Question For The Bulls.

[Smell the Fear]

Personally, I bought my second property , a BTL for this reason. I don't plan to kep buying more and more properties to let out because as you know it can be hard work. I have a BTL on my Road. Easy to look after should I need to and every chance of prices infalting because of the close proximity to the town centre, train station, M4, M40 and M25.

The combined value of both my properties is slightly more than a 3 bed detached in the nicest part of my town, so as they inflate, so do my 2 properties. I would prefer a 4 bed but there is more value in extending a 3 bed.

Given the opportunity to buy another property that requires a lot of work, I will sell my residential home and move into my current BTL. Until I can comfortably afford my dream home I will always own 2 properties.

Until interest rates go up, you lose your job and rents drop......

[enworb]

Until interest rates go up, you lose your job and rents drop......

You won't get far in life being so negative. I'm being made redundant next March due to the company relocating but I already have another temporary job lined up in April. Temporary because I will take over as head of engineering when the current one retires. This will pay far more than my current wage and I'll walk away with £20K redundancy.

As for rents dropping, it won't happen in town centres. Interest rates may rise slightly but not too much that I couldn't afford the mortgages.

All facts on my part - wishful thinking on yours

[erranta]

What exactly is this Labour fixation and Mantra that they want(need?) 75% of the population 'owning' their own house????

Getting their hands on those 700,000 empty places with forced sell/comp. purchase is heading them towards their goal!

What does it mean in the picture of things?

What scam are they going to pull when the target is reached??

[Mark5290]

The contents of this thread contain the essence of why FTBs should not buy now. Those people on here who have said they are going to because they cannot wait any longer etc - I hope they are aware of what they are doing.

What a great read, this thread just re-enforces my view of not buying now.

I said to my my mum in our conversation that it would be worth my while (though perhaps not affordable) stretching monthly payments in order to buy a place that I could live and raise a family in over a whole 25 year period without needing to move (e.g. 3 bed instead of a flat or a 2 bed, and after prices crash of course).

Yes this is how i feel aswell, wait for the dust to settle then buy somewhere i could live in for the rest of my life.

[Bull''s Advocate]

"How will these prices be afforded in the future?"

By a long period of stagnation rather than a crash.

[jellybean]

"How will these prices be afforded in the future?"

By a long period of stagnation rather than a crash.

A distinct, but in my opinion, unlikely course of events. Given that this is now a best case senario there is no real reason for anyone to move or buy a house just now. If you have a house pay of you're current mortgage and stop giving the bank many 1000's every year for no return. If you dont have a house, rent and invest, you will get a better return with no risk of negative equity. Or did I miss something.

Also, I am an (IC) engineering manager as well. You have a deal more confidence in the industry than me. I can't say I would feel secure enough to base my financial future on temporary positions, when he retires and property prices wont go down in town centers. You are a braver and more incatious man than me and I fly hangliders and paragliders upside down for a giggle.

[Maynard]

It all makes worrying reading for myself as a wannabe FTB.

There is no way I could afford to get on the ladder now at current prices. Something has gotta give over the next couple of years, I think prices will drop 30-40% (well I hope so). If all goes pop, I'm hoping to buy in late 2007, and will have a nice deposit.

I know a couple who bought a two-up two-down house in late 2003 for 80k. They have just put it on the market for 125k. And they are looking at a house that is on for 235k!

Bear in mind, their combine gross income is about 35k and they have 40k equity (if thy get 125k for their house).

This is just pure madness. Unfortuantely, when I try to explain this to my missus, she says not to be so horrible.

Am i right in thinking a £200k mortgage costs about £10k per year to service alone?

[verolution]

a 200k repayment mortgage would be well over 1k a month

[jellybean]

> Am i right in thinking a £200k mortgage costs about £10k per year to service alone?

I had a look at what portion of my mortage was going to reducing the capital and what portion to paying interest and instantly thought bugger this and put all my savings (largly gained through redundancy and some consultancy ;o) into doing away with it.

