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Found 12 results

  1. I’d like to start a conversation about macro-economics and the effects that it might have on property investing. In particular, I’m going to challenge the notion that house prices always go up and highlight that the price rises which have been enjoyed by property investors for the past generation have been largely due to the steady decline in interest rates. Ultimately I’d like to find clarity on the question of whether property investment is still a good idea today and if so then is the same formula that worked previously still the best approach. I’ve tried to research this topic thoroughly but please do disagree with me and offer alternative ideas. What I say relates mostly to buy-to-let (BTL) investments that involve a mortgage. A) Let’s start with some fundamentals: property investors generate profit from two sources: rental income and capital growth. With rental yields where they are today (around 4-6% gross) it typically works out that the rental income is similar to the running cost of the property, and so the investor relies on capital growth to actually make profit. If you knew house prices were going to stay still for the next 30 years, would you still be interesting in BTL? B ) Having established that capital growth is important, let’s examine what causes it. For people to pay more for houses they have to be able to afford to pay more and this generally means one of two things: either they are earning more (wage growth) or they can access cheaper mortgages (interest rates falling). Rob & Rob have often talked about affordability on their podcast and explain how it’s this combination of wage and interest rate that determines what people can pay, not just how much they earn. Interest rates have been falling reasonably steadily now for several decades, meaning that year on year buyers have been able to afford bigger mortgages, pushing up house prices. This is demonstrated by the fact that, over this time, the house price-to-income ratio has increased substantially but the mortgage payment-to-income ratio has been relatively unchanged. A research paper by Victoria Monro of the Bank of England [1] estimated that over the past three decades about half of the housing price growth was due to wage growth and the rest due to falling interest rates. Therefore, if interest rates had not fallen, we would have seen half the price growth over the past three decades. C) So what happens next? Assuming interest rates will not go negative, two things can happen: either rates stay low or rates go up, and surely they will eventually go up. This means that investors will be relying on wage growth alone to push property prices higher and when rates do rise this will have an opposing effect as buyers are faced with higher mortgage payments. If rates slowly rise over the three decades back to the point they were 30 years ago, might we expect the roughly equal contributions of interest rate changes and wage growth to cancel out and house prices stay flat. D) Does this present risk to property investors? I’d really like to hear some opinions from you all. In my eyes there are some significant risks: If I were to purchase a BTL today and house prices stay flat, I might make a small or zero profit on the rental income. But this scenario is likely to occur as a result of interest rate rises, in which case my costs are going to go up and I could find myself in a scenario where I’m making a loss each year on running the property and there are no price rises to bail me out. If rates rise especially fast then house prices could even go down, but I’d be surprised if central banks would allow this to a significant extent. Any thoughts? E) Is there a particular strategy that could be safer? Please do make some suggestions. I for one have been wondering whether the era of capital growth is coming to and end and instead investors should be seeking to maximise rental income rather than capital growth. This would sustain a larger proportion of returns when the growth stops and give a stronger cushion as interest rates rise and increase the mortgage payments. Conclusion I’m proposing that rising interest rates over the coming years are likely to counter the effects of inflation and leave house prices standing still. This means that property investors no longer be able to rely on capital growth as part of their strategy. Furthermore, investors face a risk that their portfolios will no longer be viable with higher mortgage payments. Contrary to popular recommendation, higher income (lower capital growth potential) investments might be a safer bet for the next generation of investors. Ultimately, the central banks have control of the interest rate lever, will their decisions be likely to help or hinder investors? But what about the 18 Year Property Cycle?!? Aren’t we entering the boom phase?? Well I’ll be honest, I’m not sure I believe in the 18 year property cycle... it’s often easy to pick out a pattern when you go looking for one, that doesn’t mean it means anything. Perhaps the 18 year cycle has some validity resulting from human psychology and it certainly seems like people are expecting house prices to go up right now. But I believe there are larger forces at play – these people need to be able to afford it at the end of the day. We might see some more growth still, I’m not predicting a crash; new 95% mortgages could push the market a bit higher still as could wage growth. But otherwise the economic levers that inflate house prices don’t go any further, and eventually will start going back the other way. This won’t necessarily result in prices going down, if central banks decide to avoid that. But it could mean prices staying flat and costs going up, potentially rendering traditional BTL strategies unviable. Please feel free to agree, disagree and generally offer your thoughts on these fundamental issues. [1] Read abstract and see Table 3 from https://www.economic-policy.org/wp-content/uploads/2020/10/9100_UK-House-Prices-and-Decline-in-Risk-Free-Real-Interest.pdf
  2. Hi everyone, I am in the process of purchasing 25% of a shared ownership flat and 2 of my mortgages applications (barclays and halifax) have now been declined for the same reasons : "they won't lend on the property as its an investment-led development property - It appears lenders are not liking the property due to the surrounding of the property and the development appears to be aimed at investors" Could someone explain to me why is this a problem for the lenders? surely that will not affect my capacity to repay my mortgage, and being a shared ownership, i would have thought the "small" amount = low risk for them? I am starting to wonder - if i eventually find a lender - am i shooting myself in the foot? the plan is to live there a few years and then resale, does this mean i will potentially struggle ? Thanks for your help in advance LDi
  3. Hi, Has anyone had any experience or recommendations for a bank that will allow a new company account, which is owned by two companies. It is for a JV, we have set up a new Limited company for the project which is owned by two separate companies but struggling to find a bank account to support this structure. Any recommendations or advice would be greatly appreciated. Many thanks, Kate
  4. Recently opened up a joint bank account with another investor only to find out he has "adverse credit". I did obtain his credit report prior to doing so and his credit score was average. I did notice he had a couple of late payments back in 2013 but i didn't think anything off it. It recently come to light when my mortgage broker was trying to apply for a decision in principle in our joint names to find out he is being branded as "adverse credit". My broker advised me to close the bank account immediately and so i have done. The account was only active for about 12 days, so my question is will this affect me applying for a mortgage in my sole name? As we are no longer financially associated.
