If You're Easily Shocked, Look Away

[foxy]

WHAT? I don't believe it! Someone in the UK is buying a property?!?!?!111!!! OMG LOlZzz!11!!! Are they mad insane stupid idiot?!?!11!Lolz

I mean, after all, this is a country of 65 million people, and everywhere you look there are properties, what on earth is someone doing buying one, are they insane?!?!! I thought everyone in the UK subscribed to the HPC.co.uk hivemind groupthink and would never countenance such a thing. What, whats that? Only a handful of sillies do? Oh, right, that would explain the reality disconnect then.

WTF?

[Si1]

I thought he would get his interest paid rather than getting repossesed?

that's not that much tho compared to the whol ebad debt...

[Guest_chris c-t_*]

First of all 130 grand is about 5 x his salary not 8 x as you stated.

Also he is getting 6,000 a year from renting out his property.

Time has shown that one should never sell property, only buy it.

As long as he can remain liquid then he will be able to retire with a lot more "wealth" than his typical ponzi scheme 25,000 a year wage will allow.

Sorry, but you have to take risks in life. If you always play it safe you will get left behind. I think he is making a good decision.

As long as he is willing to ride the volatiile roller coaster of boom and bust britain over a long time frame he will be glad of his decision.

"first off" his total debts are 70k+130k = 200k.

200k/25k = 8

200k/(25k+6k) = 6.45xincome. Minimum.. not incl. missed months rent. maintenance etc.

LEVERAGE duh...

A small tick up in IRs or a small downward price movement and he gets wiped out. Not to mention if he loses his job.

Seems we are back to the crazy days. I am out of the Ponzi scheme totally now. No debts. Savings in hard assets.

Edited February 2, 2010 by chris c-t

[massacre666]

Err, let’s see. He has a flat worth £80K. He remortgages it for £70K. That means he is £70k in debt. He then uses the £70k against as a deposit on a £200K house, borrowing the remaining £130K. That means he is £200K in debt......

not sure about that , he certainly is £200K in debt but you have to take to account he also still owes a house which is worth 70K, rented, likely to go up in price in the long run, if he can afford the repayments why worrying?

[Dorkins]

if reposessed in next few years then not likely to be in much negative equity if any at all, he has an 80k buffer to squander don't forget

and beyond next few years chances of unemployment likely to reduce

it's nasty on him for sure - but the risk really does lie more with him and not so much the bank/taxpayer

Depends what happens to nominal house prices. He owes £200k against two properties with a current market value of £280k. His equity cushion is a 29% drop in house prices. After quite a few years of 10-20%pa HPI, that could easily happen.

Plus if that flat goes to £40k he won't be renting it at £500. Even if yields shoot up to 10% he's looking at sub-£350. Might not sound like a lot, but the mortgage on £200k is £1070 at 4% (£670 IO), £1430 at 7% (£1170 IO), £1840 at 10% (£1670 IO). It just barely works for now, but any shift in his rent, mortgage interest, or wage in the wrong direction and there is no breathing space at all.

Edited February 2, 2010 by Dorkins

[Bloo Loo]

not sure about that , he certainly is £200K in debt but you have to take to account he also still owes a house which is worth 70K, rented, likely to go up in price in the long run, if he can afford the repayments why worrying?

funny, but all mortgages work like that.

now all he needs is for the valuers to value both properties.

£500 per month for a 80k flat?....sounds expensive as a 10k down buyer could snap that up with a repayment mortgage @ £409 per month or less.

indeed, the house, if in the same area, sounds expensive too.

Edited February 2, 2010 by Bloo Loo

[Si1]

not sure about that , he certainly is £200K in debt but you have to take to account he also still owes a house which is worth 70K, rented, likely to go up in price in the long run,

no it isnt, not in real terms in the next few decades anyway, he'll probably never quite realise why he is so poor in future, infaltionary losses are like that

[Si1]

Depends what happens to nominal house prices. He owes £200k against two properties with a current market value of £280k. His equity cushion is a 29% drop house prices. After quite a few years of 10-20%pa HPI, that could easily happen.

Plus if that flat goes to £40k he won't be renting it at £500. Even if yields shoot up to 10% he's looking at sub-£350. Might not sound like a lot, but the mortgage on £200k is £1070 at 4% (£670 IO), £1430 at 7% (£1170 IO), £1840 at 10% (£1670 IO). It just barely works for now, but any shift in his rent, mortgage interest, or wage in the wrong direction and there is no breathing space at all.

yep - but I think successive governments will monetise these assets and avoid this (thanks to Bloo Loo for the concept!)

[massacre666]

no it isnt, not in real terms in the next few decades anyway,

and what makes you sure about that? nobody knows

[Radge]

not sure about that , he certainly is £200K in debt but you have to take to account he also still owes a house which is worth 70K, rented, likely to go up in price in the long run, if he can afford the repayments why worrying?

And folk wonder how we got into this mess? Beam me up for a shyte, Scotty!

He did own a flat valued at £80K. He no longer has the deeds - he has £10K equity in that flat, the bank to all intents and purposes owns £70K of it. Worse still, if its value falls, it's his £10K that goes first!

I'd love to know what this wonder-town is where £80K flats generate £500pcm rental income. In Edinburgh, you can't buy a flat for less than @ £85K even in the worst ex-council estates - more likely £120K, but you can rent for as low as £430 pcm.

