Interest rates

[Amarillo]

Ive just reworked your numbers based on an interest rate for a BTL mortgage at 5.39% - the cheapest rate I could find in a two minute google

Were there any charges with the 5.39% rate you found?

Barclays is 5.74% (mortgage 1 & 2) and RBS 5.89% (mortgage 3) but both completely free of charges.

I did consider mortgaging one of my unmortgaged flats at 5.49% and repaying the other three mortgages, but with valuations, legal fees and mortgage costs the figures just didn’t work. Plus I would not have passed the affordability test for a single mortgage close to 75% LTV (lenders want to see rental income cover 125% to 145% of mortgage interest payments).

 

[soulstyledevon]

I tend to rent at 20-30% below market value, so my yields are not good - but I have lovely tenants.

Flat 1 £375,000; £1250 pcm; 4%
Market value £1800 pcm

Flat 2 £300,000; £1250 pcm; 5%
Market value £1650 pcm

Flat 3 £300,000; £1175 pcm; 4.7%
Market value £1600 pcm

Valuations and rental values taken from Zoopla’s mid estimates.

How do you cover property maintenance …?

 

[Amarillo]

OMG, Amarillo, that is a pathetic return. It‘s less than your borrowing cost.
Listen, you have done fantastically well with your buy to let’s and I congratulate you on your timing.
Now you have to let go and get out of Dodge.
Why are you keeping them ? Sentimental attachment, loyalty to your tenants, I don’t know.
No businessman I have ever known would borrow money to sink into that business. Let it go.

I stopped working ten years ago. Managing our five flats keeps me busy.

Capital growth over the last ten years has been 8.5%. That won’t continue. But I do need somewhere to store my assets.

8.5% capital growth plus 4-5% yield is better than the 5% capital growth plus 3.5% dividend I might expect from shares!

 

[Mansfieldman750]

I stopped working ten years ago. Managing our five flats keeps me busy.

Capital growth over the last ten years has been 8.5%. That won’t continue. But I do need somewhere to store my assets.

8.5% capital growth plus 4-5% yield is better than the 5% capital growth plus 3.5% dividend I might expect from shares!

Like I say you got into the right asset class at the right time. Can I borrow your crystal ball ? The one that told you interest rates would be next to zero for 10 years and house prices would go like a rocket.
I am useless at predictions, especially if it involves the future !

 

[Amarillo]

How do you cover property maintenance …?

I find my tenants do most of it!

Recent WhatsApp message:
===
Hi Tom, we hope this finds you well. Sorry to bother you at weekend, but we have a quick question. We have painted a flower stand in the garden and a lot of paint left. Could we paint the shed with the leftovers? I send a picture of the colour. Please let us know if you are happy with it or no. Thanks, Niki and Gery
===

Two days later…

But, of course there are instances of bigger jobs that need doing.

I keep a modest pot of about £5,000 in my business account for immediate emergencies. Anything more usually gets split four ways between various accounts. For example, I think we spent £9000 for replacement windows in 2019. £2,250 from each of mine and Clare’s current accounts; joint account; and business account.

We do think that we are likely to be facing a £20,000 bill for a new roof, and gutters coming up (total bill for 18 flats £180,000 - we have two flats in the block). We are currently paying £150 per flat per month into a shared pot for the works.

 

[Amarillo]

Like I say you got into the right asset class at the right time. Can I borrow your crystal ball ? The one that told you interest rates would be next to zero for 10 years and house prices would go like a rocket.
I am useless at predictions, especially if it involves the future !

Actually it was an article I read in The Economist in or around 2010.

At the time I was mortgage free in a flat worth ~£200,000; £165,000 in savings (Scottish Widows OEIC); and a third share in two flats in the extreme south of China bought for ~£15,000 and ~£18,000 (my share not the flats).

The article’s message was that recovery from the financial crisis would be long and slow, and that those who could borrow should borrow and savings spent.

I mortgaged my flat for £120,000 and bought our house for £348,000 with the £120,000 deposit and a £228,000 mortgage.

I was now a borrower with £348,000 of debt, all paid with the rental income from my flat.

My savings were intact and also my third share of the two Chinese flats.

In 2011, after a row with my boss, I left my job with a payout I am not at liberty to reveal, but paid the deposit for my second flat. (Savings and Chinese flats still intact).

