oh dear: Thinking of buy-to-let? Do the sums

[AtW]

This is an interesting article AtW and you were right to post it, but don't let that kind of fear mentality rule you forever.

Indeed - I am planning to buy a castle from SKA 2.0's imminent success. Village with peasants would be nice too - I have already earmarked a few village idiots from this board (ie dundee, jabber and (probably) mailman, phoenix seems to suit the bill as well).

[shaunbhoy]

AtW,
a man astutely investing heavily in his landlord's mortgage!!!

[Phoenix]

A Man who understands Investment (Not)
A Man who pretends to understand Footy and Cricket
A Man? .............I think it's a girlie

[Ardesco]

I think you are missing the point ATW.

I was not talking about how much money I would make from a BTL, but how much money the property was costing me compared to the rental value of the property.

In effect what I was saying is that if you are paying £725/month rent you could probably find a mortgage for £500/month for the same property and at the end of the day own it.

In the process you are saving approx £2700 a year on rent and also will end up with a property that I would be very surprised to see valued at less than £250,000 in 25 years time.

The point was rental is a mugs game if the person renting is going to do it long term, renting is really only viable if you are looking at short term rental agreements and moving on regulary. Somebody who rents a property for 10 years paying the proerty owners morgage off for them is not the sort of person I will be taking financial advice from...

[AtW]

I agree that its stupid to rent for 25 years, however it is smart to rent while the house prices are at the peak of the bubble cycle - this is the time to save money to buy houses when the price crashes, which will happen sooner or later.

I am certainly not a mug to play the game of buying house at or very near peak prices that simply do not make sense.

[GreenerGrass]

Lets be honest, would you take investment advice from a socialist newspaper than probably has deep issues with second home owners and capitalism in general.

The author has admitted he thought prices would crash this year - on what basis? A tiny 0.25 % rise on historically low interest rates isn't going to destroy the housing market. He may have researched the article but he is too risk averse to be a true investor
The minute the property market truly tanks (e.g. not -0.3% in 1 month) the Bank of England will freeze or drop rates, as the whole economy, high street spending etc. depends on the "feel good factor" surrounding it.

These kind of articles are good though to scare people off like that idiot BBC woman who got into debt.

P.S. I don't get property funds, commercial property is even more likely to be genuine bubble than BTL and I can't see how it compares to buying real property as you are not using leverage.

[AtW]

A tiny 0.25 % rise on historically low interest rates isn't going to destroy the housing market.

Thing is - its not so tiny when house prices are high, say 0.25% on £200,000 house (average price now) is extra 41 quid per month, small change right, well, its not small when you don't have disposable income, and guess what - average savings rate in this country is like negative, which means that these money go out of consumer spending thus knocking off business profits and confidence.

People have to get more into credit card debt (or remorgage house for cheap loan) in order to sustain their spendings.

1% increase in rate will be £160 more every month on average house, £240 more in London - now that's not a small change at all (well, not for IT contractors).

Number of personal bankrupcies is already at all times high - and it won't get any smaller.

[Ardesco]

We were at the peak of a rising bubble 5 years ago when I bought the flat and yet 5 years later we are still at the peak...

The point is is doesn't really matter when you buy. House prices may crash but they will recover and when you are looking at a long term investment (25 years) it is really not such a big deal. You could be waiting another 10 years for this crash and by the time it happenes (using my previous workings on how much you would save by getting a mortgage now) You would have paid £40,000 extra in rental than me on my mortgage.

Who is the smart investor now hey?

[GreenerGrass]

I agree the people who have bought a house with affordabilty stretched so much they cannot afford a 1% rise in interest rates should stay renting.
Which in turn supports the BTL market.

I have every sympathy if they lose their job, but most (in fact all) IFAs will give you projections for a 1% rise in rates before you apply for a mortgage.
Ditch Sky TV and a few visits to the pub and you should be OK.

[BlasterBates]

I was not talking about how much money I would make from a BTL, but how much money the property was costing me compared to the rental value of the property.

The Economist did a comparison, because rent is cheaper than the interest payment and taking into account capital gains which wouldn't be very much they reckoned you'd be something like 5 or 10 grand better off after 5 years by renting than buying.

Don't forget you compare interest payments with rent because interest like rent is dead money.