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swissy_fit

Why Many People Who Str Who Have Cash Are Buying

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The artificially low interest rates have changed everything. Until they're forced up by the bond markets, bulls will keep crowing...

Estimated situation of housing costs (South East) in Sept/Oct 2008 :

Rent = 1200pcm

Interest income at 6% from STR fund of 300k = 900pcm after 40% tax.

Increase in purchasing power due to approx 2% price falls per month based on 300k property = 6000pcm

Monthly change of purchasing power position = 6900 - 1200 = +5700.

So not buying is a no-brainer in these circumstances.

Estimated situation of housing costs (South East) in May/June 2009 :

Rent = 1200pcm.

Interest income at 1.5% from STR fund of 300k = 225pcm after 40% tax.

Increase in purchasing power due to approx 0.5% price falls per month (possible rises as well) based on 300k property = 1500pcm

Monthly change of purchasing power position = 1725 - 1200 = +525. This figure is negative in months where prices rise like May.

OK, in theory cash holders are still just about gaining. Not by much though, and when you consider the fear factor of holding cash while Gordon is printing, plus the uncertainties of renting, it's easy to see why people with funds are buying.

It also explains why the number of mortgages are increasing but the lending totals are down.

Add a few morons who are buying with tracker mortgages and you have yourself a bounce.

Bears need normal interest rate levels. Sibley and Rinoa will be happy until we get them.

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Estimated situation of housing costs (South East) in May/June 2009 :

Rent = 1200pcm.

Interest income at 1.5% from STR fund of 300k = 225pcm after 40% tax.

Increase in purchasing power due to approx 0.5% price falls per month (possible rises as well) based on 300k property = 1500pcm

Estimated situation of housing costs (South East) in May/June 2009 :

Rent = a lot less than 1200pcm.

Increase in purchasing power due to approx 1.5% price falls per month (possible rises as well) based on 300k property = 4500pcm

Increase of STR fund when invested over the past two months in the biggest Stock Market rally

for a decade = f*ckin' huge bundle of cash

Just some slight adjustments, there.

PN

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you haven't factored in the fall in average rents during that time.

approx 15% I think

..as well as the opportunities of other investments

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you haven't factored in the fall in average rents during that time.

approx 15% I think

Couldn't agree more. I secured a 15% discount from a very accommodating EA and landlord in prime zone 1 London. The EA said that this has been very common over the last year with discounts between 10-25%.

STR'ers who do not fall for this bull trap will benefit from a further 30%+ nominal falls over the next 2-5 years IMO.

Edited by uncle_monty

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The artificially low interest rates have changed everything. Until they're forced up by the bond markets, bulls will keep crowing...

You should have just stopped there. Patience is a virtue.

By now and repent at leisure.

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People also need a house and despite what some think, most prefer the security of having their own. With all the uncertainty around, many people would rather know what their future holds as far as having a roof goes.

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Estimated situation of housing costs (South East) in May/June 2009 :

Rent = a lot less than 1200pcm.

Increase in purchasing power due to approx 1.5% price falls per month (possible rises as well) based on 300k property = 4500pcm

Increase of STR fund when invested over the past two months in the biggest Stock Market rally

for a decade = f*ckin' huge bundle of cash

Just some slight adjustments, there.

PN

Hmm. You reckon prices are still falling at 1.5% a month?

Congrats on your gambling skills with the FTSE, but not many will have had the courage for that.

My 1200pcm rent was an estimate for someone renting a property equivalent to their 300k house that they sold. If you are able to live in something much cheaper, fair enough.

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Guest DissipatedYouthIsValuable

Faulty logic, OP.

"I'm not making any money on my savings, so I'll buy something that's going down in value."

Edited by DissipatedYouthIsValuable

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Couldn't agree more. I secured a 15% discount from a very accommodating EA and landlord in prime zone 1 London. The EA said that this has been very common over the last year with discounts between 10-25%.

STR'ers who do not fall for this bull trap will benefit from a further 30%+ nominal falls over the next 2-5 years IMO.

I think that's the point I'm making, if it takes 5 more years to drop 30%, that's 0.5% a month, which fits in with my estimates. STRs will only gain significantly if rates go higher and prices fall faster.

Edited by gleeful_expat

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Faulty logic, OP.

"I'm not making any money on my savings, so I'll buy something that's going down in value."

If we were talking about anything other than houses, this would be true.

However we all have housing costs whether we buy the "something" that's going down in value or not.

I should add, I don't believe this situation will last long, rates will rise in due course and Sibley/Rinoa will disappear.

I was merely pointing out why STRs are buying now.

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When the last bear turns bull...

Funny you don't hear that so much these days.

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perhaps, but you can still get around 3.75% in fixed rate bond, and rental yield is so low and falling, that I don't agree with your numbers.

also if i really thought prices had bottomed out i would buy, but it only even begins to make sense with hpi of 5% per year, and i am willing to wait and see what happens to the spring bounce!

