Pre crash house prices

[Crizzy]

20k for 180k property means you need a 90% LTV mortgage. That will give you the worst interest rates. If you can save a 25% deposit you'll get a better interest rate. It all comes down to how comfortable you are with whatever interest rate is offered to you.

Although this is true I've found that it doesn't make a HUGE difference and the higher interest rate would only be for the introductory period of the mortgage before reverting back to the banks standard rate. Granted after that period you'll still have a lower LTV which means that you'll probably be able to negotiate another fixed rate if you were so inclined.

What me and my partner are trying to do is get onto the market borrowing much less than we could afford with the intention of making overpayments on the mortgage to decrease our LTV. This also has the benefit of being less at risk when interest rates rise as we wouldn't be in a situation where we are not able to pay the mortgage.

 

[Stretch]

We have had, and still do have a housing bubble in this country. It is currently being kept inflated by low interest rates and various other tools. I do not see housing as a worthwhile investment, and will not be making a purchase until the average houseprice:wage ratio returns to more conventional levels.
In 1997, according to the Office of National Statistics, the UK national average wage was £16,666.

While I agree with most of what you say about what caused the bubble I disagree completely that housing is no longer a "worthwhile" investment. It still offers by far the best rate of return for your average investor. The key is to buy into the correct area, the correct type of property at the correct price.

e.g.

You can buy a simple, new build 1 bed flat where I live for £150k. With a £45k (bringing you under the magic 70% LTV) deposit the mortgage repayments are ~£500 a month fixed for 5 years, with a capital repayment period of 25 years.

The rental income alone for this type of property is £800-£900 a month. This gives you a monthly income of £300-400, while the mortgage is being paid by the tenant and the asset is very likely to keep pace with RRP at worst.

£300-400 a month is £3,600 - £4,800 a year. On a £45k investment that is between 8% - 10.6% return per annum. 6% wouldn’t be a bad thing, and rental income will increase with inflation. You won't get that anywhere else without taking significantly higher risks.

If you have cash, property is still where the smart money goes. The difference now is you need money as without it the banks will turn you away. As you say 100%+ mortgages won't be seen again for some time.

Just make sure you buy in a town with a high level of prosperity, where the property market is underpinned by many factors.

 

[the_r_sole]

I think you'll find that no one is happy renting, anywhere, ever. Why would anyone be happy to pay rent so that the landlord can pay their mortgage?

People rent because they can't afford to buy OR because they can invest their cash in something with higher yield. no one rents and has 100k sitting in a bank account gathering dust.

What are you going to do if you rent all your life and retire with a state pension? move into a council flat? go on benefits? oh glorious retirement isn't it!

that is not true outside of the uk, go and live somewhere else and you'll see!!
it's just not a priority to own a house as soon as possible, i'd agree that no one has 100k sitting in the bank collectiong dust and that they would invest it, but i don't understand the point you are making, are you agreeing that people don't always want to buy a house an use their money for something else because that is exactly the point i was making!

 

[Dr House]

You can buy a simple, new build 1 bed flat where I live for £150k. With a £45k (bringing you under the magic 70% LTV) deposit the mortgage repayments are ~£500 a month fixed for 5 years, with a capital repayment period of 25 years.

The rental income alone for this type of property is £800-£900 a month. This gives you a monthly income of £300-400, while the mortgage is being paid by the tenant and the asset is very likely to keep pace with RRP at worst.

Really, do you have a example? thats a 7.2% return before expenses which is not bad at all.

 

[Kmodo]

Thanks for the advice This thread has been quite enlightening.

I was afraid I might not saved up enough. I am still living at home and so on the plus side it is not like my money is going on rent.

Next question.

Lets just say I save up really hard over the next 1.5-2 years and get a 40k deposit (to get a better interest rate) would all that be pointless if interest rates jump up in that time?

 

[Jez]

Really, do you have a example? thats a 7.2% return before expenses which is not bad at all.

Sounds like a decent but fairly achievable yeild for most areas to me?

 

[platypus]

You can buy a simple, new build 1 bed flat where I live for £150k. With a £45k (bringing you under the magic 70% LTV) deposit the mortgage repayments are ~£500 a month fixed for 5 years, with a capital repayment period of 25 years.

Are you in the outskirts?

 

[Stretch]

Are you in the outskirts?

Depends what you mean by outskirts. I personally live in central Cambridge in a house not a flat. The investment properties I'm talking about are slightly further out though, but still in Cambridge.

