order to take advantage of this change in the law (which may just be repealed in 5 years if labour were to get back in) will be similar to the number above.

The change will result in a reduction in IHT revenues and not much else. I suppose there will be a trickle down effect in time as people will inherit a bit more money and possibly use it to buy a house with (although presuming most estates are split between two or three children, they would have been able to do this already with a £650k-£1m inheritance so it won't make much of a difference) but there isn't going to be a rush of people seeking to buy a house that they think will be worth £1m by the time they die.

Sorry but your 2 up 2 down terrace in ally pally is not going to become worth £1m overnight as a result of this change.