BCR approaching 100%

Mistermeaner

http://www.rightmove.co.uk/property-for-sale/property-47630194.html

Stoke. Best value in the land and equi distant to everything

Pete9501

Gosh that's cheap, I think he would be happy there in his own virtual flat :beer:

wotsthat

This might suit better...

http://www.rightmove.co.uk/property-for-sale/property-58361270.html

Interestingly, there's a place on the same road with a long sales history

24, Caledonian Road, Edinburgh, Mid EH11 2DF
£121,617 Residential 04 Jun 2015
£111,236 Residential 29 Nov 2007
£105,105 Residential 28 Apr 2004
£73,000 Residential 06 Jun 2003
£71,000 Residential 26 Feb 2003
£72,000 Residential 19 Feb 2003
£76,000 Residential 11 Nov 2002
£36,500 Residential 26 Mar 2002

Can you imagine being someone who sold to rent in 1998?

If it was me I'd at least have a wry smile on my face as I offered financial advice to millionaires and home owners as I paid my landlord north of 6%.

westernpromise

Well, as Crashy doesn’t seem to want to work out his BCR, I thought I’d spend 5 minutes working it out for him. Key numbers as we go along are in bold red.

I searched Zoopla for 1-bed flats for sale in Aberdeen and came across this one:

http://www.zoopla.co.uk/for-sale/details/39886434?search_identifier=ad7e2823696c880128ea730a13bd84ba

One bed, centrally located, £125k. Next I pasted that address into Zoopla to get some historic sales in that street, and came up with this place:

http://www.zoopla.co.uk/property/flat-a/1-st-marys-place/aberdeen/ab11-6hl/17695

Quite a nice place, valued by Zoopla at £128k, and presumably similar to the one currently for sale at £125k. Very helpfully, there are no fewer than four previous sales of it to look at as well, with one at £44,000 in 2002. So we can set 2002 as our starting point for Crashy’s BCR, with a buy-in price of £44k, and let’s say that property is worth £120k today.

If Crashy had bought with a 100% 25-year mortgage in 2002 (which he could), then he would now be 14 years through the term. Assuming 3% interest over that time, he’d have paid an average of £209 a month on the mortgage, a total of £35k. He’d still have £23k left on the mortgage. So £58k to own it from here.

Now we need to know what the rent would have been instead. Fortunately, St. Mary’s Place has quite a few flats up for rent over the last few years, which help to estimate this piece of the picture. There is this one from 2014, for example, a one-bedder offered at £650pcm:
http://www.zoopla.co.uk/property-history/6d-st-marys-place/aberdeen/ab11-6hl/33079172

And this one's a two-bedder, also offered in 2014, but at £600pcm:
http://www.zoopla.co.uk/property-history/6-st-marys-place/aberdeen/ab11-6hl/33006747

The latter is presumably cheaper to rent than the former because although bigger, it’s quite a bit grottier. Check out the dirt over the bedroom storage heater, and the brown bathroom suite. Anyway, if we say these places let for £550pcm in 2014, we can go back and estimate what the rent would have been since 2002.

The source for rental prices that I used above, http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-304792, breaks out rental price history by country in the UK but starts only from 2005, covers Scotland only from January 2011, and only goes up to May 2013. It shows 2013 values of 103.0 for the UK, with England 103.1, Wales 102.5 and Scotland at 102.2. These are so close together I’m just going to take the UK average and apply it to Aberdeen. In 2005, the figure for the UK was 94.9, so rents went from 94.9 to 103.0 over the 101 months covered. That’s a change of 0.08 per month. Faute de mieux I’m going to assume that this rate of change applies both all the way back to 2002 (36 months), and all the way forward to March 2016 (34 months). So that would make the 2002 rental index 92.0, the May 2014 rent 104.0, and the current rent 105.7.

We know the actual 2014 rent was £550ish pcm, so £550 = 104.0 index. That means that in 2002 it was (92/104) x 550 = £486, and in 2016 it would be (105.7/104) x 550 = £560. The average of those two figures is £523, so I’ll take the total rental cost since 2002 as £88k (£523 a month, x 12 months, x 14 years).

To compute Crashy’s BCR, we just need to add up what he’s spent as a renter versus what he’d have spent as a buyer, and add the difference to whatever’s left on the conjectural mortgage. This is the “BBP” or “Breakeven Buy Price” - the price he needs to buy at now. If he could do so today in 2016, then his total rental spend plus the buy price today will be same as the total mortgage repayments made since 2002 plus the 2016 balance. That is, whether as a renter or a buyer, he’d be spending the same total sum on owning that house.

We then divide the difference between the BBP and the current price by the latter, and that’s his required crash.

So: £35k mortgage spend minus £88k rent spend = minus £53k;
BBP: the mortgage balance would have been £23k, so £23k - £53k = -£30k.
Hence Crashy needs to buy the flat for minus £30k, i.e. it needs not only to be free, he needs to get it for nothing with £30k in cash thrown in.

BCR: 120 - (-30) = 150, hence 150/120 = 1.25.

Thus Crashy’s BCR is 125%.

Another way of looking at this is as follows. The mortgage would have been £209 a month, but the rent would have been £523 a month. If he had bought in 2002 but paid £523 on the mortgage, i.e. repaid it at the rental level, he’d have cleared it after 7 years and 11 months, which is to say by 2010. He could have owned outright and been housed for nothing these last six years, but has instead made 72 further rent payments and must continue to do so indefinitely.

So financial advice and house price prognostication from Crashy should probably be treated with the appropriate attention, which is none, really.

System

I don't understand why he comes here to gloat, there is no possible circumstances where he "wins".

mwpt

Joeskeppi wrote: »

I don't understand why he comes here to gloat, there is no possible circumstances where he "wins".

