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House Price Crash Forum


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Everything posted by London-loser

  1. He does... unless he ain't earning any commission and then it's every man for himself.
  2. Hi Spline, I am fascinated by this "affordability" argument for the current level of house prices being sustainable. I don't believe it myself but it is fascinating. I think the whole repayment v interest-only issue really skews this argument. For example, someone who takes a £100k mortgage (25 years at 5% - fixed, to keep the argument simple): Interest only - £5k mortgage payments per year. At 19% of gross income that means they have a salary of just over £26k (roughly the UK's official national average, I think). Repayment - £7,015 mortgage payments per year (according to Charcol's calculator). This leaps to almost 27% of the same person's gross income. My point is that the increase in IO mortgages (hopefully we all agree they are more popular today that in 1989) can make it SEEM like there is no "affordability" problem while the fact that people feel they need to take IO mortgages rather than repayments suggests to me that there absolute IS an affordability issue. I can understand that this "affordability" measure is of extreme interest to mortgage lenders, since it tells them how able people are to repay their mortgages (a crucial factor for their business model... they don't actually care though whether the borrower "owns" the property or merely "rents it from the bank"). I'm not really sure it tells the rest of us THAT much. In the above example, knowing that this guy's mortgage costs are 19% of his salary is not entirely helpful without knowing that it is IO now while it would have been repayment in 1985. The two are not comparable and the lenders help to confuse the market by suggesting things are OK on this basis. I also think the affordability, since it is based on AVERAGE mortgages and AVERAGE wages, confuses the issue in other ways. I think how affordable property is to RECENT purchases gives us much more information than this generalisation. For example, someone who took out a £20k mortgage 20 years ago is probably sitting pretty with some nominal fraction of their current salary going towards mortgage payments (assuming they haven't re-geared, MEW-ed etc). However, the guy who bought the identical place next door last summer is in a much tougher position. I would say this last guy tells us much more about the sustainability of current house prices (since nobody is buying at the prices of 20 years ago that guy's mortgage repayments tell us about his ability to consume, the security of the lender's loan and other issues but not much about whether house prices are sustainable). Similarly, the guy who bought 20 years ago can trade up without a major affordability issue even when house prices are at bubble levels. As he can trade bubble equity for bubble equity (say he sells for £100k and buys another place at £150k) his affordability is still OK... but a new buyer (FTB) taking that £150k place? His affordability will tell us something very different. Also, the fact that FTBs are being priced out of the market tells us a lot about "affordability" even though it is not reflected in these "official" affordability numbers. All-in-all, I think it is an interesting thing to look at but I thikn the lenders are using it hoodwink people into believing there isn't a problem.
  3. I haven't read any of this thread but I wonder if it might entail ENDLESS, masses of foreign-looking immigrants... driving down wages to negative numbers... all living 500 to a room... but paying £1m each to the rentier class landlord superhero?
  4. I think it has been said on this thread that job security is lower today rather than higher (as BraiNclamP keeps telling us, there is an endless stream of Polish people who will do our jobs for half the price), which also leads to serious questions about "rapid prospective earnings growth" - earnings growth is running at about 4-4.5% at present (and falling). Low inflation has gone hand in hand with LOWER prospective earnings growth. Nickell only seems to see one side of this coin. The REAL interest rate is indeed lower than historically - but NOT half... and this is not necessarily a permanent thing. The rise in two salary households doesn't have that great an effect - if Britain's GDP rises by 3.5% then we are 3.5% richer, whether this money is spread across two people per household or just an old fashioned "breadwinner" (man and wife earnings £30k each or man earning £60k) there is no more money to spend on property. The graph of GDP versus aggregate house prices shows exactly the same boom and bust pattern that the individual house-prices-to-incomes graph does. Tim Congdon of Lombard Street Research used these exact arguments in his debate against Bootle a while back. He concluded these issues could be argued to have pushed the "stable" house-prices-to-incomes ratio up from its long-term average of about 3.6 to perhaps 4. Presumably Nickell is just massively more bullish about these effects.
