MattW

Just after some experience.

Currently own a nice house, which is certainly adequate for our needs. We have updated all the bathrooms/kitchen etc which has been reflected in a higher valuation. Swindon is relatively inexpensive and our house is just hovering under the 3% stamp duty price and is therefore unlikely to push through that barrier for some time.

Our mortgage is piddly, equates to my income for one year, so we could certainly afford a bigger mortgage.

I'm thinking of moving up to a more expensive house. My thinking is that it will realise some extra savings when I retire and want to downgrade. I'm relatively young (34) so mortgage can go back to 25 years.

Question is, how many people max out what they can afford comfortably (note the word comfortably) or do you like the extra security of living well within your means? Just wondering whether to push up to my (max-comfort factor) or just add on a smaller figure.

The Snug Rhino

max out.....in 25 years you house will be worth plenty - if you want to move back to the little thing you are in now you can do so and free up loads of cash.

stilover

I only spend as much as I want my life style to be. i.e. I have a very nice appartment that costs me X amount of money per month. The mortgage amount is sufficent that I can change my car every 2 years or so. Allows me to go out whenever I want. To buy Cd's, DVD's, meals out etc.
I think quite a few people are buying houses at the current inflated prices, and are maxing their borrowing ability. OK, is this is what you want, sitting at home every night as you have no money to go out, a rusty old car on the driveway, as you can't afford a newer one.
Horses for courses at the end of the day, just I chose to have the best of both worlds (at the moment). Plus it's all about what might happen to house prices in say 5 years time. they might be higher, although they could be significantly lower. I'm hopping for them to be lower, then I'll go out and buy a larger/better property at a reasonable price.
Example. 5 years ago you could get a 4/5 badroomed detached `executive` house for about £180-200k. That same house now is up for £400-450k, so in 5 years time if it's back to about £200k, it becomes affordable without a stupid mortgage. Hell, 2 bed appartments where I live are going for between £185-275k. 5 years ago you could get that 5 bedroomed house for that, and have plenty of change.

Spoon

Either of these two equations are not that much different though. Max out comfortably says what it is to you, comfortable. Seems a no brainer to me.

MattW

I hear you, but I am talking about a comfortable limit. Extra £300 per month, we overpay now so reality is that is extra £450.

Do you really think property will fall? I don't.

Olly

Several Scoobynetters have been predicting an imminent total collapse in house prices for, ooh, around 4 years now.

To me it doesn't sound like you need to move- just think it's the wise thing to do for long term financial reasons. So keep your own house, buy a renter, let someone else contribute to the mortgage, and enjoy your current standard of living whilst enjoying a bigger interest in property than you already have.

The Snug Rhino

who cares?

the question is simple....will they be worth less in 25 years? NO

will you be able to pay the mortgage? YES


= move

MattW

Already crossed my mind, however a decent 2 bed renter would cost £150k so even with a decent rental income I'll have to contribute. I'd not see the same value either (i.e. bigger house nicer location).

Additionally lots of apartments going up in this area, so I suspect a flood of rentals on the market.

davegtt

Just 4? Think Petes been predicting it for at least 5 years now?

john banks

We don't need a bigger house, but need to move area so are upsizing. We are trying to split our outgoings in each direction of property, investments and pensions. If we get screwed on one, maybe the others will compensate? Just my 2p.

stilover

Invent a time machine, go back 5 years and ask if people think house prices will double, and then some within 5 years. All the answers would probably have been no. Predicting what the house market will do is very hard. What I do think though is that certain types of houses have reached a ceiling price. What I mean is, about 5 years ago I thought about buying a house to rent in Darlington. All the houses in this particular area were up for £20-25k. 3.5 years later they were up for £75-80k. That time machine would come in handy. Anyway, in the last 1.5 years they have only gone up by about £2-3k, meaning people just aren't willing to pay £80k+ for a house that really just ain't worth it. That particular house/area has reached it's ceiling price. Buying one of those houses now, is not a viable investment, unless it was for 15-25 years. If the house market falls, or if we do get a crash, these particular houses are just going to bomb.
Plus, banks will only let you borrow so much. House prices are already too much for most peoples borrowing ability.

Poeple saying they won't drop are just speculating, just like those who say they will

davegtt

stilover, surely this thread is about someone investing for 15-25 years time so your comments are useless tbh. ohh and banks will lend you just about anything at the minute.

stilover

Yes, they will. Bankruptcies are at an all time high too.

