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Source: (consider it) Thread: Two speeches
chris stiles
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quote:
Originally posted by Ricardus:
Surely the reason why btl mortgages drive up prices is because they increase demand but not supply.

Yeah precisely.
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betjemaniac
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quote:
Originally posted by Ricardus:
Surely the reason why btl mortgages drive up prices is because they increase demand but not supply.

Without the option of a btl mortgage, demand is limited to people who want a home to live in, and people with enough capital to buy a house for rent outright.

True, but that doesn't deal with what (judging by my friends who, like me, are in their mid 30s) is a growing category - multiple property ownership that isn't buy-to-let. People are living longer, marrying later, and living alone for longer.

Not that any of them set out to be landlords, but if you get to your thirties single and don't live in London then you might have bought a house. Then when you do settle down with someone and they've got a house too, the pressure to keep both as investment/insurance against the relationship breaking down is immense - not least because it has often been a matter of struggle and pride to buy it solo in the first place.

Perfectly possible for an couple to end up with 2-3 mortgages (1 joint and 2 solo) in that scenario without any mortgage being BTL.

--------------------
And is it true? For if it is....

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Doc Tor
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quote:
Originally posted by betjemaniac:
Perfectly possible for an couple to end up with 2-3 mortgages (1 joint and 2 solo) in that scenario without any mortgage being BTL.

It is perfectly possible. But the couple will, if they're being honest, then have to tell their mortgage providers that they aren't resident at their previous property. At that moment, the options are (a) the property remains unoccupied or (b) the property is rented out. AFAIK, at that point, the mortgage will be ported into a btl product, and they become btl landlords, by accident or otherwise.

--------------------
Forward the New Republic

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Baptist Trainfan
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Surely, too, low interest rates on mortgages drive up prices as people feel they are able to borrow more. The problem comes (as has been pointed up) when the rates subsequently rise.
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Leorning Cniht
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quote:
Originally posted by Arethosemyfeet:
The difference is that it's non-productive rent seeking rather than a productive business. It's solely a way for money to make money.

So are car rental companies, construction equipment rental companies, and so on. That doesn't make them parasites.

There are basically two reasons why people rent things. The first is that they have a short-term need for it - that's basically all car rentals, tool rentals from local hardware store, but also some home rentals: if you need temporary housing for a year or two (temp job posting, study, whatever) or you're not sure whether you want to live in a particular area long-term, then you don't want the risks and frictional costs of home ownership, so you rent.

The second is that you can't afford the purchase. That'll be the companies that hire out TVs and other consumer goods, long-term tenancies, social housing etc.

And perhaps a variant of this is that you could afford to buy, but don't want to take on the risks and obligations. Maybe this is really the first point - you want the freedom to be able to walk away at any point.

Landlords provide a useful function in all these cases, and that useful function has a value.

Certainly the buy-to-let phenomenon has pushed up house prices a bit, but it is by no means the main house price driver.

And let me be very clear - house price inflation is a bad thing. It's not the income from renting a home that's the problem, it's the ridiculous capital gain from owning a plot of land.

A Land Value Tax should fix most of that.

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Arethosemyfeet
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The difference is that houses last more or less indefinitely, while the other forms of rental business require regular purchases, cleaning and maintenance. Renting a property requires little effort, little time and little risk. Houses don't really depreciate. Houses are also a necessity all the time, and the rent seeking directly affects the ability to make a purchase, whereas car rentals can even make purchasing cheaper once they hit the 2nd hand market.
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Leorning Cniht
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quote:
Originally posted by Doc Tor:
But the couple will, if they're being honest, then have to tell their mortgage providers that they aren't resident at their previous property. At that moment, the options are (a) the property remains unoccupied or (b) the property is rented out. AFAIK, at that point, the mortgage will be ported into a btl product, and they become btl landlords, by accident or otherwise.

That's not my experience. We rented out our flat for a couple of years while we were temporarily abroad. We duly notified our lender, who I think wanted to verify that we held suitable insurance, but the terms of the mortgage did not change.

Perhaps the fact that house price appreciation meant that it was no longer a 95% LTV mortgage at that point was important - I can't remember.

(Then our temporary stint abroad became longer-term, and we sold the flat.)

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mr cheesy
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quote:
Originally posted by Leorning Cniht:

Landlords provide a useful function in all these cases, and that useful function has a value.

