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Xurbia

If You've Just Bought A House Look Away Now

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Telegraph article

House price growth is slowing but economists warn that it is not enough to stop the Bank of England raising rates.

The Council of Mortgage Lenders director general, Michael Coogan, said house prices look set to rise by just 2pc-3pc next year - their weakest rate of growth since 1995 when prices fell - as higher interest rates appear to bite.

"There will be some, particularly first-time buyers, who will need to change their spending patterns or social behaviour to be able to continue to afford mortgages at this sort of level," he said.

So FTBs are going to change their habits. So that's no ciggies, no booze, no food, no DIY, no babies, no fish and chip takeaways and probably no life. Great fun. :unsure:

So just remind me what the lowest paying savings accounts pay.... oh yes it's about 2-3%.

So no hassle, money in the bank or loads of hassle and a nice big portfolio of houses?

The CML has calculated that homeowners who took out two-year fixed-rate mortgages in 2005 and 2006, when the Bank rate was just 4½pc, will have to find at least an extra £100 a month to cover their mortgage repayments.

Mr Coogan said a robust economy and high employment would prevent an avalanche of forced home sales, one of the triggers for the last housing market crash some 20 years ago. He added that strong demand for housing would support prices.

Consumers are, however, expected to rein in their spending as the housing market cools. "We've already seen on the consumer credit side that loans have been reduced and people are looking to repay their credit card and other debts," Mr Coogan said. "That trend is likely to continue."

Mr Coogan seems to be somewhat ambivalent about the housing market or should that be contradictory? He's talking about strong demand but then saying prices will be growing at less than RPI i.e. 2/3%!

Edited by Xurbia

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Telegraph article

So FTBs are going to change their habits. So that's no ciggies, no booze, no food, no DIY, no babies, no fish and chip takeaways and probably no life. Great fun. :unsure:

So just remind me what the lowest paying savings accounts pay.... oh yes it's about 2-3%.

So no hassle, money in the bank or loads of hassle and a nice big portfolio of houses?

Lets say house prices rise 2-3% next year.

You have 10000 pounds deposit and put it in a 7% savings acount making 700 pounds pre tax profit per annum.

Instead you put 10000 deposit down and buy a 200000 pound property which goes up 3% in value. Property now worth 206 thousand pounds. So 6 thousand pound "profit" on 10000 pounds.

So about 4-500 pounds post tax profit on your savings but around 6000 profit on your property. I know I know you have to buy, sell, fees etc. I'm just pointing out how completely and utterly crap keeping your money in savings is. The return is so low I'd almost rather it was zero at least that way it wouldn't be taking the piss. If property even goes up 0.5 percent you are still kicking savings butt.

Edited to add; if you have a flexible mortgage and put the same 10000 in as an overpayment rather than into savings you are basically getting the exact same yield but tax free.

Give me the hassle of property any day. I thrive off stress.

Edited by nohpc

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Telegraph article

So FTBs are going to change their habits. So that's no ciggies, no booze, no food, no DIY, no babies, no fish and chip takeaways and probably no life. Great fun. :unsure:

So just remind me what the lowest paying savings accounts pay.... oh yes it's about 2-3%.

So no hassle, money in the bank or loads of hassle and a nice big portfolio of houses?

What about houses being a leveraged investment? 2-3% on, say, £7,500 is less than 2-3% on £150k.

I know that with houses, there are other issues and costs, but that's part of the point -- that directly comparing two investments on which one might expect to gain 2-3% isn't always an easy thing.

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Lets say house prices rise 2-3% next year.

You have 10000 pounds deposit and put it in a 7% savings acount making 700 pounds pre tax profit per annum.

Instead you put 10000 deposit down and buy a 200000 pound property which goes up 3% in value. Property now worth 206 thousand pounds. So 6 thousand pound "profit" on 10000 pounds.

So about 4-500 pounds post tax profit on your savings but around 6000 profit on your property. I know I know you have to buy, sell, fees etc. I'm just pointing out how completely and utterly crap keeping your money in savings is. The return is so low I'd almost rather it was zero at least that way it wouldn't be taking the piss. If property even goes up 0.5 percent you are still kicking savings butt.

Edited to add; if you have a flexible mortgage and put the same 10000 in as an overpayment rather than into savings you are basically getting the exact same yield but tax free.

Give me the hassle of property any day. I thrive off stress.

Yes, you're correct the money in the bank is a bad investment but a leveraged property deal in an unstable market isn't much better. Let's say you have 500 grand in the bank would you leverage that too against a property. Investments only make sense to me when I can understand the market. I don't understand the property market at the moment. It's too risky for me. I'll wait for better odds.

