House Prices - Where does it end?

Visage · 11 Apr 2007 at 16:01

lemonkettaz said:
What i want to know is, where does it leave my age group... Im 20 and when i finish uni there is no way ill be able to afford my own place....

I probably wont be able to afford a house until my 30s... providing my career goes well.

Its a bit silly.

You will be able to afford your own place. It wont be a 4 bed detached in Kensington, but you will be able to do it.

A lof of people (not you necessarily) have overly high expectations of their first home.

crystaline · 11 Apr 2007 at 16:02

cleanbluesky said:
Surely buy-to-let is financially viable as an investment rather than an income?

jim5000 was refeerring to buy-to-letters who rent out to first time buyers. The yield on this is now ridiculously low. Bad news for bandwagon jumpers.

EDIT: Perhaps it makes more sense if you consider the fact that the property would have to be occupied nearly 100% of the time to even cover the mortgage. If the mortgage is not being covered, then the loss of investment is quick and any further property value rises will probably not be enough to cover this loss.

The Mad Rapper · 11 Apr 2007 at 16:03

HEADRAT said:
The banks should only be allowed to lend 3.5x income with no exception IMHO.

HEADRAT

I agree 100%.

If the people at the bottom of the market cannot afford to buy because of mortgage income multiple restrictions then the prices will have to come down.

At least that's how it appears to me

Visage · 11 Apr 2007 at 16:04

crystaline said:
It hasn't been financially viable for buy-to-letters for a long time.

Very true.

ci_newman · 11 Apr 2007 at 16:05

The Mad Rapper said:
He still has to find 100K though to pay back the mortgage doesn't he? What happens then? In the past people relied on Endowments, but no-one uses them any more.

How do people on Interest Only mortgages repay the capital?

Because I can pay capital as well as Interest back... As a minimum, I have to pay Interest. When funds allow it, I shall pay the remainder of the £100k back bit by bit(as per this example). It relies on people being sensible with their money and not thinking *oo i only have to pay £800 this month, i'll spend the rest of my pay-cheque of pointless crap*

In 5 years I'll sell the house for more than I purchased it, clear the £100k remaining on the mortgage and have more money to put towards a bigger house and so the chain continues...

The Mad Rapper · 11 Apr 2007 at 16:05

cleanbluesky said:
Surely buy-to-let is financially viable as an investment rather than an income?

I would say it must be. IIRC, the housing market has traditionally out performed all other investment vehichles, including the stock market in recent years.

The problem is, just like stocks, it's an intangible value which can obviously rise or fall at any time.

Visage · 11 Apr 2007 at 16:07

HEADRAT said:
The banks should only be allowed to lend 3.5x income with no exception IMHO.

What about someone on 100k per year - are you really suggesting that they'd only be able to borrow 350k, a mortgage that equates to ~1800 quid a month when they take home ~5000 quid?

Why should a bank not be allowed to grant a mortgage higher than this when it only equates to about third of their take home pay?

The Mad Rapper · 11 Apr 2007 at 16:08

ci_newman said:
Because I can pay capital as well as Interest back... As a minimum, I have to pay Interest. When funds allow it, I shall pay the remainder of the £100k back bit by bit(as per this example). It relies on people being sensible with their money and not thinking *oo i only have to pay £800 this month, i'll spend the rest of my pay-cheque of pointless crap*

In 5 years I'll sell the house for more than I purchased it, clear the £100k remaining on the mortgage and have more money to put towards a bigger house and so the chain continues...

So the idea is to be debt free by the time you retire?

What happens if you're not? I am not trying to be negative here, there's a lot I do not understand about mortgages. I've never owned a home, and my partners home is mortgage free.

cleanbluesky · 11 Apr 2007 at 16:09

crystaline said:
EDIT: Perhaps it makes more sense if you consider the fact that the property would have to be occupied nearly 100% of the time to even cover the mortgage. If the mortgage is not being covered, then the loss of investment is quick and any further property value rises will probably not be enough to cover this loss.

Okay, but surely the deciding factor about buy-to-let is that essentially you are reaping the benefit of someone else's investment. Assuming the mortgage is covered by rent, the additional overheads are little in comparison to what a buy-to-let houseowner would eventually make on the property.

The Mad Rapper · 11 Apr 2007 at 16:10

Visage said:
What about someone on 100k per year - are you really suggesting that they'd only be able to borrow 350k, a mortgage that equates to ~1800 quid a month when they take home ~5000 quid?

Why should a bank not be allowed to grant a mortgage higher than this when it only equates to about third of their take home pay?

My answer to this is because it inflates house prices obviously

Visage · 11 Apr 2007 at 16:10

jim5000 said:
Can't they just tax buy-to-let'ers massively so it isn't so finiancially viable for them to buy up all the cheap housing and rent it out to the people that should be buying them in the first place?

If the government did that and a significant amount of BTL people put their property on the market you'd see prices drop, for sure. That in turn would mean a drop in consumer confidence, leading to possible recession.

No government will ever take that risk.

crystaline · 11 Apr 2007 at 16:11

The Mad Rapper said:
I would say it must be. IIRC, the housing market has traditionally out performed all other investment vehichles, including the stock market in recent years.

