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Seen It All Before

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About Seen It All Before

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  1. A million quid around there gets you a four-bedroom house with a large garden. A fair price for a place with a quarter of the space would be a quarter of the price. No? Also look at the floorplan. Where would one put the second bedroom the details say is possible? It looks like a landing that's been made into a flat - everything opens off the living room including the khasi!
  2. Er, everyone who disagrees with you is not an estate agent, dude. We should certainly ignore selling / buying expenses, because in the example given there, wouldn't have been any. As for repair costs, well, what's a reasonable amount on a £95k house? Maybe a few hundred a year? In fact, you could probably get away with nil or nearly. I have seen houses offered that had had no maintenance done in 45 years and the asking price was the within 2 or 3 per cent the same as the one round the corner that had been well kept. Condition of a house has basically no bearing on its price as far as I can see. No. Using the dates from the post I was responding to, the poster indicated he had sold in 2001. The money from the sale of the house would be the net equity after costs, not the gross sale price. See above. Moreover, if you were making £40,000 a year in investment returns, it couldn't all be tax-sheltered anyway; it would have attracted income tax at 40% assuming the OP was also earning, as seems likely. So even if he started with £95k in cash, what he would now have would be closer to £230k. The only way you could get a net fivefold return would be if you started out with a small sum and sheltered the whole lot in ISAs and the like. I was 23, in fact, and compared to 1989 - 1992, this is a breeze. Back then I was on £24,000 a year. On a £72,000 repayment mortgage my monthly repayments hit £950. That was before rates, utilities, service charges, or insurance. At one point, I worked out that my disposable income was two-thirds of one per cent of the gross. The mortgage payments on my current flat aren't even a third of that and it's worth ten times as much. No. You see....I've been hearing this for 11 years, usually from people who want my flat now for what I paid 14 years ago. It's like Vince Cable predicting 17 of the last 3 recessions. A stopped clock is eventually right twice a day I suppose, but it hasn't happened yet. If it did, I'd still have equity in the flat because the mortgage is about a third of the current value. If it halved in value, I'd sell it and buy a bigger flat. Well, maybe. The way I cut it is that over the last 14 years it has appreciated from £245,000 to around £600,000 and for the last 7 has paid me about £7,000 a year net of all costs. The fact is that any event apocalyptic enough to wipe out that £400,000 would take everything else down with it. For one thing, you'd likely find that property only sells for cash. If its price has halved, no lender will lend on it in case it halves again. So the deposit becomes the price. But you haven't got the cash for a deposit now, and neither will you have cash for the whole asking price after this crash you think you want. A crash on that scale will drive you out of the market just as surely as current prices have. Most of all, though, It is simply delusional for any renter who is still in denial after all this time to mistake themselves for a shrewd financial wizard. Nobody like that is going to step in, have the last laugh and profit triumphantly from their ill-judged decision to exit the market 10 years ago or whatever. If prices halve, the crashers will hang back thinking they're going to halve again. And then they won't. Or something. Anyone who did exactly the wrong thing back then is absolutely guaranteed to keep on doing the wrong thing now: they have a track record of hopelessly poor judgement.
  3. In London it's even worse, in that not only are prices 9 or 10x salary but the salary is itself taxed more heavily and excludes you from lots of benefits. If you did your calculation net for net you'd find Londoners' wage advantage is more than consumed by housing costs. Notwithstanding which, the question is surely - affordable to whom? In London houses only have to be affordable to non-doms who earn city money and who pay much lower taxes than us proles. People have been arguing that affordability versus UK wages was about to cause a price crash for at least 11 years now. It's not happened yet because affordability to the local yokels is no longer as significant a factor as it was. There are more people, many are internationally rather than locally paid, more women work so it's now 3x two salaries, interest rates are historically low and transaction costs are at historic highs, all of which bugger up the supply-demand-price relationship. The only bearish factor that has come through in the last 10 years is student loans, which have pushed back the time when people can start saving for a house, but the disappearance from the market of graduate FTBers has been offset by the huge influx of immigrants over the last 15 years, many of them fabulously wealthy. Prices may come off but it will require a different cause to all the usual ones.