As to you're wife. The startegy I used when I was in exactly the same possition was to go nuclear at the mention of moving house. She soon realised that the amount of stress generated by even the slightest suggestion of house moving was just not worth the drama. If anything she is now more averse than me and winces visibly when it's mentioned.

[large]

But, you're just starting off. You're 25 say. You save 20k and somehow (by taking on a truly horrendous mortgage) you buy your first grubby flat for £150k. You have a 130k mortgage.

Name one 25 year old who has 20k.

Graduates are so overloaded with debt the last thing they can think of is buying a house. The only 25 year olds (other than footballers) who have 20k are those who work in the city. They have to spend more than k150 to get on the property ladder, so it is just as hard for them.

Ultimately the only 'FTBs' who can afford to buy now without going into double digit multiples on their mortgage ae those who got divorced or STR'd.

Plus the baby-boomers children should now have bought their grubby little flats, and the source of FTBs is shrinking. With no one coming into the bottom of the market, it will collapse.

[theChuz]

I find it interesting that not one bull has made any attempt to put an argument.

Its because your right, its is one of the main reasons i believe it all has to correct itself, which is why im not botherd about the spin - there is little way out of it all, if GB tries to inflate his way out of the mess the MPC will have to (even half heartedly) rise IR's, the lower the IR's go in the mean time then the more impact the 0.25% rise has, its become an impossible situation, could inflate out of it and save the majority of homeowners but the minority will be destroyed, its the minority that will set the new price.

Im no economist, infact im pretty poor at maths, so could someone put up a reasonable scenario to avoid a correction.

[boom_and_bust]

Its because your right, its is one of the main reasons i believe it all has to correct itself, which is why im not botherd about the spin - there is little way out of it all, if GB tries to inflate his way out of the mess the MPC will have to (even half heartedly) rise IR's, the lower the IR's go in the mean time then the more impact the 0.25% rise has, its become an impossible situation, could inflate out of it and save the majority of homeowners but the minority will be destroyed, its the minority that will set the new price.

Im no economist, infact im pretty poor at maths, so could someone put up a reasonable scenario to avoid a correction.

Hi,

This debate should be pinned.

Exactly! When people sometimes say 'the government won't let it happen', that is utter, utter

crap. The level of government and internationally owed trade debt (let's forget the trillion quid

of mortgage and credit card debt for a second) is at a point of no return. It has to reduce now.

Has to. When nations such as the US and China are helping to finance our government debt,

they are not going to turn around and say 'Oh, I hear that the housing is causing a bit of

trouble in the economy there, well, we can let it go just this time.' Oh no! They want paying. They

want paying now and late interest. Or we'll send the boys around (so to speak). And so US rates are

going up. Now its time for them to buy back dollars, better return, particularly now the Uk

economy is struggling under its debts. But whats that? Sterling starts falling? Making the debt

repayments higher. Can't have that, we have to raise rates to keep sterling up, keep imports

and energy costs down to control inflation, offer a competitive investment return to continue

rolling over borrowing costs. Its happening now, interest rate rises look on the cards as things

stand. The only reason the pyramid scheme worked in the past was because of wage inflation

and people making big trade ups at strategic points in previous market crashes. Given this

current situation? No way at all. You cannot run an economy on a housing pyramid forever.

Boomer

Edited October 23, 2005 by boom_and_bust

[teddyboy]

Great Post!

It has always been at the forefront of my posts. I have just posted a thread on CH4 asking why defend high house prices. All what you say is true and this is the arguement I put across when I say drop them by 40%.

Most 'sheep' 'people' say - you can't drop prices - what about the poor people that have bought in the last 2 years?

Well as much I sympathise with their predicament they will HAVE TO ride out negative equity. This means they have to stay where they are until the get enough equity for their next move. Now lets assume that prices ROSE. These people STILL cant move up the property ladder because of the theory you are explaining.

