The BTL IO mortgage rates thread

[Bland Unsight]

1 hour ago, RushRoad said:

Simply put...

Simply put, don't bullsh!t me; answer the question.

Get out your calculator and work out what the various bidders can afford to pay.

Edited April 21, 2017 by Bland Unsight

[RushRoad]

7 minutes ago, LittlePig said:

What has the minimum wage got to do with house prices?

 

its a clear way to show that most the regions of the UK are well within the affordable category

Using a 15% deposit a couple on the 2020 min wage would have a budget of £194,400

By comparison according to LandRegistry these are the average prices

 

North East £123.7k

Norther Ireland £125.5k

Scotland £138.8k

Wales £145.3k

North West £152.6k

Yorkshire&Humber £152.2k

East Midlands £176.8k

West Midlands £180.5k

[Bland Unsight]

51 minutes ago, RushRoad said:

I do not see why this time around its different. I would not disagree that one road may indeed by landlords sell off a million homes over the next 10 years but that will not necessarily lead to a house price crash in real terms and even more unlikely in nominal terms as the 1970s and 1980s shows.

Leverage. The difference is leverage.

[RushRoad]

Just now, Bland Unsight said:

Simply put, don't bullsh!t me; answer the question.

Get out your calculator and work out what the various bidders can afford to pay.

 

A couple in 2020 on the min wage can afford to bid upto £194,400 assuming they have a 15% deposit

8 regions of the UK have a price between £124k to £180k which is well within the budget of a couple on the minimum wage

I am not sure how much landlords can or will bid, is it more or less than the couple on 2020 minimum wages?

[RushRoad]

1 minute ago, Bland Unsight said:

Leverage. The difference is leverage.

 

Yes that is a difference but what difference does it make if the landlord is a seller with a mortgage or a seller without a mortgage the supply is the same +1 property for sale. And as we see from historical data landlords sold lots in the 1970s yet prices only went down 5% over a decade

My questions would then be, how many are going to sell and over what period?

Also do you expect the owned outright rental stock to increase? Why why not? If it does continue to increase then what will the overall rental sector do? I can imagine a scenario where some leveraged landlords sell but that owned outright rentals continue to grow so that overall the rental sector is not a net seller

 

And on the back of all this we have maybe 20% CPI inflation to come over the next 4-5 years what will that do to house prices. I guess you wont be too happy if prices crash 25% in real terms but go up 25% in nominal terms over the next decade?

[monkeyprojects]

38 minutes ago, RushRoad said:

 

A couple in 2020 on the min wage can afford to bid upto £194,400 assuming they have a 15% deposit

 

Only if they have no other debts.....

[spyguy]

Whats nmw in 2020 going to be? 10h?

Thats about 380w, 1500m, 16k/year. X2 =32k.

MMR sets mortgage to about max 4x household income, 120k max.

Then you start removing cars, student debt, kids , so remove a salary, and that 120k drops pretty quickly.

Im not sure where 190k comes from, even with the most optimistic money.

[disenfranchised]

2 hours ago, RushRoad said:

 

 

70,000 purchases will be made this year with BTL mortgages out of some 1.2 million total purchases so BTL is about 5.8% of the market.

What this 5.8% of the market can or can not bid does not set the price

It would perhaps be more reasonable to look at what a couple on the minimum wage can afford come 2020 the min wage is going to be £9 ph so a couple working 40h a week 51 weeks of the year would get a combined income of £36,720. Multiply that by 4.5 x and see a 15% deposit and it gives a budget of £194,400 which probably puts 75% of the country into affordable basket for those even on the minimum wage

Even a single person on the minimum wage has the option to spend close to £100,000. Birmingham + 40 miles shows a hit for 5,000 properties for £100k or less

Simply put the idea that there is a problem everywhere is not true, outside the SE pretty much everywhere else is affordable for a couple on min wage and often just a single person on the min wage

I genuinely think you must be trolling

Where do a couple on a combined pre-tax income of £37k get a £29k deposit from? 

Why aren't they buying already?

Edited April 21, 2017 by disenfranchised

[RushRoad]

7 minutes ago, disenfranchised said:

I genuinely think you must be trolling

Where do a couple on a combined pre-tax income of £37k get a £29k deposit from? 

 

 

They could save up money its not that hard as a couple, they could borrow it from family, they could inherit it. If none of those are possible then they can buy with a 10% or even 5% mortgage also there is no need for them to borrow the max the calculation shows what they can borrow not what they have to borrow.