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perhaps, but you can still get around 3.75% in fixed rate bond, and rental yield is so low and falling, that I don't agree with your numbers.

also if i really thought prices had bottomed out i would buy, but it only even begins to make sense with hpi of 5% per year, and i am willing to wait and see what happens to the spring bounce!

Exactly, my pile of beer vouchers remains a steady size, it is to be used for house purchase, so the only thing I keep an eye on are house prices, and yes, its not hard to get 3.75% these days, QE does not affect my decision, only the house price. The unexpected thing for me is how nice it feels to be foot loose and fancy free now that I do not have an anchor! - All this is tempered by feeling really , really angry on behalf of all those young people who believed agents in 2006/7/8 and bought.

All this happened on Browns watch people.

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The artificially low interest rates have changed everything. Until they're forced up by the bond markets, bulls will keep crowing...

Estimated situation of housing costs (South East) in Sept/Oct 2008 :

Rent = 1200pcm

Interest income at 6% from STR fund of 300k = 900pcm after 40% tax.

Increase in purchasing power due to approx 2% price falls per month based on 300k property = 6000pcm

Monthly change of purchasing power position = 6900 - 1200 = +5700.

So not buying is a no-brainer in these circumstances.

Estimated situation of housing costs (South East) in May/June 2009 :

Rent = 1200pcm.

Interest income at 1.5% from STR fund of 300k = 225pcm after 40% tax.

Increase in purchasing power due to approx 0.5% price falls per month (possible rises as well) based on 300k property = 1500pcm

Monthly change of purchasing power position = 1725 - 1200 = +525. This figure is negative in months where prices rise like May.

OK, in theory cash holders are still just about gaining. Not by much though, and when you consider the fear factor of holding cash while Gordon is printing, plus the uncertainties of renting, it's easy to see why people with funds are buying.

It also explains why the number of mortgages are increasing but the lending totals are down.

Add a few morons who are buying with tracker mortgages and you have yourself a bounce.

Bears need normal interest rate levels. Sibley and Rinoa will be happy until we get them.

Really all depends on who is buying the bonds doesnt it. Im picking the Govt will buy a lot of its own bonds. Lets be honest, who else is going to buy them? Recent news reports have indicated this.

You tell me what happens to the BoE base rate when the govt buys its own bonds? Rates will stay at this level for at least 12 months.

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The house I rent would cost me 3x as much per month on an IO mortgage (assuming 20% deposit) at TODAY's historically low interest rates.

Total no brainer for me - I'm currently saving £1550 per month by not buying and even that is eclipsed by the loss I'd be making monthly on a depreciating asset if I were to buy. I'm certainly not confident that property has 'turned the corner' - I think that anyone that buys before the next GE is VERY brave indeed !

Buckers

That's exactly right. I don't know why this simple comparison is not used more...

My LL bought at the end of 2008 and is loosing money every month. It's so dumb.

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Also, at the moment my small house is costing my £875 per month, my mortgage on what I want to buy will be a couple of hundred or so more. At least by renting I am also saving a few hundred extra in to my fund. That said, I am now actively looking around, not due to my thoughts on the future of the market, but due to my missus p*ssing me off about wanting to get settled. Cant put a price on severe ear ache and a pain in the neck!

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Also, at the moment my small house is costing my £875 per month, my mortgage on what I want to buy will be a couple of hundred or so more. At least by renting I am also saving a few hundred extra in to my fund. That said, I am now actively looking around, not due to my thoughts on the future of the market, but due to my missus p*ssing me off about wanting to get settled. Cant put a price on severe ear ache and a pain in the neck!

Stick any savings in the best place possible. Kill your partner, serve about seven years (No rent) with good behaviour and at that point we should have reached the bottom and you can buy the house of your dreams and look back on those annoying days of ear aches and neck pains with a little chuckle.

Just an idea ;)

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Stick any savings in the best place possible. Kill your partner, serve about seven years (No rent) with good behaviour and at that point we should have reached the bottom and you can buy the house of your dreams and look back on those annoying days of ear aches and neck pains with a little chuckle.

Just an idea ;)

,,,,, but she would put up too good a fight, I am scared of her....

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VI Alert! (just for the tinfoil hat brigade)

According to the latest CPI figures, rents are down 0.2% on last month but 1.1% up on a year ago.

As they represent over 10% of the index, if they seriously start to drop, inflation is less likely to rise much and interest rates can stay low longer.

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VI Alert! (just for the tinfoil hat brigade)

According to the latest CPI figures, rents are down 0.2% on last month but 1.1% up on a year ago.

As they represent over 10% of the index, if they seriously start to drop, inflation is less likely to rise much and interest rates can stay low longer.

Real world alert!

Base Rates are officially irrelevant now. Haven't you heard the news this week - lenders are stampeding to increase rates.

It's over, mate - you're screwed.

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