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Posts posted by London-loser

  1. I can't see that this has been discussed here but page 2 of today's Financial Times quotes a report from Savills (the "upmarket" estate agent) that predicts house sales in the UK will be at their lowest levels in 2005 since 1974.

    Obviously the LR figures say Q3 2005 sales were 15% down on Q3 2004 numbers (which I think were low anyway).

    Savills predicts 930,000 sales in 2005 compared with an average 1.25m (so 25% below average). I believe the BOE has said it feels 96,000 house sales per month (1.15m per year) is consistent with flat prices.

    Savills apparently predicts 5% falls in house prices in Northern England and Wales with flat prices nationwide and only 1% growth in 2007 (all provided consumer spending and employment holds up). Prices will rise 3% in 2008 as the stagnation works its way out... boosted by Sipps etc.

    They think London will grow by 5% next year!

    They suggest you can get a 20% discount from housebuilders in regional cities.

    Apparently Knight Frank will put out a slightly more optimistic (but still downbeat) view later today - saying 2005 will see the lowest number of mortgages taken out since 1996.

    Is Savills officially the most bearish estate agent now?

    Now where is The Little Guy to tell us 2005 has just gone back to a "normal market"?

  2. The way I read it, ES is saying that the slowdown in the pace of price rises has bottomed.


    He places a great deal of faith in what the indices tell him... and then says we've already had falls (as suggested by just one index but contradicted by all the others). Could this be a result of desperately WANTING to believe we have reached the bottom?

    I would have thought prices need to fall before we can reach the bottom?

    If prices keep going up (as the majority of the indices suggest) then surely the "bottom" will be at a higher level than the top?


  3. I know nothing about your area, so can't really comment on it in any detail. But I can of course comment on my area. 6.5% (that's what I'm buying at the moment) is a good yield for London. The economy in London isn't as vulnerable to local factories or industries closing down like the Rover factory etc. So there isn't the same element of risk to employment and economic growth associated with regional locations.

    So I think what you can get is great, but may also be subject to it's own potential problems which are too great for my liking & may explain why the yields are higher there.

    Hi again TTRTR,

    I hope by now you realise I haver no problems with landlords in general (I even believe they deserve to make money for what they do!) and nothing against you personally (I would agree with enworb that you seem to be at the smarter end of the business - keeping away from the mass market etc).

    However, I would point out that the London economy wasn't as vulnerable to local factories and industries closing down in the late 1980s/early 1990s either... but the London property market fell further and faster than regional property markets (I know, I know... it's different this time :D).

  4. AS,

    I think this may well play out.

    My personal plan is to "get on the property ladder" when I think there is some sanity in the market. Until then I plan to rent and save/invest to increase my deposit etc and potentially leap over the bottom rungs of the ladder as you suggest.

    As far as I can see, prices of "typical" FTB properties have been driven up to very high levels by "investors" who don't mind that the rental yield is now very low (below 5% in my case).

    If prices fall to more realistic levels I will look at buying. If not and, as is the case at present, prices are high but volumes are down and there is a distinct mis-match between supply and demand of property we will see many FTBs still priced out of the market but less and less NEW BTL buying (their net new purchases are the only thing really sustaining current price levels in my opinion).

    This in turn might mean the traditional "property ladder" collapses. Those FTBs who did max out their debt do not build up equity (with no notable price rises - and perhaps the stagnation theorists' seven/ten years of flat prices) nor benefit from notable rises in income so they are "stuck" on the bottom rung. And if BTL landlords continue to prop up the market by buying duff yields and increasing their gearing yet further then, without further capital growth, they will be unable to release these owners of FTB properties to move up the chain.

    I think it may well (by no means certain) be that astute potential FTBs (with good earnings, good deposits, good investments) can then provide liquidity to the next step up the ladder... where it may in time become yet more of a buyers' market even if the bottom rung dries up.

    I have been wondering to myself recently whether the traditional property ladder exists in the way it used to. I'm not sure it does. And to stretch an analogy, perhaps the ladder has slipped.

