geometric

Very interesting post. I saw this on icWales a few mins ago, originating from the Halifax: Mr Ellis added, "The softening in the housing market is expected to trigger a reduction in interest rates next year as the Bank of England acts to ensure that consumer demand and the housing market remain well underpinned." They are saying that the housing market needs underpinning and that the BoE will act to do this. The BoE's remit is to control inflation. I think that the BoE would act if they saw property dropping below whatever their measure is of fair value. But there is a significant add on to current levels purely down to expectation of further capital growth and I dont believe the BoE will not act to support that factor. What is that proportion, I dont know, but I reckon it is something like the HP inflation from the end of 2002 to today. IMHO.

A first time purchase will consume only 16% of their wages. Where on earth did that number come from. I believe the Nationwide quoted approx. 30% by the end of 2005. Get real. Pensions are for wimps. I agree that Pension schemes are poor, but people should look into the equity markets carefully before writing them off. I know what my returns have been over the past 7 'losing' years and they are really pretty good. Granted nothing like property and not geared in the same way, but still impressive. The reason is I continued to invest throughout the downtimes and was diversified. Dont believe everything you read in the papers. You know the principle, buy when no one else is. There is a problem waiting for BTL. A strong reason for its growth was, I am told, the change in regulation of house lettings in the late 80's. Housing affordability is going to climb the political ladder very quickly I believe. Labour is at heart a left wing party. Do you really think that they want to deliver the majority of young working people into the hands of rip-off middle class landlords ? I dont think so. Prescott and Milburn have been quoted commenting on this in the Times over the past few weeks - sorry I dont have the refs. At the moment we have the opposite coming up with SIPP's in 2006, but I predict that excessive BTL is seen as extremely damaging to the UK and our society; expect the next Labour government to control it.

I recall a quote from Hoogstraten along the lines of 'People without property are nothing'. Are you Hoogstraten or a protege ? Yeah, your're a genius, you own property. I knew and worked with the man who invented the CAT scanner for medical use, Nobel prize winner. He struggled with a lot of practical life things, like property and so on, but he really was a genius and he made a difference. So what you're a landlord ? Maybe over the next few years people with other priorities in life will get to be able to join you in the property game, who knows. Or are we saying that the only thing that matters in this country is BTL ? Sad day if it is.

What proportion of current prices are associated with expectations of further growth ? I'll put down a good 20%. This figure is over and above any discussions of fundamentals.

Yes I am, in a very nice spot I might add. You see many flats advertised at the £550 level but there really does appear to be oversupply round here. The rule is that the local paper has comparable flats for about £150 pcm less than those handled by the agents. A friend took on a flat recently and the Agent negoitated a lower rent, down to £470 from £540; note that was handled by the Agent with no argument. There are lots of To Let's up and plenty of choice from Agents. Also I saw in the local EA yesterday that there are 2 portfolios of rental flats for sale here, that is being sold as a going concern. Also several flats being advertised with some sort of license, a HMO, or whatever it is, I believe a license to let, tho' might be mistaken. I dont doubt that rentals will rise steadily over time, I just think that it is not going to follow the HP inflation.

Hello TTRTR, no disrespect intended As my OP said I think rents will rise over time, I just dont think that they are subject to the same inflation as purchase and I reckon this is an important perception. The raising of rents (as your handle implies) is an old subject, and also I am sceptical of 'mochynhapus' being a FTB'r as that translates from Welsh as 'HappyPig' which is the Welsh version of Pig in Sh*t, and that seems an unlikely monniker for a strapped tenant. If you landlords do manage to increase rents in line with current property prices then you will have cornered the market in a basic human need and will be trading in human misery. We have been there before. Good business and profits are fine but Rachmanism is not.

Regarding SpinGirl I think there is a really important point here; rentals are a mature market and it is not subject to the same dynamics as purchase. The only way in which nouveau landlords will manage to rack rents massively is if they corner the market in rentals and that simply cannot happen because it is competitive and there is a very significant difference with buying: no tenant stands to make money from paying more rent so all the pressure from the person parting with cash is downwards. Curious that TTRTR has not replied to either of our posts. Guess there is not a lot to say about simple facts that dont back up your point of view.