My situation has factored this.

Terraced in my area are anything from £80k in OK area and VERY VERY small. To £180K in nice areas. Scandalour price for a 'so called' first time buyers house! Semi's are from £120K (needing modernisation) to 350K in good area. Yet again scandelous. I wont pay 100K for a terrace, dont care if its next door to Jennifer Ellison and it has glass walls!!! Its a RIP OFF.

I am saving to get a 20% depost and WILL buy when my purchase price is about £135-140K this means a Mortgage of £100-110K - Our 3x joint salary is £108K. This makes it affordable and to factor IR rises. Mortgage about £650.

I will wait till the semi thats asking 170-180K (but selling price now is only £150-60K) to drop to this level. I aint going up to the price they want, If they want to sell they drop to what the customer can afford. Can you imagine how long e-bay would have lasted if ever product has a reserve NO ONE will pay?

They are coming down and will continue to come down - we have to be patient.

Good things come to those who wait!

Edited October 23, 2005 by teddyboy

[Marina]

"How will these prices be afforded in the future?"

By a long period of stagnation rather than a crash.

Well at least you answered so let's see ...

A long period of stagnation ... how are recent FTBs ever going to move up the chain? They already have a crippling mortgage and, unless they get a serious pay rise, they are just not going to be able to do it.

So, people now at the top of the chain who want to retire - who is going to buy their property. At the moment the top of the mid-end of the market, the 350k to 495k stuff (where I live) is almost unsaleable. You wouldn't want to book your round the world voyage on the strength of selling up and moving down to a bungalow.

Stagnation is not a long term option. Markets don't work like that. It might help property owners to sleep at night to believe that there is some magic force that will 'support' current prices. In reality there isn't. Take away buying pressure and prices have to fall.

So, back to the original question. How is a FTB now ever going to afford say a modest 300k for a detached house? Or 250k for a semi? Or 200k for a terrace? He could live in his flat forever, but people are going to find it hard to have families.

[Marina]

You won't get far in life being so negative. I'm being made redundant next March due to the company relocating but I already have another temporary job lined up in April. Temporary because I will take over as head of engineering when the current one retires. This will pay far more than my current wage and I'll walk away with £20K redundancy.

As for rents dropping, it won't happen in town centres. Interest rates may rise slightly but not too much that I couldn't afford the mortgages.

All facts on my part - wishful thinking on yours

Can you explain how a typical FTB today will ever be able to move up the ladder? Please note the word 'typical'. I am not talking about people earning over 50k a year. I am talking about the average guy earning 25k and his wife earning say 20k. How are they ever going to have a family and move up to a family sized house?

And, of course, let's not forget the huge number of people that earn nothing like the 'typical' figures.

Interestingly, if we have a serious (by which I mean rapid) crash. You will end up with the marvellous situation where it will be cheaper to buy than to rent. Rents will come down - if for no other reason than new investors will enter the market and, having paid less than recent investor, they will still get a yield with lower rents. (Aren't markets great?) Unless you have owned property for a long time, you are going to own a property and be in negative equity. Or you might just get fed up with the hassle of managing a depriciating asset.

[Bull''s Advocate]

A long period of stagnation ... how are recent FTBs ever going to move up the chain? They already have a crippling mortgage and, unless they get a serious pay rise, they are just not going to be able to do it.

How are recent FTBs ever going to move up the chain? It doesn't really matter if they can or can't. Most people don't have to sell, so it doesn't really matter if people higher up the ladder don't sell immediately. They just have to sit and wait a bit longer. We still have plenty of buyers and sellers. I strongly suspect we've never had a time since the market started when there have been no buyers or sellers. I would be inclined to favour the crash secnario if events caused lots more people to sell, without a similar increase in buyers. Interest rates aren't going up any time soon and even if they did it probably wouldn't be by very much. Unemployment isn't a problem. I don't think we're about to witness some kind of economic disaster as some people here and in the media would have you believe.

