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The Equity Ladder

The term 'housing ladder' is actually meaningless drivel and was concocted by estate agents to convince ill informed people to exchange their life savings for overpriced assets. Houses are an investment and like all investments they have good times and bad times. Right now is an awful time.

Equities currently offer comparable yields to property, they have better upside potential and are much less exposed to downside risk. They are not troubled by such things as bad tenants, property repairs, voids or local council red tape. They also have lower stamp duty, lower transaction charges and they are more liquid.

As a long term investment equities outperform property. So why do people continue to gamble on property when there are such rich pickings in the equity markets?
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Comments

  • alanobrien
    alanobrien Posts: 3,308 Forumite
    Combo Breaker First Post First Anniversary Mortgage-free Glee!
    Well for me a house isn't an investment its a home.
    While i agree with some of what you say i would tell that to the investors in Northern Rock, Marconi, Enron, BP, one tel, Sabena etc etc the list of business failures and stock price plummets goes on and on.......you see what i mean.

    Ultimately its diversity of investment portfolio that matters not one singuler market sector.
  • macaque_2
    macaque_2 Posts: 2,439 Forumite
    alanobrien wrote: »
    Well for me a house isn't an investment its a home.
    While i agree with some of what you say i would tell that to the investors in Northern Rock, Marconi, Enron, BP, one tel, Sabena etc etc the list of business failures and stock price plummets goes on and on.......you see what i mean.

    Ultimately its diversity of investment portfolio that matters not one singuler market sector.

    I agree with you on the subject of portfolio diversity. On the question of property, I don't feel that my rented house is less of a home because someone else owns it. Lets face it, the way council tax is going, we are all effectively renting from the council these days.
  • Baa...baa....baa......baa....

    That's why!
    The only thing to do with good advice is to pass it on. It is never of any use to oneself. (Oscar Wilde);)
  • alanobrien
    alanobrien Posts: 3,308 Forumite
    Combo Breaker First Post First Anniversary Mortgage-free Glee!
    macaque wrote: »
    I Lets face it, the way council tax is going, we are all effectively renting from the council these days.

    Indeed my council tax is now somewhat higher than my first mortgage which i wouldn't mind if i thought we were getting value for money...:mad:
  • A house is one of only a few 'investments' that investors can live in. You cannot live in NR shares!

    I look at my mortgage payments as investing in a mortgage free home - one day. In about 9 years' time I'll be mortgage and rent-free. I could be M&R free now if I wanted to live in a 3 bed semi. I could retire if I wanted to live somewhere cheaper.

    That said, I'm in no rush to become M&R free. I still have holidays, eat/drink out, drive a nice car etc.

    At least by being M&R free I'll be able to pay my council tax when I retire without relying on state handouts.

    GG
    There are 10 types of people in this world. Those who understand binary and those that don't.
  • CB1979_2
    CB1979_2 Posts: 1,335 Forumite
    double post
  • CB1979_2
    CB1979_2 Posts: 1,335 Forumite
    wow do you lot over on HPC decide who's turn it is each week to flood MSE with the same old ramblings?

    this week was your turn, who's turn next week?

    there's only so many times you can try and justify why a crash should happen/people shouldn't buy houses, get over it, house prices ain't quite crashing as you lot (and many others) hoped, no doubt they will, but for the time being, just accept it please.

    oh and of course it's a property ladder, quite simple really, looks like one to me ;)

    !---5 bed---!
    !---4 bed---!
    !---3 bed---!
    !---2 bed---!
    !---1 bed---!
    !---studio---!
  • Generali
    Generali Posts: 36,411 Forumite
    Combo Breaker First Post
    1. PPR isn't purely an asset. It's ownership (with or without a mortgage) also has utility to you - eg security of tenure, social acceptance.
    2. You pay 2 lots of tax on dividends (income tax as you earn the money to buy the shares, dividend tax as you earn an income from the shares). You only pay one lot of tax on money used to pay off interest on a mortgage (income tax).
    3. A repayment mortgage is a very good hedge against inflation. It's a poor one against deflation. In economies with fiat currencies, the former has been far more common.
    4. Equity prices are more volitile than house prices (e.g. because they can be shorted, liquidity is better so prices can respond to market sentiment faster, you don't get margin calls on a mortgage)
    5. The 'housing ladder' has nothing to do with tenants, good or bad.
    6. Equities are more liquid. I refer you to point #1 - a PPR isn't a pure asset. Liquidity isn't important if you're neither selling nor marking to market (e.g. to remortgage).

    Think first, post second.
  • macaque_2
    macaque_2 Posts: 2,439 Forumite
    CB1979 wrote: »
    wow do you lot over on HPC decide who's turn it is each week to flood MSE with the same old ramblings?

    this week was your turn, who's turn next week?

    there's only so many times you can try and justify why a crash should happen/people shouldn't buy houses, get over it, house prices ain't quite crashing as you lot (and many others) hoped, no doubt they will, but for the time being, just accept it please.

    oh and of course it's a property ladder, quite simple really, looks like one to me ;)

    !---5 bed---!
    !---4 bed---!
    !---3 bed---!
    !---2 bed---!
    !---1 bed---!
    !---studio---!

    Do you realise that the transaction costs alone (stamp duty + estate fees + legal fees + interest on these payments) for this sequence of moves over 25 years would come to over £150,000.
  • macaque_2
    macaque_2 Posts: 2,439 Forumite
    A house is one of only a few 'investments' that investors can live in. You cannot live in NR shares!

    I look at my mortgage payments as investing in a mortgage free home - one day. In about 9 years' time I'll be mortgage and rent-free. I could be M&R free now if I wanted to live in a 3 bed semi. I could retire if I wanted to live somewhere cheaper.

    That said, I'm in no rush to become M&R free. I still have holidays, eat/drink out, drive a nice car etc.

    At least by being M&R free I'll be able to pay my council tax when I retire without relying on state handouts.

    GG

    Fair enough but equities can achieve exactly the same result. You get capital growth plus the dividends pay some or all of your rent.
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