We sold the flats in China which had risen in value threefold while the value of the Yuan strengthened against the pound by 50%, meaning my investment had nearly quintupled.

We bought another two flats (in the same block), one paying cash! Our flats in China gone, savings depleted but not entirely gone.

Our fifth flat is Clare’s, where she lived before I bought our house. And mortgaged at a poor rate. The last of my savings went to pay off her mortgage.

I’d transformed myself from being debt free with £165,000 in saving to having £744,000 of debt (February 2014), just as the article in The Economist suggest I do.

Still no job, one baby and another on the way. But rental income was more than I had been earning.

Was it luck? I’ll call it “informed luck”.


It was “informed luck” that led me to invest in the two Chinese flats: my brother said to me, “If you had the opportunity to invest in seafront property in Hawaii in the 1950s you’d be made for life”. Sanya is the Hawaii of China (but full of Russians).

It was “Informed luck” that led me to plunge my building society savings into a Scottish Widows OEIC in March 2003, the day after the FTSE 100 had fallen for ten consecutive days and the eve of the Second Oil War (Iraq War). Another Economist article had informed me that it was uncertainty over war that was causing markets to be depressed. Once war began the uncertainty would be over and markets recover.

 

[Mansfieldman750]

Actually it was an article I read in The Economist in or around 2010.

At the time I was mortgage free in a flat worth ~£200,000; £165,000 in savings (Scottish Widows OEIC); and a third share in two flats in the extreme south of China bought for ~£15,000 and ~£18,000 (my share not the flats).

The article’s message was that recovery from the financial crisis would be long and slow, and that those who could borrow should borrow and savings spent.

I mortgaged my flat for £120,000 and bought our house for £348,000 with the £120,000 deposit and a £228,000 mortgage.

I was now a borrower with £348,000 of debt, all paid with the rental income from my flat.

My savings were intact and also my third share of the two Chinese flats.

In 2011, after a row with my boss, I left my job with a payout I am not at liberty to reveal, but paid the deposit for my second flat. (Savings and Chinese flats still intact).

We sold the flats in China which had risen in value threefold while the value of the Yuan strengthened against the pound by 50%, meaning my investment had nearly quintupled.

We bought another two flats (in the same block), one paying cash! Our flats in China gone, savings depleted but not entirely gone.

Our fifth flat is Clare’s, where she lived before I bought our house. And mortgaged at a poor rate. The last of my savings went to pay off her mortgage.

I’d transformed myself from being debt free with £165,000 in saving to having £744,000 of debt (February 2014), just as the article in The Economist suggest I do.

Still no job, one baby and another on the way. But rental income was more than I had been earning.

Was it luck? I’ll call it “informed luck”.


It was “informed luck” that led me to invest in the two Chinese flats: my brother said to me, “If you had the opportunity to invest in seafront property in Hawaii in the 1950s you’d be made for life”. Sanya is the Hawaii of China (but full of Russians).

It was “Informed luck” that led me to plunge my building society savings into a Scottish Widows OEIC in March 2003, the day after the FTSE 100 had fallen for ten consecutive days and the eve of the Second Oil War (Iraq War). Another Economist article had informed me that it was uncertainty over war that was causing markets to be depressed. Once war began the uncertainty would be over and markets recover.

Great story, much better than Congo Journey. You’ve had an interesting life.
Funny you should mention March 2003. Now if you remember the dotcom boom, the FTSE peaked just under 7000 on 31 Dec 1999, eve of millennium. I was sensible enough to get out. Then it fell all through 2000, and into 2001. Then came 9/11 and it really fell.
I said to myself, right, I’m getting back in here, with both feet.
What happened ? It kept right on falling through to March 2003, bottoming out about 3400 if I remember right. Down 50% from peak.
Man, I was down a fortune. Fortunately it took off after that and I clawed back the losses and made a bit.
Then came the financial crisis, and again from memory the FTSE was back down about 3400 in March 2009.
Luckily I was working in Sri Lanka from 2006 and 2010, and concentrated on whittling down the mortgage.
So after all that excitement I’m mainly pound cost averaging in low cost index trackers these days. Got a few individual shares but it’s more for a bit of fun, see if I can beat the index. Usually not.
Anyway, I think it’s great you have such a great relationship with your tenants, and wish you luck with your chosen strategy.

