Looks like the housing market is off again…

Renting is dead money

Depends how you look at it. For people intending to stay in one location for most of their lives then it makes complete sense to buy.

If you intend to move around to further your career, perhaps to travel and see the world and experience living in several different places then it makes perfect financial sense to rent whilst you’re younger, save and buy a property with a much bigger deposit when you’re ready to settle down (avoiding mortgage interest which is also dead money).

Long term though you’re not going to want to be renting, or paying a mortgage by the time you’re retired.

With the way house prices are going, and the increase of 30, 35, 40 year mortgages to enable people to afford property at it current prices, people buying houses at today’s prices may well up never paying them off. So all the pitfalls of renting (from the bank) but none of the benefits.

The only way comparing rents to mortgage payments is valid is if you have an interest only mortgage and assume that you sell the second you’ve made your final payment for exactly what you bought.

These are not likely scenarios, ergo interest on mortgage payments is not dead money in the same way as renting.

If rents were far lower than mortgage payments it would be a closer comparison, but they’re not (at least round here). Even at 5% our mortgage payments are less than rent on the same property would be.

If I put my cynical hat on then a property led boom is perfect for Osborne and a win win situation.

Scenario 1. People belive the guff and think the economy is better and George and co get another 5 years in office

Scenario 2. People dont belive the guff and we have a different govt. The MP’s who dont get relected then get to sell their tax payer funded London home in the middle of a property bubble and walk away with a huge profit.

25% of income approx and up for a remortgage next April – current rates 3% fixed but will go to 5.6% variable.

I’m frantically paying as much off as possible to ensure the re-mortgaged amount is as low as can be – anything I need to worry about? I’m not concerned about bubbles as we are here for the long term, just the repayments…?

How do you do it? How do people afford to live in these places? Did you all just have the foresight to buy property in the 80s when they were giving houses away with Green Shield stamps?
We started in 2000, buying a house in Sheffield that had bomb damage from the war and no-one else would touch. We gambled a structural survey and a couple of builders opinions.
In the rising market, we ended up getting into some BTL, and ended up with three houses on one street in Sheffield. In 2008. We lost most of any capital that we had ‘built up’. We were caught up with the ‘property as investment’ rather than place to live. And then my job folded.
We moved for a job, bought a small flat that we could rent out and lived in rented family home.
We are *just* able to afford the cheapest 4-bed house in a nice place (the only one in 18months of looking we could afford). We are back to 25 years debt. We are back to both working full time.
But, it is £150 a month cheaper than a (cheap) rent on a smaller house. So even having to borrow the stamp duty, we are better off in 12 months, in our own home, with stability for the kids in a place we want to be.

Meanwhile, all around us are asking why we haven’t bought one of the new developer houses, or the one up the road that is £300k etc etc. I am not sure what planet half the UK lives in today, but financially it is not the same one I occupy. 😐

The help to buy here is fueling new houses and prices – but it cannot be sustainable. The people we are buying off are committed to a new house under HTB Scotland, and the neighbouring (new development) house where they are buying has just been put on the market for £35k less than it was bought for 8 months ago. Crazy, but people are queuing to do it.

And if you rent instead of mortgage, how do you afford to invest in equities? Unless of course you can afford to do both, but then why don’t you just mortgage and invest?

Well usually rent is less than mortgage payments for the same place so invest the difference. There is also a difference between the cost of an interest only mortgage and a capital repayment one – you can/should invest the difference and if you get a better return than the mortgage rate you win. There are of course other costs associated with property ownership than renters don’t get – purchase costs, on going maintenance.

But yeah I geared heavily when buying property starting in ’96 and obviously have done very well. A number of people got out of property (sold their house) around 10 years ago to invest in equities, they were doing well for a few years but unless they got back into property at the right time they may have lost out. I think a Motley Fool writer did that so will try to find out how he got on.

If rents were far lower than mortgage payments it would be a closer comparison, but they’re not (at least round here). Even at 5% our mortgage payments are less than rent on the same property would be.

Nail – head. I’ve never seen a rentable property that I couldn’t buy for the same or less, interest included.

Mobility is one good reason to rent I can think of as mentioned.

I’m frantically paying as much off as possible to ensure the re-mortgaged amount is as low as can be – anything I need to worry about? I’m not concerned about bubbles as we are here for the long term, just the repayments…?

