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Hitman

Possible Factors Slowing The Hpc In London

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I’ve noticed over the last 2 years or so, that more and more people moving up the ladder, going from starter property 1-2bd flat/house to larger family sized houses such as 3-4 bed semis are opting to put there first property on rent and take some of the equity to use as a deposit on there second property. Example from a close friend goes like this.

He bought a 2 bd flat about 5 years for 78k in East London, he re-mortgaged flat on BTL @ 5.09% with northern rock 80% LTV, I think. Flat valued at 180k 2005, he got about 140k out this way and owed 50k ish on the flats original mortgage. He took the remaining 90k and bought his 3bd semi for 290k in Ilford, his current mortgage is now 180k as he also saved 20k deposit. He is 30 and works as a building services installations engineer, in Essex earning 40k PA, wife also 30 works as Legal PA sec on 24k in London. These guys are not your typical BTL wannabees, just people trying to build a secure future for themselves. I did some sums on the BTL and they are actually making a profit. They are paying £600 IO on the flat, and its on rent for £810 PCM going rate for a 2 bd round here, maintenance is about £500 PA. His current house mortgage is with Woolwich wt capital repayment at 4.8% fixed for 5yrs, must be paying around £1100PCM this he can afford comfortably on his salary alone. They are planning to start family soon so wife may leave work for a while.

Ive been giving this some thought and can see how this may affect FTB, as this reduces further to the number of available properties on the market to buy by reducing the stock. Thus leaving prices relatively on hold or slightly higher than before. So far I know of 7 cases in which people moving up the ladder have held onto there first properties, having quizzed some one these people, Ive heard things like ‘we are thinking of this long term like over 20 years or so as a pension etc etc, they do not mention ever selling, but instead talk about one day moving the properties into a trust, previously the preserve of the wealthy. Now most of these people are your average punter, both partners in work 9-5. But they seem to demonstrate an understanding of the mechanisms used by savvy rich investors to protect there investments. I guess this information has become more available with the development of the internet and other media supplements. Although some people will employ these techniques and make bad decisions and get burnt im not convinced this is true of most people.

The point im trying to make is that considering all the analysis, opinion on this website, surely its worth considering the affect the above scenario will have on prices not crashing in London and elsewhere anytime soon. Id welcome any sensible comments or discussion around this.

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Hitman,

I've seen quite a bit of this as well. For people who are experiencing good pay/career progression it does seem to be possible to make this work as you say. Now, I would argue that they aren't making best use of their equity (i.e. they would have made far more cash recently on the stock market or in gold), but I take the point that they would see property as a safety first investment and they are in it for the very long term. I think these folk will prosper if they can keep blue chip jobs.

However if they lose their job, suddenly find the kids are more expensive than they budgeted, or start to see house prices slide more generally, they may find themselves tempted to cash in on the Let-to-buy flat they are keeping. The same may happen if interest rates go up notably.

Also, even if prices don't fall, they may need to sell the semi and the flat if they decide they want to move further up the chain e.g. into a four-bed.

I've found this site a useful antidote to the uber-bullishness of the media, but I occasionally have an uneasy feeling that at times many of us here are guilty of uber-bearishness which might be equally damaging to our wealth. But then sometimes I'm not so sure...

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It is one thing to say

"This place I want to move out of would actually make a really good BTL investment. I've done the sums and in fact if I was looking to be a landlord, I would probably go for buying a place like this. I think I'll hang on to it as an investment and use the equity for my new house."

but it's quite another to say

"I can't sell this place, but I want to move. I know, I'll just let it out to cover the mortgage, then sell it when the market picks up."

How many of these people are actually in the second position? If the answer is most, this strategy isn't going to sustain the market for long.

frugalista

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All that he has done is take a highly leveraged position.

As soon as IR start to rise, the profit gets wiped out, and may become a loss. Then everyone heads for the exits, and all of his equity will get wiped out. A small shock such as a job loss and he is toasted. Game over.

That's the problem with leverage - great on the way up, nightmare on the way down.

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All that he has done is take a highly leveraged position.

As soon as IR start to rise, the profit gets wiped out, and may become a loss. Then everyone heads for the exits, and all of his equity will get wiped out. A small shock such as a job loss and he is toasted. Game over.

That's the problem with leverage - great on the way up, nightmare on the way down.

I acknowledge your point Smell the Fear, about job losses and property value falling , but most people will not fold so easily, lets say he lost his job, being a fairly resourceful guy he would find another job , anything as long as he was earning enough to put food on table, and pay mortgage. Secondly his wife could always go back to work after having a kid, and bring in enough to cover child care costs circa £600PM, and some extra to help with bills.

Most people are very resilient when faced with adversity. They will not give up without a fight should there worst fears become realised, on the point of values falling, I’ve heard comments such as ‘well that would only worry you if you had to sell’ and ‘ a house doesn’t care how much its worth’, people will not automatically start off loading just because there investments are in negative equity if they take a longer term view (Im not talking about the Inside track numpties). Most people working professionals are clued up enough to know that is the worst time to sell. His rent for now covers the Mortgage interest, leaving some £160 extra per month. As his home mortgage is fixed for 5 yrs his only variable cost could be the BTL rate currently 5.09%. He would surly be able to tolerate a sustained rise in interest rates however unlikely that may be in the short term.

