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CunningPlan

Renting Is £13K Pa Cheaper Than Buying In London

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Before Blair it didn't even cost any near £13k a year to buy a place in many parts of London. Not as bad as invading Iraq without understanding the consequences but still a bad mistake.

Edited by iamnumerate

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Don't entirely buy this argument. Friend with £270k IO mortgage only paying £600 a month I think. Unbelievably was £270 pcm (I saw the mortgage statements from the Chelsea).

If you've got the equity/deposit you can 'own' a 3 bed semi for less than room rent

Oh and being self employed, he got a BTL mortgage, and lives in the property. He was looking for someone to 'fake' an AST which he might have found, so he has a rent slave paying the mortgage, but he can live there as well.

Edited by RentierParadisio

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My rent is almost exactly what it would cost me in mortgage interest.

Difference is I don't have massive costs of buying and selling or repairs etc.

LL only has a very small mortgage so I guess he is relatively happy with the return. I think, however, he is underestimating how much it will cost to 'upgrade' the property if he wants to sell it as a prime home once we move out after 6 years (and we have looked after it pretty well!)

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Thinking more about this, LL assume that the property appreciation they see all around applies equally to their places. But the OO properties have been loved, updated, improved etc (as have to some extent the flippers)

I would guess that there is some in-built depreciation for any home rented out for more than 5 years, especially if the entire area has become low grade BTL zone. Until now, BTL properties haven't really been sold off in great numbers so this affect has not been visible. Will be interesting to see if BTL appreciation matches OO appreciation without significant spend by the LL before sale.

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Don't entirely buy this argument. Friend with £270k IO mortgage only paying £600 a month I think. Unbelievably was £270 pcm (I saw the mortgage statements from the Chelsea).

If you've got the equity/deposit you can 'own' a 3 bed semi for less than room rent

Oh and being self employed, he got a BTL mortgage, and lives in the property. He was looking for someone to 'fake' an AST which he might have found, so he has a rent slave paying the mortgage, but he can live there as well.

That's only a short term extreme position. (Living in his own BTL property which tends to break most lenders rules.)

Anyone 1 guy.. or a few like him, are likely to be found out vs the wider unwinding imo.

"If you've got the equity/deposit" - it's not that simple imo. That valuable savings/equity/deposit (putting down to buy) then becomes at risk of loss/wipeout into a HPC. Fine.. just don't expect me to put up with moaners in 2016-2020 who complain they're in negative equity.

Piss weak? With their 25%+ deposits - yeah right.

What makes your hand weak is that if buy-to-let mortgage rates move up sharply and a recession hits and you find that you can't secure the rents that you'd anticipated, the net cash flows on your property can turn negative.

[..]The recession makes it difficult for you to get work and your buy-to-let investments, as well as sundry expenses like tissues and hand lotion, are bleeding your savings. A point would come where you might want to sell the BTLs so you could get out ahead. However, you'd find that a house price crash meant that if you sold the BTL you'd make a capital loss, (that is of course what the deposit is really for, to ensure that you and not the bank absorb the capital loss).

Hence you'd be looking at a situation where you thought the market was irrational (your BTL, in your estimation, was worth £400k, although nobody would pay you £400k for it) but the rate at which the negative cash flows and your own living expenses were bleeding out your liquid assets meant that you couldn't hold out forever because eventually you'd run out of savings to pay the mortgages on the BTLs; you would no longer be able to meet your obligations as they fell due, i.e. you would be insolvent, but sometimes the market can stay irrational longer than you can stay solvent. That is the heart of the aphorism; it's about holding on to a leveraged investment position when the market turns against you.

Late entrants are piss weak because in reality the gross yields people are signing up for are too thin to absorb much movement on rents or BTL mortgage rates, much less disadvantageous movements of both at the same time.

You've got it all back to front.

The bank demands the big deposit because they know that you are weak. Arguing that you are not weak because you've handed over a big deposit is an interesting way to look at things, but in my opinion, completely wrong headed.

And this was pre the budget with the shocks for the BTLers.

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There is a difference between being able to afford to buy in a market where prices are rising and being able to afford to buy in a market where prices are falling

In the former, not buying might mean that your ability to buy in future diminishes as price rises > savings growth further erode your ability to buy.

In the latter, buying might mean that your deposit (or part of it) and maybe more is lost.

One of many questions for buyers today is: Will the market crash and, if it does, how big a price fall can you stomach? How much of your money that you put up as deposit / fees / stamp duty / refurb are you happy to burn if the market crashes? For if the market crashes, the money is surely burnt.

One of many questions for renter saver would be buyers is: When will prices fall and, if that happens, by how much before you do purchase? Then also answer the question for buyers.

With the market in the state it is in, it is difficult for lots of market participants, not just those that are priced out of buying a family home, to make good decisions. Given that this is housing we are talking about, it is affecting a lot of peoples' broader lives.

If we all knew then what we know now, we might surely have stretched ourselves to the limit to buy our 'forever home' back in the day and paid down the debt as quickly as we could at low interest rates, safe in the knowledge that the rising market would get us over the line before the crash came.

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Another question for renters will be : As house prices fall, shall I move and rent a bigger property in a more upmarket area for the same price ?

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Another consideration is, can I put away enough money to continue renting once I can no longer work (due to old age / ill health / age discrimination in the job market)? Also, do I fancy insecure accommodation in my 70s?

