Monday, 4 February 2013

Home-Owner-Ism: There's always a happy ending.

Spotted by Bob E in The Guardian:

In autumn 2007, in the days just before Northern Rock began to crumble, Nick Scott and his fiancee Hayley Thomas bought a three-bed semi in Warrington, Cheshire. It cost £100,000 but needed another £8,000 for renovation. The words "credit crunch" were yet to enter common usage, and lenders were still being easy with mortgages. The couple managed to obtain a 100% interest-only mortgage on the property, which set them back £450 a month in repayments.

Nearly six years on, the property is worth substantially less than the couple paid for it. At best, Scott thinks they could get around £70,000, which would leave them £30,000 out of pocket, an amount he says there is no way they can afford.


So, really up that famed creek of legend then..?

Fortunately for Scott, a combination of falling interest rates and a buoyant rental market came to his rescue.

"I decided to make the best of it by renting the house out. It cost about £350 administration fee for the lender to agree for me to operate it as a let, but it's now getting £550 per month. Because the base rate has been at 0.5% for almost three years, my monthly mortgage has been only £150 for all of that time. The rental market is really strong. I didn't even have to put a board outside – the property went on the first viewing," he says.

10 comments:

formertory said...

Am I reading that aright? It still it doesn't occur to them to make capital payments as well out of the rental receipts? Fuckwits.

I know there's an argument about not paying back debt which is cheaper than inflation, but if you're under water, upwards is a good direction to swim in.

Lola said...

FT - yep. Unless he's making capital repayment he'll be f****d when interest rates rise - unless he's on a full term tracker at a very low spread...

. said...

We aren't told what he's doing with the spare capital. That's his look-out.

The strong rental market and weak sales market are linked. People in negative equity who don't have to move aren't selling to those who would buy at a knock-down price.

I will be in the same position at some point. I can't afford to sell my flat until the next big bubble is just about to pop. So I'll rent it out when I decide to move on. Which means that the eager first time buyer won't get a chance for a while.

BE

Bayard said...

BE, well, he's not saying "and I can afford to pay down the capital as well" and if he's not doing that he's going to get a below inflation rate of interest on the money.

Lola, he'll be f****d, too if he's not putting money aside for when his tenants decide to up sticks. Maybe he'd get another one as quickly, maybe he won't.

Lola said...

Bayard - Quite. Single property rentiers are risky becauee of void periods. I reckon thye can lose about 1 month / per annum on average, although for reasons other posters have made the rental market is bouyant. Plus he's caught for repairs and insurance.

Mark Wadsworth said...

FT, I think so.

BE, yes, nequity is Home-Owner-Ism's secret weapon for reinforcing itself :-)

B, I'd guess he's spending the profit on paying off the mortgage at his new place.

L, with a monthly profit of £400, he looks pretty safe for now.

Graeme said...

he is really renting out a place in Cheshire for £550 per month. Tell it to the fairies.

Graeme said...

unless it is the local authority / crap buyer

Mark Wadsworth said...

G, that does seem an exceptionally high rent for a £70,000 home, but perhaps he's getting Housing Benefit.

Lola said...

MW as property values are declining he's losing money - total return = capital gain / loss + rent. Mind you if he holds the thing for long enough that all evens out owing to inflation...