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Property is a gamble that IRs will never again rise much above 5%. I don't like gambling at the best of times, let alone with up to 200K of borrowed money.

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Property is a gamble that IRs will never again rise much above 5%. I don't like gambling at the best of times, let alone with up to 200K of borrowed money.

Thats assuming that house prices don't go up, which for much of the last 100 years would seem to be a good gamble. Rates will certainly go above 5% in the future, but not for at least 2 or 3 years from now, so its about how you manage that expectation. This is why the government should now be promoting 25 year fixed rate mortgages similar to those they have in the US, or different alternatives to the short-term options currently in the market.

Even if rates go above 5% its cheaper for me to own my property than rent, in actual fact if for the mortgage on the full value of my property rates would have to rise to at least 5.25% for it to be better for me to rent it than own it, and that doesn't take into account discounted rates. And thats on a conservative estimate for rent. Thats a gamble that i would happily take!!!!!!

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Thats assuming that house prices don't go up, which for much of the last 100 years would seem to be a good gamble.  Rates will certainly go above 5% in the future, but not for at least 2 or 3 years from now, so its about how you manage that expectation.  This is why the government should now be promoting 25 year fixed rate mortgages similar to those they have in the US, or different alternatives to the short-term options currently in the market.

Even if rates go above 5% its cheaper for me to own my property than rent, in actual fact if for the mortgage on the full value of my property rates would have to rise to at least 5.25% for it to be better for me to rent it than own it, and that doesn't take into account discounted rates.  And thats on a conservative estimate for rent.  Thats a gamble that i would happily take!!!!!!

5.25% is really is not that high, ES.

I am still paying off student loans and have no deposit, so renting makes much more sense even now, especially as the wife and I need to be flexible. Too many people are in my position as well, i.e. coming out of uni with debt, and little in the way of big money jobs.

Just don't see the earning power there to keep this bubble up, sorry

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5.25% is really is not that high, ES.

I am still paying off student loans and have no deposit, so renting makes much more sense even now, especially as the wife and I need to be flexible. Too many people are in my position as well, i.e. coming out of uni with debt, and little in the way of big money jobs.

Just don't see the earning power there to keep this bubble up, sorry

Its a long way from where rates are heading, which is down. The last time rates were this high was April 2001, and to be honest i would be surprised if they were this high again for at least 5-years, but more like 10 years because i think we are in an era of low inflation and low interest rates now.

Sorry to hear that Rich, but you can get on the market eventually. One consequence of the housing boom is that it has seen people profit of it and buy properties that there salary could not normally support. I started off buying a crappy little property in a crappy area with my girlfriend, and lived there for 2.5 years doing it up. The profit from there has allowed us to move up the ladder. On the jobs front you would be surprised, there are thousands of graduates getting a job fresh out of uni for £25k plus. Its unrealistic to think you can easily get on the ladder at under 25 years old without help or a good job, after that no-one said its not a struggle but it will be worth it.

Also if you have a secure job, shop around, you might be surprised what mortgages you can get

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Thats assuming that house prices don't go up, which for much of the last 100 years would seem to be a good gamble.  Rates will certainly go above 5% in the future, but not for at least 2 or 3 years from now, so its about how you manage that expectation.  This is why the government should now be promoting 25 year fixed rate mortgages similar to those they have in the US, or different alternatives to the short-term options currently in the market.

Even if rates go above 5% its cheaper for me to own my property than rent, in actual fact if for the mortgage on the full value of my property rates would have to rise to at least 5.25% for it to be better for me to rent it than own it, and that doesn't take into account discounted rates.  And thats on a conservative estimate for rent.  Thats a gamble that i would happily take!!!!!!

It's the real rate of interest that's important i.e. how much IRs are above inflation.

You shouldn't have a problem with 10% IRs, if inflation (including your wage inflation) is 8%.

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I guess you didn't see the old thread making a clear calculation that property bought now is still a saving versus renting for the next 40 years?

Hmm, that calculation did have a few assumptions in it though, didn't it?

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The Newbie obviously didn't see Channel 4 midday news, in the money section they had their economic correspondent (the young big guy with the slicked back hair), waving the minutes from the MPC meeting whilst saying "that anyone who reads these minutes will come to the same conclusion as me, the next rate movement could well be up!" That's very bullish for Channel 4!

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Guest struthitsruth

Fabbie Dabbie

Took a punt on it on betfair just for fun, while the odds were outrageous.

:lol:

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I guess you didn't see the old thread making a clear calculation that property bought now is still a saving versus renting for the next 40 years?

But it is highly likely that the same property bought in 2 years time will offer a much larger saving.