If people have been able to afford prices up until now, they can carry on affording them. Most people aren't going to voluntarily sit around waiting years to buy a place if that is what they want to do right now. Surely the stories on here about people trying to talk other people out of buying is evidence of that. Even some members have recently decided to buy despite reading everything this site has to offer.

On your final point about people finding it hard to have families, that is irrelevant. The world won't just simply come to an end because people find things are a bit more difficult in the future. They will adapt.

[jellybean]

Some or all of what you say may come true. Personally I doubt it but it is all a matter of conjecture. But surely you must aggree that buying a house or moving at the pressent time is not a sensible decision. If you're senario does not come to pass, which is quite likely, then you are buggered if you bought a house. If it does then hey you lost nothing and are financially better of if you have invested wisely and infinately better of for being able to sleep at night.

Edited October 23, 2005 by jellybean

[Bull''s Advocate]

I would say it would be sensible to be cautious about buying a house at any time. I don't see why stagnation is unlikely. People don't have to drop prices if there are people out there who can buy, which clearly there must have been up until now, so there's no reason why people shouldn't continue to be able to buy. There's also nothing forcing people to sell.

[jellybean]

I would say it would be sensible to be cautious about buying a house at any time. I don't see why stagnation is unlikely. People don't have to drop prices if there are people out there who can buy, which clearly there must have been up until now, so there's no reason why people shouldn't continue to be able to buy. There's also nothing forcing people to sell.

The reason I think there will be significant price falls is, because there will be significant price falls. Not particularly due to any external factors, although things are possibly not quite so rosy as they seemed a while ago.

I think it will mainly be because people feel that there is now a distinct possibility that house prices will fall, so they hold of, so prices come down and so on.

This will have a knock on effect on the economy and the whole thing will become a self fulfiling profecy. From what I gather house price colapses precipitate economic problems, not the other way round.

This is, I know, is equaly as much conjecture as you're own hypothesis, but there are those that will argue that history shows that this is exactly what, has and will happen.

I remeber Mrs T rain and the unreasonable exuberance then. It seemed that Briton was an ecconomic powerhouse full of dynamic entropeneurs and we could do no wrong.

It all went to poo then. I suspect it will again. But, like you, I am only guessing. The fact remains, which even you do not dispute, to invest in property at the pressent moment, would be rash.

I am an athiest, I dont believe in miricles, ecconomic or otherwise. Here in Scotland there is a saying that you have to pay the piper. In this case 1.2 trilion pounds, which will not help the ecconomy either.

Finaly, and most importantly, the price of houses no longer reflects there objective value. The same thing that happend with the tulip bulbs is hapening with houses.

Scotland has a declining population, more land is being given over to construction and supply is increasing and the cost of building a modern timber framed house is negligable.

When you balance this against the amount of money being asked for the ressulting house the equation is clearly out of balance.

The prices are being sustained by exactly the same force, sentiment, that will cause them to fall. Er, that's it.

Edited October 24, 2005 by jellybean

[Marina]

How are recent FTBs ever going to move up the chain? It doesn't really matter if they can or can't.

Sorry, you're wrong there. It matters a lot. Sooner or later some people HAVE to move. A new job. Or maybe they have lost their job. An executor's sale. An extra child. Then there's new houses - these MUST be sold and, in the last crash, builders just had to drop prices until they sold their existing stock. Then, if the price they paid for the land made new development uneconomic, they stopped building - or went broke (lots did). If you have stretched yourself to buy a flat, how will you feel about having to live in a flat all your life?

Most people don't have to sell, so it doesn't really matter if people higher up the ladder don't sell immediately. They just have to sit and wait a bit longer. We still have plenty of buyers and sellers. I strongly suspect we've never had a time since the market started when there have been no buyers or sellers. I would be inclined to favour the crash secnario if events caused lots more people to sell, without a similar increase in buyers. Interest rates aren't going up any time soon and even if they did it probably wouldn't be by very much. Unemployment isn't a problem. I don't think we're about to witness some kind of economic disaster as some people here and in the media would have you believe.

