HonestEA -

IMHO your are all right to focus in the BTL sector as being the key to the great unraveling. Since BTL investors were such a demand multiplier on the way up, it makes sense that they should be a massive supply side multiplier on the way down. It primarily also affects the lower quartile by value as that is where the most BTL activity is and this supports the whole pyramid. Still under 1 million underperforming loans from Covid times on lenders books that have not been repossessed. I still do not see any evidence on the ground yet of a return to industrial scale repossession proceedings by the lenders 1990s style . Maybe it is just pragmatic with problems getting a court dates within 18 months due Covid backlog still being cleared. So if homeowners in the lower quartile by price are likely to be struggling due to the cost of living/mortgage rate double whammy and BTL landlords are struggling in the same supply space , then an abundance of forced sellers should be the natural outcome which is what has been lacking in the last 20 years and why the fabled HPC has not happened. Its only forced sellers in significant numbers that bring prices down in nominal terms and a meaningful rise in interest rates is the only way to produce this. Surely if the shock is big enough there will be more than enough supply of FTB/ lower quartile stock to meet any housing demand at price that is affordable as mortgage rates revert to their long term average of around 6%. I suppose you could try turning the clock back 30 years and ban mortgaged by to let to restore the link between FTB wages and houses prices which would self regulate prices as it did in the decades before. Basically, pre mortgaged BTL, once FTBs stopped being able to buy FTB properties then the whole market ground to halt until their affordability was restored either by rising wages or occasionally by falling prices because everyone needed a FTB at the bottom of their chain regardless of where on the ladder they were selling. What was so bad about that world? If you wanted an investment property to rent out then you bought it for cash. Alternatively , if things went south badly in nominal value terms, you could do something completely dumb like write off all the HTB loans completely to reward all those who overborrowed as a political gimmick to rescue those hard "home-part-owners" who bought into the ponzi but they would never do something as blatant and immoral as that or would they??

It's like it's a pyramid scam. Well yes and no. I am old enough to remember the pre mass mortgage BTL era when FTBs were kings in the market and the only investor buyers were pure cash because you could not legitimately get a mortgage for a residential investment. The market had less extreme cycles back then simply because as soon as FTBs stopped being able to afford FTB type properties , the whole market ground to a halt until such a time as their affordability was restored either by rising wages or sometimes by falling prices. Even if you were selling a mansion you still usually need a FTB at the bottom of your chain to start things off. Thus the link between wages and house prices was maintained purely by market forces and this held for decades up until the financial deregulation of the 1980s and the dawn of the modern BTL era when the link was broken seemingly forever. All assets in a functioning market economy should have some downside risk to keep people honest. The problem over the last few decades is the idea has been firmly sold that there is no downside risk to holding property and thus the market takes on the appearance of a ponzi scheme as mentioned above. With no wages/price link it is bid up to extreme levels with cheap money until the inevitable collapse. I like many here thought it must collapse sooner than it has, but I am reminded of the trader quote "markets can stay irrational longer than you can stay solvent" particularly when there is very strong political will to maintain the bubble at all costs. The key to this will be the what happens to the mortgaged BTL sector. Some feel the rise in mortgage rates will simply mean a rise in rents as mortgaged landlords try to pass the interest costs on to the tenants. The problem that they are very unlikely to be able to do this sufficiently to offset their rising mortgage costs due to the simultaneous cost of living squeeze. The more likely scenario in my opinion is a mass attempted sell off of all marginal/ highly leveraged BTLs which are not the majority but are still a market changing significant number. I mean if you are an affluent middle class person with 3 or 4 mortgages BTLs, would probably make sense to sell at least some of the more marginal ones in order to protect your standard of living. If BTL investors were a significant demand multiplier on the way up which they undoubtedly were, they can also be a significant supply side multiplier on the way down. I see this already happening anecdotally. Yesterday I surveyed a standard modern flat reduced progressively from £175k to £155K without any interest from the sales market. Landlord looking to do a BTL remortgage for £155,000 . I downvalued it to £140K because the last 3 in the block sold for no more than this, effectively taking away his remortgaging option. He told me he had 3 others that he couldn't sell either and the rising costs are such that he is now subsidizing his tenants and is in a right old mess. I appreciate most investors are better positioned than this chap but how many pushed the BTL gravy train as far as they could ?