 

[The Merle]

Whatever happens in the future Amarillo your buy to let business has given you the opportunity to spend more time with your kids.
There’s not many who will or can take a year off to travel Europe in a camper. Plus all the other adventures you manage with your kids.

Either they are addicted to their jobs or can’t get the time off or finances to do it (maybe not brave enough either).
Time is the most expensive thing in life and your business gives you loads of it.

 

[pjm-84]

Agree. I was brought back in to work full time in 2013 (semi retired from 2009) and now coming up to 10years and thinking how long to go / how to extract myself from work. I have 59yrs old in my head (so 3 to 4yrs). Have talked about selling up, buying a top end A class and traveling around Europe for a year.

I have one BTL (Wife's first house) and I find it a pain. Spent 9k on it over the last few years. Windows and doors and then the tenant crashed into the front porch last December (which I had rebuilt). The tenant is paying me back, at cost, on a monthly basis for the porch but I didnt charge the full costs. To me the BTL is not worth the hassle

 

[66tim99]

Agree. I was brought back in to work full time in 2013 (semi retired from 2009) and now coming up to 10years and thinking how long to go / how to extract myself from work. I have 59yrs old in my head (so 3 to 4yrs). Have talked about selling up, buying a top end A class and traveling around Europe for a year.

I have one BTL (Wife's first house) and I find it a pain. Spent 9k on it over the last few years. Windows and doors and then the tenant crashed into the front porch last December (which I had rebuilt). The tenant is paying me back, at cost, on a monthly basis for the porch but I didnt charge the full costs. To me the BTL is not worth the hassle

Blimey, well done on being semi-retired at 42.
Bad luck on being brought back into work at 46.
My BTL is a pain too, but worth the hassle, on financial balance, and with good tenants. I never put the rent up whilst they live there, only on change-over. Which has led to mutual respect and long-staying tenants, that eases the hassle.

 

[soulstyledevon]

Whatever happens in the future Amarillo your buy to let business has given you the opportunity to spend more time with your kids.
There’s not many who will or can take a year off to travel Europe in a camper. Plus all the other adventures you manage with your kids.

Either they are addicted to their jobs or can’t get the time off or finances to do it (maybe not brave enough either).
Time is the most expensive thing in life and your business gives you loads of it.

Absolutely.
I went part-time in 2016 37 years young. The time with my son has been worth the sacrifices in salary.
I met with two different companies last week, but both want full time commitment. I just can’t bring myself to going back to the grind and missing out.
My lad has his leaving school play tomorrow, as he moves onto middle school. I know lots of the dads I go out with can’t make the performance because of work. I’ll be there, I won’t have to miss it. Along with sports days, pick ups and helping out at the school where I can.

Life is too short

 

[66tim99]

Absolutely.
I went part-time in 2016 37 years young. The time with my son has been worth the sacrifices in salary.
I met with two different companies last week, but both want full time commitment. I just can’t bring myself to going back to the grind and missing out.
My lad has his leaving school play tomorrow, as he moves onto middle school. I know lots of the dads I go out with can’t make the performance because of work. I’ll be there, I won’t have to miss it. Along with sports days, pick ups and helping out at the school where I can.

Life is too short

Looks like they will have to take your right to work flexibly more seriously soon
https://www.msn.com/en-gb/money/car...-has-passed-but-what-does-it-mean/ar-AA1e4osE

 

[soulstyledevon]

Looks like they will have to take your right to work flexibly more seriously soon
https://www.msn.com/en-gb/money/car...-has-passed-but-what-does-it-mean/ar-AA1e4osE

Employers can still turn down a request, but they will need to have a water tight case/reasoning as to why. The ball is still in the employers court.

I believe you can gauge from the initial interview/meeting as to how serious an employer is with regards to true flexible working.
Some of the companies I’ve talked to look absolutely flabbergasted, when I ask for reduced hours. Straight away I know it’s not for me.

My experience so far, is that smaller companies are more approachable on flexible working than larger blue chip.

Plus, it’s been a game charger, dealing with pesky recruiters. I have a copy and paste reply for them and it’s sorts out the good ones from the bad.

 

[pjm-84]

Oddly I offered a 4day / 34hr week (Friday off) and it was a 50/50 with some people. Asking people to work a 8.5hr day was like a shock...... I think people's idea of a 4 day week is that you just have the Friday off and get paid for it.

