bird101
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Posts posted by bird101
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Genuine question: why not have kids while renting?
frugalista
Hi Fruga
Well, we are having kids while renting as it now happens, but we would have preferred to start a family in our own home because we could make it our own; decorate the nursery, put in fitted cupboards, build a nice big sundeck, tree-house, ponds, waterfalls, etc., personalise it to make it a fun environment for kids. That's the environment I grew up in so it's only natural I want the same for my kids. Also, after buying there's a degree of security and control of your home that you simply dont have in renting.
Although some people in this topic have said that there are plenty of affordable places in Cambridge, the fact is, having looked at the range on offer, we feel they're way too pokey for the money, claustrophobic little 3/4-bedroom houses with postage stamp gardens. If they were £150k they would seem reasonable, but we're on above average incomes and should be able to afford at least an average house. We cant, and we're not prepared to take on what we consider an above-average liability for a below-average asset.
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Read this article in the economist - I think it's explains the global property situation pretty well.
http://www.economist.com/opinion/displayst...tory_id=4079027
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I've just spent the evening with a couple who are renting at the moment. Between them they earn £90k a year, (pretty good for the provinces) and have £30k in deposit savings. They spent last week looking at local property (Cambridge) to see what was available for their budget of ideally £220k but would go up to £300k for the right property. The answer was, naff all. Tiny terraced houses with no parking in unsalubrious parts of town, or crumby semis in the outlying villages. The only place that appealed was a place in Mildenhall, about 25 miles away, for £250k, and that needed a lot of work and would have meant a hefty commute. They ended their search feeling quite down about the whole thing.
Up until now I thought my wife and I simply werent earning enough, we're on £65k combined with a £20k deposit, but my friend's experience hammers it home - if people in their position cant afford to buy, this is a bubble of cataclysmic proportions, and when it crashes, which it must, we're going to hit a depression.
We've been holding off starting a family until we had a home of our own, but last month we decided that things are going to get a lot worse before they get better, and if we wait until we're homeowners of a sanely-priced property, we'll be well into our forties before we have kids - and we're not going to let the house-price bubble wreck our future any more than it has done to-date.
I found an inetersting article about global property prices on The Economist website - there are a lot of parallels in the US with the lead-up to the 1929 stock market crash, and they're long-term predictions are very gloomy
http://www.economist.com/opinion/displayst...tory_id=4079027
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All's not said and done yet. The banks attempt to lure BTL's may fail, many may think the good times of rising equity are over and simply not invest. I wouldnt. On the other hand if many do, we'll probably end up with a glut of rented properties in which case prices will fall, and then whoops! all the highly geared BTLers will be totally screwed.
Any buyers now will be the late-entry speculators, or 'mugs' as they're known in the industry. They're the guys who buy up all the property/stock to enable all the serious investors to escape with their winnings, and then take the full hit.
The market may not be falling, but it's ripe for a fall and we just need a trigger. My money's on late March - There's serious speculation that Israel/USA will attack Iran to prevent them acquiring nuclear capability, which is estimated to be late March (+ to stop the surge in oil trading away from the dollar). The gulf will become a fire zone, oil will cease to flow, horrendous oil prices will plunge us into recession.
That's not what I want, believe me, I'm as vulnerable as any other non-home-owner. But I reckon that's the most likely trigger on the immediate horizon.
Incidentally, this article is worth reading.
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I was planning to buy in about 18 months time, on the assumption that prices would have dropped by 15-20% by then. Now I'm not so sure, If BTL's increase their market share and keep the market high beyond it's natural cycle, the crash when it comes could be cataclysmic. I'm hedging my bets. I put half my deposit money, about ten grand, into gold in November (gold always rises before a recession). Since then gold's gone from $420/oz to $552/oz. So that's nice, but right now I cant see an affordable house this side of 2008/9, dammit.
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Interesting point about BTLers taking over the market, that means the speculators are driving prices. Crash may take a bit longer but will be more severe. 1929 all over again.
Ugh!
