House price fall "accelerating"

carolt

DreamBreaker, if I understand you correctly, you have not been paying off any of the capital owed on your buy-to-let mortgages, but instead have been putting any money made from rents once mortgage interest has been paid, towards buying more properties?

Have you actually sold any of your properties?

If not, on what basis have you actually 'made' any money at all?

Your gains are only paper gains until your properties are sold at a profit.

No wonder you're posting on here - the recent headlines must have really made you panic about your 'investment' strategy.

You don't appear to have any fallback position other than losing the equity you originally invested as deposits. And then what? Losing your own home?

Renters stand to lose nothing more than a month or two in rent at most, whatever happens to house prices. That is the limit of their liability. It does not appear to have occured to you that by continually increasing your leveraging, you are not just increasing your opportunity to make vast sums of money but also to lose vast sums of money.

Still, it's your look-out.

Glad I'm not in your shoes...

Nenen

DreamBreaker wrote: »

I
Unfortunately DaveyDave your figures do not add up. No "sensible" landlord would be paying £1300 on the property you state, in fact at current rates, I cannot get to that figure even when paying capital on a mortgage, which no landlord would be doing? Landlords make their money from the appreciation of the property and not from capital repayments, this has been the case since people ever began to rent out any property, land, offices, cars, etc, etc. It's common business sence and those on the worlds top rich list would agree! Borrow money to make money!

Here is why I can't get your figure to add up:

£200K property (Using the current interest rate of 5.5%)

Neccesary deposit (at minimum) 15% = £30,000 deposit
Mortgaged amount = £200k - £30K = 170k to be mortgaged
Interest only at 5.5%= £779.16
Even if a landlord payed off the capital on that property there is no way they would be paying £1300. The repayment is £1056.11.

Therefore it all depends on what rent they can actually achieve on this property and what happens to interest rates. I would say if property prices are £22k for a 2 bed house you are being slighly negative about the rental potential of that property and I have no doubt it is likely to achive £800 a month plus, and not £700.

Feel free to argue against, but please do your sums first and don't quote "lets do some maths" before you have done your own :P

Surely, even if you achieved your optimistic £800 rent per month, if you were paying £779.16 in mortgage payments per month, by the time you paid out expenses, (buildings insurance, household repairs and redecorating between tenants) plus the odd void periods, you would be losing money wouldn't you? You'd also have all the hassle of being a LL... I've read loads of sob stories from LLs about tenants who've driven them mad!

I'm not an expert and you will probably argue that you can get a better deal, but, out of interest, I've just been on the Chelt&Glos website for a quote on the figures you suggest, i.e. £185,000 interest only BTL mortgage (over 25 years) and get the following:

Which type of mortgage would you like? Interest Only Repayment BTL Standard Variable Mortgage Rate 7.50%, £50K up to £1M, to 85% LTV Monthly mortgage payment £1,156.25


This is a LOT more than the £779.16 figure you've quoted. I realise your quote is at 5.5% interest but is that actually realistic for a BTL mortgage today? BTW that is not irony, I'm genuinely interested to know the figures.

DaveyDave_3

DreamBreaker wrote: »

Landlords since day dot have never paid off more than the interest on the mortgage of a property. It makes no sense to pay off capital on a rental property when that money could be put towards another rental property. Thus borrowing someone elses money (i.e. the banks) to make a nice profit in a rising market.

Landlords make their money from the appreciation of the property and not from capital repayments, this has been the case since people ever began to rent out any property, land, offices, cars, etc, etc. It's common business sence and those on the worlds top rich list would agree! Borrow money to make money!

Thanks DreamBreaker. There are some interesting points I hadn't realised. From your comments, it seems to me that most landlords are therefore relying on considerable positive HPI to make the business practicable. I am relatively conservative in nature and therefore I would consider that business model to be somewhat risky under any conditions, let alone the current (and likely future) circumstances that could possibly include falling house prices. IO mortgages would presumably leave landlords with considerable negative equity with any significant negative HPI.

Even with your figures, it looks marginal without +ve HPI:

Interest only at 5.5%= £779.16
Your 30k deposit could raise £120 per month if invested. Therefore your real cost would be £779.16+£120 = about £900. And there's no way that such a property would raise that in rent IMO.

And then there's maintenance costs and agent's fees.





Dave

tomstickland

Try your sums again. You are making too many assumptions. Maths is not about assumptions it's about accuracy. Your not accurate unfortunately.

What an odd statement. Any modelling of a situation from a mathemetical point of view will assume that the maths itself is inheritantly accurate (otherwise we'd have to have Excel calibrated), but the process of modelling can introduce as many assumptions as required, as long as they are understood to be assumptions.

neverdespairgirl

Badger_Lady wrote: »

In my opinion, only a simpleton would knowingly give their money to a landlord, never to be seen again.



Loads of people do, though .

I don't see myself as a fool. We rent (couple plus young son) and the rent is LESS than we would pay in the interest-only part of the mortgage where we live - we would pay more on the interest part of a mortgage, and then there's the capital element of the mortgage on top.

So renting is an entirely wise financial decision for us, we're saving a lot doing it.

DreamBreaker

carolt wrote: »

DreamBreaker, if I understand you correctly, you have not been paying off any of the capital owed on your buy-to-let mortgages, but instead have been putting any money made from rents once mortgage interest has been paid, towards buying more properties?
...

Assumption Number 1. Not the case. Try again.

carolt wrote: »

Have you actually sold any of your properties?
...

Assumption Number 2. Not the case. Seems you will assume anything in the hope of seeing someone who invests in properties "fail".

carolt wrote: »

If not, on what basis have you actually 'made' any money at all?
...

