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dogbox

Love (for B2l) Is Blind.

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As an ex - B2L I keep in touch with a number of existing LLs.

Not one of them has any intention of selling, indeed, they are adding stock!

They all know Ive sold as I couldnt see any capital growth on the horizon, but they absolutely dont share my view and furthermore have an unshakeable belief in property based on the long - term view.

Thier main arguments for sticking loyaly with B2L are:

1. THERE IS NO ALTERNATIVE. They tell me they will not invest in the SM, Pensions or anything else as they no nothing of such arenas and have no faith in them. Theyve all had pensions and endowments - never again. They resent middle - men having control of thier future wealth.

2. LIFE EXPERIENCE. This time round they are mentally prepared for a crash, and more importantly, based upon past experience, they fully expect prices to recover, so nothing to worry about. This is an unshakeable belief. They give examples of people who bought in the tumultous seventies who went on to realise huge gains. They consider short - termers to have a child - like fixation with negativity.

3. DEMAND. They believe the long - term demand for property is permanent. When I mention your demoghraphics arguments they retort 'prices are very high in countires with tiny populations such as those in Scandanavia). They arent concerned about oil or other shocks as they see these as short - term unavoidables. Again they focus simply on the pot 'o' gold in 25 years.

4. YIELD IS IRRELEVANT. They are about long term capital growth. They point our that people have always invested for long term value with no yield present. They cite jewellery, paintings, land, holiday villas and barns as examples. They have income from thier jobs / businesses so yield simply doesnt feature in thier thinking. They all also argue that rents can fall some way before it would have any impact upon them.

Dont shoot me, Im only the messenger.

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Guest Time 2 raise Interest Rates

A fool and his money are easily parted, springs to mind.

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As an ex - B2L I keep in touch with a number of existing LLs.

Not one of them has any intention of selling, indeed, they are adding stock!

They all know Ive sold as I couldnt see any capital growth on the horizon, but they absolutely dont share my view and furthermore have an unshakeable belief in property based on the long - term view.

Thier main arguments for sticking loyaly with B2L are:

1. THERE IS NO ALTERNATIVE. They tell me they will not invest in the SM, Pensions or anything else as they no nothing of such arenas and have no faith in them. Theyve all had pensions and endowments - never again. They resent middle - men having control of thier future wealth.

2. LIFE EXPERIENCE. This time round they are mentally prepared for a crash, and more importantly, based upon past experience, they fully expect prices to recover, so nothing to worry about. This is an unshakeable belief. They give examples of people who bought in the tumultous seventies who went on to realise huge gains. They consider short - termers to have a child - like fixation with negativity.

3. DEMAND. They believe the long - term demand for property is permanent. When I mention your demoghraphics arguments they retort 'prices are very high in countires with tiny populations such as those in Scandanavia). They arent concerned about oil or other shocks as they see these as short - term unavoidables. Again they focus simply on the pot 'o' gold in 25 years.

4. YIELD IS IRRELEVANT. They are about long term capital growth. They point our that people have always invested for long term value with no yield present. They cite jewellery, paintings, land, holiday villas and barns as examples. They have income from thier jobs / businesses so yield simply doesnt feature in thier thinking. They all also argue that rents can fall some way before it would have any impact upon them.

Dont shoot me, Im only the messenger.

if you follow this logic why not buy some classic aston martin db5's or e type jags? They are also going to be worth more in 25 years time - why not invest in fine wine?? theres probably even a fortune in the baked bean market - right thats it im off to asda in 25 years time my beans will be worth £3.05 a tin and to think i only paid 35p for them ....

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Your BTL friends have balls of steel I'll give them that. Anyone who takes an undiversified 25 year punt on the economic prospects of the UK is either a fool or a genius.

I would like one of your friends to explain to me how it is that the UK economy is going to perform so strongly even as it's competativeness ranking has fallen from 4th in the world to 14th and it's population ages.

The world is changing. Looking to the past 25yrs is not a good way to predict the next 25 you know.

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4. YIELD IS IRRELEVANT. They are about long term capital growth.

In 6 years from now the value of these BTL houses aren't really going to look that good for them anymore.

Let's just suggest for a moment suggest that even if we do have a relatively little nominal correction, say 15% and no shocks to cause a speedier crash - I still think that prices will be falling in real-terms for a long while, until they come back to the long-term average of salaries vs house prices.

Investors should sell NOW.

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Hi Dogbox,

Hopefully nobody will shoot the messenger - it is useful info.

What I think you are telling us though is that your friends are major gamblers (not good investors). This is NOT the smart money.

They have fallen in love with BTL and bat off any potential downsides. You mention yields, they say "whatever, I'm doubling my bet", you mention demographics, they say "whatever, I'm doubling my bet", you mention alternative investments, they say...

There's nothing wrong with that - each to their own. They MAY be proved right in the long-term... but it will be a result of luck not judgement. Essentially they are taking an ever bigger bet on the UK's future GDP growth and inflation.

The real question for the UK housing market is how many of them are there and how deep are their pockets?