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Australia is 7 to 8 years ahead of the UK which is why you aren't seeing an HPC in the UK.
As I've consistently said for a long time, look to the last property slow-down in Aus to see what the UK will go like this time. Answer: slow market,soft prices for a while, but no crash.
You cant make too direct a comparison between the Aus and UK property market. UK prices have risen nearly twice as much as Aus in the last 5 years, so they've got a lot further to fall. The Aus market may get away wih a 'soft landing', but the UK wont.
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And that's assuming a linear increase.The housing market is not linear,it is cyclical.
In 2 years time you will be able to reprint this article as "House Prices to Treble by 2005" and both articles would be correct.
Nice one Muttley! I cracked up when I read that! Right on the nail!
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Of course sellers dont want to drop their prices - who would? The point is that the recession hasnt really started to bite yet so there are few sellers desperate to sell. That will change.
I was is Oz a month ago staying in Venus Bay, a peninsular of holiday homes 2 hours south-east of Melbourne. Land prices there have shot up from $15k to $80k in 4 years, some plots of 500 sq m were going for $120k. But nothing's selling. On Venus Bay 1st Estate there were about 200 properties for sale compared to about 40 when I was last there 2 years ago, but although lots of sellers are selling 'cos they want to cash in on the rises, very few sellers are desperate to sell. Again, as the recession starts to bite, that will change.
It's the same old cycle all over again. In '89 it was the same. There's nothing remarkable about it.
Hold on to your hats folks!
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You are making the classic psychological investment mistake of "ringfencing", i.e. letting the source of funds influence investment decisions and thus giving a certain portion of the investment portfolio a special status because of unrelated external factors. For example, if someone has an unexpected windfall, like an inheritance or lottery win, they will be tempted invest that particular fund applying different investment criteria (often riskier investments).
The fact that the contribution to the SIPP enjoyed 40% tax relief is completely unrelated to the subsequent invetsment decision. To say that "one has a 40% cushion against falls" is a classic case of the ringfencing fallacy, by allowing the unrelated fact of a tax relief to influence the investment decision. Every investment decision should be made soley on its own merits. So the investor has to ask himself "is this BTL property a good investment?". As the choice of investment is free within a SIPP (once the 40% tax relief has been obtained), it is a grave psychological mistake to let the investment decision be influenced by the unlrelated fact that tax relief was given.
Thanks Bubble, I'm familiar with the term. However my point is that the new SIPPs rules make BTLs look good for high earners who may have been toying with the idea up to now.
But as I said at the start of this thread, however attractive it is, it's not going to be enough to prop up the housing market which is in irreversible decline. All it will do is invite investment and a whole new batch of un-regulated mis-selling of BTLs - which is primed to be the next scandal of this administration.
The tragedy is that this government, having claimed it is committed to helping FTB's get into the marketplace, has proved to everybody that it's as meaningless as their commitment to reduce congestion on the roads, or to end the "boom and bust" cycles. They're just full of crap, and now they're desperate with this flimsy effort to hold together the over-inflated consumer economy by this vain attempt to prop up the housing market with subsidised second homes for the wealthy.
All projections are that this is going to cost the tax-payer £2-3bn a year. Had the chancellor decided instead to help the beleaguered younger generation of potential FTBs (like myself) with a tax break to help them get into the property market, it might actually have done some good all round.
But tragically the labour party cant see past the fact that 60% of the electorate is the baby-boomers - over 50's. Hence the younger generation, already starting our adult lives with huge student debts, poor graduate job prospects, the highest level of direct taxation in British history, an inaccessable property market, AND an expectation to finance the economy to pay the pensions of the already wealthy baby-boomer generation, are now being expected to finance this huge subsidy to the rich.
Maybe this whole house of cards is going to hit the floor spectacularly in this upcoming recession, or maybe we'll carry on muddling through and re-float to another boom next week. But my savings are staying in the bank!
