SCUMBAG

Actually BTL only accounts for 8% of the total mortgage lending market. I don’t think that is extraordinarily high. BTL is given far too much attention in my opinion. It is a psychological object for which to project frustrations on to. They are a symptom of the bubble rather than a cause, yet they have helped to chase prices up even further. At the end of the day the BTL landlord will not look to trade up in the future. Only today’s FTBs will. So to today’s lack of FTBs will be tomorrow’s stagnation and the day afters property crash. Like the saying goes, there is nothing new under the sun. I seriously doubt landlords will make a huge profit. In a low inflation economy it takes longer to erode the capital of the debt meaning that the overall cost of servicing the debt is much higher, although the initial monthly costs are lower. The more you borrow, the less exasperated it is. With world banks charged with keeping inflation low, high inflation will not erode the capital of the debt as it did in previous generations. In addition, these landlords will presumably want to cash in their investment at some point. That point will all be at the same point in about 20-25 years and so flooding the market with similar properties meaning prices will have to fall. In summary, the astronomically high prices we see at the moment may be around for a while but they are certainly not sustainable in the long term.

Mervyn King hasn't said anything of the sort! He has said exactly the opposite in as strong terms as he can in the position he is in. He is forever voicing concerns over the 'Irrational exuberance' of the British home buyers and has been for many years now. Also the BoE are not supposed to consider house prices in their decision to set interest rates. They are tasked with controlling inflation and controlling inflation alone. If inflation rises, so will interest rates, regardless of house prices.

Once again the focus is on interest rates and not inflation. In a low inflation environment it takes longer to erode the capital of the debt and the overall cost of servicing the debt is therefore much higher over the complete term of the mortgage. So much so that if you overborrow, to pay it back is totally unfeasible. If you overstretch yourself to buy your first house then you will never be able to trade up because inflation will not erode the capital of your debt as it did for previous generations. When this finally hits home the value of housing will plummet. Regardless of this, the market needs FTBs and without them chains collapse, the market stalls and prices fall (it is currently at 7% according to the NAEA). The argument that BTL is taking their place doesn’t wash: a. Because BTLs will not look to trade up b. The percentage of investors in the market hasn’t actually altered as all that has happened has been a transfer from professional landlords to amateur investors. Whatever angle you come at it, the present prices are not sustainable in the long term. It’s not all about interest rates.

Firstly fixed rates can alter even regardless of base rates. They went up a short while ago even though there was no change in base rate. Secondly, if this was true then there would have been no crash in 1989. Thirdly the US and Australian housing markets are crashing now. The market is mainly driven by sentiment.

How did you do it? Matlab? Germans eat that horrible licourice with salt covered on it too.

Bump. Why isn't this pinned or on the home page?

This news story states that BTLs account for 8% of the total mortgage lending market http://news.bbc.co.uk/1/hi/business/4797431.stm This is also worth a look http://www.appc46.dsl.pipex.com/hpi.html it plots the ODPM data on a regional animated map.

Landlords of your type only account for 8% of the total lending market. The market still needs FTBs as it will be those that plan on moving up the ladder in a few years which you landlords will not. If FTBs can’t get on the ladder then this will not happen and the market will freeze. The only way to sell will be to drop prices. Current FTB levels are at a record low of 7% according to the NAEA. Whatever your arguments are, without FTBs the market is doomed. You also focus mainly on interest rates but have not considered the effect of low inflation. Previous generations bought in a high inflation economy. We are in a low inflation economy. This means that it takes longer to erode the capital of the debt. Mortgages in a high inflation economy are front-loaded. The tipping point in a low inflation economy comes towards the end meaning if you struggle to buy your first house then the chances are you’ll never be able to move up the ladder. Again houses further up can’t sell and the only way to shift them is to drop prices. Because it takes longer to erode the capital of the debt in a low inflation economy, the total interest you pay is that much greater. That is less money being fed into the economy, less into savings for retirement, less into pensions, more strain on the welfare state. It means that the economy is more susceptible to interest rate rises. For me, the additional total amount payable on the debt is a good reason not to buy. Not that I could afford it anyway. I ‘only’ earn £30k a year. Neither have you accounted for the fact that our pension system is in crises and that 2/3 of the credit card debt in Europe is on UK credit cards. You cannot look at the housing market in isolation. There are many other things that affect it. It is not just about interest rates. The current situation is silly and unsustainable in the long run.

No problem. I also wonder what would happen if we have the situation of low inflation and high interest rates. Surely that would be the worst of both worlds? Where monthly payments are high and the debt never gets eroded truly trapping people that overstretched themselves.

