DCI Gene Hunt

Same here...... minimum cost of a bedsit is well over 100K

fatscoobfella1

iTrader: (1)

I understand what JB is saying here i think...But blowing 20k on rent over a couple of years while waiting to buy would sting me..

Of course if you have enough money to do that,and save up enough to buy when prices are at rock bottom,then thats all ok..I know i couldnt afford the 1st part of that equation..!!

About £850 month will get you around £150k mortgage wont it??,so i can see the sense in renting the big house,but surely JB's equation will only work if the houses drop at more than the rate of what is being paid in rent per annum?

john banks

The money you pay on mortgage interest is similarly blown. My equation works if house prices don't appreciate at more than 10% per annum. If they only do 5%, I win. If they stay flat I win a lot. If they dip I make a killing. If they go up 15% I lose. Do I feel lucky with these odds and years of ridiculous growth? YES!

fivealive

It's a calculated risk and I, for one, believe that prices will fall a lot in the next 2 years ........ but I have been wrong before

Just that this time everyone (minus a few die-hards) agree with me

fatscoobfella1

iTrader: (1)

I only partially understand the numbers to be honest John..

Gimme an example to put into layman terms.That house you rent is worth approx???? 650k??So if it dropped to 450k,the mortgage would still be massively higher than what you pay now..
Unless of course your gonna pay for the house cash from savings???

As you can tell, i dont really understand the housemarket,but i find the whole thing fascinating and this thread very interesting..

Luckily enough,we made over 100k on or last house,sold up and moved to a farm house in Derbyshire that we now have no mortgage on at all

Not bad for mid 30's,but i do sometimes think would it be better to "make hay" as were,while we can still earn and go for a more expensive property,or sit back,knowing were safe and have an easy life???

fivealive

I 'think' what he is getting at is this:-

1. Buy house with mortgage, cost of mortgage £1000 - if house prices drop, assume this house loses £500 a month for 24 months ... therefore the cost of this house to live in is £1500 a month.

OR

2. Rent house for £1000 month - cost to live in this house is £1000 month with no maintenance or Insurance bills.

Renter is then better off by at least £500 a month.

In 24 months the house in 1. can be bought for a mortgage of £750 as prices have fallen AND buyer has that £500 a month he saved (£12,000) to treat him/her self

Thst is a simplistic view - but I think it captures the 'jist'?

john banks

Rough figures to illustrate:

Rent £10k a year. Property stagnates in value for the year.

Interest only 100% mortgage/repairs/maintenance/insurance £30k saved.

£20k saved in the year compared with owning the property.

fatscoobfella1

iTrader: (1)

But with figures like that stacking up,when will it ever be time to buy??

Is it just a waiting game,that may/may not come off?? FWIW i also think prices are going to come down,but to what level i wouldnt hazard a guess..

How old are you then John,IYDMMA..??

MikeCardiff

iTrader: (2)

Leaving out the financial considerations of renting - having rented for years previously I would much rather own my own house where I can do what I like, decorate, modernise, extend etc... plus being a smoker with pets, renting isnt that attractive. Add to that the agents coming round to do an inspection every few months, and the landlord popping round to fiddle with things I would much rather not rent.

Taking into account the extra mortgage costs, insurance, repairs etc... it proobably costs me twice as much to own my house than it would to rent, but as I can afford it, then I would rather do it.

john banks

We would like a cat, but won't get one yet because it will seriously restrict the selection of rental properties.

fatscoobfella1, I'm 33. Figures like this stacking up are an anomaly. I'm happy to take advantage of them whilst they exist, and also happy when the market in some way or other corrects them. If I had kids and wasn't taking probably the biggest step up the property ladder that I ever will, I wouldn't bother with all this renting business between owning.

MikeCardiff

iTrader: (2)

We have two cats, a dog and 20 fish. We did actually have the cats when we rented our last property but due to the lying agents we had to sort of keep them hidden.

When we were looking for places, as we had cats, we told the agents we needed somewhere that was OK with pets - we found the house, they said pets are OK as long as we pay an extra bond to cover any damage, which was OK and we all went ahead.