They do - I suppose the problem is not when people get a decent deal but when prices are jacked up by private landlords.

quote:
Certainly the buy-to-let phenomenon has pushed up house prices a bit, but it is by no means the main house price driver.
Dunno, how can you assess that? High demand for housing caused by people wanting to buy into the market because of the perceived returns seems to me like a good candidate for the property price bubble.

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arse

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Doc Tor
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quote:
Originally posted by Leorning Cniht:
Certainly the buy-to-let phenomenon has pushed up house prices a bit, but it is by no means the main house price driver.

That, however, is not my main argument, which is that it pushes rents up as btl borrowers attempt to service their debts.

So I withdraw the word 'main'. It is a driver, certainly, but one factor amongst many.

--------------------
Forward the New Republic

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mr cheesy
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quote:
Originally posted by Arethosemyfeet:
The difference is that houses last more or less indefinitely, while the other forms of rental business require regular purchases, cleaning and maintenance. Renting a property requires little effort, little time and little risk.

Um, I don't think this is really true. Whilst some landlords clearly want to spend as little time and effort as possible on their investment, it is hard to say that in general it requires little effort, time or risk. The latter point seems to me to be particularly unsafe - a tenant who refuses to pay, causes damage and refuses to leave can easily wipe out any monies taken in any given year.

quote:
Houses don't really depreciate.
Actually they do. We owned a house and sold it after 4 or 5 years for 20% less than we paid for it.

Generally speaking houses increase in value, but that's not an absolute unshakable law.

In fact, I suspect that houses will start falling quite quickly in value in some parts of the country.

quote:
Houses are also a necessity all the time, and the rent seeking directly affects the ability to make a purchase, whereas car rentals can even make purchasing cheaper once they hit the 2nd hand market.
Not sure what point you are making here.

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arse

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betjemaniac
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quote:
Originally posted by Doc Tor:
quote:
Originally posted by betjemaniac:
Perfectly possible for an couple to end up with 2-3 mortgages (1 joint and 2 solo) in that scenario without any mortgage being BTL.

It is perfectly possible. But the couple will, if they're being honest, then have to tell their mortgage providers that they aren't resident at their previous property. At that moment, the options are (a) the property remains unoccupied or (b) the property is rented out. AFAIK, at that point, the mortgage will be ported into a btl product, and they become btl landlords, by accident or otherwise.
No, there's apparently c)

you get a Permission to Let from your lender and carry on as before - varies from bank to bank but if you've lived at the address 2-3 years then it doesn't count as BTL because in the banks' view you didn't buy with the intention of letting, so much as are now letting a house that you bought to live in. There does actually appear to be an Accidental Landlord category.

--------------------
And is it true? For if it is....

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Doc Tor
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quote:
Originally posted by Leorning Cniht:
quote:
Originally posted by Doc Tor:
But the couple will, if they're being honest, then have to tell their mortgage providers that they aren't resident at their previous property. At that moment, the options are (a) the property remains unoccupied or (b) the property is rented out. AFAIK, at that point, the mortgage will be ported into a btl product, and they become btl landlords, by accident or otherwise.

That's not my experience. We rented out our flat for a couple of years while we were temporarily abroad. We duly notified our lender, who I think wanted to verify that we held suitable insurance, but the terms of the mortgage did not change.

Perhaps the fact that house price appreciation meant that it was no longer a 95% LTV mortgage at that point was important - I can't remember.

(Then our temporary stint abroad became longer-term, and we sold the flat.)

It was your sole property. That you were renting it out while you were abroad was fine.

Your experience would have been significantly different had you tried to buy another property while owning that one.

--------------------
Forward the New Republic

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mr cheesy
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I generally (and genuinely) feel sorry for people who have invested in property for the long-term returns. I suspect many have been sold a pup which is going to come back and haunt in older age.

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arse

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Leorning Cniht
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quote:
Originally posted by Arethosemyfeet:
Houses don't really depreciate.

Yes, they really do.

Houses last quite a lot longer than cars - partly because they are sturdier structures, and partly because there isn't rapid technological advance in home construction, but the value of the building certainly depreciates, albeit much slower than most other things (unless you own something with rarity value).

The thing that doesn't depreciate is the land that your house sits on. That's the thing that has all the unusual economics attached to it, and that's the thing that should be taxed accordingly.

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chris stiles
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quote:
Originally posted by Leorning Cniht:
That's not my experience. We rented out our flat for a couple of years while we were temporarily abroad. We duly notified our lender, who I think wanted to verify that we held suitable insurance, but the terms of the mortgage did not change.

