doomlord

I also only got the APR one wrong. Maybe so many are getting it wrong because we're all relatively debt free, and so don't have to pay so much attention Although I do wonder how many of those who have vast amounts of debt would do in the test?

From the excellent, if a little premature, Economist property survey of May 2003:

Earlier today the headline coverage, as flagged up on the HPC main page, was the following story: http://money.guardian.co.uk/houseprices/st...1329778,00.html To me this is just rubbish. I sometimes wonder how much intelligence it takes to be a financial journalist. It is impossible to say that we're in for a soft landing just because things haven't started to fall rapidly yet. At the present stage we've at that point on the roller coaster where the chain has stopped clicking, and the car is slowly and silently moving towards the drop that awaits us. And yet, elsewhere on the site is a most insightful piece of commentary - written by a proper economist rather than another journalistic hack: http://money.guardian.co.uk/houseprices/st...1329828,00.html This sums up all the relevant arguments, of which I particularly like the following observation:

http://www.thisishull.co.uk/displayNode.js...tentPK=11136020 Of course, Hull is also the place for Spring's BTL scam: http://money.guardian.co.uk/scamsandfraud/...1160067,00.html I really can't belive the naivety of these people to buy in areas they don't know without checking the propeties out. This is one thing that a number of people have been mentioning on here - in the last stages of a bubble the prices which have the least reason to rise suddenly show masive gains, as the last people are desparate to become part of the action.

I was looking in Leeds as the prices here in York seemed so ridiculous, but I don't know if Leeds is any better now, although there is more stuff within my £120k budget. I was looking around in York over the summer - I saw some three-bedroom houses advertised in Tang Hall for around the £120k mark. I drove round to check them out, and noted that three houses on the street had their windows boarded up . I also checked out the York Evening Press on line, and discovered a string of social problems in the surrounding streets dating back a number of years. I think that was the point when I finally decided that prices had gone beyond a joke !

What jobs won't they be able to outsource? Well, try building wall, replacing a boiler or emptying the dustbins whilst you are in a call centre in India. So much for the need for more graduates for a knowledge based economy .

The people will be on the trains / tube / road wether they are living in crowded accommodation or in a more desirable position. So just not building any new housing can't be the answer. zzg is correct that it is the economy in the SE that is the big attraction, but what could be done about this? The government is already considering relocating some civil service jobs elsewhere in the UK - see the Lyons report: http://www.hm-treasury.gov.uk/consultation...gislation/lyons But other public service workers, local government officials as well as the much vanted 'key workers', have to be where they are needed. The other option is to pursuade companies to invest elsewhere by interfering in the market by offering tax incentives etc. to invest in more northerly cities. There was also a plan by Camden council to relocate social tennants to Northern cities. It seems it was not entirely succesful: http://society.guardian.co.uk/housing/stor...,711312,00.html

I think that's very true. Almost everyone involved in making predictions on house prices are in occupations, from the media to banking, that are far removed in slalary and circle of friend from the majority of people here in the UK. I often think that there views and opinions are clouded by their own situation rather than based on the real facts. That anyone can belive that current prices for FTBs are reasonable for the average person in their late twenties shows how out of tough they are with many people's everyday reality.

Unlike you I am quite convinced there is a housing shortage, at least in South East England. Why then are people not in tents? This is because it is not a literal shortage of housing space, but a shortage of proper accommodation for individual 'households'. Basically people are having to live in far from ideal conditions of accommodation. This shortage is seen by young people being forced into house shares because it too expensive to rent or buy for themselves; through children staying with their parents for much longer than they used to; and at the social housing end of the spectrum by people in temporary B&B and hostel accommodation. This is why there is a long term need to develop housing and infrastructure in the South East. However, I believe prices can still crash despite this projected long term shortage, since they have risen far too high due to speculation. As prices start to fall, those in non-ideal accommodation will not be coming out of there current accommodation any time soon. Why would one move out from the bedroom in mum & dad's house to buy a still overpriced flat that will be worth much less in one year's time?? Also, government does seem to be waking up to the need to invest in the long term accommodation needs - hence the Barker report - so that the projected shortage will hopefully be reduced by government action. In summary: long term housing shortage: yes will this prevent a crash: no