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hi

i rent a 3 bed place for 590 a month. no extra maintenance.

the house is valued at 200k. a 200k mortgage would cost me 850 a month. thats interest only. lest assume extra 75 a month to repay over 25 years. total mortgage cost about 925 a month.

thats 335 a month more to buy over 25 years. if i put the savings nto an account over 25 years that would be approx 100k in. assuming compund interest rates that would mean after 25 years i would have about 800k in bank.

so how is buying cheaper than renting ?

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Thats assuming that house prices don't go up, which for much of the last 100 years would seem to be a good gamble.  Rates will certainly go above 5% in the future, but not for at least 2 or 3 years from now,

Thats a gamble that i would happily take!!!!!!

over the last 100 years house on average have increased ~8% a year (source Nationwide and halifax)

average long term inflation rate ~7%

average longterm base rate ~ 8% (BOE)

so house price growth as we know it is a new thing, (happens to correlate to 'Baby-Boomers' age cycles)

not such a good gamble now is it,

Stock market provides better growth so do the maths and wake up

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Property is a gamble that IRs will never again rise much above 5%. I don't like gambling at the best of times, let alone with up to 200K of borrowed money.

Looking at a property in exeter.

Price = £350,000

BTL mortage is 85%

Thats a loan of £297,500

say 4.5% interest only mortage

That is yearly interest against the loan of

£13,387.5

or

£1115.63 a month

The Property in question rents out for £1000

so thats a loss of

£115.63

now add to that leasing agent fees, maintanence against the property, property innsurance and also actual capital repayments against the loan.

Whichever way you shake it that is another few hundred a month.

Some areas are different, but at peak prices BTL was making a loss.

now there are arguments that you can make a monthly loss and it is still a wise investments.. but there are also other arguments about blokes being able to wear pink shirts.

I have been convinced by niether.

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Its a long way from where rates are heading, which is down.  The last time rates were this high was April 2001, and to be honest i would be surprised if they were this high again for at least 5-years, but more like 10 years because i think we are in an era of low inflation and low interest rates now.

Sorry to hear that Rich, but you can get on the market eventually.  One consequence of the housing boom is that it has seen people profit of it and buy properties that there salary could not normally support.  I started off buying a crappy little property in a crappy area with my girlfriend, and lived there for 2.5 years doing it up.  The profit from there has allowed us to move up the ladder.  On the jobs front you would be surprised, there are thousands of graduates getting a job fresh out of uni for £25k plus.  Its unrealistic to think you can easily get on the ladder at under 25 years old without help or a good job, after that no-one said its not a struggle but it will be worth it. 

Also if you have a secure job, shop around, you might be surprised what mortgages you can get

Average post graduate salary out of university (outside london) is less then £17,000

WE all know that we can get big mortgages, many times our salary..

But Mortgage rates have been kept low by interest rates being artificially low for too long..

This spanned and responded to.

New Government (Labout first coming in.. kick start to the economy,)

september the 11th (maintain confidence in consumer spending)

the Iraq war.. (again for confidence and to generate money)

These were an artificial bandaid to unique events..

and the economy... is now in.. debt..

ohhhh.. (sigh) we all know it. The economy is suffering from too much debt.. we all know it.. we do.. stop pretending otherwise..

interest rates are climbing or the economy needs them to..

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Thats assuming that house prices don't go up, which for much of the last 100 years would seem to be a good gamble. 

You're absolutely right to say that property prices will rise over the long term, and that if bought at the correct time, property is a reasonably safe investment and it makes more sense to buy than rent. I think everyone on this site would agree with that, the key is knowing when to buy. If you look at the trend over the past few decades, whilst the long term trend has been up, the market has gone through cycles with wild fluctuations away from trend. At the moment, it appears from all the data available that we are at a peak in such a cycle, and one of the highest peaks above trend. It does not necessarily follow that prices will go back to or below trend, but are you prepared to bet 25-30% of the value of the properties you're looking at that that won't happen? I'm not, and neither are most people on this site, nor are most FTBs if current stats are anything to go by. If you're happy taking that type of hit, and would be prepared to stay in that property for five to ten years before you see positive equity again, then go ahead and buy, otherwise wait until the market becomes clear before making a decision.

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The Newbie obviously didn't see Channel 4 midday news, in the money section they had their economic correspondent  (the young big guy with the slicked back hair), waving the minutes from the MPC meeting whilst saying "that anyone who reads these minutes will come to the same conclusion as me, the next rate movement could well be up!" That's very bullish for Channel 4!