 

With a 5% deposit they would have a £174,000 budget (£9ph min wage in 2020 x 40h per week x 51 weeks a year x couple x 4.5 multiple mortgage + 5% deposit) which means 7-8 regions of the uk are affordable for a couple on minimium wage

North East £123.7k

Norther Ireland £125.5k

Scotland £138.8k

Wales £145.3k

North West £152.6k

Yorkshire&Humber £152.2k

East Midlands £176.8k

West Midlands £180.5k

 

[Bland Unsight]

1 hour ago, RushRoad said:

A couple in 2020 on the min wage can afford to bid upto £194,400 assuming they have a 15% deposit

8 regions of the UK have a price between £124k to £180k which is well within the budget of a couple on the minimum wage

I am not sure how much landlords can or will bid, is it more or less than the couple on 2020 minimum wages?

A little less conversation, a little more action please.

[RushRoad]

14 minutes ago, spyguy said:

Whats nmw in 2020 going to be? 10h?

Thats about 380w, 1500m, 16k/year. X2 =32k.

MMR sets mortgage to about max 4x household income, 120k max.

Then you start removing cars, student debt, kids , so remove a salary, and that 120k drops pretty quickly.

Im not sure where 190k comes from, even with the most optimistic money.

 

The min wage for adults is going to £9ph by 2020 thats £18,360 per person for a 51 week 40h/week.

So a couple would get £36,720 of gross income

Banks lend 4.5 x joint income = £146,880 mortgage

Add a 10% deposit and they have a budget of £163,200 (15% deposit means they have £172,800)

They do not have to go out and buy a house for £172,800 but they could do so, of course they might decide to buy the average two bed terrace in Birmingham for £130,000 instead.

 

If they purchased the birmingham house and put down £20,000 depoist and borrowed £110,000 their repayment mortgage would cost about £466 per month compared to their pre tax income of £3,020 a month or their mortgage would cost 15.4% of their gross pay which is affordable

 

[RushRoad]

Sorry my last post should have said 

Banks lend 4 x joint income = £146,880 mortgage

[Bland Unsight]

1 hour ago, RushRoad said:

Yes that is a difference but what difference does it make if the landlord is a seller with a mortgage or a seller without a mortgage the supply is the same +1 property for sale.

I'm guessing you've never heard of the concept of a capital loss.

Leverage magnifies capital gains.

I forget the details, but if I recall correctly, leverage has a related effect on a capital losses.

Now what was it exactly...

Did it emulsify them? Multiplex them? Moisturise them?

Was it something to do with apples?

[LittlePig]

1 hour ago, RushRoad said:

 

its a clear way to show that most the regions of the UK are well within the affordable category

Using a 15% deposit a couple on the 2020 min wage would have a budget of £194,400

By comparison according to LandRegistry these are the average prices

 

North East £123.7k

Norther Ireland £125.5k

Scotland £138.8k

Wales £145.3k

North West £152.6k

Yorkshire&Humber £152.2k

East Midlands £176.8k

West Midlands £180.5k

Right, so a NMW couple are going to pull together a £29160 deposit. Hmm. I guess that ties well with the 16 million people with < £500 in savings. http://www.bbc.co.uk/news/business-37504449

[RushRoad]

I dont understand why there is always resistance on this website.

Min wage is going to £9ph so a couple working 51 weeks of the year 40h a week would have a gross income of £36,720

If they have a 15% deposit and borrow 4.5x income that gives them a budget of £194,400 which is more than the median house price in 8 of the uk regions so those regions are easily within their budget

Also remember this is the min wage, most people earn a good deal more than the min wage. If I am not mistaken the 2016 median full time male wage was close to twice the 2016 min wage so in reality most full time working couples will have a lot more than a full time working couple on the minimum wage

 

2020 couple on min wage with a 4.5x mortgage and 15% deposit has a budget of £194,400 while the current average price in the regions are as follows

North East £123.7k

Norther Ireland £125.5k

Scotland £138.8k

Wales £145.3k

North West £152.6k

Yorkshire&Humber £152.2k

East Midlands £176.8k

West Midlands £180.5k

[LittlePig]

1 hour ago, RushRoad said:

 

Yes that is a difference but what difference does it make if the landlord is a seller with a mortgage or a seller without a mortgage the supply is the same +1 property for sale. And as we see from historical data landlords sold lots in the 1970s yet prices only went down 5% over a decade

My questions would then be, how many are going to sell and over what period?

