Buy To Let

[Uncle C]

Interesting. I wonder what that first spike is? Right-2-buy?

Crusty Alstrop launched Location, Location, Location.

 

[Gazwag]

You can also pay less capital gains tax by claiming Entrepreners Relief. This effectively means that instead of paying 18% CGT you pay 10% Entrepeneurs Relief.

Are you sure ............ that relief is only available on sale of a business.

Also the profit on sale is subject to capital gains tax. You can write to HMRC and say its your main home for a short period, eg a week or two, and then you will get the last three years of ownership capital gains tax free. But it should be your main home, not like the MPs who abused this.

You have to be able to prove it was you main residence, register to vote, pay rates etc etc etc, its not as simple as you suggest

 

[Lokki 7]

Property inflation at times over the past 15 years has been significantly more than non-property inflation. The ratio of property to salary has rocketed over time as well. These are all pointers which to me indicate houses are over priced. Why? Money became more freely available in the mid to late 90s (mortage competition, loose lending criteria, buy-2-lets also started to be pushed at this time. They previously existed but they were rebranded). Why doesn't it correct itself? I think it is starting/started, but it will be a very slow process of low price rises over a long time which will bring property/salary ratio closer to that of the mid 90s. Whilst London and Brighton and a few other areas are anomalies with inflation around 6% other areas are not fairing too well. I mentioned Salford; this area is interesting as in my opinion partly saved by the relocation of the BBC. Prior to this Manchester et al was struggling with city centre new build apartment blocks swamping the market with many part empty.

When I said not rise I should have said 'not rise significantly.' Lots of reasons for this, some rooted in my politics, some not. Less money spent on housing either via rent or mortgage means more money spent elsewhere in the economy. Balancing like this seems a more sensible route for the UK to take as it's my view the UK's economy has been too relient on property for too long. I say this with a vested interest because I have more than one property and I will stand to benefit financially from rampant house inflation.

Thank you for your response and apologies for the slowness of mine but I have been away from my pc.

Several points to address. 'Non-property inflation' is of course correlated to house price inflation but there is no reason why the two should move in line together. Why should the price of wheat, affected by US weather patterns influence house price inflation in Cornwall for example? Nor are house price to salary ratios fixed over time. 1950's England was not an environment of free global markets and minimal capital restrictions. China and Russia are currently driving up London property prices. The overspill is driving up Brighton. These factors are skewing long term trends and will continue to do so, we are not going back to a 1950's, 60's or 70's scenario anytime soon.

You are right that cheap credit is a huge factor also, but that will not change anytime soon. In a way the domestic debt burden puts us in a 'too big to fail' scenario. We cannot raise rates because of the economic fallout for the man in the street.

This will not correct itself because it is NOT an anomaly. Prices are high because of the free market. Supply and demand are at work, not some short term bubble. Salford will fall back after the BBC related spike because no one else wants to live there. The Chinese investment into London property has hardly started yet. If you want to make money over the next 10 years then buy a flat on the 8th floor of a building in Zone 1/2 London. Happy to go online with that prediction.

"Sensible" as you mention doesn't come into this.

 

[cloud]

Are you sure ............ that relief is only available on sale of a business.

It's OK if you set up your rental as a business, rather than as personal rental income

 

[Lokki 7]

The long term average house price to earnings ratio is around 4 x average salary. It is currently up around 5.5 x salary. To me that suggests they are over inflated. It was obviously fuelled by an easy lending credit bubble (self cert mortgages, 125% Mortgages etc) and the prices are slowly falling in real terms. I don't think house prices will crash, but I think we will see the ratio return to around 4x salary over the next 3-5 years.

View attachment 39339

The trend is your friend.. until the bend at the end.

 

[Triggaaar]

The long term average house price to earnings ratio is around 4 x average salary. It is currently up around 5.5 x salary. To me that suggests they are over inflated. It was obviously fuelled by an easy lending credit bubble (self cert mortgages, 125% Mortgages etc) and the prices are slowly falling in real terms. I don't think house prices will crash, but I think we will see the ratio return to around 4x salary over the next 3-5 years.

The house prices to salary ratio isn't a good enough measure, due to the huge difference caused by varying interest rates. Interest rates now are tiny compared to the 80s, so the amount of our salary that goes towards the mortgage is lower.

 

[Lokki 7]

Where have I said I feel sorry for anyone below, just stating the facts ?

The banks and lenders have made it impossible for a first time buyer to get on the property market for over 5 years now. Unless they have wealthy parents they either have to live at home, rent or live in a tent. This is the problem, not buy to let investors who have seen an opportunity to buy and rent to people who are unable to get a mortgage or prefer to rent for flexibility. First time buyers have had access to 95% mortgages for generations, the latest generation has not and very few have a 20% deposit. Bushy has seen the opportunity, but the lenders continued refusal to lend to first time buyers who would prefer to buy, than rent has created this situation.

You said it was a problem, and the living in a tent comment. You have also brought this up several times before.

 

[Simster]

The long term average house price to earnings ratio is around 4 x average salary. It is currently up around 5.5 x salary. To me that suggests they are over inflated. It was obviously fuelled by an easy lending credit bubble (self cert mortgages, 125% Mortgages etc) and the prices are slowly falling in real terms. I don't think house prices will crash, but I think we will see the ratio return to around 4x salary over the next 3-5 years.

View attachment 39339

Not necessarily true. In fact I think looking at the average house price as a ratio to average earnings is misleading. I'd have thought it was always a function of discretionary income. i.e. the average potential owner says "After my bills have been paid, I need £X per month to accommodate my lifestyle which leaves £Y per month for a mortgage.

