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House Price Crash Forum


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Everything posted by London-loser

  1. That really is quite grim. Average down 3.7% on the year - an average of roughly -0.3% per month right across England and Wales (although we should bear in mind we are talking about asking prices only not sales prices). Add in inflation of 2-3% and we can say around a 6% real terms correction over the year (plus any widening of the average discount - I believe this adds another couple of percent). So, maybe 8% or so correction for the year using Wriglesworth's numbers. Thank God there is no "crash" though! And the average is now the same as November 2003 - that is, no increase over a period of almost two years (and a fall in real terms over this period).
  2. Hi Benny, Since you pay the money into your FIL's Sipp he cannot simply hand back part of this to you... it is locked up in his pension until he retires (this is what the changes are designed to do, to get people to lock up more money into their pensions, as people are not saving enough at the moment). Your FIL can of course give you money to pay the rent that goes into his Sipp... but he will do this from his taxed earnings until he retires (as I understand it he will have paid 40% tax on this money). If this is the case, he can do that today... subsidise your rent from his taxed earnings without the need for a Sipp. OK, you'd pay it back into his pension rather than to another landlord's pocket. At present: He pays £100 of his gross earnings directly into his pension (and the government doesn't take the £40 tax on these earnings), which is then invested for the future (in shares or whatever). After April 2006: He can take £100 of his gross earnings, give you £60 (after tax), which you then pay in rent back to his Sipp, which is then not subject to any income tax etc. He has helped you rent the place... but at a 40% cost to his pension. You might argue this 40% tax hit has been off-set by the tax breaks he will get on buying the property after 2006. But he COULD use essentially the same tax breaks to invest in something potentially more lucrative (he potentially gets hit twice - buying a less "growthy" investment to help you out and paying your rent from post-tax contributions). I think Sipps will have an impact (positive) on the UK housing market, I just don't think it will be nearly as great as bulls seem to suggest.
  3. Benny, You also have to remember the Sipps rules (and your FIL's Sipps administrator etc) will require your FIL to charge you a "fair market rent" on the place. So the only way you are going to be renting a property you could "no way afford" is if your FIL chooses to break the Sipps rules by renting it to you at a below market value... perhaps many people will do this sort of thing but it potentially opens him up to tax/pension problems (at the least) and maybe even fraud issues (at worst). Your FIL should also bear in mind it is not "free money", any "subsidy" he gives you (if he gets away with it) is money he will not have invested for his pension (he could have bought shares or whatever with the same tax-free amount and had a bigger pension pot when he retires). Perhaps he is rich enough not to care about this "opportunity cost"?
  4. You've got to love Rosie... Her estate agent (who is probably trying to let her down gently rather than giving her the full truth) tells her to cut the price by £50k... and she says her personal financial position tells her it is worth the extra £50k. I just fell off my chair. The paper prints it because it is such entertaining reading. And I really am amazed at the stories if these investors... they are BREAKING EVEN on day one! Imagine that, the luxury of buying an "investment" that DOESN'T immediately lose you money. They really are lucky aren't they? Yet more proof that the UK's property market has entered a surreal stage.
  5. It is not a capital gain, it is a debt. IF you actually sell for £100k THEN you trigger a potential capital gains tax liability. If you like, it is a giant piggy bank... except one that needs to be repaid at some point (in a similar way to owner-occupiers taking MEW). And as Father Fred points out, one that leaves you highly exposed should property prices fall (perhaps one of the reasons BTLs are so vociferous that there will not be any price falls and if there are they will not sell but will instead "hold for the long term").
  6. The end is nigh, With respect, I think you fail to understand yield yourself. You might want to visit this site: Investopedia - Yield You'll notice the definition of yield includes the "market price"... not the price the asset was bought at some time in the past. I agree that your calculations (and the ones on singing Pig) are "yields" on the amount invested... but the actual yield on the investment is based on its CURRENT market price... hence, as investopedia puts it: Obviously if I calculate a "yield" on my property based on the price I paid five years ago I cannot really hope to compare this against the yield on BT shares in the FT today. By your definition, the "yield" on BT shares has an massive number of values (depending on who bought/when/at what price). The reality is that BT shares only have one value for the "yield" (ignoring gross/net etc) and it is the one quoted in the FT.