  5. To add a bit of backing to the 'rent is cheaper than buying' argument...

    Say you were to have 100% mortgage at 5% for current market on the house you own or pay rent to a landlord. Which would come out as cheaper?

    For me in Cambridge area, a mortgage on £150,000 house would be £876 a month repayment (£625 of which interest). Renting the same place would be probably £700. Therefore it is still cheaper to own a house than to rent IF house prices stay level.

    There are some additional aspects like maintenance, but what about another scenario. Say mortgage was only £110,000 on the same house (with capital growth and deposit making up the difference). Mortgage would be £655 (£455 interest) and therefore around £250 per month cheaper. Would the £40,000 lump sum be able to generate £3,000 each year after 40% tax and most of it out of an ISA? That would be hard.

    I think my point is, if my area's rent prices are typical then renting is still more expensive than owning, and only a house price drop of more than 4-5% a year will swing it. If house price crash does play out then 4-5% will be easily surpassed but I'm not sure I buy the argument that rent is cheaper than buying yet.

    I pay £10k per year to rent a property "worth" ABOUT £210k (actually rather difficult to value these days since there are few properties selling to compare against, although several for sale).

    An interest-only mortgage (100% loan at 5% as suggested) would cost £10,500 and an "old economy" repayment mortgage would cost £14,732 (obviously ignoring all the other costs of home ownership).

    Your conclusion that it is "cheaper" to buy than rent is presumably based on the idea of "buying" interest-only.

    I'm old fashioned and believe that taking an interest-only mortgage does NOT equate to buying a property...

    You are essentially renting from the bank (admittedly you can potentially - roughly - fix your rent for 25 years forward, dependent only on interest rates plus maintenance costs etc) and you have a "future" on your house's price attached. At some point you still have to actually BUY the property (or sell it and sort out your accomodation elsewhere, or re-rent it on another interest-only deal etc).

    Renting v buying can only really be compared on a repayment basis. Renting v IO is a different thing (not necessarily more attractive than renting anyway as this thread shows).

    Also, the above ignores the effects of the mortgage's gearing (the £150k house above only has to fall 2% per year to wipe out the £3k difference between renting and an IO mortgage for £110k). And getting £40k into ISAs is not THAT difficult (a couple who put £7k each in an ISA on 5 April and then again on 6 April have £28k in ISAs... the worst case scenario is that it takes a couple two years to put £40k into ISAs) and it assumes they haven't been saving over time to get the £40k deposit/investment. Within ISAs a £3k return on £40k invested (7.5%) isn't THAT difficult.

    Going back to my own personal circumstances, I reckon the "value" of the property has dropped £10k or so over the last 12 months, which wipes out the £10k I paid in rent even before my landlord pays his mortgage. Net net, if I was being quite optimistic for him, I'd guess he made £0 last year for being my landlord. I'm still renting because I can see no reason to believe the market has swung back in my landlord's favour (or is going to any time soon).

  6. I'll take it that means YES, you do know it is sheer fantasy.

    As I'm sure you are aware, the "money out of a hat" is in fact compensation for the risks involved in being a landlord.

    I would say scant compensation... but that's because I think prices are topped out and the capital gains you got IN THE PAST (that made you fall in love with property to the exclusion of all other opportunities) is a thing of the past.

    If you just pay yourself your own capital in the form of income (for example you get a net cashflow of £1k from the rent but the capital value drops by £1k) in what way is it "money out of a hat"?

  7. The yield has nothing whatsoever to do with the borrowing cost, 100%, 80%, 90%, 85%, 75%, nothing at all.

    Borrowing costs are incidental and dependant on each individual, so the yield is all that matters.

    So a yield of 6.5% is purely the relationship between the rent and the value of the property. I just showed you a 9% yield on this thread, why ask me to show you a 6.5% yield?

    Even so, you seem to get the point that as long as the yield exceeds a persons borrowing cost, it is money out of a hat.