Unfortunately I am no longer in a position to provide updates from the front line as I have decided to hang up my estate agency boots after more than 20 years and move on to something more challenging. The large corporate EA that I work for has decided that I am suitable canditate to train to be a CML Registered Valuer and therefore have offered to sponsor me through the AssocRICS qualification process which I could never have realistically funded through my own means. At least my 20+ years local knowledge of pricing properties in the Kent market will not go completely to waste. In due course I can then use this as a stepping stone to Chartered Surveyor status which appeals to me after years of being the butt of endless jokes about EAs and vainly trying to persuade people that not all EAs are the same etc. The market is crucially lacking surveying capacity and this has actually been a material factor in slowing transactions this year. Most of the large national surveying firms are booking with a 3 week lead time for a mortgage valuation or homebuyers report , it used to be more like 3 days. A large number of surveyors left the profession after the downturn and were not replaced. The stalwarts that remain are nearly all at or very close to retirement age and working absolutely flat out . I hope to be a small part of the solution in due course once suitably qualified. At the moment I am hitting the books really hard while enjoying the opportunity to train on the job with an extremely experienced FRICS mentor who is most generously imparting as much of his 30 years experience as I can handle. Loving the job and wished I had done it 10 years ago but better late than never. I even get the weekends off to spend time with my family. I will still lurk here as I have found the quality of debate in some of the threads most informative. My future contributions will be necessarily limited by the professional standards imposed by RICS membership. Thanks to those of you who have shown appreciation of my contributions to this forum over the last 7 years. HonestEA

Small Update: Well things are changing for us as a result of Help to buy 2. Up to the week when the announcement that the start date for HTB2 was to be brought forward , we were ticking along just fine. Not as many sellers as we would have liked , but enough fresh buyers registering to enable us to sell anything we listed fairly quickly. Then , the monday after the announcement and ever since , basically tumbleweed time. December conditions in mid October. Not good. Buying enquiries down 70%. At the same time , selling enquiries up 25% with the diary starting to pack out with valuation appointments. Significant increase in selling demand from 1st time sellers out there. HTB2 not that all that great a deal actually. If they had subsidized the interest rate on the guaranteed part (as HTB1) then it would have been quite a significant game changer. The first time sellers now just about have enough equity to provide a 5% deposit to qualify, but they can t afford the payments on the the new 95% mortgage at rates of around 5% which is not very affordable for many, particularly if you are trading up the market to get a bigger place which is the typical scenario. It now appears to me from my anicdotal experience that the mini boom this year has mainly been driven by purchasers trying to get ahead of anticipated price rises from HTB2 and this has suddenly subsided now it the details on HTB2 are becoming more widely known. All it has done is increase the availablility of 95% mortgages, but it has done nothing to increase the numbers of buyers who feel comfortable taking on this much debt or who can actually afford the repayments based upon the lenders still stricter lending ciriteria. It seems the banks are having to play along , but would still rather lend to a middle class BTL investors with a 50% deposits.

It would be ironic if 6 years pent up demand to sell hit the market in Q1 2014 in response to HTB. No way enough credit worthy buyers in the market to soak up that sort of surge in supply. Many South East towns are now at peak or peak + 5%. Loads of frustrated 1st time sellers out there, I have seen enough of them over the last 6 years. If they all come to the party at once things will get interesting indeed,