Yeah, but in this case the original situation was temporary, and you weren't - I presume - simultaneously trying to buy another property.
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Doc Tor
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quote:
Originally posted by betjemaniac:
quote:
Originally posted by Doc Tor:
quote:
Originally posted by betjemaniac:
Perfectly possible for an couple to end up with 2-3 mortgages (1 joint and 2 solo) in that scenario without any mortgage being BTL.

It is perfectly possible. But the couple will, if they're being honest, then have to tell their mortgage providers that they aren't resident at their previous property. At that moment, the options are (a) the property remains unoccupied or (b) the property is rented out. AFAIK, at that point, the mortgage will be ported into a btl product, and they become btl landlords, by accident or otherwise.
No, there's apparently c)

you get a Permission to Let from your lender and carry on as before - varies from bank to bank but if you've lived at the address 2-3 years then it doesn't count as BTL because in the banks' view you didn't buy with the intention of letting, so much as are now letting a house that you bought to live in. There does actually appear to be an Accidental Landlord category.

Fairy nuff. A lot of my knowledge is now twenty years out of date, hence the AFAIK.

--------------------
Forward the New Republic

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Leorning Cniht
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quote:
Originally posted by chris stiles:
Yeah, but in this case the original situation was temporary, and you weren't - I presume - simultaneously trying to buy another property.

We did ask our lender what would happen if we moved back to a different city (change of job and all that), and what they told us matches betjemaniac's comment: first mortgage doesn't change. They'd offer us a second normal residential mortgage on a home that we were going to move in to, but would include the first home (income and liability) in their affordability calculations. We didn't actually do that, but it was a possibility, so we asked.
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chris stiles
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quote:
Originally posted by Leorning Cniht:
We did ask our lender what would happen if we moved back to a different city (change of job and all that), and what they told us matches betjemaniac's comment: first mortgage doesn't change. They'd offer us a second normal residential mortgage on a home that we were going to move in to, but would include the first home (income and liability) in their affordability calculations. We didn't actually do that, but it was a possibility, so we asked.

Different lenders will handle 'Consent to Let' differently, depending on a number of factors including whether your subsequent loan is also from them (in which case the affordability calculation takes care of the BTL loading). They are sometimes time limited - and often stipulate the minimum rent and minimum rental term on the property.
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Boogie

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quote:
Originally posted by Arethosemyfeet:
The difference is that houses last more or less indefinitely, while the other forms of rental business require regular purchases, cleaning and maintenance. Renting a property requires little effort, little time and little risk. Houses don't really depreciate. Houses are also a necessity all the time, and the rent seeking directly affects the ability to make a purchase, whereas car rentals can even make purchasing cheaper once they hit the 2nd hand market.

There is a risk. It’s the balance between what comes in and what needs to be spent on the place. Just the new boiler for the property we rent out cost four months rent, but we still had to pay tax on the income. Then a new kitchen and new cooker virtually wiped out this year’s profit.

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Garden. Room. Walk

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Arethosemyfeet
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quote:
Originally posted by Leorning Cniht:
quote:
Originally posted by Arethosemyfeet:
Houses don't really depreciate.

Yes, they really do.

Houses last quite a lot longer than cars - partly because they are sturdier structures, and partly because there isn't rapid technological advance in home construction, but the value of the building certainly depreciates, albeit much slower than most other things (unless you own something with rarity value).

The thing that doesn't depreciate is the land that your house sits on. That's the thing that has all the unusual economics attached to it, and that's the thing that should be taxed accordingly.

A well maintained house will last indefinitely. The house we rent out was built over a century ago and will last at least that long again with reasonable care. It's worth less than when we bought it (which is the reason we still have it) but not because of depreciation in the usual sense but simply because we bought in 2007 and prices haven't recovered.
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Alan Cresswell

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quote:
Originally posted by chris stiles:
quote:
Originally posted by Leorning Cniht:
That's not my experience. We rented out our flat for a couple of years while we were temporarily abroad. We duly notified our lender, who I think wanted to verify that we held suitable insurance, but the terms of the mortgage did not change.

