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House price correction and rent correction


Freki
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1 minute ago, Captain Kirk said:

And after the 5 years you can give the house back and walk away without incurring any further costs?

So, no, not checkmate.

Diagonal comparison. Nobody suggested owning was risk free. We are asserting that renting is not, while you are asserting it is! 

Risks and rewards are different for both but to suggest that renting is financially risk free is bordering on the cretinous. 

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Just now, Captain Kirk said:

You have to pay for things you break or damage of course, but that is the same if you own the place.

Absolutely not true.

I can burn a hole in the floor in my house and leave it like that forever. No bills. Plus I can repair it myself if i want to. 

Try doing that in a rental property?

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OK, I will summarise:

The financial risk of buying a house is not being able to pay the mortgage

if at a point when I can't pay the mortgage (and the forbearance by the bank ends) and the house price has increased (nominally) then I face limited (or 0) financial cost of renting from the bank

if at a point when I can't pay the mortgage (and the forbearance by the bank ends) and the house price has decreased (nominally) then I face limited then the financial cost to me is limited to the - in the most extreme case - the total price of the house

But let's just keep in mind:

  • not being able to pay my mortgage (assuming I haven't been dumb about affordability - is *organisational risk* - not financial risk.
  • if I can't afford my mortgage I probably wouldn't be able to afford rent anyway
  • if I can't afford my mortgage the bank has a very strong history of greater forbearance than a landlord (this is the social risk of renting)

And renting from the bank doesn't come with the social risk of the landlord getting greedy.

 

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19 minutes ago, Aidan Ap Word said:

So after 5 years you gaurantee that your rent is predictable?

No, but what has that got to do with anything? I can choose what I want to do at the end of a rental agreement.

22 minutes ago, Unmoderated said:

OK - please define what you mean by financial risk in this context.

Not knowing how much you will have to pay back, no guarantee that you will get to own the house you borrowed the money to buy, and the possibility that you will end up without a house and a big debt you have to pay back. Those are some of the financial risks there are when you borrow money to buy a house or property.

Obviously paying in cash is risk free. Just as renting is.

Edited by Captain Kirk
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20 minutes ago, Captain Kirk said:

And after the 5 years you can give the house back and walk away without incurring any further costs?

So, no, not checkmate.

If after 5 years I give the house back and walk away (presumably to go and live in a tent? (no risks there of course)) and house prices have risen *in nominal terms* (as unlikely as that is) then I walk away with the premium that the landlord would otherwise have got.

If after 5 years I give the house back and walk away (presumably to go and live in a tent? (no risks there of course)) and house prices have fallen *in nominal terms* (as likely as that is) then I walk away with unsecured debt - yes.

But the risk that I will be in a situation of having to give the house back after 5 years is organisational/social or (even) personal/medical risk. Not financial risk.

And if I have to give the house back after 5 years and walk away I probably wouldn't be able to afford rent anyway. And I would be forced to give it back much faster.

If I have to give my house back and walk away in 5 years time then I have bigger/more important concerns than the financial risk. And in the meanwhile i have been able to live for 5 years without S21 hanging over my head.

I layer the extra financial risk of this on top of the organisational/social or (even) personal/medical risk. Not financial risk which I face anyway (regardless of whether I rent or not).

I chose to accept that risk because the risks of renting any more (played out in very graphic and personal physical, relational, organisational hazard and even harm - to a lesser extent - financial harm, as well).

All those things came together in my life because:

  • I had greedy landlords (3)
  • I had a further landlord who hit upon hard times (and passed his risk/hazard/inconvenience("harm") on to his tenants because he was legally allowed to do so)
  • I am in a life situation where hazard and harm or placed upon more than just me (but also my family).

Really? Do you really believe that the financial risks are the only ones you face in life?

Just because you struck gold in your rental situation ... *sigh*.

 

Edited by Aidan Ap Word
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7 minutes ago, Aidan Ap Word said:

If after 5 years I give the house back and walk away (presumably to go and live in a tent? (no risks there of course)) and house prices have risen *in nominal terms* (as unlikely as that is) then I walk away with the premium that the landlord would otherwise have got.

If after 5 years I give the house back and walk away (presumably to go and live in a tent? (no risks there of course)) and house prices have fallen *in nominal terms* (as likely as that is) then I walk away with unsecured debt - yes.