  4. I'd say this place was worth about £275k in the current market, if even that.
  5. Interesting. So for the sake of argument let's say you sold at £95,000, which Nationwide says was the average house price then. Had you kept your £95,000 house, you would now have one worth about £170,000, so a £75,000 capital gain. Over those 11 years, if you had been paying only the interest on a £95,000 mortgage, you'd have laid out say 3.5% of that a year for eleven years. If you had rented the same average house, you'd have laid out a similar 3.5% of its steadily increasing price (averaging about £130,000) over that period. So the interest-only mortgage would have cost £36,575 to serve, whereas the rent would have been continually adjusted and would have been £50,050. The difference is £13,000 in favour of owning. So roughly you'd be £88,000 up at this point from owning versus renting. There is a cost of maintenance involved with owning, of course, but rentals tend not to be maintained in my experience, and if the landlord has had to spend anything s/he tends to steal the deposit to fund it when you move on, so I've ignored that. I've also ignored the fact that typically as you get older you need more house to accommodate children, i.e. the gain from ownership is probably a bit understated. I don't know what amount of cash you had invested in 2001, but in order to be better off now after 11 years of renting, you must have started off with about £17,000, and have about £90,000 net now, right?
  6. I see no difference in principle between renting a house and renting the money that buys a house. Either can be argued to be money down the drain. The claim that people who rent from landlords are somehow paying the landlord's mortgage makes very little sense. In practice most rental yields just about cover the interest. I've got a flat that I let out unfurnished. The value is probably about £600,000 and the gross rent is £30,000pa. The net rent is that less 18% for letting and management, then take off the service charges and the usual maintenance and the residual is about £21,000. Take off 52% income tax and that's £10,000 left, which is not much of a return on £600,000. It makes sense economically only because if I sold the flat, I'd clear about £220,000 after tax. In effect that's what I'm getting my £10,000 net return on, so about 4.5%. I'd need to be getting nearly 10% gross to make that. The difference between the 10% I'm getting and the 3% I'd get in a bank is the premium I'm being paid to accept the risk of capital loss. I first bought in 1986, was relocated in 1988 and paid £85,000 for a 1-bed London flat that 2 years later was worth £59,000. With that degree of negative equity I was well and truly stuck, and I felt like the flat owned me rather than the other way around. The interesting thing though was that people who were renting were no better off at that time. As mortgage rates rocketed, so did London rents, because the alternative was to buy a place whose price would fall. Renters were forced to pay the premium for not being exposed to falling prices. The grass was never as green as it appeared and in fact I really cannot see how renting makes any sense long term. Even when I've rented (8 years of the last 26), I've maintained my exposure to London property prices. I have seen too many people leave London for work or whatever, sell their house, move overseas and then when they come back umpteen work promotions later they can't afford to buy back what they sold.
  7. There is, however, a yield on property as well in the form of a place to live in. What's a pile of cash for if not to be spent?
  8. We are renting, but have just bought and will be moving in a month or two. We each had a flat which we let out in order to rent in an area of London with decent schools. We sold one flat to buy the house. 50% deposit, 3x salary, and an eyewatering price for what is basically a semi in a pleasant area. The other flat we still have. It is in a nice white stucco part of town with canals, restaurants, transport links and parks. There are four other flats in the house; 3 of the 5 owners are foreigners and 4 of the 5 occupants are foreigners. Certain areas of London have been 100% bought up by foreign money. It must be 100 years since anyone born in Belgravia, Sloane Street, St John's Wood, Holland Park or Mayfair was able to grow up, get a job, save for a deposit and buy something similar in the same area on a mortgage of 3x salary. Some of those houses now cost into the tens of millions and all are owned by foreigners. Maida Vale, Kew, Docklands and so forth are next. I can remember talking to people in 2001 who thought the London property market looked a bit toppy and was overdue for a correction. Usually this was based on salary multiples. The fact though, then and now, is that London is not a UK city any more, and hence its prices are wholly unrelated to traditional indicators such as local salary multiples. The house price crash some people think they want will, I suspect, probably happen only to us locals. Pay up for a 2-bed flat in Finchley, Stechford or Ipswich and you're going to be screwed because no Russian oligarch or expat banker is going to bid the price of those up. Unless some government decides it doesn't want the City any more I can't see any sign of an end to all this foreign money though.
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