Really, do you have a example? thats a 7.2% return before expenses which is not bad at all.

No

 

[CircleFaust]

The biggest issue with house prices falling to a sensible level is that no one who bought a house at the inflated prices is willing to admit that they were a *** and should have realised that what they did was stupid. The greater issue however is that no one wants their house to suddenly drop massively in value meaning that their mortgage is more than the value of the house.

Its all a massive mess but one that will have to be sorted eventually. £160,000 is far too much for a house when the average salary is just above £20,000. Hopefully house prices will plummet soon and the idiots that thought their two bedroom terrace house was worth £150,000 will realise that a little common sense would have saved them a lot of problems.

not even going to read any further as this says it all. i seen 2 bedroom terrace houses going for nearly £200,000, it was just ridiculous

i too hope prices keep falling to what they are worth and no more. it will allow people to actually have a chance at buying.

 

[Strife212]

While I agree with most of what you say about what caused the bubble I disagree completely that housing is no longer a "worthwhile" investment. It still offers by far the best rate of return for your average investor. The key is to buy into the correct area, the correct type of property at the correct price.

e.g.

You can buy a simple, new build 1 bed flat where I live for £150k. With a £45k (bringing you under the magic 70% LTV) deposit the mortgage repayments are ~£500 a month fixed for 5 years, with a capital repayment period of 25 years.

The rental income alone for this type of property is £800-£900 a month. This gives you a monthly income of £300-400, while the mortgage is being paid by the tenant and the asset is very likely to keep pace with RRP at worst.

£300-400 a month is £3,600 - £4,800 a year. On a £45k investment that is between 8% - 10.6% return per annum. 6% wouldn’t be a bad thing, and rental income will increase with inflation. You won't get that anywhere else without taking significantly higher risks.

If you have cash, property is still where the smart money goes. The difference now is you need money as without it the banks will turn you away. As you say 100%+ mortgages won't be seen again for some time.

Just make sure you buy in a town with a high level of prosperity, where the property market is underpinned by many factors.

What if you can't get a tenant? You are ****ed.

 

[Zogger]

e.g.

You can buy a simple, new build 1 bed flat where I live for £150k. With a £45k (bringing you under the magic 70% LTV) deposit the mortgage repayments are ~£500 a month fixed for 5 years, with a capital repayment period of 25 years.

The rental income alone for this type of property is £800-£900 a month. This gives you a monthly income of £300-400, while the mortgage is being paid by the tenant and the asset is very likely to keep pace with RRP at worst.

£300-400 a month is £3,600 - £4,800 a year. On a £45k investment that is between 8% - 10.6% return per annum. 6% wouldn’t be a bad thing, and rental income will increase with inflation. You won't get that anywhere else without taking significantly higher risks.

I'm not convinced by all the assumptions here though... i.e.

-You can find a buy to let mortgage for 105k at 70% LTV 3% fixed rate. I'm not sure this exists anywhere - the best I can see seem to be about 2 years for 5% which is £614 repayment. Unless you're talking interest only in which case you will have much lower repayments but won't be gaining any equity at-all and will be at the mercy of the housing market when selling up
-You will be able to get £800-900 rent for it. Quite possible but don't know the area at-all!
-You will be taking home all of the rent that isn't going toward the mortgate. A significant chunk of it will go to letting agents fees (if using an agent), void periods, maintenance, tax etc.
-The price of a new build will keep up with inflation. Don't know the stats but it seems unlikely to me. As far as I've heard new houses are like new cars in that they depreciate quite quickly

I'm no expert in any way, I just think it's not a quick buck like you make it sound!

 

[Jez]

not even going to read any further as this says it all. i seen 2 bedroom terrace houses going for nearly £200,000, it was just ridiculous

i too hope prices keep falling to what they are worth and no more. it will allow people to actually have a chance at buying.

Under what circumstances are your basis of hope based upon?

You have been shown only a few posts up an example of a rental yeild in somebodies home town, while people can afford to rent at the prices the market is set at now, this will also maintain the values. You cannot expect there to be a situation where there is a negative yeild on anything surely?

Fact is people can afford to buy houses, the market is free and is set buy the people buying them. There are simply not enough houses to meet demand, nor is there likely to ever be in this country.

 

[Stretch]

I'm not convinced by all the assumptions here though... i.e.

