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Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.It's a bubble silly!
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baby_boomer wrote: »A female aged 60 can get an RPI annuity paying a miserly 3.29% if she shops around hard enough.
No wonder buy-to-let is seen as the new pension. You get the same or more income AND get to keep your capital or grow it in the long term.
It may take a real crash, rather than a slowdown, to put a lid on the buy-to-letters who are likely to step in when prices fall by a substantial margin.
Where else can our career girls look to grow their retirement income?
The stock market is now yielding less than 3%
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Sure property has made some investors £££'s over the last 10 years, all on the back of leverage.
- Those that bought in upto about 2000 are sitting pretty.
- Those that bought in uptp about 2003/04 should survive.
- Those jonny-come-latelys who are looking to fund their retirement through BTL may be bitterly disappointed.
I believe that in 5 years time "property" will be an investment swear word to match the likes of "dot-com", "timeshare", "endowment policy" etc
Leverage works two ways, many may find themselves losing their shirts over this.0 -
My post was about FUTURE yields rather than past capital gains.btloptingout wrote: »Sure property has made some investors £££'s over the last 10 years, all on the back of leverage.
I appreciate the arguments about leverage.
But my career girl who is 40 can take a 25% hit on property value and the YIELD is still worth it for retirement investment.0 -
baby_boomer wrote: »My post was about FUTURE yields rather than past capital gains.
I appreciate the arguments about leverage.
But my career girl who is 40 can take a 25% hit on property value and the YIELD is still worth it for retirement investment.
I don't know about other parts of the world but in London you struggle to get a 5% gross yield. If you're a retired 'career girl' looking for an income you won't want to be leveraged so you'll be paying tax on most of that.
Take off your voids and depreciation and the yield on property is a long way below the yield on index linked bonds and a lot more risky : government bonds don't do a moonlight flit owing you thousands in unpaid rent. Gilts don't have the boiler break down at an inconvenient time or need painting or a new roof or have a bypass built at the bottom of it's garden or a nightclub start up next door. It all seems like a lot of hassle for the 80 year old former career girl. You're not comparing like-with-like - an annuity or a UK Gilt is a very low risk investment, a BTL flat is a pretty high risk investment.
My point though is that we are in the mother of all bubbles at the moment. Every risky asset class I can think of (except perhaps German and Japanese property) seems to be appreciating fast and paying lower-and-lower yields.0 -
Great thread.
I'm very interested in the acturial type calculations the lenders must do. Whether the tail wags the dog or vice versa is an interesting question. Do rising house prices require them to increase multiples or do prices rise because of increased multiples? Either way, there will come a day when they decide that the risk profile is too high. At the moment they are fighting for market share by lending ever more money.
I can see a situation whereby naive BTL's find out that the income isn't as good as they expected and along with rising rates decide to bail out. If this picks up momentum and starts a panic of selling then that could conceivable take the market with it.Happy chappy0 -
I thought the 2055 batch yielded a paltry 1.25% or thereabouts.Generali wrote:the yield on property is a long way below the yield on index linked bonds0 -
tomstickland wrote: »Great thread.
I'm very interested in the acturial type calculations the lenders must do. Whether the tail wags the dog or vice versa is an interesting question. Do rising house prices require them to increase multiples or do prices rise because of increased multiples? Either way, there will come a day when they decide that the risk profile is too high. At the moment they are fighting for market share by lending ever more money.
In theory, banks look at Risk Adjusted Returns On Capital rather than absolute returns - that is they direct their capital to those areas that give the maximum return once you take into account volitility.
Lending 85% of the value of an asset that is rising in value is pretty low risk from the lenders' point of view. If it all goes wrong then they should get all their money back by reposessing. Even then, a lot of lenders are offloading default risk onto others (hedge funds etc.).
A problem is that BTL has never been tested by a falling market so RAROC has never been tested properly for this area of lending - nobody knows what the volitility could be in a falling market so you can only test for it by guessing at figures!
My feeling is that an OO will fight tooth and nail to keep his home - he'll take a second job, live off beans on toast, wear 3 jumpers and live in the dark if needs be. I find it very unlikely that any BTLer would suffer such privations to keep an investment, even if they're 'in it for the long haul'. I wouldn't!
A falling market coupled with rising interest rates could prove to be very interesting. That is interesting as in the economy of the 1930s.0 -
baby_boomer wrote: »I thought the 2055 batch yielded a paltry 1.25% or thereabouts.
RPI + 1.25% 2055 were going for 110 at the close on Friday meaning a real return of about 1%. That's RPI+1% (5.8%) 'risk free'.
I believe that NS&I pay slightly better.0 -
In fact, up to four people could buy a place and benefit from MIRAS (mortgage Interest Relief At Source) of 120K jointly. Quite a few of my student friends did this (I mean, can you beleive it? This of course was the days of no uni fees and full grants)... shortly before their property fell into negative equity.... Remembering that has suddenly made me feel really old.....:oYou used to be able to claim tax relief on the interest portion of your residential mortgage. I think it was upto 30k per year per person/married couple. An unmarried couple could claim the tax back on £60k of interest per year!!! Considering a large proportion of a mortgage is interest, this was a super incentive to BUY a house. It was taken away and suddenly people had to pay 20% more of their mortgage payment I guess.....0 -
Melissa177 wrote: »Incidentally, if you think house prices are high here, I've just been looking at flats in Geneva (company relocation looks likely). The prices are even worse! :eek:
I work for a company in Geneva too - I'm going tomorrow funnily enough.
Most of my colleagues live over the border in France & commute in every day for precisely that reason. There are some lovely French villages/towns only about a 15 minute drive & they're far better priced.0
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