BoldAsBrass

For a fee, all of that can be insured against (i.e. £14 pcm covers boiler etc). Pleanty of EA's can also run the whole show for you, again for a fee (~10% of the monthly rent here) if you want.

 

Jees, you can even get insurance for vacant periods now.

Where I live some letting agents guarantee the rent.

This is very emotive language that doesn't really describe the situation at all, but has been used an awful lot in the last decade.

 

If a landlord can fund an asset for less than the tenant, don't both sides benefit? If the landlord wants to take on risks that the tenant doesn't, don't both sides benefit? If a landlord can provide access to an asset that the tenant can't because they have no security to offer to obtain a mortgage, don't both sides benefit?

 

It's often portrayed as a very one-sided relationship, but that's not always the case. Haven't landlords sheltered many of our younger generations from the capital losses we've seen everywhere but London in the last few years?

 

Why does this phrase never get used for commercial buildings?

It might be emotive langauge but it seems to be how landlords think. When I bought a house last year - I had occasion to talk to a number of people about property - estate agents, vendors - even lenders as I toyed with the idea of an offset mortgage.

Nearly everyone I met in that process managed to volunteer the fact they were landlords. A woman who I saw in a local building society proudly told me she had 6 buy to let investments - which she had bought over the last 7 years. Given that this was 2010 and we were two years into the credit crunch, I asked how the BTL thing was going. She was very pleased with herself - all the properties were modern, so not much maintenance, no hassles with tenants and no negative equity (house prices around here really haven't fallen much, if anything compared to the market high in 2007) - she even said something like 'when we get to retirement age we'll be well set up as all the mortgages will be paid off.' I don't think it escaped her that the mortgages were being paid off by her tenants.

How can this generation of BTL investors 'fund an asset for less than a tenant'? Most BTL mortgages have a higher interest rate, do they not?

But banks seem to prefer to lend to BTL investors rather than home buyers. Which I guess you can understand. If a tenant gets ill or loses his job, kick the fecker out and get another tenant in. If a home buyer loses their job or gets ill - the lender has all the nuisance or repossession.

So what about, say, if you had a £200K lump sum from, say, inheritance?

 

A good friend of mine is in that situation and they are keen to buy a property outright to rent out. They're looking at a nice low-maintenance flat aimed at young professionals in London, say zone 2-3.

 

In supersimplistic terms they think believe they can rent out such a place for £1000 a month, so if buying for £200K they figure that's a 6% yield. I verify this having rented these kinds of places myself, for that kind of rent, in the particular area my friend is looking at. I think my friend is seeing me as a potential customer!!

 

They've not had or needed the £200K before, so its liquidity is not of huge necessity to them. In fact the opposite would be true, as they've been asking me how secure the banks are. Yeah, asking me!! LOL, as if I know anything - but they know of my economy/politics nerdiness. But of course I've told them about the max £85K savings protection limit per institution and warned them about multiple brands belonging to one Group e.g. Marks and Spencer being HSBC.

 

I've suggested investing in other stuff but they're just not interested: not only are they saying they wouldn't know where to start, but there's a genuine (sensible!!) fear that they would lose money and potentially swiftly. A fool and their money, and all that...

 

They are super-keen to protect their newly-gotten wealth, and whilst it might seem paradoxical to chuck the money into what can be seen currently to be a depreciating asset, the sheer "realness" of a property.

 

My friend has slight ethical concerns (but only slight!) about the idea of landlords pushing out FTBs, but reasons this is London and there will always be a market for young professionals who don't plan to be in London forever. My friend also rented for a few years so kind of has a "what goes around comes around" sort of philosphy. Relatively unconcerned about the plight of the youth.....

 

Because of an outright purchase, voids periods are not really a concern.

 

So my friend is in a interestingly fortuitous situation to have this much capital to invest. I am genuinely at a loss as to how to challenge the apparent straightforwardness of their proposition. So here I am asking a (usually pretty friendly) bunch of strangers on the internet! ;-)

 

Seriously I would be interested to see what people think, seeing as you're (presumably??!) more experienced in handling larger lumps of capital than Joe Average like me.

 

Thanks

I'd buy a property with it.