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Bird101,
I've got a deposit of just over 40k so would need a mortgage for around £110k at the figures I suggested. My other half knows we'll more than likely take a hefty hit on that deposit so it boils down to the least worse option:
a) commute with cheap rent in Plymouth (£250pm) and a room in Southampton (£350)
rent in southampton (£700)c) buy at around the 150k mark and pay a mortgage of around £650 (repayment)
A&B shaft me for quality of life and C requires that I pour a massive chunk of my savings down the drain.
boo hoo
LOL Sorry to hear that. With your £40k in the bank on a crumby 3% you'll be earning about £100 a month on it, in the stockmarket you'd be getting 10-12%, £300-£400 a month. But if you had bought your property a month ago your equity would have fallen about 0.2% (that was the fall in September according to the Times), so you would have to add that into your costs for option C - a capital loss of £300 for the month. Assuming that's how things are set to continue, the total cost of option C looks more like £1050 - £1350 once you add that all together.
You'd be better off buying yourself a nice big Mercedes to make all those long trips enjoyable!
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Look, I draw a pension now from a conributory pension scheme I was in for 30 years. I got tax relief at my marginal rate - 40% in the latter part of my career.
Now, I don't buy shares and think "well, it doesn't matter if they fall in value - I got a 40% discount on this money"
See?
BTL is a fairly attractive investment in it's own right, and to a high earner thinking about BTL investments this is a 40% discount on what he would have paid for the privilege before. That's a lot of financial insulation! Plus his return on investment is tax free.
Hope your pension's working out for you.
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I keep making this point - nearly everyone disregards it. Can everyone please think about the staement in RED above and either shoot it down or shut up about it!!
No they are not protected. Read his post again!
Sorry Casual, but if you get a £40k tax rebate for a £100k investment, then if that asset drops in value by £35k you're still better off than if you had just paid the tax. In which case you're covered if the value falls. Please explain why that doesnt work!
Also, I agreed with London Loser over the "second tax break" issue as you can see in my last post. So why are you going on about it?
Best regards
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I keep making this point - nearly everyone disregards it. Can everyone please think about the staement in RED above and either shoot it down or shut up about it!!
No they are not protected. Read his post again!
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You are right that someone who already has £180k in his Sipp can use this to buy property... but he has already had the tax break, he doesn't get another tax break for selling equities and buying property. So he would only do this if he believes he will get a better return from property than from equities (or wherever the £180k is currently invested).
They are not protected from 40% falls. They have £180k in their pension, if prices fall 40% they have lost £72k in their pension. They ARE £72k poorer while they could have been richer had they bought a good investment. This would be a VERY expensive mistake and they would have to be pretty dim to tell themselves it was a good result.
I pretty much agree with the rest of your post (see today's other threads on Sipps).
Check out the articles I read:
I cant find yesterdays headline article online but here are the others I read
http://www.timesonline.co.uk/article/0,,2-1806025,00.html
http://www.timesonline.co.uk/article/0,,630-1804510,00.html
http://www.timesonline.co.uk/article/0,,542-1805780,00.html
You're right, investors cant transfer assets from their SIPP and get the tax break, but they can from other assets. I dont know the exact rules for borrowing for SIPP investments, but I'd imagine there are a million loopholes that make it possible. Bear in mind that since the new rules on assets transferred into SIPPs will be unregulated for 12 months the market is wide open for all kinds of sharks.
However, investors ARE protected for a fall of up to 40% on their capital. To quote your example, If they but a £180k house for their SIPP, a high earner receives a £72k tax rebate on that investment, so it only costs him £108k in hard cash. Therefore even if the value falls 35%, they're still up on the deal.
Having said all that, and acknowledging the huge potential appeal to a high taxpayer (almost every high taxpayer would prefer a speculative investment-based tax rebate to paying tax!) I'm afraid I still think that this just isnt going to have the impact everyone thinks it is. Gordon Brown isnt foing to turn the market around with this one desperate measure.
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I'm in a bit of pickle because we have a 5 yr old and a dog so renting somewhere nice can be a challenge. My other half is living in Plymouth while I work in Southampton (rented room) during the week. If circumstances were different for me i'd sit and wait but i'm almost being levered into it.