How large a consideration this is would depend, of course, on one's current age and one's best guess as to what will happen to house prices and tenants' rights in future.

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You can buy outside of London in your 60s 70s to retire. Plenty of okay places to retire, buying outright, for not much more than cost of 25% deposit today on a £400K starter home in London.

Another consideration; what if you get canned into a recession with your jumbo mortgage in London, before you reach old age / ill health. SMI is changing or has changed.

It's a market; buy in London at these prices if you want to. Just don't expect this hpcer to join the 'victim' singing into a hpc.

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This reminds me: I need to report some maintenance issues to my landlord. That should only eat up a month or two of my rent.

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You can buy outside of London in your 60s 70s to retire. Plenty of okay places to retire, buying outright, for not much more than cost of 25% deposit today on a £400K starter home in London.

Another consideration; what if you get canned into a recession with your jumbo mortgage in London, before you reach old age / ill health. SMI is changing or has changed.

It's a market; buy in London at these prices if you want to. Just don't expect this hpcer to join the 'victim' singing into a hpc.

The intention is that SMI will be changed into a loan in 2018. That is, indeed, another consideration to weigh in the balance.

I wouldn't buy in London at present (not that I need to) - I reckon it's far too dangerous a punt.

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There is a difference between being able to afford to buy in a market where prices are rising and being able to afford to buy in a market where prices are falling

In the former, not buying might mean that your ability to buy in future diminishes as price rises > savings growth further erode your ability to buy.

In the latter, buying might mean that your deposit (or part of it) and maybe more is lost.

One of many questions for buyers today is: Will the market crash and, if it does, how big a price fall can you stomach? How much of your money that you put up as deposit / fees / stamp duty / refurb are you happy to burn if the market crashes? For if the market crashes, the money is surely burnt.

One of many questions for renter saver would be buyers is: When will prices fall and, if that happens, by how much before you do purchase? Then also answer the question for buyers.

With the market in the state it is in, it is difficult for lots of market participants, not just those that are priced out of buying a family home, to make good decisions. Given that this is housing we are talking about, it is affecting a lot of peoples' broader lives.

If we all knew then what we know now, we might surely have stretched ourselves to the limit to buy our 'forever home' back in the day and paid down the debt as quickly as we could at low interest rates, safe in the knowledge that the rising market would get us over the line before the crash came.

That's an area where (already completely stuffed aside) some of Nassim Taleb's perspective on relative asymmetry is valid.

If I have more upside than downside, or positive asymmetry, then in the long run I tend to benefit more than I lose from random events - antifragile. If I have more downside than upside or negative asymmetry - fragile. Asymmetry is what everything that's fragile fears. Meaning everyone's either short or long an option.

If everyone has optionality, then either long optionality at the expense of others or short optionality and being used by others. In this sense, if long optionality then volatility tends to result in breakeven/make money (not harmed). Make money and get to keep it, but lose and someone else pays (e.g. banks). If short an option, either lose out/breakeven (e.g. society - harmed by paying for it - prices, taxes etc). Where short optionality amounting to a smaller share of gains than of losses, then in the long run will lose money.

i.e. He's writing about the misunderstanding of probability distributions because they're not symmetric; I think he refers to it as undetected asymmetry. Meaning people have to assess their own fragility in decision making wrt asymmetries - positioning best for more upside than down - losing small and gaining big rather than losing big and gaining small. Consequential choices/actions in the housing market are obviously a personal thing.

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The terrace house i rent is £2900 pm

The house next door recently sold for £1.4m

I've no idea if its cheaper to buy or rent. All I know is either way i lose...

I would say your rent is cheap. I reckon your LL is making less than 2.5% on his 1.4 million. There are better returns out there with less hassle.

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Thinking more about this, LL assume that the property appreciation they see all around applies equally to their places. But the OO properties have been loved, updated, improved etc (as have to some extent the flippers)

I would guess that there is some in-built depreciation for any home rented out for more than 5 years, especially if the entire area has become low grade BTL zone. Until now, BTL properties haven't really been sold off in great numbers so this affect has not been visible. Will be interesting to see if BTL appreciation matches OO appreciation without significant spend by the LL before sale.

Would agree with this....do come across places for sale labled investors property because it has a tenant living in situ...can imagine it not easy to sell a place with tenants living in it showing prospective owner occupiers.....so yes whole areas once OO now bought to rent out...

An over leveraged landlord is hardly able to afford to give notice to tenant, refurbish property at great expense to put on market vacant..... Loss of very many months rent.....

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Or by holding it until it is worth £2m the capital growth might outpace many other homes for his money

You're beginning to annoy me. :)

No wonder you refuse to sell any of your properties rentals if you're expecting full smack-on hpi fest ahead.

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Deleted: *Wrong thread

Edited by Venger

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You're beginning to annoy me. :)

No wonder you refuse to sell any of your properties rentals if you're expecting full smack-on hpi fest ahead.

I can annoy myself at times.

Not expecting it, but (given what has happened so far) wouldn't be wholly surprised to see it

The reason I am not selling isn't to do with my expectations of price movements in the future, but that I want a portion of my wealth in UK residential property and I don't have the ability to sell at (anywhere near) the top and buy the same quality of assets at (anywhere near) the bottom. That being the case and given that, for now, they are earning their keep, I can't make the case for selling them.

I have long judged that any increase in any asset price above inflation is a windfall profit and should be regarded as that. Very rarely is it down to anything other than just good luck

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