Property owned outright and property you've got a BTL mortgage on are different animals though. One will hold some value in the long term, the other could bankrupt you. You're making the assumption that everything will go smoothly with your three houses for the entire duration of the mortgage term. I think this is wishful thinking at best and to quote Chris Martenson, "the next 20 years will be nothing like the previous 20 years". Could the leverage involved see a problem with one property turn into a problem with your entire portfolio?

Everything you say is true. But, equally, a lot of people own, or part own, more than one property whose mortgage is being paid off by tenants. If they make it through to the 25 years - and the property becomes theirs - they are in an enviable position - are they not? I'm not a big, closet fan of BTL - but if I had a few hundred grand at my disposal now - I'd probably buy a house and take a grand a month rent. I'd leave it in my will to my kids and drum into them that they are to keep it all their lives.

And 'executive' apartments in city centres based on old economic paradigms may not hold their value in the way land and property values have been traditionally considered to do so.

Property and land have not held value in the way they have been 'traditionally considered' to. They have, by any measure, been a great investment for a long, long time. I'm not a big fan of the BTL ethos - one person paying off another person's mortgage - but if you accept that there will always be a need for rented property - well, as I have said, it's a good way to get out from under.

If I had bought a few properties 30 years ago - as I get close to retirement age now - I'd be laughing. As it is, I'll be working until I drop.

Nope.

Not a no-brainer. More like a big-risker.

The world is changing, and the way we live and where we live - and certainly what people pay for rent may undergo very dramatic change in the future. Do you really think the next 2-3 decades will be anything like the last 2-3 decades ?

 

Think how incredibly stupid most Estate Agents are, and how very narrow they are in their way of thinking. Do you really want to rely on a thought process like theirs to determine your long-run financial future?

Well, I'm not really thinking about how Estate Agents think and act. I am not quite that stupid. I observe that throughout history property has had a value. In fact, the ownership of land and property is surely the (what's the right word?) absolute - ultimate - definitive - best way to store wealth.

If I had bought 3 houses in 1800 when I was 30, got other people to pay the rent, paid back the mortgages - what position would I be in in say 1840.

Ditto 1900.

Ditto 2000.

And if I'd hung on to them and passed them on to my children - and they'd hung on to them and passed them on to their children ...

Sure the future is going to be different from the past - but if someone gave me 3 houses now, I'd be as happy as Larry and could immediately retire and live on the rent that two of them would produce. At what point in the future do your foresee that owning two houses and renting out would be a bad idea?

People own commercial premises for generations - lease after lease - upward only rent reviews - an endless stream of unearned income.

You got something better?

I think it will be a cold day in hell before the average Joe thinks property is a bad investment. If, as an investor, you can hang on long enough - it will turn out to be a good investment.

If you bought a 200k 2 bed new build in Manchester that is now worth 100k, if you can wait 30 years, you'll be okay. The mortgage will be paid off and it will be worth - well, who knows, but, whatever it is worth, as a leveraged investment, bought with other people's money (their rent) - it will have been a good investment.

Given everything that has gone on to date, if my son said to me now - 'how shall I provide for my future - shall I buy a house to have as a home and buy another to sell when I get old and can't work anymore - or save whatever I can afford into a pension' - well, it is, as they say, a 'no brainer'. Is it not?

Woah BaB, no argument with those points, but we are where we are.

 

So what is the difference between a young couple paying (more) rent to a BTL landlord, (which itself keeps floors under prices) and the same young couple paying a long term fixed mortgage, (as I have always advocated)?

 

A big fall in prices would screw the country more than it already is. Everyone knows this.

 

Rather, a gentle flat line, small drops even, for several years while wages catch up would be the best possible outcome for all concerned.

 

With unemployment rising and growth likely to be flat for 2 years, it seems sensible to try and avoid a full collapse. Like it or not, that would be in no-ones interest.

 

 

 

Careful MS, they might just take you up on that.

So, we're in so much debt, the only way out is more debt?