The Newbie works in the industry and your mate on Channel 4 then is just about the only person in the financial industry who does think rates are going up. The highly paid investment bank analysts all think rates are going lower, as well as just about every economist out there, especially as the IMF just revised our growth rates lower, meaning a higher chance of lower rates. Thankfully the Bank of England spend more time on their sums and less on slicking back their hair.

Mosstrooper if your landlord rents out your property for that much under its value then you he is either very generous or an idiot. I can safely say you are the exception rather than the rule, otherwise why on earth is every BTL investor not selling their property? Answer they are not because although margins are tight they are still in profit. Its maths 101 mate.

Kam its figures like that that make comments like that a mockery. Thats like saying that the average life expectancy over the last 1000 years is 55, or that the average wage over the last 40 years is £10,000. Fortunately things change, and what was the norm 15 or more years ago is not the norm now. If you talked to anyone who actually has a clue about what they are talking about they would know that long-term inflation is falling and is not expected to rise much in the future and long-term interest rates are falling. Sure rates may eventually go up to 8%, but i am prepared to wager not in the next 10 years at least, by which time property values will have doubled again. Get your head out of the sand and look at the chart, if you think rates are seriously going back up to even 6% in the next few years you need your head examined.

Apom how is interest rates rising going to help people out if they have too much debt?? Are you serious because that has to rank as one of the daftest comments i have heard yet. For a start the Bank of England is terrified of a housing slump, so the last thing they would do is put up rates, which would then push us into a recession. Please mate read an economics book and come back to the forum.

I bought my 2 flats last year, at the supposed peak of the cycle, and after having them revalued a few weeks ago have put on 22% on both of them through doing a little work. While you guys debate about it people are still making money in the market, you just have to be savvy.

Large, at last a decent argument, you are right they do go through cycles, but the current argument is that our economy is also evolving and the cycles are smoothing out and the economy is better managed, meaning that the boom and busts are not the same as they were. The economic scenario is completely different from the early 1990's and despite predictions of a slump over the last 5 years it hasn't happened yet. The correction of house prices by around 6% over the last year is probably all you will get, and if you miss the boat again people are going to become even more bitter and twisted in the future. Mark my words, rates will drop in November and twice more next year before July. Property prices will continue slowing but will pick up in the early part of next year.

Stick your head in the sand and pray for interest rates of 10% all you want, but it ain't going to happen

UK_Interest_Rates.pdf

UK_Interest_Rates.pdf

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Property is a gamble that IRs will never again rise much above 5%. I don't like gambling at the best of times, let alone with up to 200K of borrowed money.

Only £200k? I somehow feel that recent borrowers are in for more than that.

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Looking at a property in exeter.

Price = £350,000

BTL mortage is 85%

Thats a loan of £297,500

say 4.5% interest only mortage

That is yearly interest against the loan of

£13,387.5

or

£1115.63 a month

The Property in question rents out for £1000

so thats a loss of

£115.63

now add to that leasing agent fees, maintanence against the property, property innsurance and also actual capital repayments against the loan.

Whichever way you shake it that is another few hundred a month.

Some areas are different, but at peak prices BTL was making a loss.

now there are arguments that you can make a monthly loss and it is still a wise investments.. but there are also other arguments about blokes being able to wear pink shirts.

I have been convinced by niether.

Apom i am not going to sit here and justify every property. Just giving me one property doesn't make an argument, and i admit that in some areas of course there will be houses such as that. I am also not making an argument for buy to lets at the moment as yields are very low, my argument is that property prices are not going to drop by 25-30% as you all hope, the best you are going to get is another few % and for sellers to be realistic with their prices. Half the problem has been estate agents over inflating valuations too much, giving sellers too much hope. We had ours valued recently and the valuations ranged from £255 - £300!! £45k difference. We obviously took the lower valuation but it still suggested it had gone up 20% in the last year (when house prices are supposed to have dropped) with only a little work. And very few people would buy a £350k property as their first one with a 90% mortgage, most would buy it with significant equity already. Your first car isn't a BMW is it, its something crappy that gets you from A to B until you can afford something better.

And trust me its 200 times better living in your own property than risking renting from some idiot landlord where you can't do the place up. I would pay a premium, as would most rational people, just for that reason (and the capital appreciation of course!!)

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2 Flats? Where are they South East or in the North? First part of the postcode would be nice.

I'm trying to sell at the moment any I'd say by the lack of viewing my place was over valued by 5 agent by about 5%-10%.

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over the last 100 years house on average have increased ~8% a year (source Nationwide and halifax)

average long term inflation rate ~7%

average longterm base rate ~ 8% (BOE)

so house price growth as we know it is a new thing, (happens to correlate to 'Baby-Boomers' age cycles)

not such a good gamble now is it,

Stock market provides better growth so do the maths and wake up

Hi,

If we think average, then it is definitly not a gamble, in my opinion buying now would be a financial suicide. We are above, far above many averages!