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I know personally of one couple(both late 30s) who have practically paid the mortgage off one their 500K place. They are going to let it to japanese going forward and the pull equity out to buy another place to live in..budget of 700K for a house in chiswick or somewhere like that...even I'm a worried and I'm a bull. Talk about problems if you get a void period, not like you have a selection of BTLs and ones void for a period.

Very common for couples who meet up who each have a place to rent one and move into the other.

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Very common for couples who meet up who each have a place to rent one and move into the other.

It also happens when people change jobs.

We have recruited a lot of staff recently and it is quite commonly the case that they staff rent out their old house, say 100miles away and buy a new place locally.

Not sure I would choose to do that, but a lot of it is going on.

can anyone else detect a vague smell of burning troll flesh???

No, but I can definitely smell bitter lemon...

Edited by Without_a_Paddle

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Very common for couples who meet up who each have a place to rent one and move into the other.

Maybe they're constrained by fear of missing out on future profits, if they were to jump off the gravy train now. How would they look if they sold and prices took off again?

Typical amateur investor behaviour, IMO. They imagine there'll be a clearly-marked point further down the line where they can jump off without getting hurt.

Most people think they can call the markets. But most people (and I include myself in this) get it wrong.

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Now most of these people are your average punter, both partners in work 9-5. But they seem to demonstrate an understanding of the mechanisms used by savvy rich investors to protect there investments. I guess this information has become more available with the development of the internet and other media supplements. Although some people will employ these techniques and make bad decisions and get burnt im not convinced this is true of most people.

The point im trying to make is that considering all the analysis, opinion on this website, surely its worth considering the affect the above scenario will have on prices not crashing in London and elsewhere anytime soon. Id welcome any sensible comments or discussion around this.

Isn't the problem with this that once significant numbers of "average punters" start trying to use the techniques used by savvy rich investors, the techniques themslevs stop working so well as a way to get rich? After all, it might be a good thing to use these mechanisms if you're one of few who are - but the thing about savvy investors is that they often operate different, or even opposite, strategies to the majority of investors. Surely once lots of average people see BTL as a way to get rich it ceases to work that way?

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I acknowledge your point Smell the Fear, about job losses and property value falling , but most people will not fold so easily, lets say he lost his job, being a fairly resourceful guy he would find another job , anything as long as he was earning enough to put food on table, and pay mortgage. Secondly his wife could always go back to work after having a kid, and bring in enough to cover child care costs circa £600PM, and some extra to help with bills.

Yes, I am in a similar position to your friends. About to buy a new place and keep my current property and let it out. (hope to exchange next week). Main difference being the buy to let will be repayment as well. As I'm not overly concerned about making a per month profit on it. It's really something for 20 yrs from now. Despite running my own company full time (not having the luxury of a regular salary) I would still say I was still a pretty risk aversive person! I'm 32, and never did start a pension. So in a way, the BTL (+ maybe others) will be that.

Having tried to work through all the pros and cons (what bought me to this site) and also worked through our finances. I'm fortunate enough to say, things would seriously have to go some before I considered selling. On that basis only, I'm one of the "you dont lose till you sell it" brigade! Out of 5 of our friends, 2 are doing the same.

If the crash argument stands, it looks like 1 - 2 yrs away at the soonest.

I think that most of the people on this forum would say, if you've sensibly worked out your finances, then fine... I would tend to agree with some of the posters, there is probably better things you can do with your money - but hey, there you go. I really don't have the time to look into those. Just too busy with the day job.

But there is a however.

That said, if I were a FTBr back at 22 again, with my crap deposit in the bank etc - then I definitely wouldn't jump onto the market now.. Far better to read some of the very convincing posts on here and look for other, better things to do with your cash. Then just wait and hope. Properties always rise and fall.

Previously posts like other countries putting up their IR and the dreadful amount of debt in this country do indeed make very sobering and fascinating reading..

As to whether the absence of FTBr's in the market will affect price? Complete guess but my exp. is I think there is alot of BTLs out there, so doubt it.

Slightly aside, my partner is a Manager in the Recruitment Agency. She's been in the biz for 8 yrs now. Never before as she seen so much business coming in. That is bags of people looking for working, and heaps of companies hiring. The Recruitment industry is seriously booming at the mo.

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In London I would say demand for houses will continue to grow faster than supply, so therefore i cannot forsee a crash happening. In fact I expect steady growth for 'proper' houses many areas of London. Drops are likely with new build developments in crappy locations, where supply far exceeds demand.

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In London I would say demand for houses will continue to grow faster than supply, so therefore i cannot forsee a crash happening. In fact I expect steady growth for 'proper' houses many areas of London. Drops are likely with new build developments in crappy locations, where supply far exceeds demand.

I agree with respect to the standard flat in some huge block, where your neighbours are or will soon be low life - but crime is a downer for houses when compared to gated developments. And the 4/5 story town house does seem a bit out of fashion anyway. The Bromptons in Chelsea was the first sign of this trend in our old area, with prices of over £1,000 per square foot in this development when houses were selling at £600 odd.

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  • 301 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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