They phoned us the day before we due to move in to tell us that the landlord had changed his mind about the cats, so we couldnt have them there. ( What actually happened is the agents didnt bother asking him and just told us it would be OK to get us to take the house ).

At this point we had both given notice on our previous places, so had to move out, and they were telling us that the only way we could move into the new house was basically if we got rid of our pets. We werent to happy, but as we hadnt signed the lease yet there wasnt much we could do, so we told them we had found someone to look after the cats ( which we did for a few days ) then just moved them into the house anyway.

Dealing with people like that is one reason I wouldnt want to rent again !

Terminator X

iTrader: (7)

Are you saying below that a savings account will beat house price rises over time? Average house is now £180k ish & predicted to be £600k ish in 17 years time ... if I put £180k in the Bank today do you really think it would be £600k in 17 years?

TX.

Terminator X

iTrader: (7)

So you concede that you have lost out over the last 5yrs then

TX.

fivealive

Hi UncleBuck, I doubt anyone would say that a Savings Account will outstrip house prices over the longer term.

However, money in a Savings Account at 6.3% will outstrip the housing market over the next 5 years IMO ... and things like this are always a guess/best judgement. But, over 17 years the house price will increase more than a Savings Account .. again, IMO.

Terminator X

iTrader: (7)

^^ Hello Pete!

TX.

Brit_in_Japan

From 1996 --> 2007 my first house went up by >200%. I paid no tax on that increase.

For savings to have increased by the same amount over that period the interest rate would have to have averaged about 11% net (13.8% gross).

So the smart place to be over the past 10 years was property and I wish I'd ridden the wave more. What will happen in the future is hard to predict.

john banks

TX, of course I haven't lost out, I'm allegedly not stupid I only sold a year ago and I already have 75% of the money I need to buy the house I want at today's prices, my aim is to buy it without a mortgage in a few years time.

I was saying that a savings account beats the typical return from rental income on a property bought now. If you buy a property now you are likely to get a negative rental yield and be relying on future capital growth to make it a sensible buy. In the long term equities give a better return than property, just if you take a recent period that includes the best bull run property has seen and compare it with a period that includes a dot com bust you won't see that.

I do believe property to be a good long term bet, just not right now!

Terminator X

iTrader: (7)

John.

What about post #193 above? Would £180k in the Bank today beat house prices over 17yrs ...

TX.

Brit_in_Japan

If interest rates on saving = 6% gross, after 17 years £180 would be worth £484,699.
At 7% gross would equal would equal £568,587.

But tax will be deducted at source on the interest so this only applies if you're not a tax payer.

As for what will happen over the next 17 years.... if I knew that I'd be a rich man. If you look at some statistical data, e.g. from here:-
House Prices - Data Download

Over a 17 year period, the average change in house prices over the last 15 years(i.e. taking data since 1975), adjusted from inflation, has varied from a 1.8% drop in real terms, to a 107% rise in real terms. That latter figure represents the last in the series, i.e. until Q4 2007. People who purchased property at the height of the last housing bubble in Q2 1989 effectively had negative equity in real-terms until Q1 2002 !

House prices right now are overvalued by every measure you can apply, affordability, earnings ratio, historical trend, so it's plausible that savings could out perform housing over the next 17 years.

However past data does not necessarily tell us what will happen, if we have continued mismatch of housing demand and supply and the economy stays reasonably healthy, housing may outperform savings.

I hope housing returns to being about where you live, not a cash cow from which to make one's fortune.

john banks

Tx, my point about the savings account is that at present it beats the rental income income on most properties bought now. So capital growth is being relied upon to make a return. This is just another factor that shouts of a bubble and is at risk not just of stagnating but correcting.

In the short term I do expect a savings account to outperform which is why the majority of our fund is in cash (tax free where possible). As I pointed out house prices after inflation were the same in 1995 as 1985. Cash is a good place to be at present, but if houses do triple in 17 years I very much doubt it will before they take a big dip which will be a buying opportunity. If they do not dip then the massive inflation will also affect other asset classes which given their lower PE are likely to outperform.

