tallim

I remember saying 5 years ago that if I could ever get a 5 year fixed rate at 3.5% or less then I wouldn't care what the price of the house was. Looks like my metal is about to be tested, my view is a bit different now low interest rates are the norm and I have less of a need to borrow, but still. That is historically stonking value for a 5 year fix if you're borrowing enough for the 1500 product fee to make no real difference.

Rent the asset or rent the money. Capital payments are just savings with compound interest. The differences are only introduced when the asset price changes, or the cost of renting the asset or the money are different. In your example using a 5% rate for everything and slightly rounding some figures; 25 year repayment mortgage @1000 per month is purchase price of 171,000. To save 171,000 in 25 years with compound interest you need to save 291 per month. So if you can rent the 171,000 asset for (1000-291) = 709 per month (5% of the asset price) then everything is equal. Now make it real world and everything gets really complex with differing rates and different costs other than just the interest / rent, but basic principle is the same, still looks a bit odd if you imagine it over 25 years, but scale back to 12 months and it's simpler. (Though oddly enough, my current rental almost exactly balanced; renting, mortgage interest and savings interest were all within a shade of 2.9%, I'm facing the downside of that decision right now though as landlord has decided to sell up )

A bit worrying for those pushing for an increase in housing supply, who is going to build these extra houses if a cash rich company that controls more than 60,000 building plots has so little appetite to build volume, or foresees such a poor rate of return that they give cash back to shareholders?

Well now Tata owns Jaguar Land Rover maybe we could see a Range Rover Nano. Cheap car with the right badge, like an Aston Martin Cygnet (well, not the cheap bit): http://www.independent.co.uk/life-style/motoring/road-tests/aston-martin-cygnet-2373055.html I think we'll have an interesting spring, I have a feeling that there is quite a backlog of supply that people are holding off marketing until the spring bounce period. I've certainly seen new supply dry up in my area and from a couple of conversations with friends and colleagues it appears to be received wisdom that you don't market until March so your house is fresh for the spring bounce buyers.

Spotted coming up for auction soon, 6 2-bed flats in a decent area, easy commute to Manchester on the tram. Wood Court, 205 Brooklands Road, Sale Flat 4 65k guide http://www.countrywidepropertyauctions.co.uk/content/Property_Search/Details/2-bedroom-property-for-sale-in-205-Brooklands-Road-M33-rpache-CHL111040-1324402217 Flat 5 70k guide http://www.countrywidepropertyauctions.co.uk/content/Property_Search/Details/2-bedroom-property-for-sale-in-205-Brooklands-Road-M33-rpache-CHL111039-1324473188 Flat 9 75k guide http://www.countrywidepropertyauctions.co.uk/content/Property_Search/Details/2-bedroom-property-for-sale-in-205-Brooklands-Road-M33-rpache-CHL111038-1324402252 Flat 10 65k guide http://www.countrywidepropertyauctions.co.uk/content/Property_Search/Details/2-bedroom-property-for-sale-in-205-Brooklands-Road-M33-rpache-CHL111037-1324402282 Flat 13 70k guide http://www.countrywidepropertyauctions.co.uk/content/Property_Search/Details/2-bedroom-property-for-sale-in-205-Brooklands-Road-M33-rpache-CHL111036-1324402330 Flat 17 70k guide http://www.countrywidepropertyauctions.co.uk/content/Property_Search/Details/2-bedroom-property-for-sale-in-205-Brooklands-Road-M33-rpache-CHL111035-1324402352 All bought on 26/08/2003 for 92k as new about 12-18 months after the development completed. I'd expect them to go for around 20% over guide, so maybe 80 to 90k. One in same apartments failing to sell on open market for 130k. http://www.rightmove.co.uk/property-for-sale/property-30614384.html 22 July 2010 Initial entry found 10 September 2010 Price changed: from '£145,000' to '£141,950' 28 January 2011 Price changed: from '£141,950' to '£137,500' 01 July 2011 Price changed: from '£137,500' to '£129,500' Last open market sale at 120k http://www.mouseprice.com/house-prices/land-registry/205-brooklands-road-sale?Mode=SP They'll rent all day long with few voids at 600pcm to young couples or sharers, no mention of how much service charges are though, slight potential to become social housing. First sale of this type I've seen in this area of Greater Manchester.