 

[Mansfieldman750]

Mervyn King Says the Bank of England Is Making a ‘Big Mistake’

Podcast Episode · Merryn Talks Money · 19/07/2023 · 47m

podcasts.apple.com

I just listened to this very interesting podcast and I’m taking 2 things from it.
1. Inflation will fall fairly quickly from here on in.
2. House prices will fall.

 

[soulstyledevon]

Oddly I offered a 4day / 34hr week (Friday off) and it was a 50/50 with some people. Asking people to work a 8.5hr day was like a shock...... I think people's idea of a 4 day week is that you just have the Friday off and get paid for it.

34 hour week is brilliant.
I do 30 hours over 3 days.

 

[Amarillo]

Mervyn King Says the Bank of England Is Making a ‘Big Mistake’

Podcast Episode · Merryn Talks Money · 19/07/2023 · 47m

podcasts.apple.com

I just listened to this very interesting podcast and I’m taking 2 things from it.
1. Inflation will fall fairly quickly from here on in.
2. House prices will fall.

I agree with both.

The two unanswered questions are:
1a When will base rates start to fall.
1b How far will base rates fall.

I’m going to put my neck on the line here and say the first base rate cut will be between March and June next year, and they will fall no lower than 3.5% over the next five years.

2. How much will house prices fall.

Again my guess is an average of 10 to 12%, but not uniform across the UK. For example, flats in SE London haven’t really risen in price for seven years, (since the 3% stamp duty surcharge on second homes) and their price will hold up well, kept buoyant by the 600,000 migrants welcomed each year into the UK. Larger houses, especially outside major population areas will fare much more badly, falling by 20 or even 30% over the next five years.

 

[pjm-84]

House prices don't really fall unless people need to sell and or unemployment increases. There will be a correction.

The base rate will fall (I thought we would go to 3.5 / 3.75%) and most seem to be factoring in 2yrs..... but I think it will be sooner if inflation drops / recession starts to loom.

 

[Mansfieldman750]

I agree with both.

The two unanswered questions are:
1a When will base rates start to fall.
1b How far will base rates fall.

I’m going to put my neck on the line here and say the first base rate cut will be between March and June next year, and they will fall no lower than 3.5% over the next five years.

2. How much will house prices fall.

Again my guess is an average of 10 to 12%, but not uniform across the UK. For example, flats in SE London haven’t really risen in price for seven years, (since the 3% stamp duty surcharge on second homes) and their price will hold up well, kept buoyant by the 600,000 migrants welcomed each year into the UK. Larger houses, especially outside major population areas will fare much more badly, falling by 20 or even 30% over the next five years.

Well, in the interview Mervyn King ( can we have him back please ? ) talks about “ sensibly higher interest rates, in the order of where they were they were before the financial crisis, leading to a fall in asset prices relative to incomes “
So that would suggest
1 The base rate might not fall much from where it is now, if at all.
2 House prices have a long way to fall to bring the relationship between house prices and incomes back in line.
Sorry if I’m being a bit obscure, you know the housing market better than me, maybe you won’t be far off with your guesstimate.

 

[Amarillo]

House prices don't really fall unless people need to sell and or unemployment increases. There will be a correction.

The base rate will fall (I thought we would go to 3.5 / 3.75%) and most seem to be factoring in 2yrs..... but I think it will be sooner if inflation drops / recession starts to loom.

My first flat was offered for sale for £69,500. I paid £57,000 (18% below asking price). May 1990. Six months later a substantially identical flat was sold for £49,000 (30% below the asking price of my flat).

Our house was initially advertised for £400,000, later dropped to £375,000. We paid £348,000 (13% below the initial asking price).

There is always some movement in the property market. Probate is a common cause, and often offer outstanding value during a downturn as anxious offspring want to get their mitts on mum and dad’s cash. Plus if IHT is payable, interest at 7.5% starts to compound the urgency after a few short months (unsure how many months, might be 3, 6 or 12).

Before long repossessions will start to hit the market, often with structural problems needing urgent remedy so unmortgagable. These will come with a hefty discount for cash buyers further deflating the market. Banks also hate faff, so estate agents will often pretend repossessions are for cash buyers only. What they want is a quick sale.