-You can find a buy to let mortgage for 105k at 70% LTV 3% fixed rate. I'm not sure this exists anywhere - the best I can see seem to be about 2 years for 5% which is £614 repayment. Unless you're talking interest only in which case you will have much lower repayments but won't be gaining any equity at-all and will be at the mercy of the housing market when selling up
-You will be able to get £800-900 rent for it. Quite possible but don't know the area at-all!
-You will be taking home all of the rent that isn't going toward the mortgate. A significant chunk of it will go to letting agents fees (if using an agent), void periods, maintenance, tax etc.
-The price of a new build will keep up with inflation. Don't know the stats but it seems unlikely to me. As far as I've heard new houses are like new cars in that they depreciate quite quickly

I'm no expert in any way, I just think it's not a quick buck like you make it sound!

In reality you'll see less of the money due to the things you've mentioned, fees, stamp duty, tax, unoccupancy etc. I'd still be happy receiving half the income figures quoted in my post but I maintain they're broadly realistic. You can actually do better if you're prepared to put more work in.

New builds are a double edge sword. They generally don't appreciate as quickly as older properties, but they don't cost as much to maintain either. As long as you're not looking to sell soon they're a good investment if bought in the right area.

What if you can't get a tenant? You are ****ed.

As I said, you need cash behind you to make it work. Getting tenants is never a problem where I'd invest. It's getting the right tenant at the right price that sometimes takes time.

 

[nero120]

Fact is people can afford to buy houses, the market is free and is set buy the people buying them. There are simply not enough houses to meet demand, nor is there likely to ever be in this country.

I think the past few years has shown that the ONLY way most people have been able to buy is through borrowing stupid amounts of money that they will NEVER be able to repay, in the hope that the capital gain of the property will cover the value of the mortgage. In fact, I'd be interested to see the percentages of interest only mortgages vs repayment, taken out during the credit boom.

Whichever way you look at it, a reckoning has to be coming. This boom has been fuelled by debt and huge amounts of credit, and the only way it can possibly come good is if those factors not only continue, but increase in order to fuel more growth. Clearly that is not sustainable as we have seen by the crunch and so a day will surely come when interest rates go up, 100%+ mortgages are no longer available and mortgages will be due and the equity in the property will not cover the cost. What will people do then?

I have a big deposit and I rent in london and earn a high wage, but even I find it difficult to save large amounts that would make a £300k+ mortgage viable. I just don't understand how people can seem to have £100k+ lying around to fuel the current housing market... just who are these secret rich people buying property? The very few people I know who have bought recently have had to beg to their parents to get a deposit as they had no real savings, and luckily their parents are well off enough (probably because they sold property during the boom years which they bought cheap 20-30 years before) to give them the cash. Other than people like them and millionaires, who has that kind of money ready and available?

 

[DBT85]

not even going to read any further as this says it all. i seen 2 bedroom terrace houses going for nearly £200,000, it was just ridiculous

i too hope prices keep falling to what they are worth and no more. it will allow people to actually have a chance at buying.

As with everything it will fall to whatever people are willing to pay. If everyone banded around and said "we wont buy until prices are 100k" then prices would drop. but they don't. Why don't they? Becuase there are still plenty of people who are saving up and can get the mortgage to buy. The only thing that has changed as far as property goes in the last 5 years is that now you have to have at least a 10% deposit to get a mortgage. It was frankly ridiculous that it was ever anything else. If you cant save up 10% then you are not going to be able to maintain it over 25 odd years.

I think the past few years has shown that the ONLY way most people have been able to buy is through borrowing stupid amounts of money that they will NEVER be able to repay, in the hope that the capital gain of the property will cover the value of the mortgage. In fact, I'd be interested to see the percentages of interest only mortgages vs repayment, taken out during the credit boom.

Rubbish. PLENTY of people can still afford to get mortgages and service the debt even if it is a repayment. The problem currently is as I said above, instead of being able to walk into a bank with 3 kids and a 15k a year income and get a 105% mortgage you now have to actually have some of your own money to put down first. That has meant that suddenly there are a lot less people able to buy. Those people have been saving for the last 2 years and have gradually been able to buy a place. This time with an actual chunk of it belonging to them and with a better idea of how to save some money.

Because the prices are down less people are selling which means there is less to buy, which means prices stay at a certain level instead of dropping further or going up. There is no central housing market that sets prices for the day, its supply and demand. Demand is down people people didn't have the deposit to get on.