Get some valuations done and pick the highest so you have a high LTV – should secure you the best deals. Start looking now – if you stay with your current provider they may provide a clean switch so you never pay that 5%, other vendors may line soemthing up for you.. worst case you’ll be wel informed if you follow it now. I do, and I’ve no intention of selling or remortgaging (on Nationwide BMR now, 2.5% variable)

so you have a high LTV

The company providing the mortgage will get its own valuation (which you’ll usually pay for IIRC) to avoid people trying this.

(and to be pedantic, I assume you mean low LTV)

Current green belt policy in inconsistent with a predicted rise in population (though population growth is almost impossible to predict IMO)

Green belt policy would be fine if New Labour hadn’t let in over 4 million people. Population growth can be predicted fairly accurately if you control your borders.

BINGO!!!

It’s all the fault of those damn immigrants!

You are Nigel Farage and I claim my 5 Euros

Herr and Frau Farage

Interest rates need to rise to try and put the brakes on this runaway bubble.

But that punishes everyone.

The people who push the prices up are a mix of greedy, want to be seen to be doing well and stupid.

When I worked in London I always said live within your means- alot of the people I worked with used to go out alot, spend money on rounds of Champagne in bars and big mortgages. All it takes is a hicup in your health, your employer to have a hidden cash flow issue etc then you are suddenly out on your arse with some bleak realisations.

Which family/friends/neighbours are you impressing then?

As with the 08 crash- since relocating up north we hesitated on buying. People were saying ‘if you dont buy (overpay) now you’ll be off the housing ladder forever’. I thought it was odd as no one can afford 5times their salary longterm. So waited as it made sense that it wouldn’t last.

hora – Member

But that punishes everyone.

no it doesn’t.

what are all the renters going to do when the land lords cant afford the repayments due to interest rates going up and rents following ?

ive dropped onto my SVR as I cant currently get a better deal. im about 2% away from the mythical LTV that gives me access to the good rates…… so soon 😀

BINGO!!!

It’s all the fault of those damn immigrants!

Well that’s harsh as obviously the immigration numbers have been high enough in recent times to increase the demand in housing – doesn’t mean that overall it is a bad thing but more upward pressure on house prices for sure.

Interest rates are too low but raising them will have a negative impact on many, borrowers are having it too easy now really.

Interest rates need to rise to try and put the brakes on this runaway bubble.

But that punishes everyone.

No it doesn’t, it punishes people who’ve stretched themselves too far and have been living the good life on other peoples money. It rewards the savers, and the people who have actually tried to do the right thing by putting something by for their future and retirement. It also makes investments in things other than bricks and mortar (e.g. businesses) far more likely.

what are all the renters going to do when the land lords cant afford the repayments due to interest rates going up and rents following ?

Hopefully buy the landlords ‘fire sale’ houses from them at a knock down rate – the same houses that many greedy BTL landlords prevented them from buying in the first place.

Current green belt policy in inconsistent with a predicted rise in population (though population growth is almost impossible to predict IMO)
Green belt policy would be fine if New Labour hadn’t let in over 4 million people. Population growth can be predicted fairly accurately if you control your borders.

Complete BS, by far the biggest factor in ridiculous house price growth is decades of under supply and decades of loosening monetary policy. Back to reading your daily hail tho.

When I did A-level Economics I remember being told that inflation came from “too much money chasing too few goods”.

My Mum’s take is interesting, she blames Feminism (in part). My parents bought their house about 1967 – when only one income was available to pay for the mortgage, than of the husband – because women were generally at home looking after the kids.

She says feminism, as positive as it has been, simply doubled the amount of money that families could afford to pay for a house as women went to work. Housing stock hasn’t increased, the amount of money has. Hey presto, prices have gone up. And up ever since.

The main problem now is too much money supply. The population of London hasn’t increased 20% in a year, but prices have… so ‘shortage of housing’ IMO is not the main problem here, just an aggrevator to the fundamental issue of way too much ££ being lent out

Hora , i know folk who have just done that – same earnings as me and the mrs , sold their old house bought at the same time as us for a 10k profit and were chuffed with that ( just about paid for moving fees that will have – not inc all the fees from first time round) and have bought a new build for just under 400k. About 3 times what their first house was worth.

I worked out the mortgage monthly to be more than my take home basic.

Their reasoning – well prices are only going to go up so if we cant afford it we will sell

I didnt even argue , theres no arguing with that reasoning. MENTALISTS

That is uncanny, I have friends like that and I shake my head. They thought that if they don’t upsize now they never will and have admitted all holidays are off now because of the payments.

Human nature has lots to answer for.

