Rant - London rent prices...

[anything I don't mind]

Essentially everything the government does to help first time buyers or fix problems in the property market makes things worse for first time buyers and worse problems in the property market.

 

[Scam]

This doesn't make much sense. First of all, anyone who pays £500k for a flat and gets £20k / year in rent makes at most 4% on the equity.

Assuming the property isn't made of indestructible unobtanium and it sits on land that is actually not owned by the property owner, he has additional costs from maintaining it, lowering the returns by quite a bit.

It is far from "making a killing".

You're correct, I'll admit that. They're making a fortune on the prices going up and up, and it seems very self-serving whereas the more landlords buy up more properties, the more prices rocket, and the more fortunes they amass for themselves. All the while everybody else not on the gravy train suffers. I love this quote by Winston Churchill by the way:

"Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived ... the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done."

As of legislation: Any worsening of the tax credits for BTL or mortgages means that profit from owning the house goes down -> reduces demand for house at current price -> causes downwards pressure on price.

I think you're confusing me with another poster. That's what I said, and what I want/think should happen

 

[Amp34]

Surely that's just going to push up rental prices even more?

Problem with that article is the usual thing that's ignored. You're ending up with an asset worth hundreds of thousands of pounds that you've only paid in 5-10% of the final value of, while quite possibly withdrawing a profit every year from as well.

 

[Dj_Jestar]

This doesn't make much sense. First of all, anyone who pays £500k for a flat and gets £20k / year in rent makes at most 4% on the equity.

Assuming the property isn't made of indestructible unobtanium and it sits on land that is actually not owned by the property owner, he has additional costs from maintaining it, lowering the returns by quite a bit.

It is far from "making a killing".

As of legislation: Any worsening of the tax credits for BTL or mortgages means that profit from owning the house goes down -> reduces demand for house at current price -> causes downwards pressure on price.

This is how markets works and this is why for example increasing tax credits for mortgages makes no sense what so ever, because it won't lower the cost of accommodation for future buyers. Increase tax credit or lower effective interest rates -> people can afford to pay more -> prices increase.

When you talk of easier mortgage terms, ask your fathers what were the normal interest rates for mortgages back in the "good old days". I'd guess people used to pay rates up to 15% per annum for mortgages in 70's! Yes, the housing prices were low, but money was ten times as expensive as now...

They borrow the money to buy it, the rent covers the repayments + some extra. That £500,000 property is now pure profit generation.

And that's before we even take into account the appreciation of the property.

 

[Amp34]

This doesn't make much sense. First of all, anyone who pays £500k for a flat and gets £20k / year in rent makes at most 4% on the equity.

Assuming the property isn't made of indestructible unobtanium and it sits on land that is actually not owned by the property owner, he has additional costs from maintaining it, lowering the returns by quite a bit.

It is far from "making a killing".

As of legislation: Any worsening of the tax credits for BTL or mortgages means that profit from owning the house goes down -> reduces demand for house at current price -> causes downwards pressure on price.

This is how markets works and this is why for example increasing tax credits for mortgages makes no sense what so ever, because it won't lower the cost of accommodation for future buyers. Increase tax credit or lower effective interest rates -> people can afford to pay more -> prices increase.

When you talk of easier mortgage terms, ask your fathers what were the normal interest rates for mortgages back in the "good old days". I'd guess people used to pay rates up to 15% per annum for mortgages in 70's! Yes, the housing prices were low, but money was ten times as expensive as now...

Out of interest in your example does the owner pay £500k or actually pays £200k towards a £500k house with the mortgage payments paid for by the rent?

So after 10 years of the owner B2Ling he gets 4% return per annum and then 150-200% of his initial investment back. Making his 4% return significantly higher over the term.

Edit: seems I was just beaten to it. The 4% return only really works if there is no asset at the end of it, I.e. Shares and bonds.

 

[Simon]

Not for buy to let, do you have examples?

Also, i can't get an interest only mortgage without an income of £75k

Who is a buy to let first time buyer. Surely you should buy your own house before buying a BTL.

You can get good 75% LTV rates (3% fixed now). Previous generation had cheaper houses yes, but also mortgage rates of 15%..

 

[Liquid_Entity]

You are getting ripped off mate.

Not really, we had a 2 bed flat in Morden, zone 4. We paid £1100 a month and when we finally moved out of the dump in May they put the rent up to £1500 for the next victim.

it was damp and mouldy and the building stunk of **** from the inbreds that got in to the communal areas. How they could charge £1500 for it now is beyond me.

 

[smokedog]

Price of home means anyone with a household income of less than £77,000 is unlikely to get a mortgage

http://www.theguardian.com/money/2015/aug/24/affordable-shared-ownership-flat-hackney-1m

People can't afford to buy so they have to rent.

 

[anything I don't mind]

Who is a buy to let first time buyer. Surely you should buy your own house before buying a BTL.

You can get good 75% LTV rates (3% fixed now). Previous generation had cheaper houses yes, but also mortgage rates of 15%..

A lot of property investors rent their primary property until they can buy one out right.

I want to own multiple properties and rent them out in order to extract the equity to put down on another house. I don't want to buy a house in london because i can't afford it at the moment. I could afford a property else where in the uk though.