Yeah, but in this case the original situation was temporary, and you weren't - I presume - simultaneously trying to buy another property.
I used to own a two bed flat, which I owned outright without any mortgage. When we decided that it was too small for a family with one child and another on the way we explored options for holding onto it. The advice we got was that we could hold onto it and let it out, but the best mortgage deals (lowest interest rates, minimum deposit required etc) wouldn't be open to us because by holding a property to let and buying another property to live in was effectively to buy a house to let out the flat, and hence a BTL. So, the flat was sold allowing us to rapidly overpay the mortgage and do some home improvements on the proceeds.

But, that was shortly after the 2008 crisis and lenders at that point may have been more cautious, and interpreting the rules more conservatively.

--------------------
Don't Brexit if you haven't a scooby how to fix it.

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Leorning Cniht
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quote:
Originally posted by Arethosemyfeet:
A well maintained house will last indefinitely. The house we rent out was built over a century ago and will last at least that long again with reasonable care.

Sure - you repair and replace parts as they wear out. New roof. New windows. Whatever. That's just another way of looking at depreciation.

A standard US shingle roof has an expected lifetime of about 25 years. The value of your roof depreciates over that time, and at some point at the end of that period, when your roof is failing and basically worthless, you buy another one.

Windows, doors, electrics, heating/cooling, major appliances - they all depreciate and need replacing.

The structure itself? Sure, if you take care of it, it'll last a long time, so that part doesn't depreciate much. But most of the price of the house isn't the basic structure.

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Alan Cresswell

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Anyone who buys a house with the expectation of having a return (much less a substantial return) on the investment is a fool. The costs of mortgage interest, repairs and upkeep, insurance etc will eat into anything that might be gained - even if the resale price increases above inflation. If let then the costs could be recovered, and so a small profit gained ... but, no guarantee. If owned to live in then those costs may be less than renting, and you still have that initial investment available.

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Don't Brexit if you haven't a scooby how to fix it.

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Baptist Trainfan
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Surely this has something to do with where you live. A house in a "desirable" area may well go up in value appreciably; while an identical house in a deprived area could go down.

The real "pay off" comes if you downsize or move from an expensive area to a cheaper one. The house I bought 9 months ago has allegedly increased in value by £9000, however that is immaterial as I bought it to live in long-term.

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Leorning Cniht
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quote:
Originally posted by Alan Cresswell:
Anyone who buys a house with the expectation of having a return (much less a substantial return) on the investment is a fool.

But probably quite a wealthy fool if he bought the house at the right time. Here are UK house prices in real terms over the last 40 years.
Here in blue is the FTSE all-share index in real terms, over about the same time period. (Muliply the FTSE numbers by about 2 to re-baseline to the period after the 1973-1974 crash, to get an exact match to the house price data.

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Alan Cresswell

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quote:
Originally posted by Leorning Cniht:
quote:
Originally posted by Alan Cresswell:
Anyone who buys a house with the expectation of having a return (much less a substantial return) on the investment is a fool.

But probably quite a wealthy fool if he bought the house at the right time. Here are UK house prices in real terms over the last 40 years.
Yes, there has been a trend to increasing house prices, in real terms. Buying at the right time, and a bit of luck, and there's opportunity to turn a profit. If you get the chance to buy below that trend line. Or, short term if you can get a bargain and have the ability to renovate well, but inexpensively, you can add more value than it costs.

But, prices staying anywhere near that trend line offers little in the way of return unless you have the cash to buy without a mortgage. Most of the gain in the trend line will be taken up in mortgage interest, even more in upkeep costs.

Added to which, if the government was to engage in a sensible and intelligent approach to housing (yeah, OK, not much chance of this government engaging in a sensible and intelligent approach to anything) and we conduct a major programme of building quality and genuinely affordable housing (I would want most of that to be council housing) then the fall in demand will bring prices back under some form of control.

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Don't Brexit if you haven't a scooby how to fix it.

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Doc Tor
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Which, of course, will cause its own problems.

Banks have a considerable amount of property-backed mortgages as assets. If the value of the collateral falls, so does the value of their assets.

Home-owners will simply refuse to sell, so they don't solidify their losses.

Buyers will not buy in a deflationary market.

I think you're right, Alan, that if there's going to be any substantial house-building program, the majority of houses will have to be council/housing association property for rent. Otherwise the bursting of the bubble will have potentially disastrous consequences.

--------------------
Forward the New Republic

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Leorning Cniht
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quote:
Originally posted by Alan Cresswell:

But, prices staying anywhere near that trend line offers little in the way of return unless you have the cash to buy without a mortgage.

You know how leverage works, Alan.