I thought you were of the opinion that prolonged inflation would eventually lead to pay catching up and closing the gap quite significantly?

It's what puts me off being a landlord though, I think I would't trust people enough. I wouldn't want what I perceive as the hassle. Plus, in my experience, letting agents are next to useless when anything goes wrong in a tenancy for both the tenant and the landlord, suddenly it's the landlord's job to chase non-paying tenants, or sort out serious disputes. I am a bit risk averse though, most landlords probably never have to deal with these situations.

Yes they do have higher interest rates on BTL loans (if the tenant has a big enough deposit to actually access a mortgage), so you either dabble at the low end where gross rental yields are greater than 7% or you understate the opportunity cost of the capital that's tied up, which is not really both sides benefitting, so maybe you have a point, it's just the tenant that benefits in the latter case.

Do they want to be a landlord, would they be comfortable with the risks and responsibilities that entails? Happy to replace a boiler at the drop of a hat, happy to kick out a non-paying tenant, happy to leave the tenant alone to enjoy quiet occupation, happy to have that nagging feeling that the letting agent is somehow conning you and that the tenant is hiding damage?

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?

How can you tell? I'm winding down for some winter sun next week in that city of housing boom and bust, Dubai. The worst thing is that rising prices would likely be celebrated by the lady in this example; every 1% would give £855 equity on the £85.5k flat while only adding £150 to the 10% deposit cash requirement on my assumed £150k house. Hooray for wider steps on the housing ladder!

It is a bit of nonsense article isn't it, confusing cash flow with cost. The article was close to being decent, but they've regurgitated press releases without understanding them and making a coherent story. I certainly wouldn't consider a 10% deposit to be a cost, it's a cash requirement, but not a cost. I think most accounting standards would agree with that too. That is what has changed in the market; no cash, no house. On this particular example: The £12.5k of debt was got rid of by putting most of it into the Northern Rock together mortgage, borrowing £8k more than the total purchase price. Monthly interest on £100.5k at 6.9% is £578, I think 'Together' mortgages had to be repayment though, so that's £704 [1], I'd expect a 27 year old nurse to be around pay band 4 or 5, so maybe £21k annual salary this year [2], which is take home of ~£1350 per month [3]. Certainly tight, especially in previous years, but today at 4.8% and 4 years into the mortgage with the outstanding balance at £93.5k (assuming no overpayments) and a remaining term of 21 years it's dropping to £590. Assuming she would like to move to a £150k place she's going to need £15k cash as a deposit, plus maybe £3k for agent, legal and product fees, making a total of £18k. Assuming her current net housing worth is -£8k (mortgage of £93.5k on a place that would sell for £85.5k), she needs to build £26k from today, or a mortgage balance of £67.5k. Assuming static selling prices and mortgage rates then monthly overpayments to reach that balance in this example would be: 3 years normal repayment mortgage capital built = £8.5k, overpayment per month to get to mortgage balance of £67.5k = ~£455 5 years normal repayment mortgage capital built = £14.5k, overpayment per month to get to mortgage balance of £67.5k = ~£170 Certainly feasible in 5 years, likely to be feasible in 3 if you knuckle down, get basic pay rises and do some overtime. Absolutely feasible if you get a partner to help pay for things! Absolutely unfeasible if you lose your job! [1] http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator [2] http://www.rcn.org.uk/support/pay_and_conditions/pay_rates_20112012 [3] http://www.thesalarycalculator.co.uk/salary.php

It's a bit of an odd one, game theory I think, what's good for the indivudal is not good for the group. It makes perfect sense for individuals to pay down debt, build up a war chest, keep a low profile, etc... But, like you say, if everyone did that we'd get into a downward spiral, so many jobs rely on a certain level of consistent discretionary spending. That's not a bad thing, it's a sign of a well developed nation that so much of our activity is entirely discretionary, but it does make it very sensitive to shocks and all the more annoying that so much demand was brought forward by letting people leverage up so far. 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. You would advise friends or family that the future looked very uncertain and not to rely on job security, rising wages, rising asset prices, etc... You just need other faceless groups of people to be the ones that continue their high level of discretionary spending. i.e. Sky News gives it's viewers what they think is a realistic outlook, but hopes that non-Sky News viewers continue to spend and keep Sky News viewers in jobs.

