Jump to content
House Price Crash Forum
Mr. Miyagi

Are British People Thick?

Recommended Posts

Okay, before I start this was a conversion relating to the Government proposals for local government employes to pay in 3% more in contributions into the pension scheme.

The debate (argument) centered around the issue of whether property would be a better investment for a pension then paying the extra 3% in contributions.

Before I get into the details the current pension expectations of the person in question amounts to £18,000 p/a, and around £12,000 p/a for the other person in question, both CPI index linked.

They both gave the example that of a house that was purchased for £50k and sold for £100k would give them a profit for the pension pot of £50,000. I explained that the profit would not be £50k but the amount would be equal to the capital appreciation - the interest payments - capital gains tax.

I calculated that on a repayment mortgage on the sum the interest payments of 25 years at 5% would be around £37k and that would leave a net profit of only 13k. I also went on to explain that the guarantee of higher appreciation in real terms on the price of the house could not be guaranteed.

At this point they both refused to engage with anymore, telling me that I was wrong and that they would be far better off if they invested their money in property. I did not get around to maintenance, voids etc. Admittedly I did not go into details of mortgage interest tax relief nor did I base my calculations on an I/O mortgage .

The question is are people in the U.K so indoctrinated into property only ever goes up mantra that they have become brainwashed, or are my colleagues simply thick?

Incidentally one has a BTL, one bought at the peak. Both are educated to degree level.

Have a got the basic calculations right? How many properties would you need to own to guarantee and pension pot of £18,000 p/a accounting for inflation?

Edited by Mr. Miyagi

Share this post


Link to post
Share on other sites

The pension industry in this country is such a fking rip off . The public sector do much better than the private sector but now the public sector is going to have to pay more in. These two sound like they are looking for a different route . Many people are.

Your right buying houses is not the best way forward right now but would have been 20 years ago , but then again 20 years ago anyone paying into a final salary pension scheme would have done better than those paying in now.

No one knows what the future holds but trying to sort out the money for retirement is getting harder and harder .

Share this post


Link to post
Share on other sites

They both gave the example that of a house that was purchased for £50k and sold for £100k would give them a profit for the pension pot of £50,000. I explained that the profit would not be £50k but the amount would be equal to the capital appreciation - the interest payments - capital gains tax.

I calculated that on a repayment mortgage on the sum the interest payments of 25 years at 5% would be around £37k and that would leave a net profit of only 13k. I also went on to explain that the guarantee of higher appreciation in real terms on the price of the house could not be guaranteed.

But if they borrow to buy they can make an amazing real return even if property falls in real terms.

Let's say they buy with a £20k deposit, and the house goes up to £100k but let's say inflation was running at not 100% but 200%.

To have kept pace with inflation, the £20k would now need to be £60k.

But their housing equity is now £80k.

So yes you have a point with tax and interest cost, but they still might be right that property can make them money, even if it falls in real terms.

Share this post


Link to post
Share on other sites

Okay, before I start this was a conversion relating to the Government proposals for local government employes to pay in 3% more in contributions into the pension scheme.

The debate (argument) centered around the issue of whether property would be a better investment for a pension then paying the extra 3% in contributions.

Before I get into the details the current pension expectations of the person in question amounts to £18,000 p/a, and around £12,000 p/a for the other person in question, both CPI index linked.

They both gave the example that of a house that was purchased for £50k and sold for £100k would give them a profit for the pension pot of £50,000. I explained that the profit would not be £50k but the amount would be equal to the capital appreciation - the interest payments - capital gains tax.

I calculated that on a repayment mortgage on the sum the interest payments of 25 years at 5% would be around £37k and that would leave a net profit of only 13k. I also went on to explain that the guarantee of higher appreciation in real terms on the price of the house could not be guaranteed.

At this point they both refused to engage with anymore, telling me that I was wrong and that they would be far better off if they invested their money in property. I did not get around to maintenance, voids etc. Admittedly I did not go into details of mortgage interest tax relief nor did I base my calculations on an I/O mortgage .

The question is are people in the U.K so indoctrinated into property only ever goes up mantra that they have become brainwashed, or are my colleagues simply thick?

Incidentally one has a BTL, one bought at the peak. Both are educated to degree level.