Surely people need to take responsibility for their buying decisions. A 3 bed semi in the same road as a mate of mine, in a moderately okay area of West London - well out in the suburbs not far from Heathrow, recently changed hands for £460k

I think the person who owns that needs to learn he paid probably twice as much as he should have. The person that bought it probably earns 60k or more - maybe quite a bit more. Trying to put a floor under house prices is like saying 'let's be as uncompetitive as possible in the global market'

As for rent ... slowly but surely the rental market will dry up. My eldest son's friends - almost to a man - are still living with Mum and Dad. With 1 in 4 16-25 years olds out of work and a lot of the others poorly educated and earning low wages - the rental market will slowly go into decline. Rents will come down sooner or later.

Besides, what's wrong with the idea of helping people who are capable of easily paying more rent than an equivalent mortgage would cost, just because they don't have a massive deposit? (As long as there are safeguards built in and they don't just give it to anyone).

What's wrong is that house prices went up by a factor of 3 to 6 (depending on region) between 1997 and 2007 and wages didn't. Young people will now take on suicidal mortgages because interest rates are currently low. If part of the deal is fixed, low interest rates for 25 years then - fair enough. But that won't be part of the deal. And we still have the capital to repay.

Someone buying a 3 bed semi in the area I live in will pay about 300k - whereas just a few years ago they would have paid 150k. 'What's wrong with the idea' is what's always been 'wrong with the idea' - it means house prices are a function of the cost and availability of credit and, therefore, in a market whose supply is regulated by law, prices will be driven even further up. By guaranteeing the deposit you are, effectively, turning the credit taps on again. Haven't we learnt where that leads?

And also what's wrong is that too much of someone's pay is spent servicing debt and not enough is available to create demand. It is, in fact, a recipe for the current situation to carry on ad nauseam. An opportunity to take stock, to have a period of house price stagnation or falls, to allow debt to be paid down and the economy rebalanced is about to be thrown away. And, again, the young are being sacrificed to provide the equity the baby boomer generation (which includes me) needs to retire on.

Am I imagining that I heard on the box last night that there will be some sort of statement today from the government saying they will be guaranteeing mortgages in some way - to get the banks lending again? Think they said something along the lines of the government guaranteeing the value of the 'missing' deposit now that lenders are asking for 20% deposits. So, the government will be giving the green light to 100% mortgages again.

Hmmm - the weird thing is young people should revolt against this - as those not in the market yet will be shackled with enormous debts to put a roof over their head - but, in fact, they'll sign up in droves.

Very strange how little people understand the world around them.

How long before the house price indexes are going up again. Madhouse.

It amazes me that rents have gone on rising while incomes have been rather stagnant.

 

Does anyone want to speculate on why that is happening?

Following the post dot.com nonsense and then 9/11 - the corporate lets completely dried up around here - and rents crashed. It appears a fair number of people sold to rent some years ago and that money has been floating about keeping the rented sector buoyant.

We looked at rented a year ago when we were getting kicked out - before we decided to buy. Looked at one on the estate opposite us - smaller than the one we were renting - typical 1400 sq.ft 4 bed box - landlady wanted £1700. We explained we were in a much bigger house currently paying £1150 - and offered £1200. The agent said she used rude words in response to our offer and said she'd rather leave it empty than rent it for that.

World is full of nutters. That's the only way I can explain rents - and desperate kids who club together to rent flats for £800 a month which puts a floor under the market.

I do wish youngsters would all move home and camp out on their parents. My eldest moved out a while ago and has come back. We feel that we have to share the house with him - rather than regarding it as 'our' house. So he has his friends over sometimes and they take over the downstairs and we get out of the way and let them get on with it. It's not his fault he earns about 15k and will never be able to afford anywhere of his own to live - at least not without sharing with mates forever.

In a move that surprised precisely noone, there was no move in interest rates announced today. That the pound moved slightly upwards on the news and is now continuing upwards half an hour later shows that there is very little pressure on them to increase rates in the foreseeable future. Indeed I would guess that there will be no move upwards in interest rates until the Fed starts raising, and we already know that that will be summer 2013 at the very earliest.

While the States has a debt of gazillions of dollars - why would they put interest rates up - while investors are still prepared to lend them money for, effectively, a negative return.

Maybe it will be 2023 before interest rates rise. The whole western world seems to be up to its neck (well, way more than that, in fact) in debt - and, if investors decide at some point to only lend to countries that pay higher rates then they are going to lose their shirts as western economies default.