That town has an interesting claim to fame: BMX Pro Town http://sports.espn.go.com/action/bmx/news/story?id=5852272 Wikipedia link has an interesting table showing the biggest employers: http://en.wikipedia.org/wiki/Greenville,_North_Carolina # Employer Product Employment 1 Pitt County Memorial Hospital Health Care 6,297 2 East Carolina University Education 4,936 3 Pitt County Public Schools Education 2,940 4 DSM Chemicals 1,100 5 NACCO Materials Handing Group Lift Trucks 1,100 6 County of Pitt Government Administration 922 7 Pitt Community College Education 783 8 City of Greenville Government Administration 704 9 Physicians East Medical Care 500 10 Greenville Utilities Commission Public Utilities 425 11 ASMO Greenville of North Carolina Small Electric Motors 410 12 Wal-Mart Department Store 400 13 Convergys Customer Service Center 400 14 Attends Healthcare Products Adult Incontinence Products 300 15 Karastan-Mohawk Carpet Yarn 270 16 Grady-White Fiberglass Boats 250 I think it highlights the importance of SMEs, there must be a tail to that list hundreds of companies long in a city of 180,000.

My other home is Kenya, while dining outside is one of life's greatest pleasures, it is sometimes more than offset by having to put up with drought, crop failure and expensive / poor access to drinking water. Doubly bad when a large proportion of the power generation capacity is hydro and you get rolling blackouts to accompany it!

I hope so, I have no doubt in my mind that I would be making a different decision if my circumstances were not as they are. I think personally I can only take advantage of things like this because I have few responsibilities and an understanding wife who is willing to override her nesting instinct. Add dependants, or illness, or a less flexible job, etc... and I would pay a significant premium to have a more permanent home and greater security of tenure over a standard Assured Shorthold Tenancy. Maybe the market for decent family homes has always been like this and will continue while the only choices are AST or ownership?

Just to finish this anecdote off, we chose another rental, good value to be had round here at the moment if you're mid-market or above. I estimate at today's selling prices (back to 2004ish round here) the landlord is getting about 4.2% gross yield, 3.3% after they've paid the service charge (it's a large apartment in big well-maintained grounds, so the charge is quite hefty) and <3% after fees and a small maintenance budget. While I could beat that cost of funding in the short-term, making it technically cheaper to buy than rent, it's marginal and I'd not get compensated for taking on the risk. The place is owned outright and has been a rental for a while, so I hope I'm minimising the risks to security of tenure.

I was a bit surprised that you went as far as placing a small deposit, was there anything in particular that drew you that far? I have to admit that I'm certainly tempted to buy a cheapish house to let that would be acceptable to me if TSHTF and topping up the rental income from that with a bit of my earnings and renting somewhere nicer. If it wasn't for worry about preservation of capital it would be a good little arbitrage trade, you can buy open market in my bit of the UK at the cheap end for >8% gross yield (>10% if you go a bit rougher at auction) and then rent somewhere nice where gross yields are much lower. A quick example: Buy: 2-Bed end of terrace in a noisy area, but with decent gardens for your veg plot at £80k that would let for £550pcm http://www.rightmove.co.uk/property-for-sale/property-30995857.html Rent: 2-Bed flat conversion in the best part of town for £895pcm http://www.rightmove.co.uk/property-to-rent/property-19700781.html Or if you're feeling really lucky; Buy: 7-Bed HMO in at £90k(?) in an roughish area, but that's good for jobs and transport that's letting for £975pcm http://www.eddisons.com/pages/auctioncatalogue/default.aspx?ShowLot=161&ForAuction=161&Page=7 Rent: 4-Bed detatched in a decent area for £1100pcm http://www.rightmove.co.uk/property-to-rent/property-31671646.html

I don't really know how they can offer such low mortgage rates, I suppose I'd be stealing from pensioners and savers in a roundabout way There's absolutely no way I'd lend myself money at the multiples they offer at the rates they offer. It turns out that all the investment bankers added to the mix was volume in the shape of a long line of of willing mortgage funders who thought they were buying special super sexy structured securities, not a bunch of unsexy mortgages from Scunthorpe, Eccles and Wolverhampton. It did explain to me why we've seen a much bigger impact on volume than prices though, if you've got a bit of cash and proven employment it's still 2007. I really hope they don't keep at these multiples, we'll have a whole generation with squeaky bums each time the rate setting committee meets.