 

[Amarillo]

Well, in the interview Mervyn King ( can we have him back please ? ) talks about “ sensibly higher interest rates, in the order of where they were they were before the financial crisis, leading to a fall in asset prices relative to incomes “
So that would suggest
1 The base rate might not fall much from where it is now, if at all.
2 House prices have a long way to fall to bring the relationship between house prices and incomes back in line.
Sorry if I’m being a bit obscure, you know the housing market better than me, maybe you won’t be far off with your guesstimate.

I’d hate to bet against Mervyn King (did you ask to have him back? Yes please). But I would bet that the fall in house prices will not be uniform (or close to uniform) across the country. But also, even if house prices don’t fall, inflation has been as high as 10%, and static house prices implies a 10% drop in the value of houses compared to the value of those things used to measure inflation.

 

[pjm-84]

My first flat was offered for sale for £69,500. I paid £57,000 (18% below asking price). May 1990. Six months later a substantially identical flat was sold for £49,000 (30% below the asking price of my flat).

Our house was initially advertised for £400,000, later dropped to £375,000. We paid £348,000 (13% below the initial asking price).

There is always some movement in the property market. Probate is a common cause, and often offer outstanding value during a downturn as anxious offspring want to get their mitts on mum and dad’s cash. Plus if IHT is payable, interest at 7.5% starts to compound the urgency after a few short months (unsure how many months, might be 3, 6 or 12).

Before long repossessions will start to hit the market, often with structural problems needing urgent remedy so unmortgagable. These will come with a hefty discount for cash buyers further deflating the market. Banks also hate faff, so estate agents will often pretend repossessions are for cash buyers only. What they want is a quick sale.

Yes but this is all reliant on repossession or having to sell. Unemployment is a key indicator.

Asking price and payment price are too different items. When I bought my house I offered £320k on a £340 asking price. I also put an offer on a town house which was priced at £385k at £340k. Both prices were what I was willing to pay (the town house was overvalued to me in a buoyant market). I looked at another that was priced at 400k but wasnt interested as it wasnt worth anywhere near that. It eventually sold at £245k

 

[Mansfieldman750]

I’d hate to bet against Mervyn King (did you ask to have him back? Yes please). But I would bet that the fall in house prices will not be uniform (or close to uniform) across the country. But also, even if house prices don’t fall, inflation has been as high as 10%, and static house prices implies a 10% drop in the value of houses compared to the value of those things used to measure inflation.

I am a bit out of my depth on house prices but I’ve had a go on a mortgage calculator and
£400,000 repayment mortgage at 2.5% over 25 years = £1,794 per month
£280,000 repayment mortgage at 6.0% over 25 years = £1,804 per month
Surely that’s what will force house prices down ?

 

[Amarillo]

I am a bit out of my depth on house prices but I’ve had a go on a mortgage calculator and
£400,000 repayment mortgage at 2.5% over 25 years = £1,794 per month
£280,000 repayment mortgage at 6.0% over 25 years = £1,804 per month
Surely that’s what will force house prices down ?

Unless upsizing (and falling house prices is an excellent time to upsize) people are very reluctant to sell their home for less money than they paid for it. Other sacrifices will be made first: fewer takeaway meals, Audi for a VW, VW for a Skoda, dinner parties instead of restaurants, state school not private school, Sainsbury’s not Waitrose, Lidl not Sainsbury’s, etc, etc, etc.

But you are right, people do downsize, which is partly why I’m so optimistic that the value of my flats will hold up and larger properties fall in value.

But any drop will be long and slow, and I think that inflation will do much to bring house prices down when compared with average household incomes.

 

[soulstyledevon]

I agree with both.

The two unanswered questions are:
1a When will base rates start to fall.
1b How far will base rates fall.

I’m going to put my neck on the line here and say the first base rate cut will be between March and June next year, and they will fall no lower than 3.5% over the next five years.

2. How much will house prices fall.

1 - Base rates won’t fall anytime soon, most lightly stagnate from where they are now.
Two years down the line, you may see long term fixed rate products hit the market locking in at softer rates than the 6% currently offered.

Right now is the worst time to lock in…!!!
People needed to fix 6-8 months ago. If I was remortgaging now, I would switch to interest only and ride out the storm…

2 - House prices will fall, how much will obviously be area dependent. Where I am, will probably fair quite well. Lots of local investment and building work at Coventry/Warwick Universities, HS2 and Birmingham South redevelopment.