If you buy the average UK house, which is apparently £223,000 for cash, and its value grows at the average 2.3% above inflation, that's your return.

If, on the other hand, you bought that same house with a 95% mortgage, you could apparently get a 3 year fix at 2.8% right now. So you put down £11,200 and pay £5,930 in interest per year. Let's assume that inflation is running at the 2% target. (It's not. It's more like 3% now.)

So after a year your house has grown 2.3% in real terms, and is now worth £232,692 (inc. 2% inflation) - an additional £9,692. But you paid £5,930 in interest, so you're £3,762 better off, which we'll deflate back to today's money and call £3,688 in real terms.

For sure, that's less than the £5,129 in real terms that the cash buyer made, but you've made it on an investment of £11,200, so it's a 33% real-terms return on investment. The cash buyer only made 2.3%.

This works because it's cheap to borrow money at the moment. In fact, when you consider that inflation is running at about 3%, borrowing money to buy a house is currently free, in real terms.

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Ricardus
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quote:
Originally posted by Leorning Cniht:

The second is that you can't afford the purchase. That'll be the companies that hire out TVs and other consumer goods, long-term tenancies, social housing etc. [...] Landlords provide a useful function in all these cases, and that useful function has a value.

Although I'm not sure I'd accept that by (in effect) providing finance to allow people to live in a house, landlords are really providing a service, if the prevalence of landlording is what made those houses unaffordable in the first place.

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Then the dog ran before, and coming as if he had brought the news, shewed his joy by his fawning and wagging his tail. -- Tobit 11:9 (Douai-Rheims)

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Alan Cresswell

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# 31

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quote:
Originally posted by Leorning Cniht:
If you buy the average UK house, which is apparently £223,000 for cash, and its value grows at the average 2.3% above inflation, that's your return.

If, on the other hand, you bought that same house with a 95% mortgage, you could apparently get a 3 year fix at 2.8% right now. So you put down £11,200 and pay £5,930 in interest per year. Let's assume that inflation is running at the 2% target. (It's not. It's more like 3% now.)

So after a year your house has grown 2.3% in real terms, and is now worth £232,692 (inc. 2% inflation) - an additional £9,692. But you paid £5,930 in interest, so you're £3,762 better off, which we'll deflate back to today's money and call £3,688 in real terms.

Of course, as you later note, your calculation is based on historic low interest rates. I'd like to know where to get a 2.8% rate, especially with just 5% deposit. I've just remortgaged, loan less than 50% the property value, and couldn't get a rate less than 3%. Put in a more realistic interest rate and that £3k per year drops. Add in maintenance costs and it falls even further. Assuming replacing windows, bathroom and kitchen every 15y at £5k each, that £1k less per year. Replacing the roof will cost at least £10k, every 25y (your estimate) will cost another £500 per year. Add in boiler service & replacement, painting & decorating, replacing flooring, keeping the garden tidy ... and I'd be surprised at anything less than £2k per year to maintain the house, and it's value - and it could easily be a lot more. Even at your very favorable interest rate that's not a substantial net increase in value, at more realistic interest rates that would be a net decrease in value ... unless you put a lot more than 5% cash in at the front end.

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Posts: 31986 | From: East Kilbride (Scotland) or 福島 | Registered: May 2001  |  IP: Logged
Alan Cresswell

Mad Scientist 先生
# 31

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quote:
Originally posted by Leorning Cniht:
If you buy the average UK house, which is apparently £223,000 for cash, and its value grows at the average 2.3% above inflation, that's your return.

If, on the other hand, you bought that same house with a 95% mortgage, you could apparently get a 3 year fix at 2.8% right now. So you put down £11,200 and pay £5,930 in interest per year. Let's assume that inflation is running at the 2% target. (It's not. It's more like 3% now.)

So after a year your house has grown 2.3% in real terms, and is now worth £232,692 (inc. 2% inflation) - an additional £9,692. But you paid £5,930 in interest, so you're £3,762 better off, which we'll deflate back to today's money and call £3,688 in real terms.