But the risk that I will be in a situation of having to give the house back after 5 years is organisational/social or (even) personal/medical risk. Not financial risk.

I layer the extra financial risk of this on top of the organisational/social or (even) personal/medical risk. Not financial risk which I face anyway (regardless of whether I rent or not).

I chose to accept that risk because the risks of renting any more (played out in very graphic and personal physical, relational, organisational hazard and even harm - to a lesser extent - financial harm, as well).

All those things came together in my life because:

I had greedy landlords (3)

I had a further landlord who hit upon hard times (and passed his risk/hazard/inconevenice("harm") on to his tenants because he was legally allowed to do so

I am in a life situation where hazard and harm or placed upon more than just me (but also my family).

Really? Do you really believe that the financial risks are the only ones you face in life?

Just because you struck gold in your rental situation ... *sigh*.

 

Actually, you sound like the ideal person to be buying a house. Have you come across this scheme?

https://www.helptobuy.gov.uk/

It's very popular among first time buyers.

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8 minutes ago, Captain Kirk said:

And I'm the thick one? If you damage your own property, you've already paid for it!

All the questions of cost of maintenance in the context of either buying or renting are a moot point.

If I get moved on by the landlord 6 times in a 40 year rental period (an average of > 5 years per tenancy, remember) then I have paid in excess of 6 000 GBP in removal costs alone*. Reference. And this is wildly optimistic.

Cost of every other admin and time wasted not included.

6k means a nice new kitchen?

*Please spare us the "I move it all myself" joke.

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5 minutes ago, Captain Kirk said:

Actually, you sound like the ideal person to be buying a house. Have you come across this scheme?

https://www.helptobuy.gov.uk/

It's very popular among first time buyers.

This is not useful in this debate.

And funnily enough, getting someone else to stump up 20% of the nominal price of the house which is adjusted up or down based on the valuation of the house after 5 years is another way to spread the financial risk ofbuying a house to someone else.

Edited by Aidan Ap Word
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Just now, Aidan Ap Word said:

All the questions of cost of maintenance in the context of either buying or renting are a moot point.

If I get moved on by the landlord 6 times in a 40 year rental period (an average of > 5 years per tenancy, remember) then I have paid in excess of 6 000 GBP in removal costs alone*. Reference. And this is wildly optimistic.

Cost of every other admin and time wasted not included.

6k means a nice new kitchen?

*Please spare us the "I move it all myself" joke.

I move it all myself. Just balance it all on my head.

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2 hours ago, Captain Kirk said:

No, but what has that got to do with anything? I can choose what I want to do at the end of a rental agreement.

Not knowing how much you will have to pay back, no guarantee that you will get to own the house you borrowed the money to buy, and the possibility that you will end up without a house and a big debt you have to pay back. Those are some of the financial risks there are when you borrow money to buy a house or property.

Obviously paying in cash is risk free. Just as renting is.

OK, still don't agree.

I know exactly what I'll pay back. The interest charge on that is a choice between fixing and knowing or not and taking a risk tat the prices move. 

What about counter party risk when renting? 

Now you're saying renting is risk free but only for 6 months (which is isn't) versus 'renting is risk free before? So taking the long term view you're saying there is risk but it only comes into effect after 6 months? Or perhaps just when you move. But then you said moving isn't risky unless you balance everything on your head? So provided you don't balance anything on your head there is still no risk?

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2 hours ago, Captain Kirk said:

And I'm the thick one? If you damage your own property, you've already paid for it!

LOL. Not thick, just acting stupid.

So if I've already paid for it then that's zero risk in your dictionary because I know what I'm paying and I've paid for it already. Versus renting where you will actually get a bill for it. 

AND AGAIN NOBODY IS SAYING OWNING IS RISK FREE. 

You're saying renting is risk free under some special definition of risk, and now when pressed with the added caveat of it being risk free only for 6 months because you know exactly what you're paying unless you or your friends cause any damage (which is a risk btw). Then there's the risk the landlord goes under and the property is repossessed or falls into a state of repair so bad it's not inhabitable (boiler breaks down/leaking roof/gas leak/carbon monoxide etc) causing you to move inside of that 6 months. 

Bravo. Keep going.