The next 6 months may well be the most interesting in the UK housing market since 2008 in my opinion. I have not posted this year since the market has been broadly unchanged for ages. Basically the story has been one of gently increasing prices with buyers competing for anything of quality in a good areas underpinned by low transactional volume. This year in particular the paucity of choice for potential buyers has been more dominant than overwelming demand. Essentially buyer numbers in my SE location are up a modest 5% Year on Year but the number of sellers is down over 20%. As this gap has progressively widened , so the upward pressure on prices has intensified , but crucially the transactional volume is still not above 50% of the long term average achieved 1945 - 2007. I am reminded of standard advice to traders to not extrapolate pricing signals from a thinly traded market. There has been a few more sellers tempted to the market this September but not nearly enough to affect the trajectory of the market. Low end freeholds (<200K) are attracting triple demand from first time buyers, downsizers and still a significant number of cash rich BTL types and are therefore virtually an instant sale when presented to the market. Highend stuff (for Kent) 500K - 2M still turning over bouyed by price refugees from more affluent parts of London & Home Counties. Middle bracket also turning over but more downsizers from higher value properties than people trading up the market. Very little vertical movement locally as the gap between each "rung of the ladder" has become prohibitive for most. 60% of our sales are cash buyers or cash from sale. Asking prices have bidded up agressively by agents desperate to secure the business along with downward pressure on fees. Sale agreed prices are increasing , but not as fast as asking prices. Actual selling prices up approx 5% this year in my location , projected 6% by year end. New Homes division of our EA absolutely flat out making hay while sun shines on the back of Help to Buy. New Homes collegues starting to become a little nervous that the government will actually go through with making Help to Buy available to the second hand market from January 2014 which will collapse demand for their overpriced offerings overnight. The forward announcing of Help to Buy in the last budget has been a very clever piece of market manipulation. Basically it has been a sentiment changer in that those who were waiting in the wings hoping for some sort of correction have actually been buying in significant numbers. This is my anedotal evidence from the front line backed up by many posts over the last few months on this forum from people who have thrown in the towel and decided to buy fearing a wall of government subsidy money will push prices further away from them next year. No serious money has yet been spent by the Government on this policy yet it has succeeded in bringing back the general populations confidence in perpetual house price growth. However, the history of government intervention in the housing market is full of unintended consequences. Clearly the plan is to restore the "missing 50%" by enticing people to the market who previously could not afford to participate due to lack of equity in their current property to fund the onward deposit. It is spun as help for First time buyers but those who bought with those 100% to 120% mortgages around 2006 - 2008 are the real target audience here. If they come to the market and use Help to Buy then provided every seller becomes a buyer then then we are well on the way to restoring the missing 50% and stand a chance to restore the transactional volume far closer to the long tem average while attaining price stability along the way. The more volume in the market , the more reliable but less extreme become the pricing trends. So goes the theory. In reality the number of these people is very significant indeed and their ability to distort the supply side of a local market is considerable if they act en masse. Every year that has passed since 2008 had added to the surpressed demand to sell. People delay selling, become reluctant landlords etc but very often the underlying demand to sell has not gone away. I (and any EA that have out there for the last 6 years) will have conducted literally hundreds of valuations over the last few years where the agents best and most generous assessment of value has simply not been enough to make the move financially viable even though there are strong personal reasons for the move to take place. My gut feeling is that at a certain pricing point , encouraged by Help to Buy , 6 years of pent up demand to sell will hit the market in Q1 2014. There are simply not enough buyers to assorb this potential surge in supply particularly from would be first time sellers and this could very quickly turn sentiment sharply negative again and more in tune with the harsh realities of the UK PLCs still precarious financial position. So a policy designed to prop up the market could actually cause a correction. That would indeed be ironic.