It makes sense that rents rise as demand increases. I've no problem with that. The devil is in the detail though. The question is will rents now see a boom as purchase prices have seen? Goes without saying that landlords like your self would be very happy to see that, but I really dont think this will happen. The rental market is very flexible and well supplied and I dont think that it will be possible for landlords to form a cartel, rather they will be scrapping amongst themselves for clients. Note, I am currently renting, have moved recently and am living in a very nice place in a good location for £390 pcm. While looking for a place most 1 bed flats were being presented at £550 + but I have been round the block and know that it is always possible to get a good place cheaply. This is because there are many landlords with properties on which they have very low mortgages and so can undercut their more recent colleagues. BTL is a good business, goes without saying, but many recent entrants have only seen the good times. My landlord (decent & professional) has been in the line for 20 yrs and says that rents will not be rising strongly. Renting cheaply: no worries.

Anybody know what proportion of current FTB's are taking interest only mortgages ? I read a figure of 40% recently, but not sure if this is right. thanks

I guess that an absence of gloating was too much to ask ? Disappointing given the good sense of many of your posts. Anyway, yes, the evidence does say that the market is moderating and may well rise in a few months time.

At the moment there has not been a significant drop in house prices, that is a fact. It has worried me for some time that essentially housing has become the 'gold standard' for personal finance and so the presence of FTB's (like myself) no longer matter, because if enough people agree that housing has some value regardless of the dividend it can generate then it will not reduce in price.

Are you really saying that the Nationwide would fabricate data ? I just dont buy into that. Surely this is itself strong evidence that HP's are not on a downward path ? I really hate to say it, but it is possible that HP's really have settled on a very high plateau, however unlikely that seems.

This post shows a lack of understanding of where FTB's are at. It is not just about initial repayments. The absolute purchase price sets a large part of how the risk of purchase is preceived. No one knows how the financial landscape will look in 5 yrs; anyone who claims to is giving an opinion, IR's may be higher or lower. Throwing figures like 10% around may be easy, but in todays market that is something like 16K on average, and I personally think that the drop will be closer to 30%, which is 48K. Regardless of short term rises in interest rates that gives a great deal of pause for thought. The point is that we FTB's have decided that the pricing of housing in the UK now is too high. We are the demand side of the market; prices will fall.

It is possible that you are right that we are in a new paradigm. I dont agree though with the contention that there are any bargains to be had now, nor have there been for two or three years. The bottom line is that many ordinary working people in the UK have already been left behind; just how many home owners could buy their place today ? Not many I think. The media has talked up the housing market for years, the current negative sentiment is based on fundamentals. We are in a new paradigm but it is one where house prices can come down as well as up. Or are you proposing that every house advert should carry the rider 'Remember that your house investment can only go up, and you will definitely get back more than you invested.'

3 months ago I was looking for a flat to rent in Central Scotland, nice location. I was invited to make reduced offers by the letting agent at my first conversation with her. She is a good agent, been in business for years, and she said that there is massive over supply in parts of central Scotland now. The clock is ticking.

Several HPC posters, inc. Masked Tulip comment on Wales, as I do, reckoning it is the most over valued place in the UK. The Times reports today that prices in Wales are down by 9% since July. I am sceptical of 40% drops in some parts of the country but convinced of them in Wales. Just why are parts of the valleys and mid and north Wales on a par with parts of East Sussex, another area I know ? I say 50% drops in Wales, unwinding all gains back to 2002.

There is no evidence that FTB'rs are coming back. The points this article make are the reasons why there has been a boom in house prices, but that boom was over extended about 2 years ago, so these criteria no longer apply. The evidence for this is precisely that FTB'rs are absent: they have been priced out. It is a fact that first time buyers cannot enter the market at its current level, so prices must drop.

