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Buying Houses

  
  

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Quantum
17:08 / 07.02.06
"If you save £100 a month for 40 years and your investments compound at 12% a year how much will you have? The answer is an astonishing £980,000!"

Well, the likelihood of prices declining seems higher now as they're artificially stratospheric, sustained by a massive credit bubble with little longevity (IMHO). Average 250% rise since '91? Doesn't seem like a steady long term trend.
 
 
Char Aina
18:25 / 07.02.06
as far as i was given to understand it, that will stay the case until the fractional reserve banking demon demands hir tithe.

i reckon that may be soon, but i dont understand the trends enough to really know how soon.
 
 
■
19:14 / 07.02.06
and your investments compound at 12% a year

The thing is that you tend to only get such high rates of return if inflation is running rampant, as it did under the Tories, so the value of your pot gets eaten away. Swings and roundabouts, innit?
 
 
Bed Head
12:22 / 13.02.06
So here’s one: In Britain there’s low interest rates and banks that seem everso eager to lend lots of money for mortgages... and a very high pound. So, why buy here? If you can get a £500,000 mortgage, can’t you just take that and, at current exchange rates, use it to buy a million-ish dollar place in, say, New York? Which you then rent out, because everyone knows how crazyexpensive rents always are in New York, or something. And then, you could use that rental income to pay the mortgage, safe in the knowledge that it’s a classy place, not a dive, and so people are always going to want to rent it. You just carry on as you were in London, only smugger.

But, if the pound/dollar exchange rate narrows, then you’ll be getting richer, no? I mean, your New York house will then be worth more in pounds.

(This is all dozy Monday stuff, I’m probably still in sleepyhead weekend fantasyland re: Money And How It Works. But anyway. I dunno, the whole exchange rate/high pound thing seems to be a much better bet for making money out of property than by correctly predicting that Swindon is going to be the next big housing market hot spot-type thing.)
 
 
nameinuse
14:25 / 13.02.06
I've been thinking about buying for the last couple of years (it's the first time I've been in a position to do so), but where I live rent is cheaper than the interest on the mortgage to buy an equivalent place, so for the time being I'm just saving the difference in an ISA so when the market gets more realistic (I'll come to that in a minute) I have a decent deposit.

I think the housing market is poised at a rather uncomfortable position. House prices are eight times average earnings in the south east, up from three times at middle of the nineties. Every fluctuation in interest rates, even a quarter of a percent, has a huge impact on the market. People are buying not because they think they're being offered a good deal, but because they think in a years time they won't be able to afford a house at all (markets motivated by fear are nearly all bear markets, even if they look like they're rising, and I don't want to have a slow-to-shift asset in a bear market).

I've no idea how house prices will readjust, but I'm pretty convinced they will. Americans already talk about a housing bubble, and talking about a bubble is the step before it bursts.

It may well be that house prices stay the same and salaries increase to counter the inflation - that's fine, my bigger deposit and bigger salary then mean I don't lose out, I just don't have to live in penury now. It may be that house prices crash, as people's borrowing prooves to be the hideous overextension it looks like to me - if that happens, it's good for me, I enter the market when other people are keen to sell, and get a good deal. The only situation I stand to lose in is if inflation gets wildly out of control without damaging the housing market, and wipes out people's big mortages. I don't see that happening without interest rates getting increased and the housing market falling at the same time to balance it out.

A few years ago, the housing market and stock market seemed to boom and bust together. Either Labour fiscal control or moving the base-rate control to the Bank of England seems to have divorced the two for the time being. In 2000 the stock market crashed and the housing market went up when previously it would have gone down. Now the stock market is recoving, so it'll be interesting to see what happens next.
 
 
Axolotl
18:51 / 13.02.06
Bed & Bored: A lot of UK-based lenders won't lend on foreign properties, presumably on the basis that it's going to be more difficult to repossess if you stop paying.
Working for a mortgage company I am absolutely astounded at how easy it is to borrow huge sums of money when you have no real idea of what you're committing to and how you're going to pay it back. Mortgage brokers seem to work purely on the basis of getting themselves a big fat comission and screw the customer's financial health. I've some real horror stories and I get lots of new ones every week.
 
 
Spaniel
19:00 / 13.02.06
Also, managing a foreign property could be a real nightmare.
 
 
Bed Head
19:17 / 13.02.06
But the money! The money! Surely people have a better reason for not doing this than because it might be a bit of a hassle.