So, as I said, maybe this 0.5% base rate will go on for 10 years or more.

The main reason I bought about a year ago was rising rent. We were going to have to go from £1100 a month to £1700 a month for a similar house - and, at the same time, our capital was earning feck all interest.

In 2003 I was absolutely, utterly convinced we were in for a repeat of the autumn of 1988 - with a severe house price crash about to happen as interest rates returned to normal after their 9/11 emergency lows. (Emergency then was bank base rate of 3.5% - lowest for 50 years - if you had told me then that 5 years later bank base rate would be 0.5% I would have bet my last penny that it wouldn't. Strange times indeed.

Now, 8 years after I STRed - I am much more humble. A house price crash is surely not on the cards - but, what is, I have no idea. And I'm pretty sure no-one else does either. So might as will think short term. We bought a house that might, or might not, go up, or down, in price - and we are £1100 a month better off by not paying rent - and no fecker of a landlord can kick us out now.

Know what you mean.

 

We STR'd twice, and several rented places (due to one thing and another including floods, owners selling etc).

 

My little-un had lived in 5 different places by age 4.

Yes, that was one of our major worries - getting kicked out of a house which was in catchment for our preferred school and not being able to find anywhere suitable to rent in catchment.

Bloody government twerps who talk about needing a 'healthy' (WTFTM) rented sector - and people going on about Buy to Let as if it is a good thing - make my blood boil. You really don't want to be trying to raise a family with the possiblity of having to move house every 6 months hanging over your head.

We got kicked out of our first place after 21 months - the landlord's son who lived abroad was getting divorced and they needed the house (4 bed detached) for him (on his own). Despite the fact I deliberately chose to rent, it made me feel like a serf. Our next place we rented on a 12 month tenancy - but every year we waited with baited breath a few months before the tenancy was up to see if we got a renewal letter, if we did how much they thought they were going to put the rent up by or, were we to be kicked out again.

Sure enough, it took about 5 years but in the end we got the inevitable 'your time is up' letter. Fortunately, youngest lad was 16 by then so the pressure was off to some extent. I wouldn't like to be in that position with young children.

The real effect of the HPC is of course the reduction in mortgage repayments. With prices down by about 20 percent since peak and mortgage rates cut in half, there is the 60 percent crash.

I have to say that seems a real 'clutching at straws' way of looking at things.

From the point of view of someone who bought in, say, 2004 and who sells now at the same price they paid for it - where is the 60% crash? Because I bet that person can't see a crash.

Quote ... (something like) "all we have is ourselves and each other and the natural world ..."

What he is saying is not new or innovative - men have been thinking like that for centuries. I've been thinking like that all my adult life.

BUT - you need LAND to be self sufficient, independent and self reliant. Land - to grow your own food and take care of your own heating and energy requirements. And land belongs to 'them' and they make damn sure it is so expensive we never get out from under.

The natural world belongs to 'them'. It's that simple. Ever since widespread home ownership by the masses started to develop - the amount of land that 'they' allow us to have has got less and less with every new development.

Anything that gets you out from under - a nice holiday complex in Devon perhaps, with enough letting units to make you a living of, say, 30k, will come with a million pound plus price tag. A smallholding in any part of the country you'd actually want to live - with enough accommodation to house an extended family - and enough land to get you at least semi-self sufficient - again - just hand over a million pounds or more and you're FREE to work your nuts off for the rest of your life.

Not to bad, all things considered.

We had to move house twice though - into rented, then into rented again when be got booted out after about a year and a half - and then into the house we're in now (which we bought).

That rough number even includes the 13k of my hard earned removed from me by way of stamp duty.

Yes I get that feeling sometimes too.

 

 

 

I guess some refer to real, as priced in real money (what they would call gold), but also, even if you put the equivalent cash pile in the bank over those 6 years, you would have got on average about 5% per annum (more it you locked in the long term 7% deals in 2007).

 

On that basis alone, the house (if still the same price nominal) would have decreased by 30% real from your pot of money.

 

(Actually, about 24% if working on £130k in the pot to buy the £100k house as the 100k house is now ~£76k relative to your original pot).