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What about houses being a leveraged investment? 2-3% on, say, £7,500 is less than 2-3% on £150k.

I know that with houses, there are other issues and costs, but that's part of the point -- that directly comparing two investments on which one might expect to gain 2-3% isn't always an easy thing.

Give me a honest reply. Do you consider residential property to be a good investment at this point in time? (ignore if it's going to be a home)

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Lets say house prices rise 2-3% next year.

You have 10000 pounds deposit and put it in a 7% savings acount making 700 pounds pre tax profit per annum.

Instead you put 10000 deposit down and buy a 200000 pound property which goes up 3% in value. Property now worth 206 thousand pounds. So 6 thousand pound "profit" on 10000 pounds.

So about 4-500 pounds post tax profit on your savings but around 6000 profit on your property. I know I know you have to buy, sell, fees etc. I'm just pointing out how completely and utterly crap keeping your money in savings is. The return is so low I'd almost rather it was zero at least that way it wouldn't be taking the piss. If property even goes up 0.5 percent you are still kicking savings butt.

Edited to add; if you have a flexible mortgage and put the same 10000 in as an overpayment rather than into savings you are basically getting the exact same yield but tax free.

Give me the hassle of property any day. I thrive off stress.

Oh pullleaaze!

Your #6000 would be gobbled before you even start and is in no way guaranteed. It would most certainly be a loss for several years even with the small cap gains... and there could be cap losses. There is no risk premium priced in to real estate at all now, in fact there is a risk discount.

Very foocking bad business. Agree the savings route is not so flash, but buying property as an investment right now (unless numbers somehow really do stack up) is just stoooopid. It's a muppets game at the moment.

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Give me a honest reply. Do you consider residential property to be a good investment at this point in time? (ignore if it's going to be a home)

I'm a fairly devout 'Neither', but I would err on the side of 'No'.

And in return, perhaps you could give an honest reply to this one: Do you think it makes sense to directly compare the 2-3% growth of a savings account with the 2-3% growth of a BTL property when, in other respects, the two investments have a wealth of significant differences (e.g. leverage, costs, rental yield...)? Surely, the fact that the two investments in your example both experience growth of 2-3% is only a most superficial of similarities?

EDIT: I just wanted to add, by the way of summing up, my reply wasn't in support of property as an investment, but support for objectivity and rationality over rhetoric and spin! ;)

Edited by Ologhai Jones

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Oh pullleaaze!

Your #6000 would be gobbled before you even start and is in no way guaranteed. It would most certainly be a loss for several years even with the small cap gains... and there could be cap losses. There is no risk premium priced in to real estate at all now, in fact there is a risk discount.

Very foocking bad business. Agree the savings route is not so flash, but buying property as an investment right now (unless numbers somehow really do stack up) is just stoooopid. It's a muppets game at the moment.

Buying property as a short term investment definitely doesn't stack up but if you can afford it and want to sit and wait another decade whatever happens in the short term will become irrelevant. I wouldn't invest at the moment but I'm not so sure it is a muppets game at the moment. There are plenty of non muppets still investing.

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there is a huge difference between buying as a FTB as a home and buying for an investment.

I am actively discouraging investing in property as an investment until later next year.

An imminent HPC is the only reason for a FTB not to get on the ladder assuming affordability is met.

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Guest Cletus VanDamme
So about 4-500 pounds post tax profit on your savings but around 6000 profit on your property. I know I know you have to buy, sell, fees etc. I'm just pointing out how completely and utterly crap keeping your money in savings is. The return is so low I'd almost rather it was zero at least that way it wouldn't be taking the piss. If property even goes up 0.5 percent you are still kicking savings butt.

That 6K profit disappears overnight when you sell. It'll probably just about cover your EA and solicitors fees.

I reckon you need HPI of at least 7% per annum to make a reasonable return on property, when you take the financing and selling costs into account.

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That 6K profit disappears overnight when you sell. It'll probably just about cover your EA and solicitors fees.

I reckon you need HPI of at least 7% per annum to make a reasonable return on property, when you take the financing and selling costs into account.

Good point. I think people, especially FTBs, forget that even a minor DIY task can cost a few hundred quid. Then there's curtains (how much?) and all the little 'imperfections' the seller forgot to mention. Loads of FTBs only get valuations and skimp on a survery because their mate down the pub is an expert. Then they find out the valuation was for the bank's benefit find the romantic dream has just drained the bank account dry.

Edited by Xurbia

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I'm a fairly devout 'Neither', but I would err on the side of 'No'.