If you consider that the relative cost of £X has reduced over time because of the cost of cheap Chinese imports, then that leaves more you can pay for your mortgage. Everyone thinking along those lines drives up house prices. That is why I suspect the salary ratio has risen - because you actually need less of your salary to buy "stuff" than you might have needed a decade ago. You can buy a laptop for £200 or a tablet for £50 these days, mobile phone ownership is no longer a major expense, cars become increasingly reliable so need fixing/replacing less often.

By the way, I'm right f***ed off that I missed the buy-to-let opportunity. I should have done this a decade ago when I had the chance and was earning enough money to do so. Grrr.

 

[Gazwag]

It's OK if you set up your rental as a business, rather than as personal rental income

But if it was a business you would pay income tax on your profit on the sale of a property not capital gains tax (unless its holiday homes)

 

[Butch Willykins]

The house prices to salary ratio isn't a good enough measure, due to the huge difference caused by varying interest rates. Interest rates now are tiny compared to the 80s, so the amount of our salary that goes towards the mortgage is lower.

I agree. Lots of other factors at play. What is a worry though is if interest rates shoot upwards then those who are those that bought at the peak with 100% LTV mortgages at 6-8 times salary are going to be right in the shit. 

 

[Triggaaar]

I agree. Lots of other factors at play. What is a worry though is if interest rates shoot upwards then those who are those that bought at the peak with 100% LTV mortgages at 6-8 times salary are going to be right in the shit. 

Indeed they would. There's nothing to suggest a return to the level of interest rates we saw in the 80s though.

 

[Uncle C]

Indeed they would. There's nothing to suggest a return to the level of interest rates we saw in the 80s though.

For some people a rise to just 5% would mean their repayments rise ten fold. Dont forget this country has seen interest rates of 17% not long ago. When the inflationary effects of QE finally work their way through you would be a mug to predict that rates wont go up.

 

[Uncle C]

The house prices to salary ratio isn't a good enough measure, due to the huge difference caused by varying interest rates. Interest rates now are tiny compared to the 80s, so the amount of our salary that goes towards the mortgage is lower.

I dont understand your logic. The ratio defines how much you need to buy a house against how much you earn. What's it got to do with how easy you find to repay it.

 

[Uncle C]

Not necessarily true. In fact I think looking at the average house price as a ratio to average earnings is misleading. I'd have thought it was always a function of discretionary income. i.e. the average potential owner says "After my bills have been paid, I need £X per month to accommodate my lifestyle which leaves £Y per month for a mortgage.

If you consider that the relative cost of £X has reduced over time because of the cost of cheap Chinese imports, then that leaves more you can pay for your mortgage. Everyone thinking along those lines drives up house prices. That is why I suspect the salary ratio has risen - because you actually need less of your salary to buy "stuff" than you might have needed a decade ago. You can buy a laptop for £200 or a tablet for £50 these days, mobile phone ownership is no longer a major expense, cars become increasingly reliable so need fixing/replacing less often.

So on this logic anyone who doesn't pay rent or has a mortgage is rolling in spare cash.

 

[Simster]

So on this logic anyone who doesn't pay rent or has a mortgage is rolling in spare cash.

How do you arrive at that conclusion?

 

[Triggaaar]

I dont understand your logic. The ratio defines how much you need to buy a house against how much you earn.

We weren't discussing how much a mortgage lender would lend you, we were discussing house prices now against historical house prices, and someone was using average house prices against average salaries as a way of determing future prices, so I explained why it's not as simple as that.

What's it got to do with how easy you find to repay it.

Everything.

 

[Uncle C]

How do you arrive at that conclusion?

From your claim that the cost of living has fallen.

Perhaps I imagined you said this "If you consider that the relative cost of £X has reduced over time because of the cost of cheap Chinese imports, then that leaves more you can pay for your mortgage. Everyone thinking along those lines drives up house prices. That is why I suspect the salary ratio has risen - because you actually need less of your salary to buy "stuff" than you might have needed a decade ago. You can buy a laptop for £200 or a tablet for £50 these days, mobile phone ownership is no longer a major expense, cars become increasingly reliable so need fixing/replacing less often. "

 

[Uncle C]

We weren't discussing how much a mortgage lender would lend you, we were discussing house prices now against historical house prices, and someone was using average house prices against average salaries as a way of determing future prices, so I explained why it's not as simple as that.

Everything.

Sorry, I dont have an answer to illogical thinking.

 

[Triggaaar]

Sorry, I dont have an answer to illogical thinking.

I'm not asking you a question, I'm telling you how it works. If you don't understand, explain where you're confused and I'll try and help.

 

[Simster]

From your claim that the cost of living has fallen.

Perhaps I imagined you said this "If you consider that the relative cost of £X has reduced over time because of the cost of cheap Chinese imports, then that leaves more you can pay for your mortgage. Everyone thinking along those lines drives up house prices. That is why I suspect the salary ratio has risen - because you actually need less of your salary to buy "stuff" than you might have needed a decade ago. You can buy a laptop for £200 or a tablet for £50 these days, mobile phone ownership is no longer a major expense, cars become increasingly reliable so need fixing/replacing less often. "

No you haven't imagined that, you're just not quite intelligent enough to interpret my words correctly and like to be unnecessarily rude to make up for this deficiency in your on-line personality. I'll re-write my point so that it makes sense to your small little brain:

So I was talking about discretionary income. This is income AFTER the cost of living has been considered. So whilst food and energy prices have both risen, your discretionary income is the income you have left after this. My basic point is that the cost of housing is probably more accurately an inverse function of discretionary income (money to buy life's luxuries) than as a straight forward multiple of salary.