  7. I've started a new thread about your competition - I was almost moved to register and post on Singing Pig... now that's a new experience.
  8. Sorry, I'm sure there have been threads about this before on HPC but I couldn't dig them up... I'm fascinated by G&A's investment strategy over on The Pig: Singing Piggies' competition In a matter of weeks it seems he has turned a £20k initial investment into a three property empire with nearly £460k of debt! Thankfully he buys all of his properties at well below "market value" - if you buy ten pound notes for £8 each then I guess you can't go wrong (unless of course you are only pretending they are ten pound notes). He has pyramided this £20k by buying three properties for £390k with debts of nearly £460k ... but that is OK because they are "worth" £540k (instant £150k "profit"). Now, based on his info - he can get rental yields of 7.5-9% (quite attractive) on the purchase prices... which quickly fall to 5.4-6.3% on their "market value". Assuming he is not a total bulls-hitter then he has got someone to give him mortgages on these valuations but it seems to me the yields tell you the properties are not worth the "market value". It only takes some fairly small changes in what the actual "market value" is for this investment to quickly go underwater. I wonder how many BTL "professionals" follow this kind of strategy?
  9. Nobody can tell YOU when it is time to buy for YOU. But I would suggest a general guide would be the rental yield - about 6.22% on the numbers you gave - or the general house prices-to-income levels (currently 5.7-ish times?). A yield of 6.22% seems pretty low to me (given base rates of 4.5% and higher borrowing costs). Personally, I'd want a yield nearer 7.5% and house-prices-to-incomes of no more than 4 times (preferably a higher yield AND a lower average incomes multiple).
  10. I love the idea of a "potential market value".
  11. I agree these issues are indeed important in deciding whether to sell or not. However, the whole point of calculating yields in the "old economy" way is to see whether the investment stacks up as an investment - does it "wash its own face" or not? If you calculate a current yield as 5.5% or so you might conclude that is insufficient compensation (over a cash deposit) for the extra risks/efforts of being a landlord (potential maintenance costs, potential capital gains/losses etc). Only THEN do you start to look at whether the costs (loss of future CGT taper relief etc) make it unattractive to sell. The actual sell calculation can be pretty tricky (especially since people have to estimate future capital gains/losses) but the yield calculation is really quite simple and gives a very good idea of where you are at TODAY. I don't understand how anyone who does not know the position TODAY can take an intelligent decision on what to do next. It is a very good investment discipline to ask yourself regularly whether your investment stacks up TODAY (rather than reminding yourself what a good investment it was when you first bought it).
  12. I've binned it... but you can guess what they showed. Asking prices down (about 1-2% I think since the start of the year), buyers down, sellers up, average discounts up etc. If I remember correctly, it had prices for Windermere down 15% at one stage!
  13. There was an article in The Times this morning criticising the idea. Its business editor Patience Wheatcroft's editorial slammed it to - she suggested the government has only thought about the positive headlines it would generate rather than the reality of the situation (she gives an example of somebody having the taxpayer sponsor his yacht purchase to the tune of 40%).
  14. Are you sure? The yield is the rent as a proportion of the CURRENT value NOT the amount you put in some time back in history. For example, if I bought BT shares when they floated (1982?) and calculate my yield today based on the current annual dividend and the price I paid back then (adjusted as necessary for changes in the number of shares issued) then my "yield" will be significantly higher than the "yield" quoted in today's Financial Times. Would I be right or would the FT? This might be a number that fascinates the shareholder... but that would only be because he does not know how to analyse investments. This is a classic private investor FUG UP (taking comfort from past good investments rather than analysing the current position). I remember BBB used to quote "yields" on this basis and tell us all on HPC how prices couldn't possibly crash because he has double digit yields... on that basis the price can rise 10,000,000% and the yield is STILL double digit... so prices cannot possibly crash... repeat to fade. I don't have a problem with the idea that the rent is 13.6% of the amount initially invested... but it is NOT the yield. It is an interesting way of viewing the world (as it invariably allows you to conclude the property price is not too high) but it is NOT the yield. If you re-calculate the yield as prices rise (based on the price at the time) you will see what the yield actually is... and it is falling, falling, falling - to 5.58% based on the numbers in their thread. This is not much more than cash for the extra hassles of being a landlord... doesn't sound good to me, perhaps I'll stick with the 13.6% number and feel much better (are we back on to Dr Bubb's thread about people preferring comforting lies?). Dr Bubb, That "investment competition" thread is quite bizarre... like you say, massive debts taken on with "gains" made on the basis of what look like fantasy figures to me. I think you are playing a rigged game - they can go and see what your investments are worth if they want to whereas there is little proof the property guy has actually "made" anything (in the same way that the people on Property Ladder always seemed to have "sold to my neighbour" etc I suspect he can "sell" his properties on to some friendly other company etc).