The problem is, just like stocks, it's an intangible value which can obviously rise or fall at any time.

The key term here is 'in recent years'. IMO using a second property as investment or for pension purposes would be very risky business. Remember capital gains tax in your calculations.

HEADRAT · 11 Apr 2007 at 16:13

The Mad Rapper said:
What happens if you're not?

Then you sell your house and pay back what you owe but you're probably still left with a nice amount of money to downsize, chances are you're not going to need such a large home when you retire anyway.

To be honest I see a lot of sence in "interest only" mortgages, there is no way on gods green earth that a house in 25 years time isn't going to be worth much more than you paid for it!

HEADRAT

crystaline · 11 Apr 2007 at 16:15

cleanbluesky said:
Okay, but surely the deciding factor about buy-to-let is that essentially you are reaping the benefit of someone else's investment. Assuming the mortgage is covered by rent, the additional overheads are little in comparison to what a buy-to-let houseowner would eventually make on the property.

I think it is important to note that additional overheads on BTL are not 'little'. Management costs are approx 14% and there is income tax on that rental income. The chances that it will be empty for periods of time is high and rememeber that in 30 years there will be fewer youngsters to buy the houses the current 40-50 year olds will be selling.

The Mad Rapper · 11 Apr 2007 at 16:15

HEADRAT said:
Then you sell your house and pay back what you owe but you're probably still left with a nice amount of money to downsize, chances are you're not going to need such a large home when you retire anyway.

To be honest I see a lot of sence in "interest only" mortgages, there is no way on gods green earth that a house in 25 years time isn't going to be worth much more than you paid for it!

HEADRAT

OK, thanks for explaining that

Are Interest Only mortgages generally cheaper than the other sort? Capital mortgages?

ci_newman · 11 Apr 2007 at 16:16

The Mad Rapper said:
So the idea is to be debt free by the time you retire?

What happens if you're not? I am not trying to be negative here, there's a lot I do not understand about mortgages. I've never owned a home, and my partners home is mortgage free.

Yes the idea is to be debt free by the time I retire in a house which I am comfortable with. My earnings are expecting to have gone up by that stage. So i'll be 51 years old (wow), own a house mortgage free with 14 years to save up to build a pension off of a reasonable wage.

It's all a gamble and I would rather not be paying for a house but I WILL come off better than had I been renting.

My 'plan' is built up around my parents method of buying... Their house is worth ~ £450k now, with a mortgage of only £90k left to pay and they are both under 45 years old. They plan to clear the mortgage before they are 50, leaving them with a house worth £500k, no mortgage and a HUGE disposable income (~£90k / annum before tax) to build a retirement-egg

The Mad Rapper · 11 Apr 2007 at 16:17

crystaline said:
The chances that it will be empty for periods of time is high.

Location decides this moreso than any other factor IMHO.

The Mad Rapper · 11 Apr 2007 at 16:18

ci_newman said:
Yes the idea is to be debt free by the time I retire in a house which I am comfortable with. My earnings are expecting to have gone up by that stage. So i'll be 51 years old (wow), own a house mortgage free with 14 years to save up to build a pension off of a reasonable wage.

It's all a gamble and I would rather not be paying for a house but I WILL come off better than had I been renting.

My 'plan' is built up around my parents method of buying... Their house is worth ~ £450k now, with a mortgage of only £90k left to pay and they are both under 45 years old. They plan to clear the mortgage before they are 50, leaving them with a house worth £500k, no mortgage and a HUGE disposable income (~£90k / annum before tax) to build a retirement-egg

Reads like a great plan to me - Good luck

brid · 11 Apr 2007 at 16:19

HEADRAT said:
Then you sell your house and pay back what you owe but you're probably still left with a nice amount of money to downsize, chances are you're not going to need such a large home when you retire anyway.

To be honest I see a lot of sence in "interest only" mortgages, there is no way on gods green earth that a house in 25 years time isn't going to be worth much more than you paid for it!

HEADRAT

At the end of the term you have to pay back the capital though .... which means selling the house. Where are you going to get that money from?

..... or do you sell your house and expect to buy another one with the 'equity' .. what will that get you? .... And if thats the case, why did you even 'buy' (loose term) that house in the first place if after the mortgage term - you have to hand it back.

Interest only is a lame idea pitched at speculators, and people who cant afford a proper mortgage (who shouldnt be buying houses).

HEADRAT · 11 Apr 2007 at 16:19

The Mad Rapper said:
Are Interest Only mortgages generally cheaper than the other sort? Capital mortgages?

Yes they are cheaper as you don't pay anything off the capital amount, just the interest on the Capital amount.

e.g.

The good

2001 You buy a house for 152K and take out a 25 year "interest only" mortgage
2026 The house is now worth £1000000 but you still owe the bank £152K so you sell the house and pocket the balance.

The bad

2001 You buy a house for 152K and take out a 25 year "interest only" mortgage
2026 The house is now worth £100000 but you still owe the bank £152K, your stuffed!

HEADRAT