And in return, perhaps you could give an honest reply to this one: Do you think it makes sense to directly compare the 2-3% growth of a savings account with the 2-3% growth of a BTL property when, in other respects, the two investments have a wealth of significant differences (e.g. leverage, costs, rental yield...)? Surely, the fact that the two investments in your example both experience growth of 2-3% is only a most superficial of similarities?

EDIT: I just wanted to add, by the way of summing up, my reply wasn't in support of property as an investment, but support for objectivity and rationality over rhetoric and spin! ;)

I think the market has come to a critical point. It has been a long time since savings rates were better than the return on a house. That is why I made the comparison. There are many good reason to be holding cash at the moment or seeking an alternative investment to property.

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Errr.. havent you forgotten something in your financial planning?

at the risk of joining ina spurious game of fictitious figures, I couldn't resist this:

if I put 10000 down as deposit on a 200,000 property I have to service a 190000 loan

renting option

10,000 in Icesave at 6.20% annual interest reaps me £630 pre tax interest

rental on a £200,000 property- say £600 per month costs me £7200

money at the end of the year from my original £10,000 =+£2170

buying option

190000 mortage at 7.4%(tracker, 25 year term; interest only) costs me £1,171.66 per month (source www.iii.co.uk mortgage calculator ie £14059.52 over a year

my house increases in value by 3% =£6000 -

In addition I have extra bills to pay over and above those I'd pay renting - house insurance, house repairs etc- say £100 a month , totally £1200

BUT To realise my £6000 included in the above involves selling my house, at a cost, say, of 1.5% of the selling price (estate agents and solicitors fees) cost £3090,

ther is of course, the stmp duty paid on purchase of 1% on a 200,000 house- another £2000

money at the end of the year from my original £10,000 = minus £5830

obviously if I kept the house the stamp duty and sales costs would be spread over more years- but it still works out to be negative income cf. investing even at £6.3% discounting the latter fees entirely.

i could get a lower rate mortgage, but I may well have to pay an introductory fee, and the lower fixed rate mortages don't seem to be available for 95% mortgage deals

Hinckley & rugby Bs- 5.95% mortgage but £795 arrangement fee and £199 property assessment fee and £50 completion fee.

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Guest Cletus VanDamme
I think the market has come to a critical point. It has been a long time since savings rates were better than the return on a house. That is why I made the comparison. There are many good reason to be holding cash at the moment or seeking an alternative investment to property.

What I like about cash right now is the reasonable returns coupled with zero transaction costs.

I cashed in all my equity ISAs recently. I didn't get anywhere near the actual figure quoted for the 'value' of my holdings, once the bid/offer spread had been applied.

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Lets say house prices rise 2-3% next year.

You have 10000 pounds deposit and put it in a 7% savings acount making 700 pounds pre tax profit per annum.

Instead you put 10000 deposit down and buy a 200000 pound property which goes up 3% in value. Property now worth 206 thousand pounds. So 6 thousand pound "profit" on 10000 pounds.

So about 4-500 pounds post tax profit on your savings but around 6000 profit on your property. I know I know you have to buy, sell, fees etc. I'm just pointing out how completely and utterly crap keeping your money in savings is. The return is so low I'd almost rather it was zero at least that way it wouldn't be taking the piss. If property even goes up 0.5 percent you are still kicking savings butt.

Edited to add; if you have a flexible mortgage and put the same 10000 in as an overpayment rather than into savings you are basically getting the exact same yield but tax free.

Give me the hassle of property any day. I thrive off stress.

wot if it goes down 3% in value?

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wot if it goes down 3% in value?

It's simple. You ring up the estate agent and say "Look here old chap there's been a dreadful mix up. It seems that piece of crap nice house you sold us is not worth a bean."

You might hear loads of laughter and "you sucker" being shouted down the phone at this point. :blink:

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wot if it goes down 3% in value?

Agreed - property is a great investment if it rises. No other consumer investment can offer such massive leverage. The ugly part only comes if it falls in value. Nominal falls will occur in many regions in this house price crash (if anything just because this time round the MPC are charged with keeping inflation low), and negative equity will rear its head. The ones who get caught out will be those who are forced to sell (through unemployment, unaffordability etc).

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2-3% is below inflation, so overall a real drop in prices.

Some speculative flats etc. might be 10-20% cheaper next year.

Some good areas might grow 10% per year.

Thats a bear property market for you, some winners and some losers.

Attached is a PDF of %age drops in different towns during the last 'crash' according to my processing of Halifax stats... its quite a varied picture. The figures are partial and will have errors, so don't take them as gospel but DYOR.

This is still a great generalisation as I know people in Bristol who had 30% drops even though the overall picture shows about 11%

But in a sense, a 2-3% forecast means the 'crash' is very likely going to happen next year for some people. And of course... this number may be wildly wrong. In the past ten years, the mortgage lenders have consistently underestimated HPI.