 

A similar calculation can be made assuming the interest you would have paid over the same period had you had a £100k mortgage, instead of £100k cash.

But then you have to factor in rent if you don't have a mortgage - unless you own property outright.

I sold to rent in 2003 and for a while things were great. The market went down in 2004/5, right up until the idiot government, realising their precious housing market was slowing down, cut interest rates in August 2005 after a year and a half of gradually raising them from their post 9/11 low of 3.5%. The interest on my cash more than paid the rent and, as I said, house prices were slowly going down. Then, in January 2006, it went nuts again and house prices, and borrowing, took off again. Then we had 2007/8 and the credit crunch. Interest rates slashed and suddenly I was earning next to nothing in interest. Which is why I bought again.

All in all, how you pick the bones out of that in terms of whether, for me, house prices have gone up, down or sideways is anyone's guess.

My best guess is that mortgage and cash wise - I seem to be about 50k better off than I was in 2003.

Because, as you know, real includes inflation, nominal doesn't.

 

Wages have risen maybe 5 or 10% over the period, less for many, but real inflation (not fiddled RPI/CPI) for many has been far higher for many years.

 

So taking these figures into account, a house up here that is nominal 10%-15% below peak nominal, is ~ 25% down real, even after accounting for higher wages.

 

Plenty of examples around the country of these falls, but in London, maybe not. London's strange

I would argue that, unless you work in the public sector, your wages are probably the same now as they were 5 or 6 years ago. I know a number of people who are happy to keep earning the same money as last year - just grateful they still have a job.

Taking some hypothetical figures ...

Say a house was 100k 6 years ago and someone was earning 20k and a loaf of bread was £1.

Now the house is 100k, they're still earning 20k and a loaf of bread is £2

Inflation, in terms of bread has been 100% but, in terms of houses it has been 0%. I can't see what RPI or CPI has to do with this.

If you think in terms of house prices - inflation wise - as a combination of average house prices / average wages / average mortgage interest rates then, where I live ... going back say 7 or 8 years ...

house prices about the same, wages about the same, interest rates a bit lower.

I'd say house prices are about as unaffordable now as they were in 2003 / a bit more affordable than they were in 2006/7 and a bit less affordable than they were in 2008/first half 2009 (in my area).

Edit ... I just thought 'why am I writing this?' and then remembered - I keep reading various people making statements like 'house prices are already down 30% in real terms (not just on here)' and they base this view on the 5% pa inflation we have had for the last few years. All I'm saying is I can't see what the price of bread and petrol has to do with house prices (apart, of course, from making houses less affordable) but I really can't see how you can kid yourself that house prices have halved if the price of bread doubles.

When people say house prices are down by 25% to 30% in real terms ... the house I sold in 2003 would, I am pretty sure, easily fetch the same money. I sold for 400k and, to be honest, if it appeared on the market now I'd be astonished if it went on the market for less than 450k - and would sell at somewhere between 400 and 450. Edit: I'm pretty sure that at no point between 2003 and now would it have sold for more than £425k - maybe in late 2006.

Speaking for myself, I am not earning any more now that I was then. Mortgages are cheaper - if you can get one. I can't see how this equates to a 25% fall in real terms.

I know of a 3 bed semi in West London that has sold in the last 6 months for £465k - the bloke who bought it paid £310k in 2002. Admittedly he has fitted a new kitchen and bathroom but, even so, no sign of a 'real' fall - certainly in London, the South East and South West. Don't know about the rest of the country.

I think I disagree that the media are stupid for telling us things are bad, they're thankfully not a particularly co-ordinated group. I think I'd feel distinctly uneasy about a media outlet having a 'let's keep positive and things will improve' agenda, makes me think of Soviet news reports about rising tractor production.

They may not be co-ordinated but, surely, they might as well be. Every media channel is telling us the same thing, over and over again, all day, every day.

I'd just like some balance. It's all bad news - rammed down your throat every day. Meanwhile, as I sit here typing this, dozens of cars go by my window as people have got up and gone to work - to earn their money and spend it. Same as they have done every day for years - same as they will do every day for years.