Of course, as you later note, your calculation is based on historic low interest rates. I'd like to know where to get a 2.8% rate, especially with just 5% deposit. I've just remortgaged, loan less than 50% the property value, and couldn't get a rate less than 3%. Put in a more realistic interest rate and that £3k per year drops. Add in maintenance costs and it falls even further. Assuming replacing windows, bathroom and kitchen every 15y at £5k each, that £1k less per year. Replacing the roof will cost at least £10k, every 25y (your estimate) will cost another £500 per year. Add in boiler service & replacement, painting & decorating, replacing flooring, keeping the garden tidy ... and I'd be surprised at anything less than £2k per year to maintain the house, and it's value - and it could easily be a lot more. Even at your very favorable interest rate that's not a substantial net increase in value, at more realistic interest rates that would be a net decrease in value ... unless you put a lot more than 5% cash in at the front end.

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Don't Brexit if you haven't a scooby how to fix it.

Posts: 31986 | From: East Kilbride (Scotland) or 福島 | Registered: May 2001  |  IP: Logged
betjemaniac
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# 17618

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quote:
Originally posted by Alan Cresswell:
I've just remortgaged, loan less than 50% the property value, and couldn't get a rate less than 3%.

As you say, there's got to be more to this than the headline figures. I've got LTV of more than 50% and have just (September) remortgaged at five years fixed at 1.9%....

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And is it true? For if it is....

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Doc Tor
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# 9748

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Y'all weak. We remortgaged in 2006 at less than 75% LTV, product for the lifetime of the mortgage (another 12 years).

Base rate + 0.3%

(Yes, we lucked out on that front, and it has, in small part, made up for the fact that Mrs Tor hasn't had a pay rise in 10 years.)

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Forward the New Republic

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Jane R
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# 331

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Leorning Cniht:
quote:
A standard US shingle roof has an expected lifetime of about 25 years.
A roof made from hard Welsh slate, on the other hand, will last anything from 75 to 200 years before requiring replacement. Heck, even *thatch* lasts longer than 25 years. You need better roofing materials on your side of the pond.

[ 11. October 2017, 09:00: Message edited by: Jane R ]

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Arethosemyfeet
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# 17047

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Yeah, we've bought a nearly derelict house, part of which has a roof of Ballachulish slate. We know it used to have thatch but the slate roof could be anything up to 130 years old and is only now needing serious repair work because it's not been maintained for a long time (that and the regular storm force winds we get).
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Baptist Trainfan
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# 15128

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I knew a church in London which rebuilt in around 1980 and used shingles on its roof. Sadly the builder, who was facing financial problem and went bust after the project was completed, used inferior shingles.

These only lasted 10 years. The entire roof had then to be rebuilt as, by using lighter shingles than specified, he'd got away with skimping on the structure. This meant that additional rafters had to be put in and the whole job cost £30k even then. One wonders where the architect - who's supposed to keep an eye on things - had got to while this was happening.

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L'organist
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# 17338

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It isn't up to the architect to sort out this sort of mess, even if they're being paid to manage the project. Yes, a decent architect would/should spot it but that isn't, strictly speaking, their job.

Getting the size of the roof timbers wrong is down to a choice of 2: either the structural engineer who did the calculations or the Building Control Officer who should have been supervising the build and signed off on the roof structure - and the shingles, come to that.

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Rara temporum felicitate ubi sentire quae velis et quae sentias dicere licet

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Baptist Trainfan
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# 15128

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My understanding is that the builders simply omitted half the timbers, which had to be added later.
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Leorning Cniht
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# 17564

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quote:
Originally posted by Alan Cresswell:
Of course, as you later note, your calculation is based on historic low interest rates. I'd like to know where to get a 2.8% rate, especially with just 5% deposit.

I shoved the numbers into probably moneysupermarket, and the first hit was Barclays at 2.8% fixed for 3 years, with 95% LTV. That was probably a new purchase rather than a remortgage.
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Leorning Cniht
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# 17564

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quote:
Originally posted by Jane R:
Heck, even *thatch* lasts longer than 25 years. You need better roofing materials on your side of the pond.

We do have better roofing materials. Occasionally, someone uses them, but mostly they don't, because asphalt shingles are cheap and easy, and last longer than that person expects to live in the house.
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Arethosemyfeet
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# 17047

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quote:
Originally posted by Leorning Cniht:
quote:
Originally posted by Alan Cresswell:
Of course, as you later note, your calculation is based on historic low interest rates. I'd like to know where to get a 2.8% rate, especially with just 5% deposit.

I shoved the numbers into probably moneysupermarket, and the first hit was Barclays at 2.8% fixed for 3 years, with 95% LTV. That was probably a new purchase rather than a remortgage.
And more importantly was almost certainly a residential rather than BTL mortgage.
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mr cheesy
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# 3330

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I'm still trying and failing to see why the detail of potential mortgages are relevant. As I said above, the point is not about making money from the rent, which everyone involved in By-to-Let seems to agree is ridiculous, but trying to gain from the increase in the value of the investment.

