Is house price inflation advantageous or a massive con?

GreatApe

chucknorris wrote: »

In over 26 years, and over multiple properties, we have never had a void, apart from one for 3 days, and that was just to suit the timescale of a friend that wanted to rent one of my properties. Although I have created my own voids to carry out periodical maintenance, like replacement kitchens and bathroom suites, and the like. I'm also not counting when selling after the tenant moves out, because it was my decision to sell rather than re-let.

But when doing my appraisals at the time of buying, I still used to factor voids in though, just in case (better safe than sorry).

To be honest my 1% void might be an overestimate because the majority of properties I have have had no voids since I have bought them I just penciled in tenant moves one every 5 years I might find like yourself that tenants stay a lot longer than 5 years in which case the void will be smaller.

Thinking about it now I think nearly all my voids were due to student tenants......
Going forward I might ask my agent to not let to students. I suppose its great for the agent they get to relet a property almost annually but it costs me £2k+ for the agent fees & void periods.
And also perhaps freelance workers they always paid their rents properly but like the students they only tend to stay 1-2 years

Also a notable difference in the property types. Flats have had higher turnover while the houses have had none at all so far.a

GreatApe

Arklight wrote: »

There is nothing more futile than having half your country employed in precarious poorly paid jobs, to rent temporary overpriced accommodation from the other half, who will use most of it to pay for care home fees.

The only people for whom hpi wasn't a con were those who cashed out when they were still young enough to enjoy it, and the bankers who've made a killing charging us to live on our own country.

Wages in the UK are high

Only 1/5th rent privately in the UK 4/5th don't.
Of the 1/5th who do rent privately migrants are overrepresented

Of the 1/5rh who do rent, the vast majority will be in the private rental sector temporarily.
I rented for nearly a decade then I bought. You can't have zero private rentals unless you think it possible for students to buy age 18 and unless you think it possible for migrants (both internal and foreign) to buy as soon as they arrive in a given area

simply put the UK housing market is a good efficient market. We do not have an excessive private rental market. we need a minimum of 15% private rental properties and we are at 20% currently.

The people who think otherwise are primarily just bitter that they didn't buy 5-10 years ago at lower prices.

Arklight

GreatApe wrote: »

Wages in the UK are high

Only 1/5th rent privately in the UK 4/5th don't.
Of the 1/5th who do rent privately migrants are overrepresented

Of the 1/5rh who do rent, the vast majority will be in the private rental sector temporarily.
I rented for nearly a decade then I bought. You can't have zero private rentals unless you think it possible for students to buy age 18 and unless you think it possible for migrants (both internal and foreign) to buy as soon as they arrive in a given area

simply put the UK housing market is a good efficient market. We do not have an excessive private rental market. we need a minimum of 15% private rental properties and we are at 20% currently.

The people who think otherwise are primarily just bitter that they didn't buy 5-10 years ago at lower prices.

I did buy 5 - 10 years ago at lower prices.

You are crazy if you think there is enough housing.

westernpromise

Koldweather1 wrote: »

Because if IR rates shoot up, they aren't going to be able to service their levels of debt and thus will have almost a forced sale. It won't be through choice. Given the recent changes in S24 etc, I'd suspect alot of landlords are probably not making huge yields, and if IR shoots up to say 7-9% like the HPC people want, then the landlord is going to be shafted and any profit will be long gone.

Thus, they will have to sell to make their money back, or at least as much as they can before HPC erodes away the paper profit.

The logic of HPC is any collapse in the prices will be down to a high shift upwards in Interest rates beyond say 7-8%. In the 2008-2010 the interest rates plummeted so no wonder landlords brought more, especially at lower prices. In the HPC forum scenario, the landlords are probably the ones who suffer the most due to their large levels of mortgaged debts (either IO or Repayment) and thus put into a position where they would have to at the very least sell some of their property to just be able to pay the bills as the rent won't be able to shoot up fast enough to cover the deficit.

We've been over this many times before. In the last two house price crashes, rents have historically held steady while interest rates fell (2007-2009) or gone up while rates went up @(1989 - 1991). The BoE publishes data on renter and owner economic distress in paying for housing over time and the two lines are basically identical during crashes. In neither case do landlords have any incentive to sell up. If anything they have an incentive to buy more.

The reasons are not hard to work out. In a 1989-1991 type of crash, interest rates double. House prices fall at a rate of about 15% a year. Take a £100k property that costs £5k a year to buy on a mortgage and rents for £6k. Someone who owns that property in a crash will lose £15k a year simply from owning it, plus whatever the mortgage now costs - say £10k a year. These hits can be avoided if he rents instead. So that's what he chooses to do. That's what everybody else also chooses to do. So the £6k rent is clearly too low in most people's eyes. It's worth at least £25k a year to rent that house rather than own. So the rent starts to move towards that level as bids come in from people who need a roof but won't or can't buy.

Once the rent gets past £10k a year, the landlord can relax. The rent pays his mortgage once more and he doesn't have to care about non-cash matters such as value.