This market is indeed a minefield of contradictory signals. I haven't posted much in a while since nothing much has changed. The market stagnating with 50% less buyers than the historical norm being confronted with around 50% less sellers , both conspiring to trade a handful of houses at near historically high prices! This has been the story in a nutshell of the last 18 months at least. However I do think that this Autumn will see some meaningful downward momentum being achieved for some of the reasons that I will outline below. Prices in general continue to gently drift downward but with a few local micro market exceptions like proximity to good schools and affluent middle class micro pockets that seem to live in their own little self sustaining bubble worlds for the time being at least. Repossessions are on the increase again. Been steadily increasing all year but last 3 months have been more noticeable. A couple of unusual situations where the repossessed property has been valued by the Estate agent and a couple of surveyors , placed on the market at a realistic figure to sell , only to be quickly withdrawn by the asset manager and repriced HIGHER???? Reason cited , case is too high loss , client (mortgagee) is insisting on marketing for a higher (unrealistic) figure. Never seen this in over 20 years. The public in denial I can accept and to some extent deal with , but mortgage lenders? What on earth are they playing at. All this will serve to do is create an even bigger loss for the mortgagor when the properties stagnate , they chase the market down and eventually sell for even less. Moral hazard in evidence hugely. Have 100K equity but miss 2 mortgage payments, cue start of possession proceedings. Up to your eyeballs with 100% mortgage which is now a 120% mortgage, no problem , pay us a quid a morth and we will class the loan as "underperforming" . I remain convinced that they will eventually foreclose on such people but only when the banks have recapitalized enough to bear the losses which could easily take years. So unfair on people who have been prudent and tried to live within their means but I guess its a sign of our times. The leasehold market is in a disastrous state as many here predicted. Massive oversupply , eye watering negative equity in many cases with loads on the market at a "cover my outstanding mortgage" price which bears little resemblence to actual selling prices. Very few completed sales. Most agents have a few of these. Unfortunately many were bought by Yuppies (showing my age here) and these have lived in the posh flat for 5 years and now want to move up to a house /start a family except they cannot afford to take the loss so end up dumping the flat on the rental market and entering the swelling ranks of the reluctant landlord. This constricts their purchasing power in the residential market so demand for 2nd teir properties is suffering accordingly. 2 bed flats sold at the peak at 175K struggling to get 125K if they are lucky. Slightly more realism from many sellers at valuation stage appearing to be at least prepared to consider that the party of ever increasing houses prices may be over for a considerable period of time. Not always prepared however to countenance actual nominal falls when it is applied to their individual property but it is a step in the right direction compared to 12 months ago. My job is sometimes one of public education as many people instictively feel the market is not right but are not able to make the link between their obviously declining disposable income/falling living standards and unsustainable high house prices (and rents). Many of the powerful arguments employed on this website have been very useful to me when challenging entrenched attitudes, since if I can make a reasoned argument for a more competitive price I will actually sell the house if they accept my recommendation. Structural flaw in the market becoming ever more apparent. 80% of our valuation requests are from people wishing to downsize. This is simply not sustainable. 80% trading down means only 20% trading up. Simple mathematics tells you this cannot end well. Creeping oversupply starting to build in the mid range and higher end properties. More Country Homes (500K upwards to 2M) have come onto the market in Kent every month this year than have been sold each month by all the agents collectively. Occasional distressed seller starting to appear even at this level. 50K price reduction minimum required to stimulate any fresh interest if sellers are demanding a quick sale. 80% of buyers registering are claiming to be pure cash , cash from sale ( downsizers) or very modest LTV mortgage requirements. Mortgage lending criteria is becoming ever tighter in the real world despite government suggestions to the contrary. Mortgage brokering is almost non existant in the traditional sense of shopping around on behalf of the client to get them the best deal. Most applicants fit the criteria for 1 or 2 lenders at best , if the computer says no then thats it. You dont really need a mortgage broker to look at 2 lenders, however all the skill now is in knowing which of the 2 possible lenders to approach first and how to present the case in a way that will get through all the underwritng hoops. Even people with reasonable deposits are being asked for more money to access the best interest rates . Its mortgage rationing in all but name, with a presumption to find reasons not to lend rather than a competitive market to attract more custom as was the case pre crash. This is clearly putting downward pressure on prices. Negotiations are much harder to conclude successfully in this enviromment. Typical scenario, young couple view a house, fall in love with it , put in an offer at 95% of asking, saying that is our best offer, that is the maximum the bank will lend us . Approach vendor, explain situation, vendor says good start mr Agent but come back to me with something sensible. I am thinking , did you not listen to anything I just said? Go back 2nd time , I confirm this is the best and final offer from this couple , not because of lack of desire to buy but purely on ability to pay. Well mr agent, that is your fault for sending round people who clearly cannot afford my house. Mr vendor , with respect we have had 12 viewings on your house over the last 5 weeks , this is the only proceedable offer we have received, if it was going to sell for your asking in price it would have done so by now, may respectively ask you to reconsider. Deadlock. 1 week later, vendor rings up , i've been thinking, is that young couple still interested? I might be prepared to meet them half way. You make the call to the young couple out of duty to the vendor knowing full well the couple concerned has inevitably bought one round the corner where the seller has taken a more enlighted view. You win some and you lose some. I can persuade most to be realistic but you just know that the seller is going to end selling for less in the end even though you are genuinely trying to give best prefessional advice in the cleints best interest given the current market conditions prevailing. BTL starting to weaken a little . Not quite so many cash rich middle class buyers looking to top up their pensions as there was 12 months ago. Still a few FTB backed up by bank of mum and dad providing the deposit as a price worth paying to get their 30 something "children" to actually leave home. Entry level freehold , small mid terrace 2 bed Victorian with congested on street permit parking down to 125K but seemingly stable with enough people willing to support prices at this level for the time being. 12 months ago the level was 130K - 135K for the same house. Rest of the market needing to correct by the same percentage but taking its time to do so.

I agree that any tax based upon the "value" of a property runs into all sorts of difficulties regarding establishing what the said value is in any point in time other than of course actually traded properties when the vast majority of residential property is not traded in any given year or time period. Surely better is to tax per square metre with regard to residential properties as this is far less subjective once measuring criteria is established. Once measured , always logged with the landregistry , doesn't change unless extended or altered when the planning authorities can update the correct square meterage. Then its a matter of setting the rate annually with a local rate and national rate component to account for regional variances. Scrap Council tax and reduce income tax in return.