My argument applies not just to small houses, but perhaps more importantly to those in poor locations. However, with regards to the issue of small houses: 1) the idea that they are 'the first step on the ladder' only applies when the 'housing ladder' is in operation. At present it is out of order due to high price inflation coupled to low wage inflation. This means that mortgage debt is not quickly eroded by annual pay increases,and the next rung of the ladder gets further and further away. 2) Perhaps unfortunatly most people like to consume larger things when they can (although not everyone on this forum). The majority of people won't buy a small TV / big car if they can afford a large one, and the same if true with housing. 3) Buying and selling houses is an expensive business (EA, solicitors, surveyors and stamp duty). Therefore if you intend to upsize at sometime in the future, it makes a lot of sense to go directly to the bigger property if it makes financial sense. For example, if you are planning on having a baby in the next few years, don't go for the one-bed flat. This is one difference from renting, where it makes much more sense to cater for current rather than future needs.

Another point is that the tax benefits for owner occupation are much better than for letting/renting. As a landlord you should pay both income and capital gains tax, whereas an owner occupier pays neither. This should help encorage owner occupation rather than BTL/renting in the long term. As an example, when I first moved to my current job I let my old place in Nottingham whilst renting in York (I have since sold the property). I checked the tax situattion and found I had to pay tax on the difference between mortgage interest and rent in Nottingham, even though I was paying more for my accomodation in York than I was getting from the old flat.

Incidentally, different behaviour for different areas of the market as the market as a whole moves up and down is a well know effect in the stock market. In the capital asset pricing model (CAPM) it is evaluated by the 'beta' coefficient. http://www.idexfunds.com/site3/investor_ed...olatility.jhtml

This afternoon I thought I should take a short break from surfing HPC, and took a look at the housing market somehwere nearby which was commutable to York. I ended up in the Harehills area of leeds, where there is lots of 'back-to-back' housing: http://www.leedscivictrust.org.uk/backs.htm I went to one of the local estate agents and talked about what was on offer. "Back-to-backs are going for around £80k now, but last year they were around £40k". I asked her if it really was just one year ago, and she said yes. That is a 100% annual rise: much higher than the rises quoted in the media. My opinion of the area was not much improved as I walked out of the shop and saw a group of girls, aged from 10 to 14 kicking the sign outside the neighbouring kebab shop. "Stop that" cries the guy behind the counter. "Tell him to f**k off" says the oldest girl to the youngest. For a moment the young girl hesitates: does she really dare to do it? Then the decision is taken: "f**k off" shes cries, and the girls go running. My warning for potential FTBs: the market is probably 30% overvalued at present, but that does not mean that all houses will fall by 30%. Some popular houses will be less affected by a crash, but small houses, unusual houses, and houses in bad areas will fall by a lot, lot more (we're talking Bruno levels here) once people are no longer desperate for anything. Should I buy anything I can afford at the present time?? I think not.

These are my comments on the relevant section: ********** There is much discussion about the fact that the market is under-geared rather than over-geared. This is probably true but neglects two facts: 1) this under-gearing is the result of massive recent price rises and the unwillingness of established BTL investors to increase their gearing ratios to match (quite sensible if prices may fall and leave them with negative equity on their whole portfolio); 2) it is not the overall gearing of BTL owners that will help the crash, but rather those recent entrants who are highly geared. ********** Much is also made of the shortage of housing meaning no increase in void periods. In previous posts I have acknowledged the supply problem, and the need for it to be addressed. However, although this problem is responsible for long term increase in house prices, it cannot justify the full extent of recent rises. I see three problems here for BTLs: 1) people who do not buy often choose to stay with friends / family rather than renting what would previously have been a FTB property. This had a restraining effect on rental demand 2) property developers have recently concentrated on building large 'luxury' flat complexes with a target of BTL investors rather than people who actually want to live there. Thus there may be an overall housing shortage, but a vast oversupply in the sub-market of these particular homes (both rental and to buy) 3) 'off plan' investing has been very popular recently, and is a complete gamble on prices rather than concerned with rental demand. ********** Strict mortgage regulations as regards deposits etc. lessen the danger of negative equity. Once again this is may be true: house prices rise, so banks require higher and higher deposits so that the rent still covers 130% of mortgage payments. But an investor should really look at their overall return on the investment, including their large deposit, and this is looking increasingly poor. ********** BTL say they are in it for the long term. They may do, but then they are also convinced that the market will not fall . Once the market begins to fall, some will change their tune. And remember it is only the houses that are actually exchanging hands that generate the house price indices which are the reference point for buyers.

