Wednesday, May 21, 2008
Still ramping? How quaint
Independent: Escape the rental trap
Haven't seen one of these articles for a few months. The Independent tells you how to "escape the rental trap" by putting forward such splendid options as shared ownership, buying a new-build, adding your parents to your mortgage, and clubbing together with friends to buy a property.
I thought the writers of these kind of articles had given up the fight long ago. Strange to see one still battling on, like the Japanese soldiers after the end of WWII.
'Kato Harris, 28, a teacher, bought a one-bed flat in Lee, London. "I had a 103 per cent mortgage because everyone told me that if I didn't buy now, I would never get on the property ladder. But because Lee is cheap, I feel it'll be one of the last places to be hit by the slump." '
Posted by little professor @ 08:20 AM (1393 views) Add Comment
25 Comments
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1. quiet guy said...
Yes little professor, it's a rather dated piece of work. It would have been perfect in 2006.
Watch out for next year's repeat showing from the 90's: negative equity.
2. Davros said...
I'm renting, have been for years and couldn't care less about the 'rental trap'. I'm living where I want for half the cost of the mortgage. The alternative is the 'buying trap', where I live in a flat in an area I don't want my family to grow up in and I'm stuck with the debt for 30 years.
3. Rental John said...
Why is renting considered a trap - and a mortgage not?
Obviously a mortgage is a loan taken out to buy an asset - a house - that should increase in value over time by more than the mortgage - in normal times this would take many years - normally the term of the mortgage to show a decent gain when measured against inflation. BUT - you can only release that gain if you ultimately sell up, or are lucky enough to trade down to a nice bungalow by the sea.
With historically low interest rates and massive house price rises - wealth in the UK has been measured against your property value. This is skewing the economy because 'money' is locked up in a fixed asset - and people have not made other savings provision.......what a balls up!
With the current situation if you have bought now at the peak - and if you can meet your payments - well you are 'trapped' for many years to come.
4. Landedgentry said...
"But because Lee is cheap, I feel it'll be one of the last places to be hit by the slump."
So she was influenced by other opinions on the property market and relied on it. When she is a property owner, all of a sudden she is an expert with an opinion on where the market is headed.
5. it_is_going_with_a_bang said...
"I can't imagine it would be right for everybody – perhaps it's unusual"
You're not kidding.
Maybe someonewould like to explain to me why the word 'trap' is used?
I can't think of anything being less of a trap than renting a place with the freedom to go wherever you want.
Helen Monks you are 'tramp'.
6. cornishman said...
"But because Lee is cheap, I feel it'll be one of the last places to be hit by the slump."
Wishful thinking. My experience is that cheap places were cheap because nobody wanted to live there in the first place - and they will be amongst the first places to plummet in value or revert to norm in any slump.
7. Collywolly said...
Yes, why don't they suggest saving and waiting for a few years.
8. Kirstygee said...
If you have a mortgage you are just paying rent to a bank - if you get into difficulty you get no help and they can take your home from you.
People who paid 80k for a house years ago are moaning that they can't sell it for the 500k they have been led to believe it's worth.
My family rent in a lovely area in a house we couldn't afford to buy - the cheapest in the village being about £350k - if I thought I was stuck with a badly built new build with no real garden, no parking, overlooking the other 11 identical homes I would be desperate.
More focus on happiness and life experiences and less on capital ..my Spanish friend once said to me 'You English are so obsessed with your houses, you spend all your money on them, extend and improve them and then you don't want anyone to come round and enjoy them'
9. Driver said...
They couldn't trust real comments to this article so they present some carefuller selected comments to back up their article.
10. wiltshire said...
Anyone my age (42) or older should be able to remember the housing market crash of the early 1990s and therefore shouldn't fall for the con a second time. Anyone younger than me should be informed by their parents etc of the housing market crash of the early 1990s and therefore shouldn't fall for the con. Simplistic I know but all logic seems to have gone out of the window in the latest property gold rush. Well, almost all, at least there's a few of us who stuck to our guns.
11. d'oh said...
Depressing to see a twenty something blighting their life so early. Nice to see that our young lawyers are so sharp...lol.
The funny thing is that these "responsible", "sensible" young ones getting on the housing ladder will probably be worse off in the long run than their feckless friends who have run up £20k credit card debt. Losing a £100,000 on a flat in Lee with no designer shoes to show for it...now that is a tragedy.
12. Alex said...
unfortunately, the current shared ownership schemes are the worst available options for first time buyers.
I am registered with these schemes but once I have worked out the real costs (mortgage, rent and very high service charges) I realised I would have been better off buying on the open market.
You would expect a “minimum” monthly outgoing of £1000 for a 25% of 1 bed flat. Then, if you want to buy more you’ll have to pay re evaluation fees. The full price of a property is always overinflated (more than the open market) and you end up being charged twice because you pay both the rent and the equity if you want to buy more. As a result of this I am still forced to rent as many of us.