Also do you expect the owned outright rental stock to increase? Why why not? If it does continue to increase then what will the overall rental sector do? I can imagine a scenario where some leveraged landlords sell but that owned outright rentals continue to grow so that overall the rental sector is not a net seller

 

And on the back of all this we have maybe 20% CPI inflation to come over the next 4-5 years what will that do to house prices. I guess you wont be too happy if prices crash 25% in real terms but go up 25% in nominal terms over the next decade?

Real HPs ended the 70s where they began. Are you arguing that a small nominal loss is trivial after ball crushing 25% annual inflation?

http://econ.economicshelp.org/2010/02/economy-of-1970s.html

[zugzwang]

40 minutes ago, spyguy said:

Whats nmw in 2020 going to be? 10h?

Thats about 380w, 1500m, 16k/year. X2 =32k.

MMR sets mortgage to about max 4x household income, 120k max.

Then you start removing cars, student debt, kids , so remove a salary, and that 120k drops pretty quickly.

Im not sure where 190k comes from, even with the most optimistic money.

Assuming, of course, that we don't have 3+ million unemployed in 2020. In which case... 0k max.

[RushRoad]

7 minutes ago, LittlePig said:

Real HPs ended the 70s where they began. Are you arguing that a small nominal loss is trivial after ball crushing 25% annual inflation?

http://econ.economicshelp.org/2010/02/economy-of-1970s.html

 

I think you misread your own link?

In the 1970s house prices increased 5x in pounds and pence

But they fell about 5% relative to wages

This was a time when the population growth was tiny compared to recent times and also when landlords sold big time

The result was a small 5% fall in property prices relative to wages over a 10 year period

I would suggest you use ONS data here is a link to house prices and wages

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/305700/Table_515_-_ONS.xls

 

------------------------------------------------

Actually I must correct myself! It looks like prices did not fall in real terms in the 1970s (The data I quoted before was for 1971 census to 1981 census where prices did fall 5% between the two cencus dates)

 

 

 

1970 = £4,387 house price and £1,810 income of borrower = 2.42x income

1980 = £23,656 house price and £8,692 income of borrower = 2.72x income

So prices up 540% in nominal terms and up 12.4% relative to wages

So the 1970s a period where population growth was modest by recent years and house building was higher and where landlords sold a huge number of private rental properties. The end result was.....prices increased

 

If anything this shows that picking dates impacts conclusions

1970-1980 = 12.4% increase in real house prices

1971 - 1981 = 5% decrease in real house prices

either way which ever of the two dates you pick, +12.4% or -5% it clearly shows there was no real house price crash in the 1970s and in nominal prices they went up more than 500%

[spyguy]

12 hours ago, RushRoad said:

 

The min wage for adults is going to £9ph by 2020 thats £18,360 per person for a 51 week 40h/week.

So a couple would get £36,720 of gross income

Banks lend 4.5 x joint income = £146,880 mortgage

Add a 10% deposit and they have a budget of £163,200 (15% deposit means they have £172,800)

They do not have to go out and buy a house for £172,800 but they could do so, of course they might decide to buy the average two bed terrace in Birmingham for £130,000 instead.

 

If they purchased the birmingham house and put down £20,000 depoist and borrowed £110,000 their repayment mortgage would cost about £466 per month compared to their pre tax income of £3,020 a month or their mortgage would cost 15.4% of their gross pay which is affordable

 

Wooh there.

Its 38h week. They might get OT. But theres little OT out yhere.

Thats gross income.

Take out payroll taxes, pension,  utilities, transport cost, student loans.

Youll find that 36 gross drops down to 20k pretty quick.

[Bland Unsight]

21 hours ago, RushRoad said:

If anything this shows that picking dates impacts conclusions

No, it shows that if your methodology is idiotic then your conclusions are worthless.

Now, you still owe me some calculations - or does your calculator only allow you to make calculations where the answers support your previously existing prejudices? (See also my earlier remarks about methodology.)

[Toast]

13 hours ago, RushRoad said:

2020 couple on min wage with a 4.5x mortgage and 15% deposit has a budget of £194,400 while the current average price in the regions are as follows

Hi RushRoad. Thank you for continuing to post here: we need a diversity of opinions to keep up the debate, and especially from people who will dig up new data and make interesting calculations. Sorry that you are getting (what appears to me to be) a lot of ad hominem as well as reasoned responses.

What strikes me most from this calculation is that 4.5x joint income is a very dangerous limit for the banks to set. It wasn't that long ago that 4.5x a single income would have been seen as teeth-clenchingly risky.