    I can get 5.09% on an 85% mortgage and 4.94% on the remaining 20% (5% extra for purchasing costs), so that equates to 5.061% on 105% finance.

    As you say, you buy the place entirely with borrowed money, it rents in excess of the costs, why aren't I buying it?

    1/ I've got 8 of these already (period places actually).

    2/ I prefer better places because I don't want any voids.

    3/ I am buying another one of these money out of a hat properties at the moment, see my other threads.

    Apart from those things, I would buy it.

    Now the question after your interest has peaked, why aren't you buying?

    A fair reason & it'll be the same reason from Marina I am sure, but bear in mind that you have a very good chance of being wrong on that reason.

    as long as the yield exceeds a persons borrowing cost, it is money out of a hat

    This is sheer fantasy TTRTR... I hope you know that and are just winding people up.

  8. What this boils down to (which everyone is realising) is that when pricing assets VS LIBOR (read interest rates) you have to factor in risk.

    A well decorated spaceous flat in a nice street in Chelsea would be AAA. No problem filling it, good professional tennant with good credit history, no buggering around. Trades a few ticks above LIBOR.

    A dodgy ex council place in a rough area with crackheads on the street not so good. Bad neighbours, tennant likely to leave at a moments notice, takes time to fill....junk bonds. Trades 400 basis points over LIBOR.

    There should not be an equal yield expected for all rental properties across the UK, but the level they trade at will always be related to LIBOR (or base rates).

    Hi JP,

    I have no problem with the concept of requiring a bigger risk premium the more "marginal" the investment (hence my initial comments were that it looked good "on the face of it" not knowing for example whether you would feel safe living there or fear being raped on the way home every night etc).

    My issue with the BTL model generally at the moment is that it seems to suggest there is minimal risk premium required. So for example I would argue that even an AAA property as you suggest in Chelsea SHOULD trade at more than "a few ticks above Libor" (especially if the actual cost of borrowing is above Libor, as it is for BTL investors). Then a sh1tpit on a sink estate where you do fear rape every night would be priced to offer a much higher risk premium.

    This "zero premium" view, for example, ignores the general risk to property if the UK economy goes into a prolonged recession, which would hit even AAA Chelsea properties. The BTL market as it is today basically says "oh, that'll never happen, I'll price that risk at £0, the washing machine never breaks down in Chelsea so Ill price that risk at £0, tenants never create wear and tear in Chelsea so I'll price that risk at £0... etc, etc".

    My view is that ALL property investment SHOULD offer a decent risk premium (to cover these general risks) as well as extra risk premiums to more specific ones. But "investors" who have fallen in love with the property market (understandable following 13 years of positive economic growth etc) have driven down the generally risk premium they desire to almost zero (usually on the back of HOPE about the future rather than anything concrete).

    I'm afraid, as much as property bulls might try to distance THEIR market, this has been done over and over again in assorted asset markets... and eventually the market teaches them that these risk premiums exist to price genuine risks and that they shouldn't be ignored (the Long Term Capital Management hedge fund collapse, for example, came about because Nobel prize-winning economists decided to dismiss - price at £0 - the risk of events that they thought wouldn't actually happen and the market proved them wrong).

  9. :) ha ha ha. I can't deny what you are saying. Yes they are my opinions, i just looovvvee baiting you guys. You are right, they are my opinion and you are right, that is what i am going on, but i am basing them on what the market currently feels. Opinions do change and they will continue to do so, i thought rates would come down next week, but have changed as the facts have also changed.

    The only thing we can do is wait and see what happens to see if i am right or wrong. I am not a city economist but i do work in the markets, and i do own 2 houses, but my BTL is actually doing very well. On the contrary we are also seeing prices start to rise in our area, as they are in London in general so we will have to see if all the rubbish i spout is right or not.

    The problem with this forum is that you guys are quite happy sitting there agreeing with each other that house prices are going to dump but don't like it when a bull comes into the forum because i don't agree with you, no matter what arguments i give. Is it a debate or more of an anger management group? Although i do get annoyed with some of the worthless tripe that is said, especially tripe about economics that people obviously don't seem to understand.