We are about to witness an economic disaster but, even if we don't and things just plod along, the nature of markets means people become very worried about buying into a falling market.

If people have been able to afford prices up until now, they can carry on affording them.

Er, they can't. Less and less houses are being sold. The national figures mask huge regional variations. In the South the market is very, very dead. This is masked by the fact that until very recently people were still BTLetting in places in the North. I could show you block after block of new build 2 bed flats and loads of 4 bed detached houses that have been on the market for a year unsold.

Most people aren't going to voluntarily sit around waiting years to buy a place if that is what they want to do right now.

There is nothing volutary about sitting around waiting for years - young people have been priced out the market by investors. Now prices have risen so high investors cannot make a sensible return and are getting scared their hope of capital growth is not going to happen - worse they are going to lose money. Again it's regional. I could show you blocks of flats round here with a FOREST of EA's For Sale boards outside them. BTLetters trying to get out while they can.

Surely the stories on here about people trying to talk other people out of buying is evidence of that. Even some members have recently decided to buy despite reading everything this site has to offer.

On your final point about people finding it hard to have families, that is irrelevant. The world won't just simply come to an end because people find things are a bit more difficult in the future. They will adapt.

Quite definitely the most daft of your comments. How can you adapt to being faced with a market that demands a massive multiple of your salary simply to buy a studio flat and which (if what you say is true) then stubbornly refuses to allow you to ever move up and buy a house to have a family in. Having a family is the most fundamental part of our nature. Why should the current generation have to go back to Dickensian times and try to all live in one room. Because, if the housing market does not change, this is what must happen. This will be 'adapting' in action. Personally, I don't think this generation will be too keen on it. Things are not 'a bit more difficult'. They are 'a lot more difficult'. The market has been distorted by investors. People did not push houses to double because they wanted to pay double what someone paid 5 years ago. They doubled because greedy investors thought that they had found a way to never work again. Many of them will find it's the latest way to go bankrupt.

[boom_and_bust]

I would say it would be sensible to be cautious about buying a house at any time. I don't see why stagnation is unlikely. People don't have to drop prices if there are people out there who can buy, which clearly there must have been up until now, so there's no reason why people shouldn't continue to be able to buy. There's also nothing forcing people to sell.

Hi,

Well, we aready know that affordability (income mutliples etc.,) is about the most historically stretched ever. The only other time it has reached close to such levels is during past crashes. I can't really see how people will carry on buying if they cannot afford. And that is clearly the case now. How can HPI drop from 20% to close to 0% in a year at the same time that transaction volumes have slumped around 50%. How else do you read that? That is market forces at work. Prices are too high. Unreachable for FTB or people wishing to trade up, risky and poor investment for speculators.

I cant think of a time in history where a stagnant market has worked. By stagnation, what we usually, really mean is in the Japanese fasion where, after big price falls, the market continues to decline at a more modest level because people do not want to invest.

The next year is the one to watch. Sterling is under big pressue in the markets. Other nations are raising rates, putting further pressure on sterling falls. If BoE - Gordon just let it fall, that will be pretty bad news for the economy in terms of inflationary pressures and government Fiscal and Trade debt servicing. The alternative is to raise rates. Probably the more likely. Given inflation in both the US and China is getting uncomfortably high for their liking, it could be more than just a percentage point. Either way, Gordon has cornered the economy into a cul-de-sac by sacrificing the economy to property speculation and none of the other nations who pursued similar policies and are ahead of us in the cycle have managed to get out of that pickle without some HPC. Its not a nice situation but BoE and Gordy have bought us there. Other nations with more moderate policies have done a reaonable job in avoiding the destructive mess of rampant (HPI) inflation in the economy.

