Saturday, Aug 08, 2009
End of cheap finance
The Times: Housing downturn will leave property the domain of the wealthy, says agent
"The recession has caused a huge shift in the housing market that will lock out first-time buyers and amateur landlords and leave only wealthy families, wealthy investors and Middle East billionaires with a chance of buying." Even though the source is an estate agent, I have to say that the analysis makes some sense and perhaps even goes some way to explaining the seemingly absurd property price rises as we look at an economic abyss.
Posted by quiet guy @ 05:46 PM (1006 views) Add Comment
12 Comments
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1. Poacher said...
Interesting article and I agree this is where the trends are taking us, although I think BTL is the main culprit, not the downturn.
Noticed the link to the calculator that tells you whether it's cheaper to rent or buy. Flawed in so many ways I can't think where to begin...
2. happy mondays said...
This would keep the people happy ! NOT ! There would be riots (hopefully) before you could say Gordon Brown is a muppet ..Even the sheep of Britain would not let there children / grandchildren grow up without the thought of owning a very small chunk of Britain, that they could call home !
However, i say bring it on, as we need a leveller trigger, & this could be it !
3. tyrellcorporation said...
Nice one Labour, a wholesale return to Victorian landlords and the landed gentry. It would seem any pretension at being on the side of the poor and needy has been sidelined in favour of personal gain and greed, ho-hum!
4. Popeye1 said...
This is pretty much the historical average though. People have confused the 1980-2007 period as the norm. I remember growing up in a small village in Scotland where the majority of people lived in council housing. Prior to WW2 most people rented and prior to 1900 the houses were owned by the local noble/aristocrat.Council housing (which is routinely knocked nowadays) probably helped to keep Socialism out of the UK. We could be entering somewhat of a perfect storm with low tenant rights leading to poor housing and high costs of houses mean people can't afford to buy and escape. There is hope however. The fact that we have democracy tends to suggest that the downtrodden renters will unite to get better rights and less property will enter the market causing houses to fall.....
Could be interesting times.
5. gone-to-colombia said...
And yet rising house prices are a good thing.
6. uncle tom said...
So the smart guys with spare cash are going into BTL - yes, sure they are. Sure, they'll let houses out at meagre rents, even though they could get better returns investing their money elesewhere...
..if people can't afford to buy, they can't afford a rent that's going to give the landlord an attractive return either..
7. mark wadsworth said...
I struggled to make sense of this article.
@ HM, TC, maybe it would be a good thing if we went back to the status quo of a century ago when 90% of people rented, that would make introducing Land Value Tax much easier as it'd be clear who the winners and losers are. But then again, they (whoever 'they' are) would just start another 'Great War" as a distraction (which was their response to 'The People's Budget' of 1909. A coincidence? I think not.).
@ GTC, I am amazed every day at the articles suggesting that rising house prices are not just A Good Thing but the Be All And End All of government economic policy. Who cares about unemployment, meagre interest rates for pensioners, high taxes on incomes, restrictive planning laws, deficits, debt-fuelled spending etc, it's house prices that matter!!
@ UT, that puzzled me as well. Unless the government is going to keep interest rates on savings at 2% or 3% forever, why would wealthy people rush to buy property to let out? If the landlords are making a profit (over and above their interest cost), then by definition, the tenants must be able to afford a mortgage on the same property.
To put that mathematically:
A property is an attractive investment if rent > interest cost.
If tenant can afford rent, and rent > interest cost, then
Tenant can afford interest cost.
8. mander said...
So Savills cares for the first time buyers, I do not think they even sold a single property to a FTB.
FTBs do not need negative equity, amateur landlords are not needed, Middle East billionaires buy in Kensington where FTBs are not thinking of buying and equity-rich investors need to be taxed by making the interest on debt not deductible and not looking to build tax free equity.
Tax free equity policy has created the so called: housing shortage. I am sorry but I will keep renting.
9. taffee said...
wealthy investors will go where the hot money goes as property keeps falling and proves a non-investment they will disappear into
other things
10. will said...
Maybe they're right. Let's all rent for life and put all the risk (maintenance and borrowing) into the hands of Landlords. Most of Europe rent and they are not complaining as market forces will set limits on rents. Margaret Thatcher's idea of home homeownership for all may be coming to an end.
11. easybetman said...
@Mark,
Interesting though... does that also mean everyone on LHA can afford to have a house, and rather for the LHA to go to landlord, the LHA goes to the bank...
12. drewster said...
mander @ 8,
You're right that middle-eastern billionaires mainly only buy in prime central London for themselves, BUT.....
Wealthy investors from all over the world perceive London property (and land in the UK in general) as a very safe long-term investment - and they are right. Land and property will go up and down in value, but at least in the UK if your ancestors bought land 300 years ago, it would still be in your family today. The same cannot be said for France (the French revolution dispossessed the landowning nobility) or Japan (losing a world war and an empire) or indeed most other European countries. The situation is even less stable in the middle-east, where land rights are ill-defined and governments more corruptible.
If you look at the owners of major commercial property in the UK, there's often a blandly-named company with a British name - Songbird Estates, Liberty International, etc. - but behind that company there are all sorts of investors from all over the world. As a simple example, Liberty International (owners of the MetroCentre and the Arndale shopping centres) is a public company listed on the LSE; 3.6% of their shares are owned by the Singapore Sovereign Wealth Fund, another 4.5% is owned by the South African pension fund.
Next time you read a headline about wealthy foreigners snapping up UK property, don't just think prime residential - think of shopping centres, office blocks, hotels, restaurants, etc. Every time you shop, eat out, stay in a hotel, or go to work in an office, some of your money is going towards unknown investors, quite possibly overseas.