I deal with the North Kent commuter line market but not within the M25. Lower quartile by price asking price is mainly sub 125K stuff. 2 bed flats in the nicer parts that sold at peak for 180K or 2 bed victorian Terraces on the less affluent parts , both selling in the same range to the same market which is mainly affluent middle class types buying their first BTL to top up their pensions with very modest LTVs or pure cash.

I reckon he must have spent over at least £1000 with aborted legal fees on top of that.

Had a purchaser withdraw from a transaction today citing the uncertainty over the financial markets as the sole reason. Nothing wrong with the property , searches or survey, even had a BTL mortgage offer. Just got cold feet and wanted to stay liquid. This is the first one I have experienced this cycle where a buyer at an advanced stage has withdrawn from a transaction solely for this reason and has articulated his thinking . Affluent middle class buyer (late fifties) looking to top up his pension was just about to buy a 2 bed apartment as a First Time Buy to Let with a 30% LTV. I have been making a living from these type of people for the last couple of years. Significant turning point IMHO if these type of buyers start to withdraw as they were all that was keeping the market afloat in the lower quartile in many areas. Dangerous to extrapolate from one anecdotal , but if repeated elsewhere may be a sign of a significant turning point in sentiment.

Nothing really to add than what was discussed in my recent in depth thread in anecdotals which is still relevant to this discussion. See thread Surprisingly Busier Times at the EA Office Indeed

The national housing market has always been made up of a collection of diverse local markets which can vary significantly over a small geographical area. It is why most good EAs do not pay too much attention to the national trends but are acutely aware of the real world pricing and actual sold comparables in their patch. Take 2 areas in Kent that I know reasonably well , Maidstone and the Medway Towns. These towns are 10 miles apart and approx 35 miles from Central London , similar population but econoomically could not be more different. Maidstone is the county town and is an administration centre with close to 40% public sector employment with all the Hqs of the Fire , Police , Ambulance and County/ Town councils etc based there providing significant numbers of well paid jobs with good conditions. Unemployment is still below 3% and it has felt very affluent and immune from recessionary pressures over the last 10 years. Many privately rented places are from long term landlords who have in some cases held the stock for generations. Housing benefit provides top up support for those who wish to claim it but does not dominate the market as there are enough people seemingly willing and able to pay the going rental rate from gainful employment. First Time buyers are still seen here in reasonable numbers usually armed with a bank of Mum and Dad provided deposit. Many people see it as an early inheritance to their children to enable them to live in a "desirable" area rather than be forced into the secondary areas which they would be forced to do if reliant upon own means. This is self perpetuating and serves to keep house prices high in these " affluent towns" . The Medway towns historical wealth was based upon manufacturing and defense spending around the naval dockyard which closed 30 years ago. Here the unemployment rate is close to 10 percent in places and the local housing market is heavily infuenced by housing benefit. This market has been heavily bought by leveraged BTL in the boom times and house prices now reflect this. Here there are not enough well paid jobs for the First time buyers to afford the first time buyer type houses so the bottom of the market is supported by BTL demand which is influenced by gross yields. Many commute to London to find quality employment options. In short , polarisation between rich and poor is occuring with the gap between affluent and poorer areas widening all the time. Sign of the times but you could say it has always been that way, its just becoming more noticeable to more people as the recession takes its course.

The estate agent's duty of care is to achieve the best offer attainable from the best buyer available in the current market for their client. That is it. The EA business is not complicated. That is not the same as steadfastly defending ridiculous asking prices, pretending our area is different because of X,Y, Z stupid reason although the 2 are often confused by agents with less than 15 years experience due to the abnormal length and height of the last cycle which lasted nearly a generation. You have to remember that many agents (even those with 15 years experience and running their own firms) will only have known that prices rise as that has been broadly their experience for their full working lives. If you challenge that mantra , from a psycological stand point it challenges their whole ethos which people in general dont react favourably to. This is further compounded by the fact that to be successful in the current market requires true salesmanship and hard work which many agents who have grown fat on the excesses of the boom seem incapable of. A business plan which is basically to hold prices where they are and wait for the good times to return is no plan at all and will end in the closure of the EA business concerned.

Remember Repossessions are excluded from these figures which will under represent the actual falls in prices IMHO. 15% of my completed sales have been repos this year offered in anecdotal evidence.