 

 

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3 hours ago, Aidan Ap Word said:

Until the end of the 1 year rental agreement. The price is only set for 1 year.

A 5 year fixed rate mortgage and I know what I am paying (in nominal terms at least) what I am paying for 5 times longer than in the rental case.

Anyone who thinks they can predict what rents will look like in 5 years is pretending to have a crystal ball.

Checkmate.

Very true however he will never agree with you, so I would suggest that you give up.

You have convinced me that both have risks - of course hard to say which is the correct risk.

The only non risky option is to live for ever with your parents - but that is not really an option for everyone or even most people.

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5 hours ago, Unmoderated said:
  1. Incorrect. Most mortgage companies will allow you to port a mortgage with negative equity. Mortgagees could potentially declare bankruptcy and leave the bill with the bank. Worth doing if you're significantly underwater. The banks do not care as much about the asset = loan as they do about having non-performing loans on their books.
  2. No - you can sell a house for less than you paid for it and crack on. 

 

You make out porting means current owners  don't have to pay. They do. Every penny of the drop. 

If the house price drops 100k you are going to have pay all of that 100k loss.

Home owners are the people owning the tulips when the tulip bubble bursts. The bubble is bursting now.

Plus: the mortgage lender has no obligation whatsoever to let you port it. The bank is going to make you pay that shortfall, every penny, now or later.

The good news is: if you don't buy and wait a couple of years , it won't be you sucking the lemons. 

Now a question for you, Unmoderated : is this the time to buy, to wait, or to start squealing?

I think estate agents are squealing. 

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14 minutes ago, 24gray24 said:

Home owners are the people owning the tulips when the tulip bubble bursts. The bubble is bursting now.

Are you comparing the utility of a tulip bulb to one of a house? 

Home owners are not carrying tulip bulbs. House speculators are. There is a difference.

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1 hour ago, Unmoderated said:

You're saying renting is risk free under some special definition of risk, and now when pressed with the added caveat of it being risk free only for 6 months because you know exactly what you're paying unless you or your friends cause any damage (which is a risk btw). Then there's the risk the landlord goes under and the property is repossessed or falls into a state of repair so bad it's not inhabitable (boiler breaks down/leaking roof/gas leak/carbon monoxide etc) causing you to move inside of that 6 months. 

 

Bravo. Keep going.

There's nothing special about it. When you buy a house with a mortgage you are taking on risk. When you rent a house you are not. The risk of having to pay for repairs or having the place repossessed is the landlord's not the tenants.

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4 hours ago, Aidan Ap Word said:

 

If I get moved on by the landlord 6 times in a 40 year rental period (an average of > 5 years per tenancy, remember) then I have paid in excess of 6 000 GBP 

Get real. You get moved on every couple of years when you're renting. It's a complete pain.

But it does not compare with seeing the value of your house fall 100k and then having to swallow a 100k loss.

We're going down. The global market is going down. China australia America Germany they're all flashing red.  There are going to be people seeing their life savings disappear all over the world.

I'm sorry. But it looks a lot like game over to me. Recession at least. 

Thank your lucky stars you're not the one sucking up the loss of your life savings overnight.  