Hi there TB, Sorry to hear about your current situation. The whole area of benefits is so difficult, and causes so much unfairness. Similar issues are now involved with pensions, where people who have saved a small amount find that they are scarcely better off than people who have not saved at all. This is due to the importance of means tested benefits. I strongly believe we need a welfare system, as I find it unacceptable to see anyone living in abject poverty. Unfortunately that means there are some people will learn to play the system (but note we don't reserve the same criticism for those who make use of tax loopholes etc. to avoid their contribution to society). One example of unfairness is the way the housing needs of owner occupiers and renters are treated when it comes to unemployment. After the end of contribution based job seekers allowance (6 months), savings over £3000 begin to reduce your entitlement to further JSA. Also, your entitlement to housing benefit is affected by savings immediately. However, if you have equity in your house, but no savings, then this will not affect your entitlement at all. this could mean that you have £100,000s of capital in your home which has no impact on your benefits! On the other hand you don't get any help with your mortgage for nine months, after which you get help with the interest payments alone. I really think the taxation & benefits system is too skewed towards the home owner. A fairer system would make a genuine choice between renting and buying much more equitable. Another example: your main home is exempt from capital gains tax - very nice - but if you choose instead to rent and invest your money in shares etc. you are subject to CGT. Once again skewing the tax system in favour of the home owner. Fortunately I've not had recent experience of unemployment, although I've been concerned enough about it approaching the end of fixed term appointments to investigate the benefits system . I hope your situation is resolved before long. Incidentally, if my relationship with the landlord was good I would be inclined to try and get his help in getting housing benefit. The reason people don't want DSS is that they are more of a risk, which won't be the case if you already have a track record in the accomodation.

But this article is about owner ocupiers. The bottom of the property market has been propped up by BTL investors at the moment, and I'm sure that financial considerations are top of their minds. If there is a crash, I wonder how many will be so happy at just owning a place, currently occupied by someone else, that they won't wish to dispose of their investment for non-financial reasons? One of the reports over the summer suggested that it is this extra sensitivity of the BTL to price that will help to enhance the effect of a crash. Of course, many long term landlords (TTRTR perhaps?) will not be so keen to liqidate there portfolios. There are a host of tax implications, and for them renting out property is more of a full-time business than a little extra investment. Many will also have started propeties in the mid nineties when everyone must agree it was a very shrewd investment, and so are less sensitive to price falls. However, it's people who have jumped on the bandwaggon recently with overoptomistic views of the market that are likely to be the ones that bail out (or at least try to, as they may discover it is difficult to sell in a falling market).

I also recall hearing that Hastings was not the most desirable place to live in the South East, as it has very slow rail connections to London, and there are lots of asylum seekers in B&Bs there. Does anyone in that region know if this is the case? If so it is another example of the fact that the bottom end of the market rises fastest towards the end of the boom. That's why closer to my region there were large price rises in Hull recently, after many years of very cheep property. It's also why the three-bed council houses in the roughest areas of York are five times the average UK salary (so I guess a lot more than that multiple using our local average). This is probably the biggest danger for FTBs now. The worst areas rise very fast at the end, and then fall very fast in the following slowdown/crash as people are no longer desparate to get on the 'ladder'. That's also why I refuse to buy at present, as I would be playing at this end of the market.

The problem with a straight reduction by £30-35k is that people will just see the price and think there must be some problem with the property. They may not realise your friends clever plan, and think he is overpricing his property just like anyone else. Instead I would knock off some of the price, and flag it as 'reduced for quick sale'. Then I would be very responsive to offers way below the asking price, aiming for the final £165-170k price he wants. That way he can pretend that he is not so happy with their offer when really he is getting exactly the price he has factored into his calculations. P.S. in the EA negotiation he should insit that the agents ensures that the buyer really is in the position to move straight away. From my experience things can drag out even without a chain. I sold my 1-bed flat last year to an investment buyer with no chian, but the sale kept getting delayed because their finance wasn't properly in place. He should also keep in regular contact with his solicitor to nake sure that there are no delays on his side of the transaction.