Have a got the basic calculations right? How many properties would you need to own to guarantee and pension pot of £18,000 p/a accounting for inflation?

this is something that amuses me, a certain amount of cosmic poetry

right, the public sector did rather well out of the Brown years - but instead of conservatively consolidating their gains and living happily ever after, what do they do:

most of them seemed to have got into BTL at near-peak prices! sh*t! poetic or what.

Share this post


Link to post
Share on other sites

If there is a river in Egypt why is it so full of deserts?

yep, I heard it was just deserts, after being in de nile, of course...

Share this post


Link to post
Share on other sites

I spoke to two people earlier, both council employees, both on under £20k.

Both had owned and sold B2L properties, both made a profit. One had bought 2 and sold them at the peak.

The other had owned 12, and sold 10. 2 remaining giving a good yield, the 'pension' and 'wedding' fund.

Me being a decade younger, I rent, unfortunately not with the council, but rather a HA than the private sector.

They need property as a pension. Their pension contributions will return them nothing, yet they have managed to amass a large amount of wealth in the boom years through property, own their own homes outright.

Not a qualification above O level between them. And all my friends with recent degrees tend to rent a room in a shared house, generally from the type of people I've just mentioned.

Share this post


Link to post
Share on other sites

Both had owned and sold B2L properties, both made a profit. One had bought 2 and sold them at the peak.

The other had owned 12, and sold 10. 2 remaining giving a good yield, the 'pension' and 'wedding' fund.

interesting to know in what form they keep the profits, cash, or commods or stocks...

Share this post


Link to post
Share on other sites

There is little discussion in the uk about anything remotely relevant to politics or matters of the state or economy in the populus as a whole. The school system has, I suspect it's got worse on the last 20 years, churned out students to aim to get a grade but Ill prepare their students with the skill of CRITICAL THINKING and take any piece of news or grouthink as gospel particularly relating to property. It could have been anything, perhaps tulips.

Share this post


Link to post
Share on other sites

I spoke to two people earlier, both council employees, both on under £20k.

Both had owned and sold B2L properties, both made a profit. One had bought 2 and sold them at the peak.

The other had owned 12, and sold 10. 2 remaining giving a good yield, the 'pension' and 'wedding' fund.

Me being a decade younger, I rent, unfortunately not with the council, but rather a HA than the private sector.

They need property as a pension. Their pension contributions will return them nothing, yet they have managed to amass a large amount of wealth in the boom years through property, own their own homes outright.

Not a qualification above O level between them. And all my friends with recent degrees tend to rent a room in a shared house, generally from the type of people I've just mentioned.

Its Sad and it is all about the time people were able to access the property market.

Could give many examples of people who have made lots of money for doing very little just by buying at the right time and a few of them did it by accident i.e. bought a second house when they were really cheap because they could not sell the first and were able to cover both with rent and small mortgages.

Share this post


Link to post
Share on other sites

You're forgeting general inflation reducing the value of the loan or original purchase price. The yield will also rise as a result.

Share this post


Link to post
Share on other sites

You're forgeting general inflation reducing the value of the loan or original purchase price. The yield will also rise as a result.

unless you get selective deflation applying to rent - assuming rental demand IS elastic

Share this post


Link to post
Share on other sites

Okay, before I start this was a conversion relating to the Government proposals for local government employes to pay in 3% more in contributions into the pension scheme.

The debate (argument) centered around the issue of whether property would be a better investment for a pension then paying the extra 3% in contributions.

Before I get into the details the current pension expectations of the person in question amounts to £18,000 p/a, and around £12,000 p/a for the other person in question, both CPI index linked.

They both gave the example that of a house that was purchased for £50k and sold for £100k would give them a profit for the pension pot of £50,000. I explained that the profit would not be £50k but the amount would be equal to the capital appreciation - the interest payments - capital gains tax.

I calculated that on a repayment mortgage on the sum the interest payments of 25 years at 5% would be around £37k and that would leave a net profit of only 13k. I also went on to explain that the guarantee of higher appreciation in real terms on the price of the house could not be guaranteed.

At this point they both refused to engage with anymore, telling me that I was wrong and that they would be far better off if they invested their money in property. I did not get around to maintenance, voids etc. Admittedly I did not go into details of mortgage interest tax relief nor did I base my calculations on an I/O mortgage .