HPI0001.jpg

HPI0002.jpg

drawdowns_88_95.pdf

post-130-1184658136_thumb.jpg

post-130-1184658160_thumb.jpg

drawdowns_88_95.pdf

Edited by 2MeterBear

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It's simple. You ring up the estate agent and say "Look here old chap there's been a dreadful mix up. It seems that piece of crap nice house you sold us is not worth a bean."

You might hear loads of laughter and "you sucker" being shouted down the phone at this point. :blink:

wot if in 5 years time it has dropped 30% !Not only have you lost your stake but you also owe the bank the negative equity? Is this ever likely?

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wot if in 5 years time it has dropped 30% !Not only have you lost your stake but you also owe the bank the negative equity? Is this ever likely?

Okay I'll go through this again. It's simple so bear with me. You ring the estate agent up in 5 years time to complain. There's a recorded message for you "The number you have dialled is no longer in service, please hang up and try again in 10 years" :lol:

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Okay I'll go through this again. It's simple so bear with me. You ring the estate agent up in 5 years time to complain. There's a recorded message for you "The number you have dialled is no longer in service, please hang up and try again in 10 years" :lol:

surely the government would have to step in and help people out to save the economy? the wouldnt want a recessio ontheir hands?

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surely the government would have to step in and help people out to save the economy? the wouldnt want a recessio ontheir hands?

Yes I think you're spot on. Once the government have worked out why they couldn't build a house for 60 grand they'll put their finest minister on the the job... what's 'er face, you know that Yvette woman.

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Errr.. havent you forgotten something in your financial planning?

at the risk of joining ina spurious game of fictitious figures, I couldn't resist this:

if I put 10000 down as deposit on a 200,000 property I have to service a 190000 loan

renting option

10,000 in Icesave at 6.20% annual interest reaps me £630 pre tax interest

rental on a £200,000 property- say £600 per month costs me £7200

money at the end of the year from my original £10,000 =+£2170

buying option

190000 mortage at 7.4%(tracker, 25 year term; interest only) costs me £1,171.66 per month (source www.iii.co.uk mortgage calculator ie £14059.52 over a year

my house increases in value by 3% =£6000 -

In addition I have extra bills to pay over and above those I'd pay renting - house insurance, house repairs etc- say £100 a month , totally £1200

BUT To realise my £6000 included in the above involves selling my house, at a cost, say, of 1.5% of the selling price (estate agents and solicitors fees) cost £3090,

ther is of course, the stmp duty paid on purchase of 1% on a 200,000 house- another £2000

money at the end of the year from my original £10,000 = minus £5830

obviously if I kept the house the stamp duty and sales costs would be spread over more years- but it still works out to be negative income cf. investing even at £6.3% discounting the latter fees entirely.

i could get a lower rate mortgage, but I may well have to pay an introductory fee, and the lower fixed rate mortages don't seem to be available for 95% mortgage deals

Hinckley & rugby Bs- 5.95% mortgage but £795 arrangement fee and £199 property assessment fee and £50 completion fee.

Precisely. Plus, add all the stress and the hassle of putting the house on the market, pray that someone offers above or near the asking price, repair bills, surveys, HIPS, you name it. that doesn't make sense.

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Lets say house prices rise 2-3% next year.

You have 10000 pounds deposit and put it in a 7% savings acount making 700 pounds pre tax profit per annum.

Instead you put 10000 deposit down and buy a 200000 pound property which goes up 3% in value. Property now worth 206 thousand pounds. So 6 thousand pound "profit" on 10000 pounds.

So about 4-500 pounds post tax profit on your savings but around 6000 profit on your property. I know I know you have to buy, sell, fees etc. I'm just pointing out how completely and utterly crap keeping your money in savings is. The return is so low I'd almost rather it was zero at least that way it wouldn't be taking the piss. If property even goes up 0.5 percent you are still kicking savings butt.

Edited to add; if you have a flexible mortgage and put the same 10000 in as an overpayment rather than into savings you are basically getting the exact same yield but tax free.

Give me the hassle of property any day. I thrive off stress.

In your detailed calculations you seem to have omitted the detail about the mortgage. The one on which you put down a measely 5% deposit. That £190,000 mortgage will be costing you dearly at todays interet rates, which are around twice the 3% rise in value of the property you mention. If you combine this with the losses to be made with legal costs, etc. as mentioned in other posts on this thread, you'd be well advised to steer well clear of a £200,000 mortgage (with a pi55y little 5% deposit) unless you're earning substantially more than the average income. Even then it's a bad bet in my book!

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