Also, if people invested wisely now in assets other than property, rather than pumping everything into an illiquid one they should have a lot more options later in life.

Such as, Hammy?

Bonds are returning next to nothing and prices will crash faster than house prices if rates rise.

Stocks and shares are also in a low-interest-rate-driven bubble, yields are lousy.

I don’t want a classic car, art leaves me indifferent, gold is still overpriced, commodity futures are only short term.

There’s a mass of liquidity that has been printed by the central banks which has driven a fight to find places to hoard money; housing being just one of them. If anyone can think of anything better than overnight cash or lending money to the French government please let me know.

All this talk of a never-ending house price increases fills me with dread.

My rent is £495 pcm for a 1-bed flat in Cardiff, the equivalent mortgage repayments for it would be £410 with a 5% deposit. Unfortunately the asking price of the one for sale next door is £136k, 5x my salary. Not a hope of buying for me for a very long time. Not that I’d buy the flat anyway, the £180 pcm management fee is way too much for somewhere with one parking space, no garden and no way of improving it. Houses round here are upwards of £150k unless you delve into the undesirable areas 🙁

Seriously considering a move up north just to get my own place.

Time in the market, not timing. Reinvest dividends.

London is up close to 30% in 1 year, real transactions, having been quite flat over the last 4 or 5 years. Taken over that longer thats not excessive growth. With a growing and ageing population we will have a constant demand for housing.

With mortgage rates at 3% – 5% five times salary for a loan isn’t excessive, rates used to be over 10% and three time was the norm, that’s much less affordable.

@milky when I was your age (early 80’s) it was the norm to buy your first house with a girlfriend or a mate (or even two mates) and to scrimp and save and have an evening job in order to get the deposit. In my parents day a house cost £2000 but that was 3 to 5 times salary too and you had to save for years with the building society to demonstrate you could afford to buy and to have the deposit. It’s easier to buy a house today than it was then.

@hammy property is a wonderful income producing asset, people will always need somewhere to live and there will always be people who need temporary accommodation

Of course it is but the point is people relying on a single asset class.

@mudshark the return on equities hasn’t even been close to property. I put a chunk of money into my pension around the year 2000 and the ftse 100 is pretty much at the same level today, zero return apart from the tax break. Property has more than doubled and that’s on an un-leveraged basis.

Time in the market, not timing. Reinvest dividends.

Check where that strategy would have got you if you’d invested in the Japanese stock market when their housing market was similarly overpriced. 25 year on you’d be 60% down.

Markets are all about timing.

I persuaded my then girlfriend to sell her house in 1989 against the advice of her family and friends

We lived in rented accomodation and invested in shares throughout the 90s buying property in 95, 96, 99 and 2000 when prices were as low as they got here.

The last property purchase was made by selling our entire share portfolio against every bit of advice I got in March 2000. I was advised to borrow half the money to retain a share portfolio.

Since then I’ve sold one property and dabbled without conviction in the stock markets but have done no better than our fixed term investments.

“Now even bankers and lawyers can’t afford London houses”

Good article on pricing in London…here.

tbh the more national this bubble goes and the quicker it goes up, and the more people are affected by it – including the lawyers and the bankers, the more likely a) BoE will have to step in and increase rates b) the more of an electoral liability it becomes, rather than an asset – and therefore puts pressure on Gideon to stop ruining people’s chances of owning their own home.

All it will take will be a suspicion of the bubble bursting and sentiment could change very quickly…

Brooess.

Very idealistic but i suspect youl be waiting a while.

heres a classic example of why things will only get worse…

http://www.private-eye.co.uk/sections.php?section_link=news&issue=1364

Britain’s bankers will have been delighted with the appointment of Andrea Leadsom as City minister.

She also assumes the brief for George Osborne’s “help to buy” scheme, currently boosting values of houses across Britain and thus of her own investment portfolio.

In 2003 the high-earning Leadsom and her husband Ben – also an ex-Barclays banker now running an algorithm-based trading company – set up Bandal Ltd to invest in £1m worth of buy-to-let properties in Oxford.

How do you do it? How do people afford to live in these places? Did you all just have the foresight to buy property in the 80s when they were giving houses away with Green Shield stamps?

I did buy my first property in the mid 80’s. It felt expensive and we needed two incomes to buy it. it was £75k and the bigger houses opposite where £100k and we wondered how we would ever afford that. 3 friends of mine bought a three bedroom flat clubbing all their incomes and savings together (this was in 1984). The point your first property has always been a stretch.