Buy-to-Let Mortgage

theGrinch

relatively unaffordable house prices is in large part due to a lack of supply and that blame lies squarely at the door of house builders and successive govts. we are not building 300,000 houses each year just to satisfy demand. (barker report)

the housing supply is fix in the momentary and short term due to the drawn out planning process and high land prices. good quality solid housing will always be in demand as you just cant rush it out. all you can rush out is low cost housing with a short life. therefore for as long as you rent comfortably covers your interest payments and you are investing for 20 to 30 years then I can not see a better investment.

meanmachine_2

GreenB wrote:

I think the yield part is irrelivent - thats just my view

If you are getting in more than you are spending you are making a profit. Ok if its your £120k or whatever it may be better to invest it at 5% - but if its the banks money (mortgage).......

A house bought now WILL be worth probably 3 times as much in 25 years time when you retire and use it as a pension!

Sorry but that is TERRIBLE financial advice.

If your rental yield is low there is a very good chance that you will be losing money year on year. Property is also very illiquid. It's not designed to be an investment tool. A property can't generate income unlike a business. Therefore you are entirely at the mercy of the wider market. If the market crashes, you're stuck. If you get a profit warning on a company, you can take action immediately.

And if you're prepared to sink a large stash of cash into a 25 year investment, then you're much better off with the stock market, which has been giving investors a return far above property.

EDIT: Oh, and gambling with the bank's money seems sweet in a rising market, but in a falling market *shudder* doesn't bear thinking about.

meanmachine_2

theGrinch wrote:

therefore for as long as you rent comfortably covers your interest payments and you are investing for 20 to 30 years then I can not see a better investment.

I can. It's called the stock market.

I'm gob smacked by some of the opinions on this site.

Yes, I agree that, had you bought before 2000, then you made the right choice. But don't get blinded by a very short term and unrepeatable boom of the last 5 years.

Property is tethered to the ground, due to earnings. Earnings go up and they go down (in a recession). They act like a weight around the market's neck.

The stock market has no such anchor - that's why the returns it offers will always be much higher than property.

GreenB_2

The stock market is not a safe place to invest.. in fact its worse than housing - at least house prices if they drop WILL rise again. Comapnies frequently go bust and shares can drop like a brick if something happens in that sector.

I see house prices not dropping and I WILL GUARANTEE that in 10 years time they will be higher than they are now.

meanmachine_2

GreenB wrote:

The stock market is not a safe place to invest.. in fact its worse than housing - at least house prices if they drop WILL rise again. Comapnies frequently go bust and shares can drop like a brick if something happens in that sector.

I see house prices not dropping and I WILL GUARANTEE that in 10 years time they will be higher than they are now.

You cannot guarantee that. Sorry.

For you to make that guarantee you also have to guarantee that there will be no recession.

If you can make that guarantee you must be some kind of God.

Oh, and if you suddenyl don't care about rental yield, then for pete's sake, you might as well just put the money in a bank!!! 5% guaranteed. No worries. No tenants. No maintenance.

meanmachine_2

GreenB wrote:

The stock market is not a safe place to invest.. in fact its worse than housing - at least house prices if they drop WILL rise again.

You've clearly never been to Japan then.

Prices have been falling there for more than a decade.

theGrinch

meanmachine wrote:

I can. It's called the stock market.

I'm gob smacked by some of the opinions on this site.

Yes, I agree that, had you bought before 2000, then you made the right choice. But don't get blinded by a very short term and unrepeatable boom of the last 5 years.

Property is tethered to the ground, due to earnings. Earnings go up and they go down (in a recession). They act like a weight around the market's neck.

The stock market has no such anchor - that's why the returns it offers will always be much higher than property.

WRONG

The stock market has not outperformed house prices since 1973, 1945 or 1987 (Barker report). Fine art and wine is the best performing asset but also one of the riskest.

Also you need to remember that when you purchase shares you need 100% of the money to do so (unless you work on future contracts). with property is geared like no other asset, so returns on cash invested is even higher.

earnings is one factor. affordability, interest rates, employment, supply of housing, cultural changes, industry changes, changes in local demand etc etc

I cant believe the simplicity of what I read sometime.

average house prices have rise by 2.5% in real terms since 1973 (higher than earnings, stock market etc). and of course average house prices are many times higher than average earnings so any rise is magnified i.e. gap widening.

Is this good? No

solution? increase housing supply over next 25 years.

MM can you suopport what you mean by the stock market has no such anchor? what determines the price of a share?

Pheno

GreenB wrote:

The stock market is not a safe place to invest.. in fact its worse than housing - at least house prices if they drop WILL rise again. Comapnies frequently go bust and shares can drop like a brick if something happens in that sector.

I see house prices not dropping and I WILL GUARANTEE that in 10 years time they will be higher than they are now.

Do some research and compare the all share index against house price growth over the course of the 20th century. You could be suprised :rolleyes:

Pal

While I think that Meanmachines view of the stock market is somewhat strange, there is no denying that it has outperformed the housing market over just about any long term measure when you take into account rental yields compared to dividend income. This is to be expected, the stock market is a higher risk place to invest and so the rewards of doing so are higher. However the past is no guide to the future!

Grinch's figure of house prices growing 2.5% p.a. in real terms is compared to inflation only, not earnings or the stock market as he suggests.

This is, of course, entirely irrelevant. Stock market indicies do not take account of dividend payments, while house market indicies do not take account of annual BTL rental profits or losses. The two indicies are largely incomparable.

The real issue for the OP is whether he should buy now or later. I suggest that he looks very carefully at his proposed purchase and works out the worst case scenarios. If it looks bad, then wait a couple of years. House prices are very likely to fall nationwide over the next few years or so by at least a small amount, in which case you can buy back in at a later time and make even more money in the long run if, as the grinch says, house prices continue to climb long term.

Kenny4315

It's all about when you compare statistics. Investing is about getting in an out at the right time, whether it is house or stocks. My return in 2 years on a simple FTSE 100 tracker has been nearly 50%, with a lowly 1% fee, also some of the investment has been shielded in an tax free ISA aswell. The advantage of such a fund is I can be out tommorrow if I see an impending crash, and in the following week if I don't. Houses are long term investments with high entry and exits costs, and often take time to buy and sell. Following the early 90's crash it took ages for it the recover back to the pre-crash levels. I could see prices where we are today in ten years time they are so overpriced at this point, in real terms that's a loss.

On the subject of pensions, what about the tax relief ??? I was getting 40% relief when paying into my pension, that's one big saving and the fund was still worth more than I had put in personally even when the market was at its lowest point, 2 years ago.

Shares are not particularly risky if you spread you investment, in something like a FTSE tracker, due to the elimination of risk by spreading the portfolio. Sure single company shares are high risk but only a fool would put all his eggs in one basket.

On the subject of supply, there are more houses where I live at present than there were 5 years ago when the prices were less than half by some considerable amount, I am talking about very large estates, large appartments complexes, etc that have just been continually being built over the past few years. Was there such a massive population shift between 2000 and now ??? to create the boom from a totally stagnant market between around 1994 and 2000, following on from the house price crash. I very much doubt it.