This is quite simply non of your business. I have not come on this forum to discuss my finances. I have come on here to talk about a possible property market crash. How I make my money has nothing to do with you. You already have it in the dream in your head that I have not made any money from my investments. Sorry to say but that really is not true. Assumption number 3....Try again!

carolt wrote: »

Your gains are only paper gains until your properties are sold at a profit.
...

True, but what if I am compfortable with not selling any of my property portfolio for 20-30 years? What if I have already held the majority of it for over 10 years. What if it was a portfolio handed down to me and has been going for years, therefore profit was made a long time ago. Again, your assumption number 4 wrong! You assume all my investments are relativley new and that all my investments are in BTL? Try again!

carolt wrote: »

No wonder you're posting on here - the recent headlines must have really made you panic about your 'investment' strategy.
...

Assumption number 5. I am only able to laugh at that one. I think that is your hope of seeing someone else fail that drives that one. I am posting on here as I hoped for a friendly debate and I am interested in all things financial. I saw this forum started observing some of the behaviour and bullying and aggressive nature of some posters and then decided to post to try and make it more objective. However, It appears I and a few others are not liked because we happen to pull that comfort blanket away from some of you. This forum is not the driver of the UK ecconomy and just because some members (amature financial analyst's i might add) on this forum have promoted themselves to GOD status does not mean they are always correct!

carolt wrote: »

You don't appear to have any fallback position other than losing the equity you originally invested as deposits. And then what? Losing your own home?
...

Wow, assumption number 6. How on earth did you read that? From just one small post you determined my whole financial position. How do you know don't already own my own home outright for starters? Crickey please put the crystal ball away, it's obviously very faulty! Try again!

carolt wrote: »

Glad I'm not in your shoes...

Your summing up failed about 6 assumptions back. Try again and sorry to say you may wish you were in my shoes.

:beer:

DreamBreaker

Nenen wrote: »

Surely, even if you achieved your optimistic £800 rent per month, if you were paying £779.16 in mortgage payments per month, by the time you paid out expenses, (buildings insurance, household repairs and redecorating between tenants) plus the odd void periods, you would be losing money wouldn't you? You'd also have all the hassle of being a LL... I've read loads of sob stories from LLs about tenants who've driven them mad!

I'm not an expert and you will probably argue that you can get a better deal, but, out of interest, I've just been on the Chelt&Glos website for a quote on the figures you suggest, i.e. £185,000 interest only BTL mortgage (over 25 years) and get the following:

Which type of mortgage would you like? Interest Only Repayment BTL Standard Variable Mortgage Rate 7.50%, £50K up to £1M, to 85% LTV Monthly mortgage payment £1,156.25


This is a LOT more than the £779.16 figure you've quoted. I realise your quote is at 5.5% interest but is that actually realistic for a BTL mortgage today? BTW that is not irony, I'm genuinely interested to know the figures.

To be honest I am not really that bothered about arguing the in's and out's as it was someone elses post I was just arguing his figures were wrong. If mine are wrong then that makes 2 of us. Yes, perhaps 5.5% isn't realistic, however, I dont see many points in his argument as realistic either. I believe he is playing down possible rental potential too or has chosen a property that has very poor rental potential to simply prove his point. NOT all landlords choose wisely I agree.

The thing is if all these people cannot afford a home, or are not buying by choice, where are they living? And does this not drive up rent. I know that rent has risen for the first time in years. I have been able to easily raise the rents on my properties without frightenng people off for the first time in a long time. This is likely to be the driving factor.

I agree its not a great time to be getting into BTL for the first time and it all depends on your whole investment portfolio as to whether the diversification into property is justified.

DreamBreaker

DaveyDave wrote: »

Thanks DreamBreaker. There are some interesting points I hadn't realised. From your comments, it seems to me that most landlords are therefore relying on considerable positive HPI to make the business practicable. I am relatively conservative in nature and therefore I would consider that business model to be somewhat risky under any conditions, let alone the current (and likely future) circumstances that could possibly include falling house prices. IO mortgages would presumably leave landlords with considerable negative equity with any significant negative HPI.

Even with your figures, it looks marginal without +ve HPI:

Interest only at 5.5%= £779.16
Your 30k deposit could raise £120 per month if invested. Therefore your real cost would be £779.16+£120 = about £900. And there's no way that such a property would raise that in rent IMO.

And then there's maintenance costs and agent's fees.





Dave

One thing. My manitenance costs have been £30 in 1 and a half years on this property. Some would say I have been lucky. Others would say I chose wisely!

Ok I conceed that I was a little optimistic on the interest rate, but please conceed that your estimated rental potential of that property was a little on the cautious side, or that you chose a property that is simply not suitable for renting and only a dumb landlord would have purchased in the first place? Not all properties are suitable to let out as we know!

Anyway lets get back to the point of this forum as I think we are digressing too much from its main focus! :beer:

DreamBreaker

tomstickland wrote: »

What an odd statement. Any modelling of a situation from a mathemetical point of view will assume that the maths itself is inheritantly accurate (otherwise we'd have to have Excel calibrated), but the process of modelling can introduce as many assumptions as required, as long as they are understood to be assumptions.

And the assumptions are "sensible" assumptions and not "clutching at straws" otherwise its a waste of time and the calculations will be utterly wrong!

neverdespairgirl

DreamBreaker wrote: »

Off the top of my head my interest rate is something like 5% on that property. On 100,000k mortgage. Again, without checking, I know on that particular property I have easily been making £100 quid a month as the rent I charge is approx £505 a month.

I think your maths is a bit dodgy there! £505 per month rent is a yearly totaly of £6,060. If you are paying £5,000 a year interest (5% on your £100k) that means your rent is £1,060 a year over the mortgage, or c. £88. But the mortgage isn't your only cost, I presume, there is also maintaining the place, fees for getting tenants, wear and tear, your time etc to factor in.