GOLDMAN 555

From Todays Times


It is clear now that the housing market has peaked and has begun to fall over the past few months. Figures for December from the Council for Mortgage Lenders show gross lending down a quarter on November and down one fifth on December 2006.
But, rather than fearing price falls as the beginning of the housing market's equivalent of foot and mouth disease, they should be welcomed.
The idea that rising house prices are a good thing has been etched in the British national psyche since 1970. Existing owners build up equity in their home, giving them a feeling of growing prosperity. Stable or steadily rising house prices also generate certainty in the market. As a result, we have come to regard housing as a sound investment and better than pensions or the stock market.
There are two problems with this rose-tinted view. First, house prices do not rise in a straight line. We have had four price booms, followed by slumps, since 1970. The first three were relatively benign but in the 1989-95 slump prices fell by more than a third in London and the South.
The second problem occurs when prices rise so fast that the house price/earnings ratio goes ballistic. This is what has happened in the past decade and the result is a massive affordability problem. From 1995 to 2007 average house prices have risen 230 per cent (from £60,000 to £184,000), and the house price/earnings ratio has risen from 3.1 to 5.8.
What this means is that large numbers of potential first-time buyers are priced out of the market. The proportion of mortgages going to them has fallen from 55 per cent in 1994 to 35 per cent today; the number of such buyers is at its lowest for more than 20 years.
The Marie Antoinette reaction would be to say “let them rent”. But the long-term stability of the market depends on a rough equilibrium between the number of last-time sellers exiting and new dwellings built, and the number of new first-time buyers or buy-to-let landlords.
The market for homes requires a constant supply of new buyers to keep it running smoothly. To get the market back into equilibrium, price falls are needed.
If house prices were simply to mark time while earnings rose, this would make housing more affordable, but it would be a slow process. A much sharper correction is needed. This will hit owners who have bought in the past couple of years - who could face negative equity - but it may be a necessary cost.
The long-term stability of the housing market and the confidence and prosperity that rests on it depend on the British house price bubble being deflated.

Dream Weaver

As I said, this is what people in the South forget when they talk of devastating house price crashes that are coming.

£100k will get you a decent place up here, not in the best parts of town but perfectly nice areas. I can't see those properties dropping by 40% next year, there are too many people after them still.

PaulC72

Everything is relative IMO I doubt that houses under 150k will suffer much of a drop personally, its the hight value houses that will feel the pinch.

MikeCardiff

iTrader: (2)

I think also the small flats and first time buyers houses will suffer. If lenders tighten up on lending to FTB's, which is likely as these make up a large percentage of the sub-prime lending that has caused all the problems, there will be fewer buyers leading to a glut of starter properties which will drop in price to sell.

lozgti

All the ingrediants are there for a storm.

Even as a serial moaner I still accept what the happy crowd say i.e property prices do go up even after hiccups.

I just think it is a big hiccup coming that will affect an awful lot of people who have done everything to secure a house by whatever means of borrowing.And I reckon it is a lot of people who bought in the hope the rising would be year on year for ever and economic forces/problems had been banished by the former occupier of No 10

Nope

shamrock

http://www.thesun.co.uk/sol/homepage/news/columnists/kavanagh/article686412.ece

GOLDMAN 555

Text of above link:



BRACE yourselves ... It looks like we’re in for a rough ride.
The housing market is crashing around our ears. Jobs are drying up. Pay is on the slide.
Worse, we are almost totally unprotected against these chill winds because Gordon Brown has spent all our money.
As Chancellor, Mr Brown could have taught rogue bankers a thing or two.
Far from being prudent, he squandered untold billions without getting a decent return on our “investment”.
Indeed, he has lumbered us with a mountain of debt which may even mean higher taxes.
Don’t take my word for this. I’m no economist.
Just listen to the experts. And there are plenty around who say we have hit the skids.
America is already in recession, with unemployment up and house repossessions soaring. But while the impact in the USA is likely to be severe, prospects here are even grimmer.
After a heady 16 years of growth, Britain should now have enough spare fat to feed us through a couple of lean years.
Thanks to Labour’s incompetence, there’s not a brass farthing in the kitty — and now the Government is in a panic.
So where has all our money gone?
It’s been squandered on costly, inefficient and irresponsible pet projects created almost entirely to appease the political Left.
Again, don’t take my word for it. Listen to banker David Freud, hired by rattled Labour to sort out the appalling tangle we call the welfare state.
Out of 2.6million people on incapacity benefit, 1.9million are fit and perfectly able to work, he says.
The cost of keeping those claimants needlessly idle is a whopping £8BILLION a year.
And to the fury of ministers, Mr Freud blurted out the reason — “ministers are afraid of the Left”.