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15 hours ago, 24gray24 said:
  1. You make out porting means current owners  don't have to pay. They do. Every penny of the drop. 
  2. If the house price drops 100k you are going to have pay all of that 100k loss.
  3. Home owners are the people owning the tulips when the tulip bubble bursts. The bubble is bursting now.
  4. Plus: the mortgage lender has no obligation whatsoever to let you port it. The bank is going to make you pay that shortfall, every penny, now or later.
  5. The good news is: if you don't buy and wait a couple of years , it won't be you sucking the lemons. 
  6. Now a question for you, Unmoderated : is this the time to buy, to wait, or to start squealing?
  7. I think estate agents are squealing. 
  1. No they don't. They've already paid. When they bought the house they committed to paying £X for the property. Whatever happens to prices they don't pay twice do they?
  2. No, you've already paid it. You agreed to pay £x when you bough the house. You pay back every penny regardless of what happens to prices. In actually fact worst case scenario you'd pay back nothing. 
  3. No, homeowners own homes although they might have some tulips dotted about the place. Houses are nowhere near tulip mania. You need to visit the BitCoin thread.
  4. What is the shortfall? Will that show up on a mortgage statement? The bank will make you pay back everything you've borrowed, shortfall and otherwise so you're not making any sense. Your current lender has no obligation to allow you to do so but that isn't relevant. There are other companies out there who would let you do it. In addition, if you're underwater on the mortgage and need to move to get a new job would a mortgage company deem that likely to aid full repayment or not?
  5. The bad news is if you sit around renting (risk free apparently lol) for two years and then buy prices could be flat, or higher, or lower. One thing is for certain the sooner you start repaying a mortgage the sooner it will be repaid. 
  6. Whether or not is the 'right time to buy' depends on personal circumstances and is a complex question. If by 'right time to buy' you mean are prices going to go up or down then I would predict that in 5 years prices will be at least where they are today in nominal terms. In five years times you'll have paid off a chunk of your mortgage and not been evicted by some f***witt property spiv wanna be Nicholas von Hoogstraten. Will you get a lower price point to enter the market? Maybe. Maybe not. If Brexit goes badly for the economy you can all but count on more ZIRP, Q.E. or if they must support the pound there would be almost certainly some orchestrated mortgage lending scheme. I sat in 2008 saying wait for it and look what happened! If Brexit is a resounding success then the economy would crack on growing and I expect the sentiment would return to pre June 2016 levels where you couldn't get even a viewing around here (greater Reading area). Squealing wont do any good.
  7. EAs might be squealing but that has jack sh!t to do with prices and a lot more to do with legislation on the BS fees they piled on tenants, online competition reducing the amount they can charge and very low transaction levels which show no signs of abating. I predict that won't change until at least some way forward is found on the UK/EU future relationship around trade so people can start making firm plans. 

All of this is a distraction from the assertion that renting is financially risk free. Nobody is saying owning is not without its risks but you wont pay twice for your home if prices fall as you seem to be suggesting. 

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15 hours ago, Captain Kirk said:

There's nothing special about it. When you buy a house with a mortgage you are taking on risk. When you rent a house you are not. The risk of having to pay for repairs or having the place repossessed is the landlord's not the tenants.

Stop talking about owning a house as a comparison. We all accept buying a house has risks. 

Renting too has its financial risks but you are utterly stubborn in accepting you're incorrect so I'm done trying to educate you. 

Happy risk free renting. 

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15 minutes ago, Unmoderated said:

Stop talking about owning a house as a comparison. We all accept buying a house has risks. 

Renting too has its financial risks but you are utterly stubborn in accepting you're incorrect so I'm done trying to educate you. 

Happy risk free renting. 

+1

I think it is probably worth waiting to buy at the moment, saying that I could be wrong.  Maybe after Brexit we will see money printing on a large scale or it won't happen and we see money printing on a large scale (both shouldn't happen of course).

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1 minute ago, iamnumerate said:

+1

I think it is probably worth waiting to buy at the moment, saying that I could be wrong.  Maybe after Brexit we will see money printing on a large scale or it won't happen and we see money printing on a large scale (both shouldn't happen of course).

Only hindsight can give the right answer to that question. So many variables but one thing has always stuck with me form my time as an investment manager. The time to buy is when everybody else isn't (assuming you're going in with an investment point of view which imho is wrong when it comes to a home). 

My end goal is to own a modest home with no mortgage before I retire. I guess many others also have that goal and many go on to achieve that without waiting ten years to buy a property. 

If Brexit is really bad then I'd not second guess what the govt/BoE et al would do re propping prices. If it's good and all coming up roses then full steam ahead. 

Buying today or buying in two years probably wont make much of a difference to you in 20 years from now. 

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In my case, I find that a 11% drop over 5 years means I am equity neutral at that point. No real loss or gain in terms of capital owned in 5 ears if IR on savings remain the same and rents don't change.

The story is how much of that drop can you put in when you buy the property. 

Edited by Freki
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14 minutes ago, Freki said:

In my case, I find that a 11% drop over 5 years means I am equity neutral at that point. No real loss or gain in terms of capital owned in 5 ears if IR on savings remain the same and rents don't change.

The story is how much of that drop can you put in when you buy the property. 

Interesting.  I once calculated for me I could stay neutral with a 50% drop since I bought in 2006 (comparing the savings on rent etc - it is a very complex calculation so could be wrong and of course changes all the time).

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