Well, our tenancy is up in a few months, so we thought we'd have a quick check of what's for sale in our area of the North West. Before we looked we decided that we'd go check what kind of mortgages were being offered, so booked in to see the Nationwide this lunchtime. We look like a decent credit risk on paper; double income, no kids, no debt, decent deposit, etc... I wasn't prepared to be offered 5 times joint salary though, I thought those days were gone. My advice is don't bank with Nationwide, though they're probably not alone on this, so maybe the advice should be don't bank in the UK

I'm still wading through that report you linked to, but I know you'll have a go at my challenge I originally made to Van a few pages ago. Rightmove links if possible so we've got the PropertyBee history. ********************************* I can't find a family home in an area you'd want to live in long term that's cheaper to buy than rent. They must be appearing soon, but I can't find them. My assumptions, please feel free to alter them if you disagree: Funding mix cost 4% 90% of asking on purchase 95% of asking on rental 1% of purchase price per year in ownership responsibilities The best I ever find on the open market is that the costs are roughly equal and the places at auction are never family homes in reasonable areas. So for zero cash benefit you're becoming illiquid and taking on risk with few signs of an imminent upside. If you wish to make it mean more to me then somewhere in one of the following places: Lymm, Altrincham, Weybridge, Reading, Bath, Wetherby, Yarm or S10/S11 in Sheffield. Otherwise I'll trust your judgement on areas you know well.

That's quite a tome to get through, I've read the executive summary though, a couple of notes for now while I remember... 1. At least one of the numbers I'm using is wrong for population, houses or household density. We can't have a population increasing above the number of houses by a ratio greater than the household density and at the same time a falling household density. The report talks about an apparent lack of supply back in 2003, so something is wrong. We either have hidden house supply or hidden rising household density. Possibly compounded at one end by a more unequal distribution i.e. more old folks becoming single person households, so to average out, the remaining households become more dense? 2. It mentions increasing housebuilding to reduce the real rise in house prices, what mechanism should we expect for a continued real rise, how can households pay more for housing? We had mechanisms I could understand in the past, single-income to dual-income, high mortgage rates to low mortgage rates. I don't think we can move to more than dual-income and rates can't get lower. All we're left with is wages rising faster than the inflation rate used to adjust prices to a real scale, or an ever increasing proportion of wages being used to pay for housing.

Touche!

Ratios between prices : rents and prices : earnings are useful. The question you have to ask yourself is if ZIRP is the new normal forever, or if the cost of money will revert back to a more normal range? At best the cost of buying is roughly the same as renting if you assume mortgage funding is available and that it costs ~4%. Is that assumption valid in the medium to long term? In fact, is it even valid today for the bulk of people choosing between renting or buying, could they get 4% mortgage funding? If mortgage funding reverts to a more normal ~6%, you've just added ~25% to the cost of a 25-year mortgage repayment and renting becomes much cheaper again.

Come on JD, you can't call press releases evidence and bold a bit of soundbite as if it's worthy of serious consideration. We're better than that. I caught a house builder spokesman on BBC news this morning saying that they have more than enough land to build on to meet targets, they just won't build while FTBs can't afford the prices they want to sell at. He didn't say it exactly like that, but it's what he meant, I think the exact phrasing was something like "Until FTBs can join the market without our support". There was then some bleating about how the Government could chuck money at FTBs so they can give it to their favourite house builder. Grant Shapps the UK housing minister then came on and said something dull about cheap mortgage rates and how they'd get builders building again, I hope they're real conservatives and won't intervene in markets in any meaningful way. What I did think though was that there could be a mechanism to stop land banking by the big builders so that there is a more consistent supply. The house builder spokesman said they had more than enough land, so we've granted permission, but money is so cheap they can sit on it. There's thousands of people who'd build a house tomorrow if the land was made available, but the big boys just bank it. What about planning permission being an ongoing payment until you've completed the build, would there be serious unintended consequences?