    Right i am off to do some more hero worship!!!!! :)

    Hi ES,

    I very much welcome intelligent bullish posters (the yah boo stuff really gets tedious though) and agree the site will be better for it.

    This might sound strange to you but I don't much care what the market CURRENTLY feels. I based my own decision (to rent not buy even though I COULD buy) on my confidence that the market is currently wrong. Changing your mind AFTER the event doesn't make you much money (you need to change early to be positioned before the market moves).

    For example, I believe (if you can be bothered to dig through my past postings - I can't) that I told TTRTR late last year to give up on his obsession with interest rates movements because they were not going far in either direction and would therefore not play a major role in the market over the next year or so. There has been a great excitement about how the 0.25% cut we had in August would boost the market, I really doubt it is going to have any major long-term effect.

    The UK property market at present has some serious issue to contend with as far as I can see and a slight cut here or there (especially if combined with deteriorating economic conditions) is no panacea.

  10. Let's see, the only reason that comes to mind for me is that it's so unpopular with tenants, that the yield is actually 6% or less when applying voids to the equation.

    So what would you lot rather have, a 6.5% yield and ALWAYS full, or a 9% yield and endless viewings for prospective tenants to constantly reject your place?

    Me being in Sweden, could only put up with the first option above (do I need to explain?). I imagine that even though you lot are local vs. me, you would prefer the 1st option too.

    Please correct me if I'm wrong there.



    You seem to have shot it down yourself by pointing out that the place is actually a sh1tpit that nobody wants to live in (as I alluded to above). Nice one.

  11. TTRTR,

    Certainly on the face of it (assuming it doesn't have some horrendous problem to justify the "low" price) that looks pretty [email protected] good... and a massive anomaly I presume you would agree (there must be some reason why you mess around with 6% yields or so if you can get 9% easily).

    Now... if you can just convince my landlord to drop the price to give a 9% yield (he'd have to almost half the price) you'll have turned me from a renter to a buyer!

  12. Guys all i do is give you the facts and what the intelligent market economists who are actually paid to do this job and who usually generally get it right are saying. Guys like Apom come in spouting rubbish which people actually believe based on what he thinks will happen rather than what the market says will happen and will actually happen.

    The facts are that rates will stay on hold or potentially fall in 2006, barring an inflationary shock (which if you are thinking is oil prices, is actually dissipating) and house prices will rise again in 2006. Whether this is what SHOULD or SHOULD NOT happen is immaterial. The fact is that most of you have gotten it very wrong so far, and so i am betting that most of you will continue to get it wrong. So shoot me for putting my money on the favourites rather than the long-shot horses.

    I will be dragging up all of these conversations next year when i am proved right, and i hope if i am proved wrong you will do the same, i am quite happy to eat my hat if proved wrong.


    I think, if I might dare to say so, that your are a little overconfident in this post.

    You say "all I do is give you the facts"... well the "facts" you have given us is that most economists (of 44 asked) THINK rates will come down next year (you'll see from my earlier post that I don't necessarily disagree with this). This isn't really a fact... more a consensus of opinions.

    I think that if you rewind to last November and look at what economists' consensus opinion was for end 2005 it was not 4.5%.

    So, let's not get carried away, the fact you have given is the fact of economists' opinions (not quite on the same level as "the sun rises in the east").

    You also seem to take this economists' consensus as "the market" whereas in this thread you can see what "the market" really says - interest rate futures ARE pricing in higher interest rates next year rather than lower. Ignoring the market as a whole and focusing on just what 44 economists say (perhaps because it agrees more closely with what you think) is not necessarily the best way to go.

    Similarly you state as "fact" that interest rates will fall or be flat next year and that house prices will rise. Sorry mate, these are OPINIONS... and not necessarily any more valid than anybody else's opinion. Just saying they are facts does not give them any more gravitas.

    Your apparent superiority is not supported by your "facts".