  15. I've just been over to Singing Pig and read this thread that Dr Bubb is active on: Singing Pig yields I have no intention of registering and starting to post there but I have to say I am FUGGIN amazed at how these supposedly super-sharp property investors do not know how to calculate a rental yield. Are they for real? An £85k property with £450pcm rent... and they THINK the yield is 13.6%? Jesus Christ. If you calculate your yield based on the price you paid x many years ago rather than on today's price it must be quite easy to see things looking pretty good. My father bought his property 20 years ago and I reckon he could probably get a 50% yield on this basis. Lisa's contribution is priceless: Yup, you've lost £30k... YIPPEE! With "investors" like these, it is easy to see why there is little sanity in house prices at the moment.
  16. I can only assume this reply is tongue-in-cheek (given how ingrained the "house prices will only rise" mentality is in the UK). I'm not saying the oil price will only rise, just that there are logical reasons for the rise (as opposed to bubble thinking when prices rise simply because the person buying the good believes someone else will buy it for a higher price). As Ignorant Steve suggests, the price of oil is high because it is pricing in issues such as a potential conflict with Iran etc. You might feel this (and other issues behind the oil price rise) will not come about and so conclude the oil price is too high and will come down (for example because, over time, other sources of energy come to the fore with an ensuing fall in demand for oil). I don't disagree with any of this but that is not the same as it being "a bubble". I think the oil price rise is quite different from people buying property to rent regardless of whether the rental levels support the activity (hence I rent at below the cost of borrowing but still buy petrol when my car starts to run dry). And if I might dare to suggest it, overpriced property is probably not much of a hedge against inflation (particularly if it is funded by interest-only mortgage debt).
  17. Interesting TTRTR, Just before I saw this thread I was wondering (following a discussion in our office) as to WHY people are surprised that oil prices are so high. I know people tell us house prices in the UK are so high because of a shortage or supply/demand imbalance. I've explained at length that I think this is tosh. Now oil... I can quite easily see the issues in relation to a shortage and supply/demand imbalances (finite supply, increasing demand from China etc, geo-political issues). It always makes me laugh when the oil price rises and OPEC invariably agrees to increase its output... like that's a solution (even if they could do it, which isn't necessarily the case). If you increase the short-term supply at the cost of long-term supply what effect does it have? I'm not sure it is a positive one (sure, you can have more oil today but there is less in future, which pushes up the price of oil in the future, which... er... pushes up the value of oil today). I remember last summer an eminent Scottish fund manager told me how oil was temporarily high (around $40 then if I remember correctly) and will soon settle back to $25-30. He seemed entirely unconcerned by the issue, I was amazed someone so bright and successful in the financial world thought that. He has since retired.
  18. Mr Tulip, Is that Libitina in the background to your avatar?
  19. Indeed. And I'm even magnanimous enough to let bulls save face and insist there was no crash.
  20. Unless they are the kind that tell you "you've got to get on the property ladder, house prices never go down, six times income will be fine, interest only is OK, buy with your friend if you can't afford it yourself..." etc, etc.
  21. If this is the definition of a crash: then it is not a big deal to guess it will not happen (I'm not saying it can't /won't but the odds against a 10%+ nominal terms fall over the next 12 months must be fairly good).
  22. I've been trying to ignore him but WTF is cyclicicity? This guy MUST be on a wind-up. NOBODY is that dim, surely?
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