It is possible that if interest rates stay low into the distant future, then a couple could indeed continue to service this debt (or the slightly lower multiples which you point out would obtain in many regions), so that they would be, in some sense, affordable.

However, in the past, a high level of debt would have been eroded by wage increases, so that a few years down the line there would be some room for one partner to do something crazy, like bringing up a family, or would mitigate the risk that one of the two would have a period of unemployment. It is this cutting off of future opportunity, the pricing of housing for a "perfect" future of no kids and no job losses, together with the very real possibility that the credit cycle has turned, that makes me think these multiples are insane.

[spyguy]

25 minutes ago, Toast said:

Hi RushRoad. Thank you for continuing to post here: we need a diversity of opinions to keep up the debate, and especially from people who will dig up new data and make interesting calculations. Sorry that you are getting (what appears to me to be) a lot of ad hominem as well as reasoned responses.

What strikes me most from this calculation is that 4.5x joint income is a very dangerous limit for the banks to set. It wasn't that long ago that 4.5x a single income would have been seen as teeth-clenchingly risky.

It is possible that if interest rates stay low into the distant future, then a couple could indeed continue to service this debt (or the slightly lower multiples which you point out would obtain in many regions), so that they would be, in some sense, affordable.

However, in the past, a high level of debt would have been eroded by wage increases, so that a few years down the line there would be some room for one partner to do something crazy, like bringing up a family, or would mitigate the risk that one of the two would have a period of unemployment. It is this cutting off of future opportunity, the pricing of housing for a "perfect" future of no kids and no job losses, together with the very real possibility that the credit cycle has turned, that makes me think these multiples are insane.

It used to be 2x highest + lower wage.

4.5 joint *is* too high.

And, like you said, need lower ratios with low wage inflation.

[Democorruptcy]

14 hours ago, spyguy said:

Whats nmw in 2020 going to be? 10h?

Thats about 380w, 1500m, 16k/year. X2 =32k.

MMR sets mortgage to about max 4x household income, 120k max.

Then you start removing cars, student debt, kids , so remove a salary, and that 120k drops pretty quickly.

Im not sure where 190k comes from, even with the most optimistic money.

Some money is lost in calculation.

Using your own 380w,  x52 weeks = 19,760 per year x 2 = £39,520 not £32k (your annual figure is suppressed by not using enough weeks in a month and months in a year)

Even at only 4x household income that's £158,080 (or £177,840 at 4.5x)

[Bland Unsight]

48 minutes ago, Toast said:

Hi RushRoad. Thank you for continuing to post here: we need a diversity of opinions to keep up the debate, and especially from people who will dig up new data and make interesting calculations. Sorry that you are getting (what appears to me to be) a lot of ad hominem as well as reasoned responses.

OK, Toast, I'll bite.

Firstly, you may welcome people who simply make things up as "diversity of opinion", but I don't.

Secondly, please point me to any post where RushRoad has introduced "new data" to the discussion.

48 minutes ago, Toast said:

What strikes me most from this calculation is that 4.5x joint income is a very dangerous limit for the banks to set. 

 

There is no 4.5x joint income limit, and no limit imposed by the banks. You might be thinking about the FPC soft-cap on LTIs.

However that was a rule imposed by the macroprudential regulator (the FPC) on the banks, given the appetite of lenders and borrowers for loans to be made at higher LTIs (you can get the details in FPC CP11/14 from June 2014).

 

Edited April 22, 2017 by Bland Unsight

[Bland Unsight]

10 minutes ago, Democorruptcy said:

Some money is lost in calculation.

Using your own 380w,  x52 weeks = 19,760 per year x 2 = £39,520 not £32k (your annual figure is suppressed by not using enough weeks in a month and months in a year)

Even at only 4x household income that's £158,080 (or £177,840 at 4.5x)

The constraint on lending to first-time buyers in MMR is not LTI, it's servicing the mortgage at a 5.5% stress rate (referred to as 'affordabillity').

The FPC have been quite clear that they see a financial stability risk where mortgaged households spend north of 35% of after tax income on the mortgage. Hence you need to work the size of a mortgage that 35% of the household income can cover on a repayment basis at an interest rate of 5.5%.

This is why you don't feed trolls. The conversation RushRoad has started is predicated on ignorance. RushRoad has trolled this thread and dragged it off its intended topic.

Edited April 22, 2017 by Bland Unsight