  5. A good summary I'd say... and certainly something for the bulls to latch on to.
  6. Spline, Can I suggest you start a separate thread on the subject - perhaps with your graphs etc to show what you mean? The whole "affordability" issue is interesting and has questions/issues of its own. I think it is worthy of its own thread and you seem to raise some interesting points.
  7. It doesn't take much to make the bulls happy these days does it?
  8. I'm very confused. If you look at Charcol's Mortgage Calculator: Charcol Mortgage Calculator For a £100k debt to be repaid over 15 years at £600 pcm you need a fixed rate mortgage of 1%... as far as I'm aware these do not exist yet. Or has your parents' BTL genius pal taught them the joys of interest only mortgages? If so, they will NOT own the second property after 15 years - they will gain (or lose) the difference in the house's value over 15 years though (which COULD be considerable). As long as you make sure they are aware of the costs/risks related to buying/selling, maintenance, insurance, potential voids etc not to mention the hassle of being a landlord and the potential for significant capital loss then maybe you should leave them to it. You might, though, want to point out that £600 pcm on a £150k property is a rental yield of just 4.8% - marginally above the base rate, probably below their cost of borrowing and so it opens them up to a pretty healthy risk of potentially poor/unexciting returns over the next 15 years. Does their friend have a property to sell them by any chance? Or am I being TOO cynical now?
  9. Casual Observer, This is essentially the problem - a lot of landlords ARE buying at levels that really shouldn't pay and then renting them to these guys who can't afford to buy them for less than they should if they cared about getting a good return on their investment (they are relying on ongoing capital gains or they are "in it for the long term" so they don't seem to mind that the investment is not paying off now). For example, my rent would yield less than 5% on a similar property (even after allowing a near double digit discount on the current asking prices). With the base rate at 4.5% and all the other assorted costs/risks of being a landlord it makes zero sense... but the prices have been driven to where they are essentially by BTLers who know they will win in the "long term". I think they are "Greater Fools"... time will tell.
  10. As I understand it, it is specifically against the rules of this website to make commercial postings such as the landlordtrader post. This newbie made zero attempt at adding to the debate here and just advertised her site. She took a liberty... and shouldn't really expect a better response in my opinion.
  11. Comedy comments from my region: Jeremy Leaf - main RICS spokesman (and my local ESTATE AGENT): Meanwhile, down the road, James Scott-Lee said: Who COULD he mean?
  12. If the house-price-to-income level is currently about 5.7 times and incomes grow at an average of 4.5% a year (the MPC has said this level of income growth is consistent with its 2% CPI target) then it would take eight years of flat prices to hit a ratio of four times incomes. Ten years would take the ratio back to a little over 3.6 times and it would take more than 13 years to hit 3.2 times. Optimists (for example, Lombard Street Research) argue the long-term house-price-to-incomes ratio has risen to about 4 - on the back of things like slightly lower real interest rates etc. However, it is reasonable to expect an overshoot (even if you agree the ratio has taken a permanent rise) and with the economy slowing as it is at present we might find incomes do not grow by 4.5% per year on average. This stagnation argument also requires "everything else to go right" too - so the UK economy is not hit by any shocks like Hurricane Katrina, further oil price spikes... and, having delivered (as Gordon Brown boasts) "the longest period of unbroken economic growth since records began" it will now delivered a further decade or so of unbroken growth. Truly an economic miracle that will see Gordon Brown go down in history as the country's greatest ever chancellor. A whole host of things that COULD go wrong mustn't if the stagnation theory is to work out... in short, we need a Goldilocks scenario for the next decade or so. All a little too convenient I would argue.
  13. TTRTR, That is interesting info. One question though. Are you putting in these offers because you think you can get them (10% or more below asking) or because you think that is what the property is worth? I ask because it seems your "on the ground" info broadly tallies with what other people here say - you can't find properties at prices you are willing to pay (and you are obviously more bullish than most here). You've said before that there just aren't enough properties available but I suspect you mean there aren't at the price level you want. If the property is genuinely "worth" £595k, based on solid rental yields etc, (unlikely I'd said since everyone asks more than they think the property is worth these days, expecting to get beat down) then all you are telling us is that people aren't desperate enough to offer you genuine "BMV" properties. No surprise there. Or, as I said, you're confirming what we already believe - that sellers are holding out for unrealistic prices. The general consensus here is that sellers will blink before buyers do.