By my reckoning, with a following wind after tax, costs (excl. mortgage) and minimum voids, he'll be lucky to clear £400 pcm in rent, added to his £1,562 take-home pay less his £1,169 pcm repayment mortgage gives him £793 pcm to feed, clothe, heat, light, council tax, transport and entertain him, his wife and 2 kids and furnish his big new pile! Good luck to him, looks like a recipe for 25 yrs of misery to me.

Worse still, any void over a month and his cash-flow is fecked.

If he's on an I/O mortgage, then ultimately he's on the road to owning boogger-all!

Edited February 2, 2010 by Radge

[Si1]

and what makes you sure about that? nobody knows

no. you said it was likely to increase. I am saying it is likely to decrease. I base this on an assesment of the value implied by the yield. You just made it up.

This stupid idiotic selective argument that says 'house prices always go up but if you argue against it then nobody knows' is nonsense

value-based fundamentals say long term falls. you don't understand that do you? your loss.

[Guest_chris c-t_*]

and what makes you sure about that? nobody knows

I know...

courtesy of GoldFinger...

http://gold.approximity.com/gold_charts.html

Edited February 2, 2010 by chris c-t

[massacre666]

no. you said it was likely to increase. I am saying it is likely to decrease. I base this on an assesment of the value implied by the yield. You just made it up.

This stupid idiotic selective argument that says 'house prices always go up but if you argue against it then nobody knows' is nonsense

value-based fundamentals say long term falls. you don't understand that do you? your loss.

your guess is a good as mine,

Maybe I don't understand it, but then again I am not part of the " house price crash cult ", cos this is what it is, just a cult - nothing wrong about that but you lot are just preaching, in a very arrogant fashion.

[HumanAction]

TBH I don't see this as a massive risk on behalf of the buyer ( unemployment is the only real risk ). Nominal prices probably aren't going to fall and it's nominal price falls ( as opposed to real price falls ) that will wipe people out. Similarly the system could not take heavy IR rises so they simply wont happen, at least not without heavy preceeding inflation. Gov't is pretty obviously going to inflate at this point so property, whilst maybe not the best option, certainly looks better than cash.

[libspero]

you lot are just preaching, in a very arrogant fashion.

I can see you are gonna fit in just fine

[Radge]

TBH I don't see this as a massive risk on behalf of the buyer ( unemployment is the only real risk ).

If he has a 2 month void he'll have net income after mortgage of @ £393 pcm, 2 lots of CT to pay at @ £100 each property at least, so he's going to feed his family and all the rest on @ £193 pcm for those 2 months?

I'll wager he's up the creek before the year's out.

Edited February 2, 2010 by Radge

[Bloo Loo]

If he has a 2 month void he'll have net income after mortgage of @ £393 pcm, 2 lots of CT to pay at @ £100 each property at least, so he's going to feed his family and all the rest on @ £193 pcm for those 2 months?

I'll wager he's up the creek before the year's out.

god help him if he has any repairs....must be £50 jut to call a plumber.

then theres the deposit scheme, house insurance and so on.

and if its a flat, arent there fees to pay for the building upkeep annually too?

[HumanAction]

If he has a 2 month void he'll have net income after mortgage of @ £393 pcm, 2 lots of CT to pay at @ £100 each property at least, so he's going to feed his family and all the rest on @ £193 pcm for those 2 months?

I'll wager he's up the creek before the year's out.

With new mortgages you can take holidays or make underpayments or just go IO for a while..... I don't think it's the best move he could make but if he keeps his job he wont get wiped out anytime soon and in the medium to long term inflation will ease the pressure on him. Real prices aren't going to hold up but nominal probably are.

[Radge]

With new mortgages you can take holidays or make underpayments or just go IO for a while.....

I refer the Honourable Gentleman to the remarks I made some moments ago:

And folk wonder how we got into this mess? Beam me up for a shyte, Scotty!

[HumanAction]

I refer the Honourable Gentleman to the remarks I made some moments ago:

Oh I agree it shouldn't be this way but like it or not it is and no one in govt or likely to be in govt is going to do much to change things.

[Bloo Loo]

With new mortgages you can take holidays or make underpayments or just go IO for a while..... I don't think it's the best move he could make but if he keeps his job he wont get wiped out anytime soon and in the medium to long term inflation will ease the pressure on him. Real prices aren't going to hold up but nominal probably are.

I doubt you can for a business loan....like the one the guy should be taking out for the flat.

[jonewer]

So houses outperform gold in the long term?

[Radge]

I doubt you can for a business loan....like the one the guy should be taking out for the flat.

Exactly. Added to which, the estimates done so far have been on a £200K all-in residential mortgage. In actual fact, the BTL element for the flat will be more expensive.

HumanAction: Most mortgages allow limited hols or i/o periods. These would be something to keep in reserve in case of job-loss, ill-health etc. Not to set aside against exigencies like voids which will in all probability happen around every 2 years at least.

[HumanAction]

Exactly. Added to which, the estimates done so far have been on a £200K all-in residential mortgage. In actual fact, the BTL element for the flat will be more expensive.

HumanAction: Most mortgages allow limited hols or i/o periods. These would be something to keep in reserve in case of job-loss, ill-health etc. Not to set aside against exigencies like voids which will in all probability happen around every 2 years at least.

2/3rds of the debt is not going to be a business loan.....

You are the ones saying he'll have an emergency, I'm simply saying he has wriggle room in the short term ( and frankly all the risk is essentially short term given where inflation is going ). It's irrelevent that the wriggle room maybe isn't really intended to cover the problem he might actually have, it'll still be there when he needs it.

Edited February 2, 2010 by HumanAction

[Si1]

So houses outperform gold in the long term?

I'd expect just about any functional asset does...