I have a big deposit and I rent in london and earn a high wage, but even I find it difficult to save large amounts that would make a £300k+ mortgage viable. I just don't understand how people can seem to have £100k+ lying around to fuel the current housing market... just who are these secret rich people buying property? The very few people I know who have bought recently have had to beg to their parents to get a deposit as they had no real savings, and luckily their parents are well off enough (probably because they sold property during the boom years which they bought cheap 20-30 years before) to give them the cash. Other than people like them and millionaires, who has that kind of money ready and available?

Define big deposit, and high wage. If you are looking at a £300,000 mortgage then you should also be talking about £60k+ a year salary surely?. If you are earning that much money how are you not shovelling money away like crazy?

The people that have it are those that have been saving as hard as they can since the banks decided to stop trusting the morons walking in off the street to be able to pay back money. As soon as they stopped doing that people realised that they needed to start saving which in itself starts to make people a bit more fiscally responsible.

 

[platypus]

Depends what you mean by outskirts. I personally live in central Cambridge in a house not a flat. The investment properties I'm talking about are slightly further out though, but still in Cambridge.

I have a house in the centre of Cambridge too, and £150k wouldn't get me far.

 

[platypus]

It was frankly ridiculous that it was ever anything else. If you cant save up 10% then you are not going to be able to maintain it over 25 odd years..

The irony being that if house prices had remained sustainable and reasonable 100% mortgages wouldn't be too bad a thing because you would be looking at a much lower average cost per house.

 

[DBT85]

The irony being that if house prices had remained sustainable and reasonable 100% mortgages wouldn't be too bad a thing because you would be looking at a much lower average cost per house.

A 100% mortgage is always a bad idea though. If someone came to you and said "Hi, I have no history of being good with money in any way shape or form, in fat I have no saving at ll but a great car with some bangin' choons and alloys, but I earn 30k a year, please lend me 150k" how would that suggest that they could pay it back?

It was a bit of a vicious circle, house prices went up due to demand because there are not enough new houses being built, to get more clients banks started making new incentives for products like 100% and higher mortgages. People didn't NEED to save up because banks were taking that part out of the equation and so house prices went up even more because people were able to get more money.

One investment banker in the USA made a 1 billion dollar hedge that there would be a crash. The company that accepted that hedge thought he was crazy and so it would be easy money. Needless to say he cashed in big time.

All he did was look at the house price inflation and wage inflation and worked out fairly simply that it couldn't last forever as the divide was growing far too fast. People were buying a house and flipping it in 12 months for $30k profit only to do the same thing again. In the end a lot of people got caught out because they took a risk and it bombed. That resulted in the banks losing a fortune because suddenly their $3 billion portfolio of mortgages was only work $2 billlion and they didn't have the cash to back the loans they had made.

 

[nero120]

Rubbish. PLENTY of people can still afford to get mortgages and service the debt even if it is a repayment. The problem currently is as I said above, instead of being able to walk into a bank with 3 kids and a 15k a year income and get a 105% mortgage you now have to actually have some of your own money to put down first. That has meant that suddenly there are a lot less people able to buy. Those people have been saving for the last 2 years and have gradually been able to buy a place. This time with an actual chunk of it belonging to them and with a better idea of how to save some money.

Because the prices are down less people are selling which means there is less to buy, which means prices stay at a certain level instead of dropping further or going up. There is no central housing market that sets prices for the day, its supply and demand. Demand is down people people didn't have the deposit to get on.

But surely the game will change once interest rates go up? Many of those on 100% mortgages will surely default, how could they not?

Define big deposit, and high wage. If you are looking at a £300,000 mortgage then you should also be talking about £60k+ a year salary surely?. If you are earning that much money how are you not shovelling money away like crazy?

I have enough for a £300k mortgages yes, and my rent is £1800 a month. I'm living like this as I still have savings/investments whilst enjoying life while I am young. Yes one should be prudent but if I can afford it I intend to enjoy myself. I plan to buy next year but I would like to stay in central london.

The people that have it are those that have been saving as hard as they can since the banks decided to stop trusting the morons walking in off the street to be able to pay back money. As soon as they stopped doing that people realised that they needed to start saving which in itself starts to make people a bit more fiscally responsible.

A fair point, but obviously the number of sales (and therefore approved mortgages) must have dropped hugely since the boom years, surely around 80-90% or my previous point stands. Is this the case?

 

[Stretch]

I have a house in the centre of Cambridge too, and £150k wouldn't get me far.

I was talking about buying a 1 bed flat for ~£150k