Same behaviour in conspiracy theorists. The seductive power they feel from knowing something that the "sheeple do not know makes them superior. But deep down they realise their theories are void of evidence and most likely devoid of truth, so they need to vocalise them, as self reinforcement, in a certain style and manner that allows them to avoid being drawn into rational debate.

westernpromise

I understand that in Scotland, people do sometimes move into a property and find large sums of tax-free money inside. It happened in Shallow Grave, for example.

However, that was only a movie, and anyway they were renting.

Out,_Vile_Jelly

I noticed a sign outside the flat that I rented for a long time, before I bought my house two and a half years ago. It's been done up and is now renting for nearly 30% more than what I paid (and has been let at that price). My basic mortgage is nearly half this monthly rent, for a two bedroom house rather than a one bed flat.

Renting suited me during that particular phase of my life, but the numbers are quite shocking when I look at them there.

Crashy_Time

westernpromise wrote: »

Well, as Crashy doesn’t seem to want to work out his BCR, I thought I’d spend 5 minutes working it out for him. Key numbers as we go along are in bold red.

I searched Zoopla for 1-bed flats for sale in Aberdeen and came across this one:

http://www.zoopla.co.uk/for-sale/details/39886434?search_identifier=ad7e2823696c880128ea730a13bd84ba

One bed, centrally located, £125k. Next I pasted that address into Zoopla to get some historic sales in that street, and came up with this place:

http://www.zoopla.co.uk/property/flat-a/1-st-marys-place/aberdeen/ab11-6hl/17695

Quite a nice place, valued by Zoopla at £128k, and presumably similar to the one currently for sale at £125k. Very helpfully, there are no fewer than four previous sales of it to look at as well, with one at £44,000 in 2002. So we can set 2002 as our starting point for Crashy’s BCR, with a buy-in price of £44k, and let’s say that property is worth £120k today.

If Crashy had bought with a 100% 25-year mortgage in 2002 (which he could), then he would now be 14 years through the term. Assuming 3% interest over that time, he’d have paid an average of £209 a month on the mortgage, a total of £35k. He’d still have £23k left on the mortgage. So £58k to own it from here.

Now we need to know what the rent would have been instead. Fortunately, St. Mary’s Place has quite a few flats up for rent over the last few years, which help to estimate this piece of the picture. There is this one from 2014, for example, a one-bedder offered at £650pcm:
http://www.zoopla.co.uk/property-history/6d-st-marys-place/aberdeen/ab11-6hl/33079172

And this one's a two-bedder, also offered in 2014, but at £600pcm:
http://www.zoopla.co.uk/property-history/6-st-marys-place/aberdeen/ab11-6hl/33006747

The latter is presumably cheaper to rent than the former because although bigger, it’s quite a bit grottier. Check out the dirt over the bedroom storage heater, and the brown bathroom suite. Anyway, if we say these places let for £550pcm in 2014, we can go back and estimate what the rent would have been since 2002.

The source for rental prices that I used above, http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-304792, breaks out rental price history by country in the UK but starts only from 2005, covers Scotland only from January 2011, and only goes up to May 2013. It shows 2013 values of 103.0 for the UK, with England 103.1, Wales 102.5 and Scotland at 102.2. These are so close together I’m just going to take the UK average and apply it to Aberdeen. In 2005, the figure for the UK was 94.9, so rents went from 94.9 to 103.0 over the 101 months covered. That’s a change of 0.08 per month. Faute de mieux I’m going to assume that this rate of change applies both all the way back to 2002 (36 months), and all the way forward to March 2016 (34 months). So that would make the 2002 rental index 92.0, the May 2014 rent 104.0, and the current rent 105.7.

We know the actual 2014 rent was £550ish pcm, so £550 = 104.0 index. That means that in 2002 it was (92/104) x 550 = £486, and in 2016 it would be (105.7/104) x 550 = £560. The average of those two figures is £523, so I’ll take the total rental cost since 2002 as £88k (£523 a month, x 12 months, x 14 years).

To compute Crashy’s BCR, we just need to add up what he’s spent as a renter versus what he’d have spent as a buyer, and add the difference to whatever’s left on the conjectural mortgage. This is the “BBP” or “Breakeven Buy Price” - the price he needs to buy at now. If he could do so today in 2016, then his total rental spend plus the buy price today will be same as the total mortgage repayments made since 2002 plus the 2016 balance. That is, whether as a renter or a buyer, he’d be spending the same total sum on owning that house.

We then divide the difference between the BBP and the current price by the latter, and that’s his required crash.

So: £35k mortgage spend minus £88k rent spend = minus £53k;
BBP: the mortgage balance would have been £23k, so £23k - £53k = -£30k.
Hence Crashy needs to buy the flat for minus £30k, i.e. it needs not only to be free, he needs to get it for nothing with £30k in cash thrown in.

BCR: 120 - (-30) = 150, hence 150/120 = 1.25.

Thus Crashy’s BCR is 125%.

Another way of looking at this is as follows. The mortgage would have been £209 a month, but the rent would have been £523 a month. If he had bought in 2002 but paid £523 on the mortgage, i.e. repaid it at the rental level, he’d have cleared it after 7 years and 11 months, which is to say by 2010. He could have owned outright and been housed for nothing these last six years, but has instead made 72 further rent payments and must continue to do so indefinitely.

So financial advice and house price prognostication from Crashy should probably be treated with the appropriate attention, which is none, really.

Why did you do the calcs for Aberdeen?

onlyroz

Don't you also need to take into consideration maintenance costs for properties that you own, which wouldn't be payable if you were only renting? E.g. new boiler, carpets, fixing the leaky roof, rewiring etc?