  5. Hi people, I will be applying for a mortgage in the next few upcoming months and just want to know what sort of things banks will look for in my bank statement. For instance, will they look at each individual transaction (whether it be a car loan or just something bought off ebay)? How much detail will they go into my bank statement? Also, my phone bill is up and down, for example: Month A: £42.99 Month B: £54.45 Month C: £72.99 Month D: £42.99 Will they query why this fluctuates and what I did for my phone bill to increase? If you could let me know this, that would be great. Thanks in advance. Dan
  6. Hi I'd love some advice from anyone with experience of letting their properties through a limited company. I've just set one up and need to open a bank account but all the account I've looked at seem to have lots of charges. Does anyone know of a good account bank to open an account with in this situation? Would love to hear from you! Thanks, Charlie t
  7. Hi My partner and I are just looking to buy our first home. We viewed a property near the forest of dean which needs updating. The kitchen and bathroom are gross and need total replacement. The flooring in all rooms also needs changing. I do believe the price of the property may reflect that. But how much would this (approximately) cost to ensure I do not offer too much for the house. Do I check prices for similar properties and minus the cost of fixing/updating or would I need to offer more? No checks have (yet) been done on the boiler/electrics so we'd need to check that too. Thanks
  8. Hi Everyone, I am aware this has been discussed before but what recommendations are there to open a seperate business bank account? Are there no more of the annual fe accounts available anywhere?
  9. Hi Everyone, I am aware this has been discussed before but what recommendations are there to open a seperate business bank account? Are there no more of the annual fe accounts available anywhere?
  10. Hi, So looking into registering the Nature of Business for my property corporation, I am coming across a very short list from the Company House: Section L Real estate activities : 68100 Buying and selling of own real estate 68201 Renting and operating of Housing Association real estate 68202 Letting and operating of conference and exhibition centres 68209 Other letting and operating of own or leased real estate 68310 Real estate agencies 68320 Management of real estate on a fee or contract basis https://www.gov.uk/g...IC_codes_V2.pdf So essentially whether you are trading properties (buy-refurbish-sell) or investing in property (buy and hold) you will be using code 68100. My lender is OK to lend to my corporation providing I do not undertake any trading activity and providing the nature of the business of the corporation is only 'investing' and not trading. But my question is: how can my lender tell if I am trading or investing since the SIC code and registration is the same? Will it be based on financial statement of the corporation or just good faith? Not that I would....but any chance to cheat the lender there? Can I conduct trading and investing with the same corporation without the lender knowing? Your advise is welcome. Regards Antoine P.S: this topic is a duplicate of the topic I posted under the 'tax' section - wasn't sure on the best home for it
  11. Hi, So looking into registering the Nature of Business for my property corporation, I am coming across a very short list from the Company House: Section L Real estate activities : 68100 Buying and selling of own real estate 68201 Renting and operating of Housing Association real estate 68202 Letting and operating of conference and exhibition centres 68209 Other letting and operating of own or leased real estate 68310 Real estate agencies 68320 Management of real estate on a fee or contract basis https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/455263/SIC_codes_V2.pdf So essentially whether you are trading properties (buy-refurbish-sell) or investing in property (buy and hold) you will be using code 68100. My lender is OK to lend to my corporation providing I do not undertake any trading activity and providing the nature of the business of the corporation is only 'investing' and not trading. But my question is: how can my lender tell if I am trading or investing since the SIC code and registration is the same? Will it be based on financial statement of the corporation or just good faith? Not that I would....but any chance to cheat the lender there? Can I conduct trading and investing with the same corporation without the lender knowing? Your advise is welcome. Regards Antoine
  12. Hi, I have found a high st property with great fundamentals and a very healthy rental yield. It is in a very impressive listed (grade 2) building with 10 flats. On the ground floor are two commercial properties - a sainsbury's local and a major bank. The flat I am looking at is on the 3rd floor of this building with windows facing onto the high st (double glazing in the bedroom). Should I be concerned about being above commercial in this situation? Obviously being right in the centre of town provides good fundamentals - but should I be wary of anything regarding being in the same building as these commercial businesses? Any advice would be most appreciated. Regards, Duncan
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