I'm not saying things aren't bad, they are - it it scandalous that debt is being taken on now to pay for public services now that our grandchildren will pay back (how on earth they'll look after us and pay back our debts and provide for their own futures baffles me) - but ramming it down people's throats really isn't doing anyone any good.

I, and I can hear the howls of protest already, would like to see some sort of government media channel. A bit like the Soviet tractor thing even ... to focus on the positives in our society - the number of people treated in the NHS - new roads opened - new (free?) schools opened - big export contracts won - something - anything - to balance the relentless, depressing messages from the media. Seriously, some nights after watching News at Ten and Newsnight, I have gone to bed and sat on the bed with my head in my hands. So, I've stopped listening to them. Even my grown up kids - and I have been very careful not to pass my views on to them (I am very careful not to join in the general spreading of doom and gloom) have started saying - when the news comes on the box - 'do we have to watch this - it's depressing'.

Very well said. People choose to ignore the apparent warning signs as it makes them uncomfortable. Living within a bubble has its own advantages.

I have asked this a couple of times - no replies yet. Let's say I don't ignore the warning signs - what should I DO?

Get in a stock of baked beans? Buy gold - not much use to anyone when the chaos starts. Take my bit of money out of the bank and bury it?

What is the prescribed course of action?

Is it 'keep calm and carry on'? Because, to me, that really does seem the most sensible option.

Funny you say that, I have been noticing the same thing here. Houses that were 'sold' are coming back on the market. Lots of places just sitting. A few have gotten offers after dropping advertised prices by 10 or 15 grand. A nice one bed flat in a converted mill was dropped from £89 950 to 84,950 and has finally sold for -- brace yourself -- £64.500. That is the advertised price, anyway. I realise it is not a house, but as a percentage, that is a huge haircut.

 

On the lettings front, after a shortage of 4+ bed houses being available, or being quickly snapped up over the summer, since September these have been accumulating on the market. There are now several that have been available since the start of Sept. I guess everyone with sprogs wanted to get moved and be done with it, so now they aren't moving.

 

One place in particular I would be interested in. A nice 5-bed victorian, they are asking £975 and it has been advertised since the end of August. Vacant since end of Sept. So one month vacant, and owner looking to do a deal. How much should i offer? I recall someone saying that unless you are embarrassed by your offer, you are offering too much. I was thinking of saying £750 and seeing where we go with that.

 

Bottom line is, I would like to live there for at least a year. I am finding my current place is a bit small, so it would suit me to move, even to pay a bit more. But I am not desperate to move.

I presume you are in the North ... down here in the South I bought last year because to rent a similar property to the one I was being kicked out of was going to move me up from £1100 a month to £1700 a month - 2 grand if I wanted a similar sized house. Rents here are truly nuts. How people afford them baffles me.

David Cameron will never tell you or me how bad the situation is. If they did there will be total chaos within a week.

Which is my point. David Cameron is not stupid enough to tell us how bad the situation is ... in that we, surely, already know. We're in a lot of debt, we're going to be in a lot more before we ever get to the point of paying it back and, I think it is accurate to say, my as yet unborn grandchildren will be repaying the debt taken on to keep our public services going today - for the whole of their lives. A trillion or more is not going to get paid back in 10 years - even at 10 billion a year it will take a 100 years.

But the media are stupid enough to tell us, 24/7, how bad the situation is. They told me yesterday - all day - they really don't need to tell me again today. I'm already uncertain enough about the future - do the media want me to completely stop spending money on anything other than essentials and hoard my money in my house. Because, if we all do that, there will be total chaos in a week.

Years of this HPC obsession have resulted in my constantly watching, observing and noting my local market. And, here in leafy Surrey, I have the feeling that the market is, once again, grinding to a halt.

Certainly, not a lot has been selling over the last year, but until a few months ago the odd one was selling - and going through.

Now the ones with Sale Agreed are turning back to For Sale some weeks after going under offer and others, nice houses (relatively) reasonably priced, are just sitting there, month in, month out.

I'm wondering if the cash that was driving the market is, finally, beginning to dry up.

All of your points are rebutted elsewhere in my post. Please re-read.

 

My final comment is that stockpiling will not work. Make of that what you will.

So, what are you doing personally to deal/cope with what you think is coming and what should governments do?