  14. Update: Property priced at £230k has "SOLD". Property priced at £225k is "UNDER OFFER". Another one priced at £220k, not under offer or sold it seems. According to nethouseprices: No property sold in my street this year (or at least none recorded yet) despite plenty up for sale all year. Next street along one sale all year, I believe a two bed (one bath) for £185k (asking prices currently £195k). Third street - one sale (I believe two bed, two bath) for £210k (current asking prices above). If rented this would give a rental yield below 5% (ignoring furnishing costs, acquisition costs etc). That's two sales recorded so far this year in three streets with plenty on offer for sale. I'll just have to wait and see what the SOLD and UNDER OFFER places fetch.
  15. Hi Rigsby, I agree - you'd probably need to be a little mentally unstable to have answered "yup, £250k on the nose". In today's market, if the EA doesn't seem pizzed off with your offer you probably offered too high. What I'm saying is that just because he hasn't crystallised any price falls that doesn't mean they haven't happened. For example, flats like where I live were on at £235k last summer, now the asking price is £220k or so, none have sold, the average discount to asking price has widened and the guy who was asking £235k has now rented the place out (he cut the price to £200k eventually and still didn't get a buyer). So, is his place worth: a) £245k by now £235k, the same as June 2004 c) £220k less an average discount of perhaps 6-7% (£205k-ish) d) The £200k he couldn't get over the year or so it was on the market e) whatever he can ACTUALLY sell for rather than leave it in the estate agent's window The fact that he has taken it off the market does not mean it has not fallen in value. Similarly, the fact that the developer won't entertain your offer, while not very surprising, doesn't mean it wasn't a fair offer (I just don't bother to offer what I think my flat is worth and cut out the bit in the middle... where the EA moans, the vendor moans and no deal gets done).
  16. Rigsby, Without wishing to be rude, the fact that this developer will not give you such a massive discount on his asking price is not much evidence for there not having been any price "crash"/correction etc. If I understand correctly, he has five detached places (I'm assuming much the same) and has managed to sell one for £160k. It is a little hard from that information to decide what prices have done - up, down or sideways? He can leave them in the EA's window and tell himself he has £1m of property for as long as he likes and this offers zero evidence for or against a property "crash". If he sells them for £250k each then that does provide some evidence until such time the actual "value" may have gone up or down by 10% (I have no idea and seems perhaps you don't either).
  17. Is that because you think the prices are too high by any chance?
  18. Is that the trick Kirsty and Phil seem to fall for nine times out of ten on Location, Location, Location? I suppose it's easy enough when you're spending someone else's money.
  19. I went to a friend's "luxury apartment" recently and had the "luxury" of listening to his upstairs neighbour taking a pizz.
  20. The intelligence/astuteness of a lot of investment bankers is often overstated.
  21. Unfortunately FaTB, this is problem, people who might well have bought a good investment back in 1997/98 (or whatever) have now been so mesmerised by the property market (and its route to endless riches) they have abandoned basic investment analysis (if they ever used any) such as "does this property pay its own way ot am I subsidising it" etc. Dogbox's friend who didn't like "losing money every day" is simply opting to lose money in bigger chunks less frequently (I would argue you still lose money consistently, you just don't realise it... until the latest Land Registry report comes out, the place over the road sells for less, your surveyor tells you it is worth less etc). The illiquidity of the property market just allows you to hide from reality more easily than the stockmarket.
  22. I think the quote is (some version of) economist John Maynard Keynes saying that: "when the facts change, I change my mind". Keynes quotes etc I suspect there might well be a lot of such thinking going on, dogbox. It sounds like your friend may well have continued to gear into his never-ending money machine... only to find out that things are a bit more complicated. You might well find that you "panicked early" as the good Dr Bubb suggested you should rather than panicking AFTER everyone in the BTL world agrees it is time to panic.
  23. And, thankfully, since those places never sell they will never drive down the average price of London properties... which is nice. I predict this new slum landlord world will be centred entirely on the Mozart estate in Queen's Park. The rest of London will be an unoccupied wasteland.
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