  13. Interesting Graph. It would be equally interesting to see a similar graph of average mortgage *cost* in relation to earnings - I believe around the time of the peak in your graph when rates were 15%+, the average FTBers mortgage was costing something like 37% of their gross earnings compared to more like 19% today. Wouldn't a graph of cost / earnings be a more accurate indicator of affordability?

    Welcome ohbottom,

    This subject has been covered on this site before (you presumably won't have seen it as a newbie), you can search for affordability... or try this link:


    The problem with "affordability" is that it hides reality in a way that average house prices to average incomes cannot.

    In theory, house prices can go up endlessly and as long as nobody actually buys at those silly prices (with the crushing debt this would entail) then the "affordability" of average mortgages does not change and, hey presto, house prices are at rational levels (at £1m each, £10m each, it really doesn't matter). Clearly nonsense I hope you would agree.

    The fact that someone has a minimal mortgage because they bought 20 years ago tells you little about whether house prices are currently sustainable or not. A lot of people take false comfort from these "affordability" graphs.

    FTBs are not generally buying today (hence HBOs etc will tell you they are priced out in 93% of our towns and cities etc) and many that do buy interest-only. I'd say both are clear signs that houses are NOT affordable rather than a sign that everything is just dandy.

  14. Now i know most of you will disagree with this and you will trot out the usual arguments about why you know more than the professionals but i thought that you might like to see this. Don't shoot the messenger, although it does tally with what i have been saying.

    According to a recent Reuters poll out yesterday of 44 economists, 70% think the next move by the Bank of England will be a rate cut rather than a rate hike, most probably in February. All expect rates to remain unchanged at the November meeting on signs that the housing market has stabilised, but growth remains a concern. 26 of the economists feel the next move will be a cut in the 1st quarter, 3 expect a cut in the 2nd quarter and a couple others at another time in 2006.

    It didn't show the what the others said, but the range of forecasts for the end of 2006 was 3.5% to 5%, so even the worst among them didn't think rates could rise more than 50 basis points.

    It obviously remains dependent on inflation, but as it rose less than expected to 2.5% in September and as core inflation remained low. Median forecasts are for rates to 4.25% by the end of Q1 and remaining at that level for the rest of the year.

    All good fuel for another fantastic house price rally :):):P


    Ignoring the old joke that if you put 12 economists in a room and give them a problem to consider they will come back with 13 different answers, I'd say your comments above are broadly right... except perhaps the conclusion.

    I'm afraid I lost the logical argument as to why there will be "another fantastic house price rally". I can only assume this is a jokey attempt at bear-baiting rather than an intelligent comment.

    I believe Roger Bootle has argued for some time that our economy is significantly weaker than the consensus seems to suggest and consequently we ARE heading for something like 3.5% interest rates (was he the bottom end of this anonymous forecasting session perhaps?) along with a 20% nominal terms correction in house prices (I can't remember if he said end 2006 or end 2007, I'm sure someone else can add this information).

    I'd say that is probably about right - a weaker economy, far from feeding "another fantastic house price rally" is more likely to make vendors, estate agents and vested interests face the rather uncomfortable reality that everyone got a little carried away and prices ran too high and now need to come back to earth.

    I've argued before on this site that summer 2004 house prices were "priced for perfection"... a perfection that unfortunately doesn't exist. The question is, will this perfection arrive or will prices correct? I think any intelligent person who thinks about this dispassionately knows the answer. The real shame is that none of us can predict the timing.

  15. You can talk the figures over till the cows come home, or just go to How much can I borrow and stab in 18000 into both boxes. This will show the major flaw in this argument.

    I'm afraid they won't give this hypothetical couple £170000. In fact they will only let them have £99000.

    I guess they could ring them and beg them to give them an extra £71000, but somehow I don't think they'll get it.

    Free Thinker,

    You've forgotten the "lie-to-buy" option.

    True, you and the missus may technically only earn £36k per year gross, and this will not support the mortgage you desire, but if you tell the boys you actually bank £36k net every month they may happily lend you £170k (and presumably wonder why you are not buying a £1m pad somewhere).