I'd say not enough of them and their pockets aren't deep enough (without capital growth NOW they can't just withdraw ever more equity to fund the next purchase... they need to start injecting more money) hence the market has stalled.

Meanwhile, I have such a landlord who is apparently not interested in yield etc... so I rent from him (given he is not really interested in how much rent he gets from me - details, long-term capital growth is all that matters :blink:) and invest elsewhere.

If he and his friends want to compete down my rent and have no capital growth for the next eight years (or whatever stagnation theorists believe in these days) I'll leave him to it and invest elsewhere.

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Your BTL friends have balls of steel I'll give them that. Anyone who takes an undiversified 25 year punt on the economic prospects of the UK is either a fool or a genius.

I would like one of your friends to explain to me how it is that the UK economy is going to perform so strongly even as it's competativeness ranking has fallen from 4th in the world to 14th and it's population ages.

The world is changing. Looking to the past 25yrs is not a good way to predict the next 25 you know.

The fundamental point I take from talking to B2Ls and for that matter ordinary home owners, is that this unbridled love for property bought about by peoples knowledge that (so far) property has always been a great long - term investment, despite huge ups and downs and economic challenge, might be a case of a 'self fulfilling prophecy'.

The ageing population is a foolish argument, not least because property may become even more valuable to people without pensions who use it to draw equity in retirement so they're even less likely to sell thereby restricting demand. Also immigration is far greater than we think. Take the press story this week about Turkish Kurds - thats another 100000 un - counted immigrants in just 1 example.

prices will be falling in real-terms for a long while, until they come back to the long-term average of salaries vs house prices.

This long - term average of salaries vs prices is a problem for me. People have massively diverted income into property and mortgages away from traditional pensions and savings, so the s v's p notion is'nt particularly relevant today.

Sure the Germans & Japs have far higher savings rate, but they have far less wealth in property.

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Guest Time 2 raise Interest Rates

To be honest with you, dogbox, the only thing your opening post

confirms to me is the fact that the VIs are earning their money and

are still sucking in the greater fools. They'll wish they'd unloaded

a few properties in 18 months time instead of adding to them. ;)

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I would like one of your friends to explain to me how it is that the UK economy is going to perform so strongly even as it's competativeness ranking has fallen from 4th in the world to 14th and it's population ages.

When was the UK last 4th in competitiveness rankings?

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To be honest with you, dogbox, the only thing your opening post

confirms to me is the fact that the VIs are earning their money and

are still sucking in the greater fools. They'll wish they'd unloaded

a few properties in 18 months time instead of adding to them. ;)

I tend to agree with you, but, even so, they will simply respond with "they went down 40% in the last crash then went up, so I dont care". This blind loyalty might be a very solid prop under the housing market.

Listen to this one; An aquaintance is planning his first B2L. He is 47. He ownes his home outright. He wants to raise c£180k on his existing home to purchase the B2L. I asked him why he wants such a debt at his age given he currently lives debt - free. He replied "Ive had my Prudential pension 15 years and its worth less than I paid in, I cant rely on it any longer". I suggested he might be better investing in the SM or property abroad. He simply wasnt interested. Property, property, property.

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I tend to agree with you, but, even so, they will simply respond with "they went down 40% in the last crash then went up, so I dont care". This blind loyalty might be a very solid prop under the housing market.

You have some valid points but I find the above somewhat puzzling.

They must feel the market's bottomed and now's a good time to add to

their portfolio, but why on earth would you invest in something if you even

had the slightest reservation that your investment may fall by 40% as

it did last time. If you were in that frame of mind, surely, the wise thing

to do would be to wait a year or so, because I don't care what anyone says,

in my opinion, prices will definitely not be above today's.

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"The ageing population is a foolish argument, not least because property may become even more valuable to people without pensions who use it to draw equity in retirement so they're even less likely to sell thereby restricting demand"

Interesting, isn't quite hard to MEW once no longer earning salary and over 65? Agree that pensioners might want the yield from property - but I would think many wouldn't want the property management hassle and voids. Certainly my retired parents made sure that they have enough in index linked gilts to see them until 95, because they just want to enjoy retirement with minimum fuss. Yes, they have other stuff, but that s "play money"

Property reversions to get income from property equity are expensive - in general you are better off selling/ down sizing the properties and buying IL bonds or an annuity.

So I would expect retired BTL'ers to hand over most of their portfolio to management companies, then live off the rents. If they need more, they will have to relase equity by selling a property or two.

(PS - they have also got an interesting bet on the constancy of rent laws - no reason not to expect changes in those either over the next 25 years!)

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I tend to agree with you, but, even so, they will simply respond with "they went down 40% in the last crash then went up, so I dont care". This blind loyalty might be a very solid prop under the housing market.

Listen to this one; An aquaintance is planning his first B2L. He is 47. He ownes his home outright. He wants to raise c£180k on his existing home to purchase the B2L. I asked him why he wants such a debt at his age given he currently lives debt - free. He replied "Ive had my Prudential pension 15 years and its worth less than I paid in, I cant rely on it any longer". I suggested he might be better investing in the SM or property abroad. He simply wasnt interested. Property, property, property.