The question is are people in the U.K so indoctrinated into property only ever goes up mantra that they have become brainwashed, or are my colleagues simply thick?

Incidentally one has a BTL, one bought at the peak. Both are educated to degree level.

Have a got the basic calculations right? How many properties would you need to own to guarantee and pension pot of £18,000 p/a accounting for inflation?

Too many people educated beyond their level of intelligence.

Having said that, on first glance, I think your calcs might be missing a lot of stuff and hence a bit dodgy too.

Share this post


Link to post
Share on other sites

I do question the ability and wit of the people who have minted it from property to be able to keep the wealth during the stealthy reset we are seeing

reversion to the mean is a powerful influence in personal finance as it is in markets imho

Share this post


Link to post
Share on other sites

Its Sad and it is all about the time people were able to access the property market.

Could give many examples of people who have made lots of money for doing very little just by buying at the right time and a few of them did it by accident i.e. bought a second house when they were really cheap because they could not sell the first and were able to cover both with rent and small mortgages.

My father bought the house next door to him in 1981. His reason was that he didn't want neighbours and it was bought for a song. It has remained unoccupied for thirty cringe worthy years.

Share this post


Link to post
Share on other sites

My calculations were a fag packet job.

My question is though, having 1 BTL would that ever amount to a income of around £18k pa which is linked to inflation and the final salary before retiring.

my annual contribution is 6.5% which equates to £2047.65 p/a

My total contributions at the same level at the age of 65 would be £120,802.05

Assuming I live to 85 that would be £18k x 20 = £360,000 total pension paid out.

Assuming my wage inflation is 2% p/a my salary at retirement will be £56,152.21

Therefore my pension, if all things stay the same will be approx £38,000 p/a

Now assuming that I purchased a BTL for £100,000 in 2005 with a BTL 90% mortgage

Total cost would be £10,000, if I spread that over the same period that I would have to make contributions which is 36 years that would be around 278 p/a

Then assuming that the mortgage is repayment over 25 years and covered by rent at £532.14 pcm

Also assuming that the realisable value of the house over that period has increased at an averaged figure of 5% pa after 25 years the realisable value of the house would be £225,000

The net figure would be £225000 which, assuming I realised at 65 and lived to 85 would give an annual figure of £10,750

Assuming that the realised amount was placed in a saving account which gave a 5% return and taking that account minus the capital gains and perhaps voids and maintenance what would be the annual real return for the BTL property?

Using the inflation adjusted final salary pension 1 BTL would not even come close to the yearly income gained from a LG pension

Feel free to add to/criticize the calculations and (huge) assumptions.

Edit to add

the mortgage payments are for 25 years which leaves 11 years of rental payments at £70,242 which takes the total gains to £295,242

making the annual payment of £14,762

I obviously haven't calculated inflation on rent nor calculated the effect on the monthly income as a result of the repayment of the capital.

More edits

See bold for projected inflation adjusted salary and pension

More edits

I will try and calculate the properly adjusted figures for the BTL pension some time tomorrow which will include all the obvious thing I have missed, it's far too late now!

Income tax

tax relief

income from rental capital repayment adjusted

capital gains

income p/a from 5% account to which realisable BTL prophets are placed

Edited by Mr. Miyagi

Share this post


Link to post
Share on other sites

Paid of the mortgage of their own property.

Paid of their mortgage and that of the 2 B2Ls they kept.

in that case they will probably lose most of what they gained

Share this post


Link to post
Share on other sites

Yes, very, but that's not the point here.

People need the magic money tree because it is the only hope most people have of attaining a decent standard of living.

They don't want to understand the property market, they just want their go.

They just want to believe.

You were insulting their God with your calculations and your thinking.

Share this post


Link to post
Share on other sites

in that case they will probably lose most of what they gained

In ten years one had fully paid off their mortgage, the other had paid off three mortgages.

Maybe not the most lucrative investment one could have made. But a very hefty profit. And not many in their thirties own their homes outright.

Share this post


Link to post
Share on other sites

In ten years one had fully paid off their mortgage, the other had paid off three mortgages.

Maybe not the most lucrative investment one could have made. But a very hefty profit. And not many in their thirties own their homes outright.

I don't think you understood my point

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 343 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.