The dissapearing property ladder

[Deleted User]

Cornucopia wrote: »

Yes, but who is to say what a house is "worth" in financial terms?

It'd be nice to say "It's worth what people will pay for it" but that only works well when there's a nice pool of houses to pay for.

Both when we were looking for our first home, and then our larger 'family' home, we paid above what we'd originally hoped to pay for them. Supply was low and demand was high. We didn't pay 'what we thought it was worth' but 'what we had to in order to get the house'.

Ah, the South East. Where there's just too many rich people skewing the housing market for the rest of us

westernpromise

Cornucopia wrote: »

The problem is that you've simplified it down to the level where the profit is removed from the equation.

What profit?

I've taken an example of what would happen in a clearly defined market that makes it easier to see. It is clear that there is no profit earned by someone who sells something for more than he paid, but for the same as it now costs.

The UK property market is the same, just more diverse. Sure, I could sell a £300k Barratt house in one part of the country and move to a duplicate Barratt house in a cheaper part of the country for £200k. But the £100k in cash isn't profit, because I've now got less house. I've gone from having a £300k house plus £0 cash to having a £200k house and £100k cash. The total is the same, £300k, and I've only increased my cash because I've reduced my house by the same amount.

Despite this obvious fact there are some here who insist that the £100k is some sort of profit.

Bear in mind that I, and many others, have actually done this in the real world - in and around London, between 1996 and 2007.

I can give you figures, it you want.

Me too. I bought in 1986 for £25.5, sold in 1988 for £46.5k, re-bought for £85k, sold in 1998 for £105k, rebought for £265k, and that place is now let out and worth I guess a million. Meanwhile I bought a place to live in in 2012 for £965k and that place is now worth about £1.2 million.

In all cases the properties have simply inflated. I have always eventually sold better than I bought, but I had to pay more to re-buy too. Should I sell it and not reinvest, the rental place will attract CGT on its appreciation since I started letting it out. This is fine because the costs of owning it have also been tax-deductible.

The place I live in has inflated by about £250k. If that's profit, why don't I sell up and splurge my quarter of a million quid 'profit'? Er, because if I sold, I'd still need a home, and the same thing would not cost £965k. It would cost me £1.2 million. Same as I can sell for.

westernpromise

ringo_24601 wrote: »

Irrespective to 'who makes the profit' - who pays for the above inflationary costs of house prices? The FTBers - or it's the people renting from the boomers who bought the house as 'an investment'

That's a different point entirely, but in the above circumstances, the only reason the hypothetical houses are worth £300k is because someone has come along and bid £300k for them.

All the owners have done is pay for their house, then occupy it. I am not sure what else they should do?

It does not work, by the way, to claim as some do that the houses are only £300k because landlords have bid them up. Landlords' bids are typically lower than FTBs' because they face higher deposit requirements and interest rates than FTBs do. Landlords also have no logical reason to want prices to go up* because inflationary gains are 1/ taxable capital gain 2/ hard to access and 3/ taxed more heavily than the income.

As a landlord myself in a small way, I'd rather my rent doubled than the property's value did. The former I can access, the latter I can't. A little bit of inflation is handy because it funds stamp duty should one ever sell and re-buy.

* some do, but some are just a bit, well, thick

Cornucopia

westernpromise wrote: »

What profit?

The profit that is obtainable by gaming the market in some way. Let's work some figures...

Let's say you move from an established area to an up and coming area. Let's say that your old property is worth £250k when you sell it, and your new property is £300k when you buy it.

A few years later, your predicted local boom has arrived, and property has increased in value by 60%, whereas property in your old area has "only" increased by 30%. Therefore, your old property is now worth £325k, and your new one £480k. You could move back to your old property with £155k of cash (£105k of profit). Or you could reduce your mortgage by £155k, or buy a second property.

Me too. I bought in 1986 for £25.5, sold in 1988 for £46.5k, re-bought for £85k, sold in 1998 for £105k, rebought for £265k, and that place is now let out and worth I guess a million. Meanwhile I bought a place to live in in 2012 for £965k and that place is now worth about £1.2 million.

So what about all of that is not profit?

With BTL property, it is even easier to see, and in fact, is the term that HMRC no doubt use.

MFW_ASAP

If I buy a Gold watch for £1000 and the spot price of Gold 'inflates' the price for that watch to £2000 and I sell it for £2000. I then have to buy a watch to replace it. I have to spend £2000 and so where is the profit!!

Eh!!! where is the profit!!!

QED.

IveSeenTheLight

westernpromise wrote: »

I've been here a lot longer than you have. If you're having trouble distinguishing between profit and inflation I suggest you may enjoy the Guardian more...

LOL, I have no problems understanding basic concepts.
Many on here seem to have the same understanding.

It's only you who are differing from the norm and changing tact whenever you hit an answer you cannot respond to.

As for the length of time you have been signed up for, this does not detract from you being a WUM on this thread.

Good day Sir

Loughton_Monkey

westernpromise wrote: »

I've been here a lot longer than you have. If you're having trouble distinguishing between profit and inflation I suggest you may enjoy the Guardian more...

Maybe I would suggest that you, sir, are the only one here who cannot tell the difference

westernpromise

Cornucopia wrote: »

The profit that is obtainable by gaming the market in some way. Let's work some figures...

Let's say you move from an established area to an up and coming area. Let's say that your old property is worth £250k when you sell it, and your new property is £300k when you buy it.

A few years later, your predicted local boom has arrived, and property has increased in value by 60%, whereas property in your old area has "only" increased by 30%.

Now this is a better example. OK, so one area has experienced a higher local rate of inflation.

Therefore, your old property is now worth £325k, and your new one £480k. You could move back to your old property with £155k of cash (£105k of profit).

No. You are comparing unalike capital amounts. This is like saying I got 1% return on £300 in the bank, and my mate got 2% on £100, so I did better than him because I'm £3 up and he's only £2 up.

So let's compare properly and take two properties where you sell one for £250k and buy another also for £250k.

One property would then inflate by 30% to £325k and the other by 60% to £400k. You now decide to buy back your old flat, what does it cost? £325k. What's left of your gain? £75k.

So if you hadn't moved you'd have a £325k whereas you did and you now have £75k cash as well. That is your capital gain, not the whole inflated price.

The trouble is, of course, that it works both ways. Someone who moved the wrong way - from the 60% area to the 30% area - now has a house worth £325k instead of £400k. If one is a capital gain then this is a capital loss.

With BTL property, it is even easier to see, and in fact, is the term that HMRC no doubt use.

HMRC doesn't have to be rational or consistent, but in the case of a let they are not far wrong. If I buy a house and claim tax relief on all the expenses against the rent, then it's fair enough that I pay tax on any appreciation or that I reinvest before having to do so.

It does not follow that the same treatment makes sense for private dwellings because as we've seen above your capital gain is only what you make beyond general inflation and may in fact be a loss.

westernpromise

MFW_ASAP wrote: »

If I buy a Gold watch for £1000 and the spot price of Gold 'inflates' the price for that watch to £2000 and I sell it for £2000. I then have to buy a watch to replace it. I have to spend £2000 and so where is the profit!!

Eh!!! where is the profit!!!

QED.

Quite, they're the same. In one case you have a watch worth £2,000 and in the second you have £2,000 and no watch. It's the same.

westernpromise

IveSeenTheLight wrote: »

LOL, I have no problems understanding basic concepts.
Many on here seem to have the same understanding.

It's only you who are differing from the norm and changing tact whenever you hit an answer you cannot respond to.

Give me an example please.