This was discussed in some detail on Channel 4 news at lunchtime. I wrote a lengthy synopsis of the discussion but the post didn’t appear for some reason. The story on Channel 4 differed slightly. In summary: - It is the hardest time for FTBs to get on the property ladder in 20 years - They said it was 300% more expensive than 10 years ago (not 184%) - The average couple needed to save £30k in deposits and fees which equates to 74% of annual income. They said that a couple would need to save £1200 per month to achieve this. - It gets tougher for the average couple once they are on the ladder with repayments equating to 22% of monthly joint income for a 2 person household. What fails to be hitting home to people is that we are in a low inflation economy now. In a low inflation economy the debt is not eroded away by inflation and the burden remains for the duration of the mortgage. If you over stretch yourself at the start then there is nowhere for you to go. The more you borrow, the worse it is. In a high inflation environment mortgages are front loaded. The opposite is true in a low inflation environment. The market needs FTBs, regardless of BTL. BTLs will not trade up and the second rung becomes the new bottom rung. When people there can’t sell chains collapse and you end up with oversupply. It reaches a point where the only way to sell is to drop prices. The present level of FTBs is 7% according to the NAEA. The Bank of England discuss the effects of inflation on the economy in this report: ADJUSTING TO LOW INFLATION - ISSUES FOR POLICY

And don't forget under new rules he would be considered as a FTB by the banks. Don't be surprised to see "FTBs return to the market" headlines in the press soon. People always give a lot of attention to interest rates and think we need high rates to crash the market. This is true but it is not the only means. In a low inflation economic environment the amount paid back over the entire term of the mortgage is much greater because it takes longer to erode the capital of the debt thus increasing interest over the term. The more you borrow the worse it is. It also means that the first house you buy will be the house you will be in for a very very long time meaning people will be unable to trade up and stalling the market. When that happens the only thing you can do is drop your prices to sell. Factor in the much needed FTBs who are practically non existent and the whole problem is exasperated. There’s your property crash. A long drawn out affair not an overnight sensation. The BoE are tasked with controlling inflation not controlling house prices. What will happen if we have high interest rates and low inflation? The worst of both worlds. All this attention focused on IRs as though it is the only way a property crash will happen just because that’s what caused it last time. It isn’t. People only think about the monthly payments these days and that, apparently, equates to affordability.

You may be right. I certainly agree that low inflation shifts the burden from the start of the mortgage. Old people are always telling me that the mortgage starts off hard and then gets easier but that was because they bought when inflation was high and so had large wage rises correspondingly. I was always under the impression that low inflation meant that the overall cost of the mortgage in the long term was higher because the monthly payments remained higher for longer and that was due to the fact that the large proportion of interest vs small proportion capital was for longer. In a nutshell you give less to the bank each month but more over the long term. I have seen countless articles on it but can't recall any off hand and am in a rush now so can't find a link. There was one the other day where someone calculated the cost of MEW on top of a mortgage. The bank makes more money off you in the long run but sells it to you because the monthly payments are cheaper.

A loan is more expensive over the long term with lower inflation. It takes longer to erode the capital of the debt so you pay less each month but a higher percentage of that is interest. Traditionally at the start of the mortgage the interest is the majority of the mortgage and that shrinks with time as you erode the capital. In a low inflation economy that period lasts for longer and so you pay more interest over the longer term which makes the total cost of the loan more expensive. ADJUSTING TO LOW INFLATION – ISSUES FOR POLICY

Well you can spin figures to mean what ever you want them to mean. Those are the published figures so without further evidence those are what I'll go with. 8% of the total money lent doesn't seem am awful lot to me. The only suspicion I have about the figures is that a few weeks back there was a report in the news that people returning to the market will now be counted as FTBs. I suspect this is why the number of FTBs has risen from 7.8% to 11.3%. There was a day of press a couple months ago where one of the lead stories in the news for the day was that the only thing holding up the crucial bottom end of the market was BTL landlords and those few FTBs that were getting handouts from parents. Hardly a sign of a healthy market. Within a couple days though the story was forgotten and we were back to front page headlines of "house prices rising by 3000% a minute and aren't we all rich now?". It is surprising how quickly people forget. Only a few years ago that FTB figure was above 50%. In a nutshell there isn't a lot propping up the bottom end and what there is is suspect. After a sustained period of all that going on it doesn't matter what happens to interest rates, chains will collapse, nothing will sell and people will be forced to drop prices.