Crass


He was not talking about the millions of well-intentioned, compassionate Labour supporters who believe it is the duty of the “haves” to help the “have-nots” — and are prepared to put their money where their mouth is in higher taxes.
He meant the ideologues who insist there is an irreducible minimum of hard-luck cases that will always be out of work — even when 3million new jobs are created, only to be taken by foreigners.
They are the class warriors who still hanker for the good old days of union power and state ownership.
And they still have undue influence in the last bastions of socialist power in town halls and public services. But there is a price to pay for Left-wing ideology. And we have been paying it for the past 11 years. Take John Prescott’s stubborn decision to force the railways back into public ownership.

Former rail regulator Tom Winsor estimates that crass miscalculation cost taxpayers £15billion — with virtually nothing back in improved services.
Or the health service. Vital Tory reforms were scrapped on ideological grounds — only to be reinstated at huge cost years later.
Labour has never been prepared to stand up to the unions for the simple reason that it relies on them for funding. Indeed, Tony Blair privately ruled out any reform of the public services the day he became PM.
The cost of that decision has been stupendous. So has the cack-handed deal which has handed doctors stunning pay rises for doing less.
Last week, the Office for National Statistics revealed that despite the NHS absorbing an extra £50BILLION, productivity has FALLEN by ten per cent.
Today, professor Nick Bosanquet of the all-party Reform think-tank puts the cost of that failure at a shocking £20billion A YEAR.
The Government has poured billions more into education — yet there has been a catastrophic fall in the number of maths, English and science teachers.
Ministers have done nothing to reform the educational establishment, who allow millions of children to leave school illiterate.
Four out of ten are barely able to read or write because teachers see tried and tested synthetic phonics as “Right-wing and oppressive”.
According to the Government’s own figures, around 25,000 teachers are incompetent.
But none have been sacked because teachers’ unions won’t allow it.
The bill for this backdoor form of socialism is incalculable.
And we haven’t even mentioned the cost of political correctness, gold-plated public sector pensions or the ’Elf and Safety decisions which add billions more to our council tax bills.
Or the latest catastrophic commitment to prop up Northern Crock with an eye-bleeding £100BILLION just when we might need that money most.


ARCHDRUID Rowan Williams’ proposal to make Sharia the law of the land tells you all you need to know about the collapse of the Church of England.
He is not just hilariously out of touch with reality, but with people of all faiths – including Muslims.
What next from the mad Bish? Broadcasting the call to prayer from loudspeakers on the spires of every Christian church?

john banks

If the Sun is saying the housing market is crashing, it might be time to buy

A house I fancy is still for sale 2 years on, at £150k less. I might be tempted if it drops another £50k or so.

al4x1

BBC NEWS | Business | Property market continues to cool

even the BBC are saying its cooling with values only up 0.4% in December, note the up bit that so far we haven't seen a fall. It will be interesting to see which way it goes I'd like to see them stay where they are with interest rates about the same. I've got friends who have put off buying houses for years waiting for the crash and so far their 150K over valued houses are now at 250K and not showing much signs of doing anything else.
To me rent is dead money you know whats happening and you can't win without a drastic fall. But then I have got a 10x multiple mortgage on a renovation house at the moment, in my eyes money is still there to be made in property but it does take some work if you want to add value. One things for sure sitting back and watching is ok till you realise you've missed the boat and need an even bigger mortgage to get back on the ladder.