A further driver of rental demand is that in a falling market lenders want bigger deposits. They're not going to lend 90% of the price when in six months the property could be worth 10% less. That would mean they had a 100% LTV mortgage on their books in a falling market. No thanks! So the deposit now need to be 30 to 35% and the maximum salary multiple drops from 5x to 3x, because at the new higher rates you can't service a mortgage of 5x your salary.

The usual objection to this reminder is "but rents are already maxed out". No they're not. If you're paying £1000 a month for a 2-bedroom what happens is that the landlord is bid £1500 for it by someone exiting a 3-bed because someone from a 4-bed is bidding £2000 for that. So you exit your 2-bed and you go to a 1-bed. For the same money.

Eventually interest rates fall but rents stay high. Because it takes a long time for people to notice house prices are now going up or to believe it when they do notice (Crashy still doesn't believe it after 20 years). The buy to let mortgage gets invented and then risk-takers buy houses and let them out immediately for more rent than the mortgage they're paying.

andrewf75

GreatApe wrote: »

Wages in the UK are high

Only 1/5th rent privately in the UK 4/5th don't.
Of the 1/5th who do rent privately migrants are overrepresented

Of the 1/5rh who do rent, the vast majority will be in the private rental sector temporarily.
I rented for nearly a decade then I bought. You can't have zero private rentals unless you think it possible for students to buy age 18 and unless you think it possible for migrants (both internal and foreign) to buy as soon as they arrive in a given area

simply put the UK housing market is a good efficient market. We do not have an excessive private rental market. we need a minimum of 15% private rental properties and we are at 20% currently.

The people who think otherwise are primarily just bitter that they didn't buy 5-10 years ago at lower prices.

Wages in the UK are not high. Certainly not in relation to housing costs.
Nothing wrong with 20% in private rental at all. The problem is that these people are being screwed paying often higher rents than they would on a mortgage. And have no long term security. Compare to other countries where people often choose to rent and have long term security as well as low cost.
The UK market is a good efficient one for those doing well out of it. So to answer the question yes its advantageous for the individuals doing well out of it, but a massive con for the health of the country.
(and I'm doing OK myself before anyone says I'm jealous or something!)

chucknorris

andrewf75 wrote: »

Wages in the UK are not high. Certainly not in relation to housing costs.
Nothing wrong with 20% in private rental at all. The problem is that these people are being screwed paying often higher rents than they would on a mortgage. And have no long term security. Compare to other countries where people often choose to rent and have long term security as well as low cost.
The UK market is a good efficient one for those doing well out of it.
(and I'm doing OK myself before anyone says I'm jealous or something!)

Your just jealous or something.

westernpromise

Cornucopia wrote: »

The mechanics of HP crashes are more complex than that, and in some cases the BTL and Homeowner responses may have been similar and in others, different.

There are external factors in play such as the availability of financing and the overall state of the economy. Decrease in the number of properties being offered for sale is often a feature of crashes or of the recovery period following them.

However, surely the logic that FTBs would buy in the event of a crash and LLs would buy more in the event of a crash are using the same slightly flawed logic.

FTBs would be less able to buy in a crash. If this were not so it would be called a boom, not a crash.

First, nobody knows till later when a crash is over. So lenders require bigger deposits. If you're on £30k a year you can buy a £120k property today with £12k down and a mortgage of 3.6x salary. Post a 30% crash, you'd need probably £15k down on your now £84k property in case it becomes a £70k property. And you can probably borrow 2x rather than 3.6x salary meaning you're £10k light.

Second, the owners of such properties can't sell because they owe £108k on a place worth £84k. So they don't. Transaction volumes plummet in crashes. Someone who bought it 10 years ago for £50k who owes £30k on it can afford to sell. Only those people do, though.

The result is that if you want to know who'll own houses after a crash, look at who owned them before.

economic

andrewf75 wrote: »

Wages in the UK are not high. Certainly not in relation to housing costs.
Nothing wrong with 20% in private rental at all. The problem is that these people are being screwed paying often higher rents than they would on a mortgage. And have no long term security. Compare to other countries where people often choose to rent and have long term security as well as low cost.
The UK market is a good efficient one for those doing well out of it. So to answer the question yes its advantageous for the individuals doing well out of it, but a massive con for the health of the country.
(and I'm doing OK myself before anyone says I'm jealous or something!)

are housing costs really that high? i dont think they are. even in london.

westernpromise

GreatApe wrote: »

I've said this before, someone needs to invent house price crash insurance.

Charge 1% pa of the value of the house. If house prices are down more than 15% at year 5 the insurance will pay the difference if you sell. Would be like taking candy from a baby and it might save a few thousands crash cheerleaders from themselves

Didn't someone say that it already has been invented and is called "rent"?

westernpromise

worried_jim wrote: »

It's going good for me. I'm on track to slow down at 55 and will sell up in Brighton and move back to Leicester. I'll sell my two bed flat and buy a three bed detached house and somewhere in the Sun.

Why in Leicester?

I used to live in Stafford and quite fancy buying a huge, cheap house there. Then I remember why they're cheap. Stafford is perfectly pleasant, but if you want coast, mountains, shopping, the arts or indeed anything, you can't walk to any of these things from Stafford.

Leicester must be the same surely?