My sister got an interest only mortgage with a relatively low annual income and not much deposit.

 

[Liquid_Entity]

http://www.theguardian.com/money/2015/aug/24/affordable-shared-ownership-flat-hackney-1m

People can't afford to buy so they have to rent.

However, rising house prices in the capital mean even this kind of “affordable” housing is getting more expensive. The three-bedroom flat in a new award-winning development near fashionable Old Street in Hackney is valued at £1,025,000, with buyers offered a minimum stake of 25%.

The advert for the sixth-floor flat, which is being sold by Islington and Shoreditch Housing Association (Isha), says priority will be given to local authority and housing association tenants, ministry of defence workers and people who live and work locally to Hackney.

We recognise that the home highlighted is out of reach to many of the households we prioritise to assistClare Thomson, Isha
But the housing association estimates that to afford a 70% mortgage on the £256,250 share, and have enough money to pay a rent on the remaining 75% of the property as well as the monthly service charge, would-be buyers would need a household income big enough to afford more than £2,400 a month in housing costs. A mortgage calculator on the Share to Buy website where the property is listed suggests it is unrealistic that a large enough loan would be granted to anyone with a household income of less than £77,000. The median salary in the borough is £31,000.

Does not compute

 

[Greebo]

Out of interest in your example does the owner pay £500k or actually pays £200k towards a £500k house with the mortgage payments paid for by the rent?

So after 10 years of the owner B2Ling he gets 4% return per annum and then 150-200% of his initial investment back. Making his 4% return significantly higher over the term.

Edit: seems I was just beaten to it. The 4% return only really works if there is no asset at the end of it, I.e. Shares and bonds.

Yeah with property price increases (logn term so accounts fro the odd crash) I suspect even a 4% yield (although most BTL are at least 6% and I know people who wont touch one unless its 10% or more) will effectively double with the increase in the equity.

Where i live rent is very low compared to house prices. For example my house is worth around £500k yet only has a rent income of around £1200 a month so less than a 3% yield. In fact I doubt there are many BTL properties around at all. Even £200k houses only fetch £400 to £500 a month rent.

 

[Scam]

Does not compute

With reference to the £1m 'affordable' home in Hackney, I think this means that the London property market has now officially jumped the shark so to speak.

 

[Freefaller]

Not for buy to let, do you have examples?

Also, i can't get an interest only mortgage without an income of £75k

I thought he meant to buy a property to live in not to rent out. My bad.

 

[dowie]

Out of interest in your example does the owner pay £500k or actually pays £200k towards a £500k house with the mortgage payments paid for by the rent?

So after 10 years of the owner B2Ling he gets 4% return per annum and then 150-200% of his initial investment back. Making his 4% return significantly higher over the term.

Edit: seems I was just beaten to it. The 4% return only really works if there is no asset at the end of it, I.e. Shares and bonds.

shares and bonds are assets

if you're not paying for the house outright then you'll have a mortgage - a good chunk of your 4% then goes towards that mortgage, especially if you're hoping to pay it off in 10 years

it isn't necessarily a good investment - it can be good if property prices increase over that time period, which they certainly have done in the past... otherwise a 4% return isn't all that great...

 

[Dj_Jestar]

shares and bonds are assets

if you're not paying for the house outright then you'll have a mortgage - a good chunk of your 4% then goes towards that mortgage, especially if you're hoping to pay it off in 10 years

it isn't necessarily a good investment - it can be good if property prices increase over that time period, which they certainly have done in the past... otherwise a 4% return isn't all that great...

Not when buying to let. The rent will pay the mortgage, plus extra to cover other costs and some profit.

 

[Amp34]

shares and bonds are assets

if you're not paying for the house outright then you'll have a mortgage - a good chunk of your 4% then goes towards that mortgage, especially if you're hoping to pay it off in 10 years

it isn't necessarily a good investment - it can be good if property prices increase over that time period, which they certainly have done in the past... otherwise a 4% return isn't all that great...

Sorry, I wasn't very clear regarding the shares and bonds. You don't get more over time due like you would with a buy to let. As an example you don't start at 200k shares and end up with 400k 10 years later, while still getting the full dividend and not putting anything more in (rent-mortgage) like you would with a BTL.

 

[dowie]

Not when buying to let. The rent will pay the mortgage, plus extra to cover other costs and some profit.

that doesn't contradict what I've posted

 

[dowie]

Sorry, I wasn't very clear regarding the shares and bonds. You don't get more over time due like you would with a buy to let. As an example you don't start at 200k shares and end up with 400k 10 years later, while still getting the full dividend and not putting anything more in (rent-mortgage) like you would with a BTL.

you could do, you're just talking about leverage

you borrow money to buy more house/you borrow money to buy more shares

 

[Amp34]

But you're not borrowing more money to buy more house, you're getting someone else to buy that extra (the rent).

 

[dowie]

But you're not borrowing more money to buy more house, you're getting someone else to buy that extra (the rent).

yes you are - a mortgage is exactly that - borrowing money to buy a house

you're earning a return on your investment too, just like any other investment