For me it is no buy. The higher it gets the stronger the fall. Low IRs will come to an end as people (even government <_< ) will not be able to borrow for ever. This cheap monney was an artificial mean to get out of .com crash. But as usual humans have been binjing on opportunities, to much of a good thing is a bad thing as simple as that.

TWT

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Apom how is interest rates rising going to help people out if they have too much debt?? Are you serious because that has to rank as one of the daftest comments i have heard yet. For a start the Bank of England is terrified of a housing slump, so the last thing they would do is put up rates, which would then push us into a recession. Please mate read an economics book and come back to the forum.

I am not concerened about those in massive debt..

That is a small proportion.

House prices were speculative.. have never not re-alligned.

True economist will tell you that there can't be this level of fiscal shift within peoples expediture..

£200 a month of your take home.. hits the rest of the economy and psuhes recession..

Interest rates are not to help people in massive debt.. the minority..

they are to allow the economy to function.

if you have thrown all of your money into an economic aberation.. remember it is just that.

I am an economist..

looking at the whole picture..

and I am being proven right.

also they have built too many properties..

oversupply

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Guest prudence

Declining IRs will signal a declining economy, increasing jobs cuts, bankruptcies etc and a general loss of confidence. It will not be an environment in which people will want to borrow even more to buy properties that are already hugely overpriced and see them go up even more. If average house price is now around £160000 and average salary around £26000 and a house should cost 3.5 times salary, the average house should be just between £90000 and £100000. So the average house already around £60000 too expensive, meaning that people are having to borrow riskier income multiples in order to buy. So incomes would have to rise from £25,000 to around £47,000 to return to average with prices just staying flat. That's a jump of £22000. Just work out how many years it's going to take for that to happen. Of course, if IRs falling were to push house prices up again (some people seem to have not even heard of Japan let alone what happened there) the gap would grow even wider. £160000 house increasing by five percent per annum, rise £8000. Salary increase of four percent on £26,000, that's £1140. Anyone who thinks that the market just has to cool its feet for a few years to let incomes catch up with prices or that falling IRs are going to encourage all those people who are already in debt up to their eyeballs to borrow even more are living in my opinion in cuckoo land. How much are houses there, I wonder?.

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To me this is your main point.  Here's an authoritative response as you don't believe us:

http://www.economist.com/opinion/displaySt...tory_id=4079027

Why should we believe your anecdotal figures over calculations done by 'The Economist' staff drawn from government statistics, published in the national press, and so far undisputed by anyone else or retracted as mistaken?

Ladies and Gentlemen we have a new BULL!

What seems to be common with bulls is that they are selective with the questions they answer (TTRTR is the master of this) and then start telling people to read economics books when they themselves are getting frustrated that they can't illustrate their point so that other people agree with them.

Actually I am very grateful for a new bull as they are dying breed.

I have found this thread interesting because ES is an eloquant poster and knows his argument well. What I question is how he is so sure that interest rates are bound to stay at historically low levels when oil is so expensive and showing little signs of falling, and how house prices will double again in the next 10 years if inflation elsewhere is going to be so low.

I also wonder quite where ES sits on the debt mountain, presumably at the top. When suggesting that FTB don't buy 300k properties because you don't buy a BMW as your first car, I agree, but for prices to double over the next 10 years, FTB will have find more and more more money (debt) because in ES's world, inflation will remain low as will interest rates, therefore wages will be contained and everything will be alright. I think the only danger ES sees in the world is not being on the housing bandwagon, and attitude that is so last season. PResently at home, there are approximately 50-60 property shows on a day on sky with repeat after repeat. They all paint the same rosy picture and have created and have tried to maintain this bubble.

Now we get "the Economist" telling us that rental yields are a joke, yet a bull will tell us its Ok and there is still money to be made if one is "savvy" without explaining quite how. This is based on the TV land assumption that prices will rise by more than is lost on rental costs, yet ES also admits that some places will see falls. If some places see falls and rents are lower than prices, its a crap investment in capital appreciation and yield terms and that can start the snowball going down the mountain gathering snow on the way.

Lastly, I don't think that people are willing to pay a premium for buying over renting. Traditionally its been the other way round. Renting is more flexible, and if rents are below or on a par with mortgages then capital can be employed better elsewhere with no hassle for the investor. EVen the term investor makes me whince, until Sarah Beeny and Kirsty came along, a home was a home.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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