Hi Tatty
I can see your problem - I've got friends in a similar situation. It's a great looking house with a lot of potential and loads of space. The kind of place you could enjoy for a decade or two without running out of space. The price is also reasonable compared to a lot of the stuff on offer at the moment.
There are key issues for you here:
It's a falling market at the moment and you're definitely going to lose money on it in the short-term. The issue is whether you can carry that negative equity through a recession. If you've got solid job security, like a teacher or a nurse, civil servant etc then you can probably carry it through no problem. Negative equity only becomes an issue when you're forced to sell. If you're in the private sector or in a field where you could end up being made redundant in a recession you could end up going bankrupt and losing all the deposit you've worked so hard to save.
Also, if you're in a position to develop the property, ie: you have money to invest or a builder in the family, then you could beat the market and add value regardless of downward market movements.
Also, how do the living costs compare? By my figures, assuming you've got say £25k deposit, you'll be borrowing £140k, so your mortgage payments will be somewhere around £800 a month. If that compares favourably to the renting alternative then it could be worth a punt.
Personally (obviously) I'd hang on to my deposit and stick it out until the economy has finished tottering and the chips have fallen where they will. Cash in the bank is going to be VERY useful at the bottom of the curve.
Good luck either way!
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All the headlines are turning negative. There is one last headline thats holding the market up and thats the SIPPS SOLUTION.
The Sipps solution is definitely going to brighten up a lot of hopes and it will definitely some kind of positive impact on house prices, but we're entering a recession, consumer confidence is falling, and the house price index has hit negative. There's 7 months to go until it becomes active legislation, it's probably going to look a lot worse by then, and it's going to take a pretty plucky investor to back a falling property market - especially when the stock market is enjoying consistent growth.
Additionally, the only investors who can take advantage of the full tax break here, are a small niche market of those earning in excess of £150k. But this is a jittery market, and though there may be a bit of new movement at the bottom with SIPPs investors, my bet is that in a falling market most of the sellers will bank their gains and join the STRs.
I just dont think the SIPPs factor is going to make the difference GB is hoping it will, and I dont think we need to worried by them.
" Equity markets can turn on a sixpence, it takes 2 minutes to sell a million shares. The housing market is like a supertanker .... It can take fifty miles to change direction. But once it's changed direction, it just keeps on going."
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I dont think we've got anything to worry about with the new SIPPS property scheme.
On the face of it it looks pretty worrying to an FTB. I've been reading up on it, and it is not resticted to earnings - only the refund you receive is limited to your earnings. So an earner on £200k who is paying £70k in tax can transfer £180k from his existing SIPP (Self-Invested Personal Pension) fund, or borrow it, and get £70k back in tax. A guy on £90k (not uncommon at all in London) paying £35k in tax can buy a £90k property (there are still plenty around) and get his £35k tax back. The following year they can do the same again. It's VERY attractive.
Lots of SIPP owners are going to go for this because in the current market they're virtually guaranteed a 5% return on invested capital (8-9% on their actual outlay) - and their investment is covered even if the market falls by 40% - there arent many investments around that can promise that. We're going to see property developers, financial advisers and lettings agents forming JVs to produce, sell and manage these schemes to the wealthy.
The structure of the scheme also means that the most attractive market for these is the FTB's market, entry-level rabbit hutches. This will definitely support the housing market to some extent - it's the entry-level that's bottlenecked at the moment.
If the economy depended purely on the continued stability and rotation of the housing market, the new SIPP scheme would be enough to prop up the housing market and hence the economy. The trouble is that there is a much bigger factor at play here - consumer confidence - which is MUCH bigger than the housing market, and is falling.
Even if every high earning SIPP owner bought into the scheme (which is pretty likely in my view!) it wont make much of a dent in the huge volume of unsold housing stock, and even if it did, does GB really imagine that HO's will just carry on as normal in this jittery market? I dont think so. In a fallikng market, I think for every 100 houses bought through SIPPs there will be 50-60 sellers who breathe a sight of relief, bank their gains and join the STR market.