Sounds like he wants lots money for nothing, and may end up with less money than he currently has. If he is disgruntled about Pru, he is going to be severly pissed off in 6 years time when he realises he will have to work for even longer because his rent and pension wont cover his second morgage.

At least he will be saving somone elses bacon when he buys the property...

Edited by moosetea

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Sure the Germans & Japs have far higher savings rate, but they have far less wealth in property.

it's not wealth though is it? It's not tangible, it is purely illusory. The fact that the borrowing has been seemingly converted to bricks and mortar may make the borrower believe that they have acquired something... but they haven't.

So much of the wealth is purely notional and it can vanish as quickly as it came into being.

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I tend to agree with you, but, even so, they will simply respond with "they went down 40% in the last crash then went up, so I dont care". This blind loyalty might be a very solid prop under the housing market.

This seems to suggest that they accept that property prices can and possibly will go down. So why do they want to expand their portfolios now? If they want to invest all their money in property, fine, but surely there is still an argument for BTLs waiting till property prices have dropped so that their money goes further when making that investment in property. Why are investors still paying £120,000 for studio flats when if they wait they could buy much larger properties that would command a greater rental income.

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Interesting, isn't quite hard to MEW once no longer earning salary and over 65?

Its called 'equity release'. Such schemes allow the retired / elderly to release say 30% where no repayments are made until sale or death. Typical rates c7% interest only. I know people in thier 30s actually planning to do this in retirement, I might even do so as its a Tax free lump sum provider!

it's not wealth though is it? It's not tangible, it is purely illusory. The fact that the borrowing has been seemingly converted to bricks and mortar may make the borrower believe that they have acquired something... but they haven't.

So much of the wealth is purely notional and it can vanish as quickly as it came into being.

Again the love for property is in large part due to peoples experience with packaged investments such as Pensions which are not only 'illusory' but very inflexible. For example, when one dies a pension is often not passed onto next of kin especially once turned into an income generating annuity, and a further complaint is that pensions cannot be drawn - down when you want, however, real estate is controlled by you.

Sure wealth is purely notional, but most people simply dont think in such negative terms. A job is notional.

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Its called 'equity release'. Such schemes allow the retired / elderly to release say 30% where no repayments are made until sale or death. Typical rates c7% interest only. I know people in thier 30s actually planning to do this in retirement, I might even do so as its a Tax free lump sum provider!

Again the love for property is in large part due to peoples experience with packaged investments such as Pensions which are not only 'illusory' but very inflexible. For example, when one dies a pension is often not passed onto next of kin especially once turned into an income generating annuity, and a further complaint is that pensions cannot be drawn - down when you want, however, real estate is controlled by you.

Sure wealth is purely notional, but most people simply dont think in such negative terms. A job is notional.

I accept some of what you are saying, and even cash itself has a purely notional value, although in terms of risk it is far less likely to become debased than housing.

I disagree that my job is notional. It seems like a very real experience to me!

Insofar as a mortgage is a forced savings vehicle, all well and good. But when it is so susceptible to speculative bubbles, I'd consider it a poor long-term bet, especially at such an historic high point.

And the point about diversification holds true. If you already own, or have a mortgage on, your own property, it is surely more sensible to place your other savings into different investments.

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Guest Time 2 raise Interest Rates

Please elaborate!

[/qu

Basically, The Daily Politics programme was interviewing the clown whose

tipped to be the next Chancellor. He was patting himself on the back about

how they'd managed to pull off a soft landing in house prices. :D

He was then quizzed about tax rises. When asked if he could categorically

say that taxes will not rise in the next two years, he said, "No. The last

person that said taxes will not rise was John Major." And inevitably they

did.

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And the point about diversification holds true. If you already own, or have a mortgage on, your own property, it is surely more sensible to place your other savings into different investments.

I wholeheartedly agree. I diversify.

Problem is the Great unwashed have such a love affair with property and crucially a recently embewed sense that the SM and particularly pensions & endowments are not to be trusted, that property is held in such high regard. These views coupled together represent a shift in general consensus, which is what is holding - off the crash.

Again, B2Ls and the general population see no alternative investments as accesible or worthwhile. This might mean the long awaited crash is not very deep and not long lived. Because everyone expects a repeat of past price recovery, and because amateur property investing has entered mainstream life, as soon as the market is appreciably lower people will dive back in.

I HOPE NOT. I hope the herd really does turn but I worry given the mentality of B2Ls I meet.

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as soon as the market is appreciably lower people will dive back in.

I think this is the key point here. Bears (such as I) would argue that by the time the market is appreciably lower, people's ability to dive back in will be severely restricted (tighter lending, cashflows, unemployment etc)... hence the big crash... the self-perpetuating spiral of doom

we shall see.

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Interesting thread - shows that the sentiment underlying btl is irrational, and that's truly scary. Because it means it isn't responsive to rational policy decisions and goes some way to explaining why the bears here (self included!) are still waiting for indisputable evidence of a crash. Sure, I know, but...I still think these people are going to get fried when they try and sell up sometime in the future and find the next generation haven't the spending/borrowing capacity to support their irrational valuations. That will get interesting, and messy.

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  • 302 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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