What I meant was, house prices throughout history have gone up and down. At the moment they are going up. In time they will/have to start going down, so if you bought a house at £400k, in 5-10 years time it might be worth say £250k, so you will have to wait for the next "UP" to get the value back to what you payed for it.

john banks

Hopefully it shouldn't matter too much if you take steady steps up the housing ladder, you pay to live in a given standard of house what the going rate is at the time.

The Snug Rhino

when in history have prices dopped by 45% over a 10 year period?

john banks

When in history has the FTSE closed a four or five year period lower than it started until recently? Past performance is no indication and all that...

Jonathan Davies

It's also relevant to consider whether you can cover a biggish increase in interest rates (and thus monthly payments). Property prices have a good long term trend, but that's useless to you if you're a forced seller in a bad market because you can't pay the mortgage. That's what happened in the 90s crash, to an extent.

If you can ride out a rocky spell, then yes property is a good long term bet. Personally, I prefer to be very conservative, but then I'm not particularly obsessed with maximising my asset value age 65 or whatever. If you want to own as much as possible when you're old, then go for it.

(It sounds like you have a mildly cautious approach anyway)

MikeCardiff

iTrader: (2)

#15 - when in history have house prices tripled in four years ? when has the average house price been 7 times the average wage ?

IIRC the average interest rate over the past 10 years was 7% - so it is a possibility it will go up over the next few years.

Property is always a fairly safe long term investment, but if you buy at todays prices, I wouldnt bet on it giving you enough to retire on when you come to sell.

2000TLondon

The only real way to look at property is if you can afford a house you like and want to live in, happy days!

Real Estate is generally a good investment, but should not be viewed as one if it is your main residence.

From what you are saying, there seems no reason for you not to move on to something you like more than the house you have now.

I would not, however, view your home as a nest egg.

The Snug Rhino

FTSE over 4 years is not property over 10.....far, far from it.

MikeCardiff

iTrader: (2)

Plus, its sods law that the day after you finish paying the mortgage, you'll pop your clogs and your kids will get the house, which they'll then sell asap and spend the money on stupid sports cars ;0)

davegtt

At least someone you know has benefitted from your mortgage payments for the last 25 years and not the land lord you were renting off.

NorthDave

Matt

You wouldnt need to buy a rental in your area. I bought one an hour away the initial investment cost me £10k (ish) and the rent exceeds the mortgage by about £100 per month. I've owned it for a couple of years and the house has doubled in value. I manage it myself but you could take the surplus and let a management firm take the hassle (and then you dont pay tax on the profit either).

I couldn't care less if the house drops to 10% of its value in the next few years (due to this imminent crash). The mortgage is being paid and in 25 years time it will be worth a lot lot more than I paid for it (houses 25 years ago cost what £4k??). If lots of people start going bankrupt then imagine what will happen to rents!!

If you can afford to tie up some cash and the rent exceeds the mortgage then you really have nothing to loose (in my opinion).

I, personally, would also increase you borrowing on your main home, paying the mortgage will only get easier as time passes.

Just my 2p.

Dave

MattW

Hadn't thought of that, might have a dig around rightmove later...cheers.

Drunken Bungle Whore

Mostly good advice - but it's for you to weigh up the odds.

Personally I'd much rather invest in a nice house that I can live in and enjoy now, rather than stick money into a rental where I'll have the hassle of being a landlady! I know you could probably make more money the rental route, but as I said, it's personal choice.

My dad invested money into pensions etc. missing out on somethings he could have enjoyed - he then died 2 years before he retired. Now I take the view that if I get hit by a bus tomorrow I want to have enjoyed everything to the max and not have money tied up in something I'm not enjoying just because it might make me a bit of extra cash in the future.

Plus I seemed to be cursed when it comes to buying and selling property, but that's a whole other story.....

Good luck!

Henrik

iTrader: (5)

How does this tax loophole work then? Surely it should be taxed as income (marginal tax) if you are withdrawing income from the rental?

Also, a couple of years ago it was possible to find rentals like this, but I think they are becoming increasingly hard to find (I'd wager to say that most houses / flats today rent out for less than the interest only mortgage on the current market value).

Example: I rent a house for 850 pcm. Similar houses on the street last sold for 220k (checked on net house prices). An I/O mortgage for this kind of money is 825 at 4.25%, 870 at 4.75% and 916 at 5.00% (BBC mortgage calculator: http://www.bbc.co.uk/homes/property/...culator.shtml).