I am in a similar postion. You touch on a very important point here I think which is that when you have had to earn sums like this you really, really dont want to get burned; it is real money. Similar sums that you come to from rising house prices are a different kind of cash to risk: monopoly money. This is why it is not just about IR's, there is an absolute risk involved and it is FTB's that face it, and we are saying now that the bar has been raised too high. The problem wont go away, prices must fall.

It will not get around the fact that the housing inflation of the past few years has given many people a serious, serious problem. Spring will not change that. If FTB's matter in the UK then prices will fall.

I agree wholeheartedly with your points regarding London. I lived there for the best part of a decade and although it can be a nightmare to deal with it really is an amazing place where there are opportunities and people that you would not meet anywhere else in the UK. From my experience it is easy to earn £40k in London but really quite difficult elsewhere in Britain. Also I dont buy into the argument of average salaries controlling house prices and using that to compare London to places like Swansea, it really is a different world. It was only when I lived there myself that I understood this. It was in London that I first met people to whom money was no object, leastwise by my standards, and coming from Wales I had never, ever, met anyone in that position. I am really happy in the UK, away from London now, but I laugh when I hear of various provincial cities being called cosmopolitan. Anyone who thinks that you can speak of Glasgow or Manchester in the same breath as London has no experience of the capital.

I have just had treatment on the NHS, in the past few weeks, and I can say that I have had excellent treatment. I went through NHS24, was seen within hours by a doctor, and was given the required (non-trivial) treatment within 2 weeks. Everyone that I met with in this said that the NHS is good where you need prompt attention and that has been my experience. Ok, this is not a big picture of the NHS but I have seen it in action for someone else recently and again the treatment was first class. There may well be grounds for knocking the NHS but I disagree strongly by the premise that the system and staff in it dont deliver. Criticise it, but it (and its staff) definitely deserve a whole load of respect as well.

"The market will be driven by perceptions of valuation," said Malcolm Barr at JP Morgan in London. "It's not necessarily anything to do with the labour market or interest rates but more that prices are not seen as sustainable at current levels." This has to be the most bearish posting from BBB ? The article is worth reading because it goes into detail about the uncertainties. Also the assumption that the BoE will cut rates if prices fall is questionable. Why should they ? Is it part of their mandate to ramp the housing market ? I dont think so, and note their recent comments of that the economy does not depend that much on the HM, surely pointing out that they may not drop rates to support housing. Another thing, why should a drop in house prices be a crash ? Why cannot this market both rise and fall in reponse to conditions like every other one. Surely some reduction in house valuations would be acceptable as a sign of a healthy market, with a crash being quite different. I mean cars can slow down but a crash is a serious matter, to be avoided.

Depressed because as things stand I'll never live there again and because I think the people of Wales have allowed themselves to be well and truly shafted in the past 5 years.

I am really depressed about the Welsh housing market. I am Welsh myself, now living in Scotland. Scotland has had less of a boom to date because, IMO, there is a cultural habit of not getting ripped off up here. Call it what you will, the Scots have a deserved reputation for showing good sense in their finances. Wales on the other hand has sold its soul to the housing market. I think that whatever happens in the rest of the UK, it will be terrible in Wales. Salaries are really low once you get away from the M4 strip, many of the roads are terrible, so either all FTB's sign up for 40 year mortgages, possibly interest only, or prices are going to fall.

I was interested to read Anatole Kaletsky's column in the Times today, usual stuff, Housing is not overvalued, everything is rosy. However, I noted that he says that the dominant source of employment since 2001 has been in the public sector, he had the graph to prove it and I think everyone accepts this. Goes on to say that the public sector recruitment will have to drop in 2005, again this is nothing contentious. In the previous sentence he says that housing will hold its value because the fundamentals, including employment, are good. There is a flaw here. I work in the private sector and my experience is not of a booming employment market, not terrible, but definitely not the basis for borrowing vast sums on a mortgage.