Phox, would you need/are there specialist lenders who maybe *would* handle this sort of thing? And I’m wondering about the degree to which many UK-based lenders would still consider themselves to be UK-based. If the Midland Bank is now the HSBC, haven’t any of the others done any merging and acquiring and generally expanded their mutinational-ness? Would that matter?
 
 
Smoothly
19:34 / 13.02.06
Perverting this thread slightly more into 'How Money Works' and 'What To Invest In' (but fuckit, it's my thread), Bedhead's questions makes me wonder more about what might be better ways to invest borrowed money than in a topping out property market.

I was thinking about currency for one thing (last time I went to the US, the dollars I had left over were worth a lot more than when I bought them a couple of weeks before, and I remember thinking that I wish I'd bought much more than I needed). But then the dollar doesn't seem to be on a particularly steady slide. Oil, on the other hand, seems to be rocketing in price, for very tangible reasons that look likely to stay in play for a long time too come. Would buying a load of oil be a good idea? Or, if that doesn't keep, invest in an oil company? Shell seems to have relatively low share price (compared with BP) based partly, I think I'm right in saying, on a ropier image, but they are coining it in regardless. Are oil companies likely to start losing a lot of money in the near future?

But this brings me back to something I was asking about earlier, when I talked about buying houses in up-and-coming areas. Don't prices reflect popular confidence that something's value will go up? It could be that I'm being too Wisdom Of Crowdsy about this, but doesn't the market cancel out general expectations of increased value by adjusting the price? Put most simply, don't you have to know something the rest of the market doesn't in order to stand more than a 50-50 chance of seeing a return on an investment. Isn't the price of something a function of the average expectation of how much it will be worth in the foreseeable future?
 
 
nameinuse
11:56 / 14.02.06
You either have to know something the majority don't know (the most extreme example of this is insider trading), be able to move quicker than the rest of them (having liquid capital rather than something tied up in a big asset, like a house), or just be willing to take a risk that most investors won't (because they're, for example, pension funds). Money's made by people who make an informed guess when to act, who have the ability to act, and the willingness to take the risk.

Practical measures to take advantage of this are firstly invest in the industry you work in if you think it's good - you have a better idea of how things are than someone outside of it. Secondly, don't tie your money up for long if you might want to reinvest quickly (this is my main gripe about investing all of your wealth in your house) so you can take your gains and walk to something better whenever you want, and you don't end up tied to a crashing market. Thirdly, if it's money you willlater /need/ put it in a number of safe investments (banks, gilts, bonds from FTSE 100 companies) rather than risking it. If it's money you can afford to lose, invest a bit of it in startups and small companies who look like they're going somewhere. The risks are greater, but so are the rewards. Imagine what a $100 stake in Microsoft in 1978 would be worth now, but think about how many computer companies tanked between 1978 and today.

It's worth noting that all investments represent risk of some sort, you can't remove it entirely. Most people spread risk by taking a wide mixture of investment. They may not gain so big, but they won't lose so big either.

I'd personally say there are much better investments than UK property, and probably better investments than most foreign property (How well do you know the area, the local laws and beuracracy? Do you trust the local/national government to act in your interest? Are you sure that the property market isn't doing exactly the same thing there as it is here?). Some investment in UK property could be part of a balanced portfolio, but as I said above, all eggs in one basket is a big risk, particularly if that market is on a historic high right now.

The reason high street banks won't lend on foreign property is because they don't like risk at all - they grind a few percent from everything they do, and they do it a lot, over and over. That's their business model. You could probably find an alternative lender, but they'll likely charge a lot more in interest to cover their greater risk.
 
 
Brunner
11:59 / 14.02.06
Your confusing price with value Smoothly. Value can be all those things you've considered. It's what the house (or whatever) is worth to the average well informed prudent investor/purchaser and reflects cost and scarcity and all those other market variables which enable Tesco to sell you a pair of jeans for £4.99. Price on the other hand is only what someone will pay and can be affected by entirely personal criteria completely separate from the market. This is especially true with housing. Most estate agents work on the assumption that if one house in a road sells for £300,000 then all similar ones are worth that too. This isn't quite correct as that purchaser could have arrived at the price paid using personal criteria. However, if 10 houses all sold for £300k, it would indicate that a market of people think the asking price correlates with value.
 
  

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