You seem to be under the impression that rents are set by land-lords. They are not, they are set by what the tenants can afford to pay, otherwise why are the rents not higher already?

Also, the fact that houses were 4k back in the 70's is irrelevant. People were earning a lot less back then. Compared to historic averages, house prices are over priced in comparison to how much people earn (I think this is what MikeCardiff is hinting at).


What if house prices drop say 10% nominally over the next two years (not impossible), then on a 150k house, you would lose 15k. Say you have a positive rental income of 150 pounds per month, then you would make 3600 pounds in total rent over those two years (minus maintenance, voids etc). So, in all, a total loss of 11400 pounds over two years. Hardly a brilliant investment if prices fall even a couple of percent.

BTL only makes sense if you have low gearing *or* the market is rising. In a falling market, high gearing is suicide (or at least incredibly dangerous).

Also, what if you wanted to invest your 10k somewhere else? E.g. the stock market has done significantly better over the past couple of years than the housing market (hell, even a standard bank account would have made more money than a house in some parts of the country).

At the moment, I'd rather stick my money in the bank, thanks :-)

davegtt

I was under the impression that a Buy to Let Mortgage is usually only 75% of the property value so you wont be paying mortgage payments on £150k. £112500 is more likely. this would probably be inline or cheaper than the rent. Dont think it'd be too sensible to take a 100% mortgage on a BTL property although I dont see the problem in the long run.

True but wages have also increased. I'll dare bet a house valuation now will be worth probably double in 25 years down the line. And even if it was only worth what you originally paid for it surely its not a bad investment the fact that the majority of the morgage has been covered by renters for the last 25 years....

You havent lost anything unless you sell the house, just like youve not made nothing on a property thats value has increased until you sell.... In the long run buying a house, any house, whether it be a BTL or a home is a good investment, even in todays "peak".

Jonathan Davies

Your personal residence benefits from a capital gains exemption too. If you flog a BTL you pay capital gains at your income tax rate... can be a lorra lorra money.

Henrik

iTrader: (5)

Most people get the 25% deposit required by withdrawing equity from their main home, so in essence the BTL becomes 100% mortgaged (indeed, that is what is suggested earlier in the thread).

Exactly, as is everything else due to (wage) inflation What I'm trying to say (arguably, I could have been a lot clearer earlier) is that you have to look at the house prices in relations to earnings, as inflation distorts the comparison otherwise. At the moment, house prices are very expensive in comparison to history (and in comparison to other things you might spend your money on, e.g. food).

Also, even if you don't end up losing money it does not mean that it was a good investment *if you could have made more somewhere else*. For example, over the past couple of years (three ) the FTSE has risen 43% (http://finance.yahoo.com/q/hp?s=%5EF...e=6&f=2006&g=m)
If you had put your money into a savings account in June 2003, your money might have been about 15% up (at 5% interest rates), so still "made money". However, the savings account would have been a lousy investment in this case.

Not if you can make more money somewhere else, it isn't. Also, it may be a long, long time if prices dip until they are at the same level as today (prices to earnings).


Example: say that general inflation runs at 2% like the ONS says. If house prices stay flat in a situation like this, you are effectively losing 2% of the purchasing power that the house "holds" every year. If prices fall and then recover to the same level in 5 years, you will actually be down about 10% of the purchasing power at todays level (assuming that inflation stays at 2%).

Because of inflation, you have to look past the nominal prices, as the inflation erodes the purchasing power (which is what we're really interested in).

NorthDave

There is some interesting posts here. Always good to consider different peoples views.

I look at it like my biggest borrowing (my house) remains at a constant(ish) level, say 200k, in 25 years time 200k will be nothing in the scheme of things. My parents scrimped and saved to afford a 12k house in the 70's whereas you could pay that off on a credit card now.

In 15 or 20 years time the BTL house will be worth double (looking at history ince 1900). If I had remortgaged and freed cash up for more mortgages along the way I could be looking at 10 houses all paid for by the original investment, 10k. Sell 5, pay off the rest and you have the income from 5 houses every month from an original 10k investment.

As long as you believe that house prices will double within your time frame (I wouldnt want it take longer than 25-30 years due to retirement) and you dont need the original investment then short term up and downs dont affect you.

I reckon everyone has an area near them that the rents will cover the mortgage. Although you may not want to live there someone will.