13. Rental John said...
I agree with wiltshire.....I bought my first house in 1987 (halcian days), for 24K - needed much work doing up and in cheap location, sold 1 year later for 48K to move to a new job.....bought in new location for 52K (slightly smaller house)....was there for nearly 5 years from 1989 to 1993 - and sold for only 55K after spending money on improvements and new heating.
I expect a repeat of this again - history has a knack of repetition.
14. Housebear said...
Just stop buying houses or half houses for that matter!
That's all they have to do for a while.
Why do people not understand this? Everything will come good for those that wait.
Sorry if that sounds like a bit of a rant. Have viewed comments on HPC for a couple of years now and thought it weas about time to post a comment.
What does it take to convince people that all is not so great with potential property ownership at this moment in time.
I agree totally with wiltshire "Anyone my age (42) ect".
Not only that, but young potential property buyers these days are surounded by more information than we have ever had access to, with the internet ect.
Even with all the spin from VI's out there, I think at best the most bullish decision you could come to would be to wait at least 6 months.
One thing I notice when telling people I know, that I may buy in a year or so, is that NOT so many insist, buying now is a what I should be doing.
It all goes a bit quiet if you know what I mean?
Well I fee much better for getting that of my chest!
How was that for a first post?
15. titaniccaptain said...
@Davros
Well put sums my feeling up also
16. monty032 said...
"It is worth noting, however, that many lenders no longer offer mortgages on new-build flats, because of problems determining the true value of these properties once all the incentives have been taken into account." That's one way to put it. "Widespread mortgage fraud" would be another.
17. mark wadsworth said...
D'oh - excellent point!
18. icarus said...
Who told her that cheap places are the last to be hit? It's supposed to be the posh houses that hold their value in tough times. The hack who wrote this piece says that "market analysts" are saying that developers have never been keener to shift their stock. In that case the Dog and Duck is full of market analysts. And thanks for letting us know that at auctions there's a difference between the reserve price and the selling price - the dog and the duck both know that. Oh, and "the best way to make your deposit go further is to buy at a knockdown price". She must have written this piece in the Dog and Duck after a few large scotches.
19. denzil said...
The small-minded mentality of "rental trap" speaks volumes of how sheep-like people can be.
What about the mortgage trap? Many people up and down the country will have their properties respossesed due to the "mortgage trap".
The "mortgage trap" and the "oh, I must buy now or I will never be able to get onto the property ladder", actually leads to a pretty miserable hand-to-mouth existence. I rent a house worth 3/4 of a million for £900 a month. This enables me and my family to live in a really nice property, pay no maintanance bills and also have a fantastic quality of life.
"Rental Trap", my eye, more like "mortgage freedom".
20. icarus said...
denzil - £900 a month for a £750,000 house. Obviously a great deal but how typical is that?
21. denzil said...
icarus said:
>>denzil - £900 a month for a £750,000 house. Obviously a great deal but how typical is that?
To be honest I'm not sure. From what I can see of the rental scene the further upmarket the property the greater descrepency between what it rents for and what the mortgage payments would be.
I did look at a similar house which was £1100 a month and several 4 bed (£250,000) Barratt type places for around £800. There's been a lot of VI talk in the last week or two banging on about how rents are increasing, I can put hand on heart and say I've not noticed rents increasing for years. I student flat I had in Bristol in 94 rents for 20% more now than then and it's been completely refurbed inside and out.
22. Free2breathe said...
My stats are quite as good as icarus but we rent a 3 bed semi for less than £500/month, big garden front and back with off street parking for at least 5 cars, an outside workshop & garage in a beautiful village 25 mins from Chester. Last June next door (attached) went for £255,000!! We have so much freedom to go and do what we want and we're saving £600/month in an ISA between us.
I don't fancy Tesco's value baked beans for the next 30 years paid for on my credit card, thank you very much.
23. icarus said...
denzil - interesting answer, thanks. Must look into that discrepancy.
24. An Bearin Bui said...
I would concur with denzil - the discrepancy between the cost of renting and the cost of owning is so great, it's just great value for money to continue renting as capital values fall. There is no trap worse than the trap of a large mortgage liability weighing around your neck as property values fall. You are literally trapped paying back money for something that is now worth less and there is no escape.
The traditional escape of letting it out while you wait for the market to pick up is not going to be easy this time as rents are currently about 50% of the cost of buying, depending on the area. Where we rent, we pay slightly above the odds but it is still about 70% of the interest-only mortgage costs alone. Add in maintenance costs and letting agency fees (about 15% of rental income) and that makes renting out your property more or less non-viable. A scary prospect for trapped mortgage-holders in the next decade or so.
25. James said...
Ooh... I'm envious. I currently pay £1100 a month for a one-bed flat in zone 2. How do I console myself? Well - interest on my savings / deposit pays for half of it! Rental trap indeed. P'fft.