Additionally, it's too late for a measure like this. The property market UK-wide has risen by 1.8% in the last 4 quarters, including a fall of 0.2% in the last month, that's the lowest annual rise since '96 - the end of the last recession. By next April when this new legislation comes into force (7 months away) our economy will be in free-fall.
It's just a feeble measure by a chancellor transparently desperate not to inherit a recession during his turn in the top job, and yet another measure to disadvantage the debt-addled and electorally insignificant younger generation. If it works it will be a social disaster, if it fails it will be a political disaster. This must be the only supposed 'left-wing' government in history to so actively re-distribute wealth from the poor to the rich.
I like this much-quoted analogy:
" Equity markets can turn on a sixpence, it takes 2 minutes to sell a million shares. The housing market is like a supertanker .... It can take fifty miles to change direction. But once it's changed direction, it just keeps on going."
Interested to hear comments on this
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I've got an up-market carpentry business in Cambridgeshire which has been growing steadily for the last couple of years. I've noticed a distinct fall in enquiries in the last few months. I'm still booked up 6 weeks ahead but I'm not turning away work like I used to.
I also planned to take on a new carpenter in October but I'm thinking twice about it now. I nipped into the Jobcentre the other day to check out going rates and there's not much work around and it's all short-term contracts.
I've also started getting calls from carpenters looking for work. That's never happened before!
I've known for some time that this time would inevitably come and have a plan in place to move into a lower sector of the market doing improvements for selling. I think maybe the time has come to put it into action.
Interesting times for sure. I'm glad I'm not in new-builds.
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The oil price has gone crazy lately with one thing after another. In the USA most of the homes in the northern states use oil-fired heating, unlike the UK where it is predominately gas-fired. With winter just around the corner and heating bills set to be up 70%+ I think the USA is going to see consumer spending hit the doldrums for Christmas and Bush's much-relied-on high-spending consumer is going to let him down.
Huge stockipiles of unsold cars....
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Well, I imagine many Americans are now going to begin to understand what it feels like to be someone in the Third World who gets very little financial aid from the World's largest economic power.
TMT very perceptive observation. I like that, I think I might use that myself!
Also, moving away from HPC issues slightly, but I found it slightly alarming that in the aftermath of a national disaster like this in a US city, the city degenerates into anarchy? That didnt happen in SE Asia after the Tsunami. I find it an appalling reflection on the "me first gimme gimme" attitude in US life, and the fact that the US has acheived so much growth while creating a huge underclass that lives in 3rd world conditions.
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Hi Simon
It's always difficult to foresee the catalyst of a crash, but historically a critical mass of buyers get jittery resulting more sellers than buyers. It it was foreseeable with hard facts - they wouldnt happen. The best we can do is analyse the vague and intangible trends and patterns.
I'm in a similar situation to you - my girlfirend & I earn over £50k between us and have £20k in the bank for a house deposit. That means we're above average as prospective buyers - with maxed out borrowing of £170k we could afford a house of £190k. Round here (Cambridge UK) that will get us in at the absolute bottom of the house market - a semi-derelict dump in the worst area of town. So why bother? We used to get depressed during our hopeful looks at the property section, now we just laugh at the absurdity of the prices. We're desperate to buy our own home, but we're not even slightly interested in kind of properties we can afford - and we both earn above average incomes!
As I see it the bottom is going to fall out of the market - it has to; first-time buyers like us will refuse to -or be unable to- pay the high prices for starter-homes and the bottom end of the market will grind slowly to a halt, sellers will start to drop their prices to sell, and the market will start to fall. That's the way it happened in '89.
Prices are already falling here, but they need to drop by another 25% at least before we'll seriously consider buying. Although we'd rather live in England, if it doesnt fall we'll emigrate to Australia where we can afford something decent for sure!
Steve
Calling All Cambridge-based People
in House prices and the economy
Posted
I missed it unfortunately - funeral. Did it happen, was it any good?