House Price Inflation Pros and Cons

[Alan Dale]

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[Jeremy]

Alan - in your post, you ignored the associated costs of buying a property, and interest on the mortgage.

Huguenot - you originally ignored the fact that you don't have to put up the entire cost of the property, and you also ignored rental income.

Neither of you mentioned all the facts, but at the end of the day, you could still make a good profit on buy-to-let. But this would be dependant on a large increase in property prices, and none of us really know what's going to happen on that front, do we?

[Mark]

There are some things that I don't want to understand either, especially when life's too short to understand everything and especially when I can get advice from trusted experts. Don't get me wrong, I have a thirst for knowledge but my time's better spent on other things.

Anyway back to House Prices, shift up over *Bob* and cookie I wanna watch this one too...

[*Bob*]

Alan Dale Wrote:

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>

> I can't envisage a situation where I would take

> pride in not understanding something by the way.

Say, for example, I had an in-depth knowledge of Harry Potter, or the laws of electrical resistance, or the various types of shale to be found on the Isle of Mull. All these things have their place, but I don't thing I'd be shouting about them. Not in public, anyway.

[AcedOut]

It's amaizing how many people forget about gearing. This is the primary reason that most people make more money on property than the stock markets!!! People always forget this.

No lender in their right mind would lend money for someone to put on the markets, since there is no collateral. So, even if the stock markets are increasing more than property, you're still better off putting your money on property, since you have that leverage.

Buying a property is kinda like buying a call option. You cannot lose more than your initial deposit. Yes, you can lose your house if you cannot afford your repayments, but then you could have been renting and still own nothing. The lender is actually at risk when the property goes down in value - their protection from this is the Loan To value (LTV). The lower their LTV, the less likely they are to enter negative territory and the less you generally pay in interest rates. You might put down ?20k on a ?200k peoperty. If it's worth ?100k in a year, you've lost ?10k (plus interest), but the lender has lost ?90k (less interest)!

[Alan Dale]

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[mockney piers]

I'm pretty proud of my Harry Potter ignorance, or are you deciding what constitutes good ignorance and what constitutes bad Alan?

[Alan Dale]

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[Alan Dale]

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[Mark]

> There's nothing wrong with not understanding something or not being interested in it but neither is it something to crow about.

>I 've often regretted not knowing more about the big little man.

'nuff said

[Huguenot]

I'm not sure that's true AcedOut, as an individual in negative equity subject to repo you still 'owe' the money to the lender, unless you declare bankruptcy.

If you do declare, then the bank will recover the money from it's only other source of money - its customers (your fellow citizens). Hence to make this manoeuvre deliberately is immoral.

Anyway, wouldn't bankruptcy effectively blow much chance at financial security for the future?

Incidentally, I re-did calculation for ?200,000 one-bed flat at average 4% growth with ?180,000 mortgage, and ?2,500 maintenance and ?8,000 a year rent both rising at 3%.

The outcome was that it beat the savings account only by year 15.... (that's not borrowing for the ISA Ace, that's the money you would have invested in the first year of the house).

[Alan Dale]

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[AcedOut]

The lender owns the property though, so THEY are in negative equity once the LTV level is breached. Pretty sure that's how it works but I'll stand corrected if anyone can prove otherwise...

[spadetownboy]

*Bob* Wrote:

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> I'm a musician and have a lovely house in ED..

> that must really get up your nose, eh Alan?

yeh and i work for the beeb as a sound engineer,so you could say technically im a musican as well,double whammy.

[Alan Dale]

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[cookie]

The Grimsby Evening Telegraph? You don't hear that mentioned much on the forum. I thought I was the only person in SE22 from around those parts.

For anyone who's interested, enjoy reading it here

[Alan Dale]

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[Polly D]

*Knocks on the board room door*

*Hope this isn't too off-topic*

Sat opposite girl on tube last night who was telling her friend all about how much money her other half had made by selling his four-bedroomed house and how they were going to buy a big gaff together in Balham and be mortgage free and oh isn't life wonderful and oooh look at me and my life ... and then the friend asked where the house he was selling is and she replied "Oh East Dulwich, but who wants to live there?!" and friend nodded 'wisely'.

Naughty silly girl

[Jo]

Forgive me for butting in... Maths schmaths - I don't much care about investments. I'd just like to have a house to live in and maybe raise children in. We bought a couple of years ago and hoped for a flat with a garden, but everything was so small for the sizable mortgage payments, we ended up in a flat with stairs, because it had an extra bedroom. The idea of being able to afford stairs and a garden is just pie in the sky if we want to stay here. And we like it here - we've lived here for five years. But we'll probably end up out in Croydon or somewhere equally distant...

[mockney piers]

How odd, I moved FROM Balham TOO East Dulwich.

They're not wholly dissimilar places. Shabby high streets that have spruced themselves up over the last 10 years, lost something and gained something.

Apart from The Bedford their pubs really are soulless and crappy, supermarket options are worse, and they've more of those amusement type things that everyone hates.

Only advantage it has is Northern Line. But I never felt any sense of community there as I do here, though the barber who was featured in Only Fools & Horses was a top lad.

Not really worth cashing in your pad in ED for. Not sure how they'll upgrade mortgage free either. Prices are bonkers here, but they're absolutely ludicrous over there.

Mind you, it is closer to Chez Bruce!

Sorry if that was too off topic Mr Admin.

What were we talking about again Mr Dale? Harry Potter? You could throw in Roger Red Hat while you're at it, top literature.

[fractionater]

If its gearing you're after to invest in the stock market - then its very easy to do via CFD's... its what I do!

For example, I could have ?10k sitting in my CFD account that would allow me to invest in up to ?100k's worth of nominal stock - long or short, so its not just dependent on a rising market.

Just make sure you use stop losses though to protect yourself

[mockney piers]

If you're hedging everything to protect yourself, then you're only making money on the margins, is that right? What sort of returns would you expect typically?

Judging by my ABN days (I was in risk systems), then losses of several million pounds was the norm.

[AcedOut]

Fractitioner - True, but with CFD's, spread-betting, options, futures they typically have shorter maturities and require margin payments or large downpayments/premiums. With the property market, your lender won't ask for margin payments when you're in negative equity! That's the bonus.

Property is also significantly less volatile, albeit less liquid (particulary in a down market with people not selling and riding-through neg-equity). To cover the large vol on leveraged market trading, you don't want your stop losses too close, else you'll lose on too many occasions.

Of course, there are pros and cons in both. Unfortunately in my job I'm not allowed to trade these things, so property is my only option!

[AcedOut]

mockney - bid/ask spread if you're fully hedged, yes, although most equity derivitive trading desks will make their money in volatility, so they put a spread on the volatility rather than the price and trade the gamma. Volatility is what typically kills the retail trader.

I think fractionater is talking about open positions though, so it's a fully exposed delta trade.

[Huguenot]

:))