No-one else picked up on this comment on the effect of BTL. But I'm not sure how true this is. Already there are unemployed people in private rental accommodation who are having to supplement housing benefit because the landlords are charging more than what is assessed as 'fair rent'. So as well as complaining about the unemployed who take our taxes in benefits, why not also complain about the social landlords who are the ultimate recipients of our money? I see two answers to the problem: 1) re-introduce rent control legislation and appeals against rent levels by tenants; 2) greatly increase the amount of council housing / housing association accommodation provision. These measures will stop the greedy BTL landlords from taking our tax money for renting out sub-standard, over priced accommodation. The first measure could reduce the burden of taxation by lessening the amount we need to provide in benefits, whilst not affecting the 'take home' income of the unemployed. However, an additional benefit of the second option is to increase the overall supply of housing, and to make housing more affordable for every member of society.

For me news like this is really exciting. I guess it's not so significant as news of interest rate rises, as interest rates have a direct and immediate effect on what people can afford. However, over the long term the supply of new housing will have an overall effect on house prices. These plans won't have an immediate effect, as the houses won't be ready for a long time yet. However, it will help to stop the perception that prices will rise forever because we're not building enough houses. It's all part of the overall change in opinion that is required. I actually heard a debate about this on radio 4 this morning, and was disapointed that they didn't interview any young people who is having, rather than a local conuncilor complaing about the destruction of her piece of countryside. I really hope that the objections of local people and council members will not be able to prevent us building the houses we need. All these lovely suburban homes that protestors live in were once greenfield sites.

Has anyone considered the effect on the UK economy of all the cash flowing overseas in these foreign buy-to-lets?

It is very easy to look with hindsight and see what one could have achived. However, the important thing is to look at the situation as it is now and base your actions on that. I could have bought at certain times in the past, but was always on short term contracts, and moved around to different places in the UK. I don't really regret not buying then, as it would have caused a lot of stress and hassle I did not need, and I was busy doing other things rather than worrying about estate agents, and DIY shops. I did own a place between 2001 and 2003 as it made sense as the mortgage was less than the rent and prices were rising steadily. I also realised the problems of home ownership as I had to undertake several DIY tasks to put right problems with the house! However, after my last move I chose to sell and not buy again for two reasons: 1) it does not make fiancial sense to buy now; 2) I would like a better place than the one I sold, and the gap to move to the place I want to is too large at present. Rather than buy another one-bed flat I will wait for a more sensible market before reentering.

In fact a lot of that council housing is well built and has large gardens, and lots of communal open space. They may not be as pretty as houses of the same period built for the private sector. But as houses they do compare well to many that are built today! As you imply it is some of the people on these estates that make them less desirable. Quality housing can exist in undesirable areas which can go in and out of fashion over time. On the other hand, I believe that a lot of the tower blocks that were built after the second war did have problems - they were precision engineered, and pre-fabricated in factories, but were not built with enough care by the contractors on site. But once again it was often the behaviour of people inside these buildings that caused the real problems. See for example the history of Trellick Tower http://www.open2.net/modernity/3_14_frame.htm I actually think that the government needs to invest a lot more in social housing if it is to prevent the future problems of a lot of dissatisfied young people who can;t afford the type of homes they should expect.

In most aspects of life people expect to move onwards and upwards. We expect better and cheaper foods, electronic goods, cars etc. But in housing we seem to go the opposite way: housing is ever more expensive and new builds are often more cramped and with smaller gardens than those built in the 1930s. Of course it is interesting to compare the type of people living in housing in the 1950s with who lives there now. It can provide many insights into social change and how areas can rise and fall in popularity. But the current bubble is starkly demonstarted not by comparisons over 50 years, but by a simple comparison over the past five. Try comparing the occupations of people in any area where you can buy now with your own (supposing you were a FTB with modest deposit)! At least where I am I would be sharing strrets with people on beneifts and lots of yong children subject to ASBOs.

I've also seen people at work who have been pleased about their increase in housing wealth realise they have difficulty moving up the 'ladder'. My boss also had an extension done last year to create more space as he realised the cost of the next rung! But for some reason people haven't yet connected the two things! The whole problem with low interest rate theory of why prices are so high is that the interest rates are low because inflation is low. This means that debt and high mortgage repayments stick around for much longer, and make it harder to progress to a better property. To get a similar effect to that in a high inflation environment, people should be reducing the terms of their mortgages. However, I have noted that some people are actually going to longer term mortgages to cope with these inflated prices. Incidentally, I see the increase in extensions etc. as a way private individuals are circumventing the lack of new housbuilding, at least to a certain extent. However, I still think a lot more low cost housing is required to address the current problem.