Of course, there are some who try to burn the candle at both ends, but I don't think this is the objective even of landlords who buy properties with the idea to lend them out.

Surely the point is that if you can get a mortgage with a low deposit and a manageable payment, then you're hoping that the increase in value of the property will be greater than inflation, purchase fees and better than other forms of investment.

In a lot of cases that has been the case over the years.

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arse

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Alan Cresswell

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# 31

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The discussion started with a question about buying property as an investment, buying with the intention of a return when you sell, rather than specifically to let it out. Adding all costs (including mortgage interest) together will IMO leave you no significant gain unless you can either put in a lot of upfront cash or get a very low mortgage rate (the two often go together, and both mean that those most likely to gain in property speculation are those who are already wealthy with cash to invest).

Though, the argument is similar for renting, if the rent covers all the costs (mortgage interest payments, maintenance, insurance, marketing etc) then on resale you will gain on any real-term increase in property value. Rent in excess of that is an effective income (which can, of course, be invested in the property by paying off some of the capital), which is helped by reduced costs, including lower interest rates.

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Don't Brexit if you haven't a scooby how to fix it.

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Baptist Trainfan
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# 15128

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quote:
Originally posted by Alan Cresswell:
The discussion started with a question about buying property as an investment, buying with the intention of a return when you sell.

Surely, for many people, they buy a house to protect the level of their investment. Hence, when they need to move, they can buy another house (possibly, if their income has increased meanwhile, enhancing their mortgage so they can get something a bit bigger/nicer).

As I suggested above, the real "pay off" comes if they later "downsize", thus releasing their equity. But they can only do that once.

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Alan Cresswell

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# 31

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Yes, the attraction of buying over renting is that some of the money you spend on housing is retained. Whereas when renting the landlord gets it all.

But, it's still very likely that the amount invested will be less than the gain on house price alone. If you add everything together, final sale price will almost always be less than purchase price plus all the maintenance work you'll have done on the property - ie: negative equity is the normal status for home owners. Over the course of a mortgage (assuming not interest only) the pot of capital you have for the next house increases, but you're not actually making money unless you're very lucky (cheap mortgage, house in area where values have increased significantly, bought cheap and done a lot of work on the property at cost).

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Don't Brexit if you haven't a scooby how to fix it.

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Jane R
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# 331

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...in short, the only way to make money out of the housing market is to be either (a) a developer or (b) a mortgage provider.

Or (c) an unscrupulous landlord who doesn't bother spending money on maintaining the property. I'm sure everyone on this thread who's confessed to being a landlord is not like that, but I know they exist; when I was renting my accommodation, before I scraped enough money together to buy a house, I met a few of them.

[ 12. October 2017, 08:36: Message edited by: Jane R ]

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Golden Key
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# 1468

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I used to listen to a financial radio show. The host said that a house isn't an investment, because you have to keep spending money on it.

FWIW.

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Blessed Gator, pray for us!
--"Oh bat bladders, do you have to bring common sense into this?"--Dragon, "Jane & the Dragon"
--"I'm not giving up--and neither should you." --SNL

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Baptist Trainfan
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# 15128

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quote:
Originally posted by Jane R:
Or (c) an unscrupulous landlord .

And I think the fear of that is probably the biggest factor that persuades people to buy.

[ 12. October 2017, 09:08: Message edited by: Baptist Trainfan ]

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chris stiles
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# 12641

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quote:
Originally posted by Alan Cresswell:
Over the course of a mortgage (assuming not interest only) the pot of capital you have for the next house increases

Which of course is a valid source of anxiety, wrt 'getting on the housing ladder', as after you have children you may well need more house than you currently have.
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Sioni Sais
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# 5713

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quote:
Originally posted by Baptist Trainfan:
quote:
Originally posted by Jane R:
Or (c) an unscrupulous landlord .

And I think the fear of that is probably the biggest factor that persuades people to buy.
It's more subtle than that. Private renting is now so insecure that it is hardly a worthwhile option, especially for the "hard working families" this government goes on about. If, for one reason or another, you can't get credit, or enough credit, you're stuffed.

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"He isn't Doctor Who, he's The Doctor"

(Paul Sinha, BBC)

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