  16. I just did a rather simple thing of typing in £190k (15% deposit made the loan a bit less than £170k) and then looked at how much you need to pay to clear the mortgage in the eight years you suggest - the answer was ALL of your (joint) net income every month for eight years. I wondered how these poor people were going to survive eight years without any money for food.

    Perhaps this is where the £36k monthly take-home pay threw your argument a little?

    If I was banking £36k per month I'd agree that there is little reason to worry about whether you should buy a £190k property today or not.

    With respect, the rest of your argument is somewhat limited too.

  17. I won't buy a house until I find one that is sensibly priced. If the crash NEVER happens, and houses are forever too expensive, I'll look for an investment instead.

    I don't know this for a fact, as I was told this by a friend, but, I think people in other countries actually rent all their lifetime and use investment vehicles to end up in the same position as a homeowner in the UK.

    If people can claim that the house price market has permanently adjusted to a new high level, then why shouldn't other attributes of the economy adjust to take account of this?

    Go on, price me out of the market, I'll still end up at 65 with a stack of cash which will have achieved the same average growth that the housing market has achieved long term. Go on, I dare you. Who is gonna buy your new house now?

    My friend lived in Paris where his father was a diplomat for Unesco, they rented all their life, on retirement his father moved to London and bought a place for cash.

    I fully admit I'd rather buy a place but that is not to say I won't continue to rent if it doesn't make sense to buy (I anticipate renting for quite some time yet).

  18. That's my graph and contains the Nationwide index up to around May 2005.

    The "soft landing" you speak of will barely be noticeable on it because it's a small graphic that shows a long period of data going back to 1952.

    I still think it shows a fair representation of where we are in the housing market, and I certainly will update it when we get into 2006.

    EDIT: On second thoughts, if there's enough votes for it in this thread from bears and bulls to update it, then fair enough. Although it won't be this evening because I'll be busy encoding video clips. :)

    I think it would be good to get it updated... especially if it means brainiacs like this have to find something concrete to argue about.

    Like this you mean ?

    See: http://adam.webline.co.uk/personal/hpg.gif

    Phew, that's that sorted then... the UK housing market is clearly out of the woods now!

  19. Isn't it about time someone updated the 'You Are Here' graph on the home page ??!!

    Its looking a bit out of date to me - first it needs to show about 16 months of a soft landing. Thats the thing that the mentalist bears say can't possibly happen.

    Whilst you're at it, you had better increase the length of the Y axis to record the extra house price growth that seems to be happening at the moment. Oh, thats another thing that can't happen isn't it !!

    That snoring sound is getting louder - more bears going into hibernation me thinks.

    Not a snowballs chance in hell of a crash !!!!!

    Don't the "mentalist bears" say that the stagnation (which requires something like seven-to-ten years of steady prices rather than 18 months of debatable numbers to reach a long-term sustainable position) is a lot of ******?

    I believe I have asked you whether it is necessary to insult everybody each time you post and apparently it is so why don't you go tit-fug yourself with a can of beer somewhere else?

  20. I'm sorry but I don't understand your argument.

    I just hit a couple of numbers in that calculator and it says to have paid off the mortgage and interest in eight years you would have to pay £2,170 pcm = just over £26k per year. Now for a couple earnings £36k (gross presumably) that would be pretty good going.

    I think you have made a rather large assumption about how much rent is being paid on that £195k pad (well below the £1,670 I suggest... probably half that or less).

    So, if you think of renting at say £800pcm and saving/investing £1,370 a month for five years things look considerably different (very conservatively you have probably saved something like £80k rather than the £30k you suggest while maintaining the flexibility to afford to eat once in a while).

    You have also made the elementary error of ignoring the "money illusion" effect of inflation - house prices HAVE fallen by 50% before in real terms in less than five years, the falls were "hidden" by the value of your £1 devaluing instead of the nominal price of the house. With little inflation this time around the falls will be more nominal than hidden by inflation.

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