I read it the other day. It said that BTLs account for 8% of the total amount of mortgages lent. http://news.bbc.co.uk/1/hi/business/4797431.stm It is not an awful lot is it? I also read a report some time ago that suggested that all that had happened was that rented property had transferred from the professional landlords (the sort of landlord that had 10 properties on his books) to the amateur landlord in the last 5 years who now has one or two BTLs. The yields are not there for the pros any more. They will be back when the market falls. By contrast the number of FTBs in the market is around 11% http://www.naea.co.uk/uploaded_photos/news...marketFinal.doc So it must be people already in the market exchanging properties that are sustaining this bubble. Either that or overseas investors. I maintain that this BTL craze is a symptom of a bubble rather than a cause (although undoubtedly it contributes to it). I think people focus on it because the BTL landlord is a tangible subject for the projection of their frustrations. It is also the only thing that peple can realistically do anything about. The BTL phenomenon is unique to the UK though to a larger extent. It is much less so in the rest of Europe (with the exception of Ireland) and the US. Lets face it, the bubble has been caused by a flood of global liquidity. The quickest and fastest way a property crash would happen would be for interest rates to hit high levels putting people in trouble in the short term. It is not the only way it can happen though. Low inflation means it takes considerably longer to erode the capital of your debt, meaning you pay more for your loan in the long run. In the long run the effect is the same and probably a lot worse. Sooner or later people will realise this.

It would yes. But as I said BTL mortgages only account for 8% of the total market. I honestly think it is given a disproportionate amount of attention on this forum. It is a small minority helping to chase prices up. Most people just want a home not an investment. FTBs have risen from 7.8% to around 11% (but I am suspicious about that because there was a spate of stories in the press a few weeks ago about how STRs returning to the market would be considered as FTBs now). All the same it is low and the market will always need FTBs. Its still early days. 2001 you could afford it. 2002 it was tricky but you could do it. 2003 onwards is just madness. Its only 3 years. These sorts of things can take 7 years to play out. In the last 5 years we have seen a boom followed by stagnation. I like the comment on this thread that the market created this situation and it will be the market that sorts itself out. Even if it doesn’t, I am NOT going to go into a bank and ask them to lend me 7 times my salary so I can buy a small flat. If it was a project I was managing at work I would not do it because of the risk involved. I will not do it in my private life either.

It seems that way now but BTLs will not be looking to move up the ladder. So it looks like they are supporting the market now but when chains start collapsing because people looking to move up have nobody to sell to at the bottom of the chain it will become apparent that all they have done is made things worse. BTL only makes up for 8% of the total of mortgage lending. They are just chasing prices up, pricing FTBs out, making the market more unstable in the long term. Its an abnormality. BTL is a symptom of the bubble rather than a cause.

I did a power engineering degree. I went for an assessment centre with a well known international company a couple months ago and they never even bothered to tell me how I got on. Disgusting. I think I lost out to engineers from Zimbabwe and Malaysia despite having a first and being a chartered engineer with 15 years experience in the field.

You missed this one

You are not alone http://www.naea.co.uk/uploaded_photos/news...marketFinal.doc

If there was a genuine shortage of supply in housing then rents would have risen at the same rate of inflation as house prices.

Had a message on my mobile left at eleven this morning from a researcher at BBC 5 Live. They said they were doing an article on affordability propblems for FTBs and its impact on the future of the economy. I left work at half five so obviously missed it. Did anyone catch it? Pity I missed the opportunity. I'm in the mood to let rip (as in have an argument....not fart).

Thing is with inflation so low the total cost of the mortgage is that much greater. It also takes longer to erode the capital of the debt. So that 40% will last for a long time whereas the 60% in a high interest/high inflation environment would be eroded if you could see yourself through that initial pain. This time we have the worst of both worlds. What happened last time isn't really directly comparable. I think this has the potential to be more of a long drawn out thing but ultimately more devastating for individuals in the long run. Especially when you factor pensions into the equation.

If you think about it BTL are stopping FTBs getting on the ladder. Agreed? But BTLs will not want to trade up in approx 5yr time. The people on rung #2 will have nobody to sell to and so on. The market collapses when it freezes because nothing moves and it reaches a point where prices have to be dropped to sell something. It seems like they are pricing FTBs out of the market, but in the long term all they are doing is precipitating a crash. My brother was in a similar position. Married and bought in 1988, lost everything in 2002. Managed to squeeze on again because he met someone else and lives on a good wage in a depressed area. Still cost him £110k though. You'd be surprised how much a divorce can wipe you out. I think you are being unfair.

I have a friend who works for a survey company. He frequently supplies the BBC with information which they misquote and produce graphs with mislabelled axis. When he rings them to tell them they thank him and then don't bother to change it.