And it may not be such a helpfull thing to be glib about the situation. It was only 20 years ago that the nation was engulphed in serious social unrest and rioting in the inner cities for a prolonged period. We have seen similar, smaller eruptions in the last few years in deprived areas of the Midlands and North. If groups of society start to feel subjugated, even though it is the wrong way to go about things, it has usually ended in some pretty nasty social consequences. Let's say you are second generation asian or africain immigrant living in a forgotten, run down inner city, maybe feeling you have little stake in the economy, seeing property speculators and BTL'ers around you, providing the roof over your head either directly or through local council subsidy of BTL, a roof you may feel you could never afford however hard you work, just because you were too young to buy when prices were reasonable? OK, it is an extreme example but it serves the point. If people don't feel they can control their own lives, however wrongly or rightly the actions, they kick back. A hundred years ago British people fled their own island on mass to go to the New Worlds. That directly lead to the loss of the Empire territories. You see, it's not like the film 'Wall Street' or something like that where a few hackneyed one liners sufice. In the reality of things, these issues cause real economic and social consequences. Find me one example of any economic and social Status Quo that has ever persisted in History. No, it's not different this time either.

Boomer

[LazyDay]

How are recent FTBs ever going to move up the chain? It doesn't really matter if they can or can't. Most people don't have to sell, so it doesn't really matter if people higher up the ladder don't sell immediately. They just have to sit and wait a bit longer.

...

If people have been able to afford prices up until now, they can carry on affording them. Most people aren't going to voluntarily sit around waiting years to buy a place if that is what they want to do right now. Surely the stories on here about people trying to talk other people out of buying is evidence of that. Even some members have recently decided to buy despite reading everything this site has to offer.

I am certainly not from the “UK economy is doomed” camp, the influence of which some of the members of this forum seem to be vulnerable to; however I would like to point out why the “stagnation” scenario of a prolonged period of stable real house prices is not viable under current conditions.

The “stagnation” scenario can not become a self-fulfilling prophesy in a market full of investors who can pick up things and switch to shares/bonds/gold etc any day when they decide they are not happy here, whereas boom and bust both do belong to self-fulfilling solutions. There are too many new investors on the market who are there merely for that (shrinking) capital gain to allow for the stagnation. Your arguments would have been solid and stagnation would have been possible if there were not too much new investor money. Now it is either up or down and the latter is more probable.

[Tempest]

A classic pinned thread indeed.

I see 30 somethings buying (or recently bought) property at 4 times joint incomes or 6/7 times single incomes and wonder what has happened. Not only are they deluding themselves over their future wage prospects (by their mid 30s most average people are near to towards their peak salary and have nowhere to go to to trade up if HPI doesn't help them (and it can't as you say) or they earn a great deal more) but they are taking out fresh 25 year mortgages (even of they are second time buyers and are 5-7 years into an existing 25 year mortgage). They will still be paying the mortgage off at 60!

The top of the ladder will suffer as the gap closes over time (ie as the scheme collapses under its own weight). Once (post the HPC) it become better known what people had taken on in terms of commitment/debt etc, the next lot will be reluctant to do so themselves (at least for a while) a la Japan.

[Bull''s Advocate]

Amongst the responses, sentiment is being used as the main argument for a crash. Yet this very much depends on convincing the majority of would-be buyers that prices are going to fall significantly in a relatively short period of time. If people believe that prices are going to rise slowly, stay still, or fall slowly, they won't feel that there's much risk in buying, especially if you combine that with the belief that interest rates aren't going to go up, and the belief that their jobs are relatively safe.

I think the forced sellers argument is irrelevant, as the numbers are probably insignificant. How often do you hear people saying they are selling their house because they have to?

Any falls there may have been will have to become more widespread and accelerate for your sentiment argument to work. There is no evidence that this is happening. Of course, this is the point where people pitch in to say "give it another six months" like I've kept on reading almost since this site started. I was not convinced back then, and I am not convinced now. Every tiny bit of negative news is wildly exaggerated on this site. It's amazing how much people are willing to believe and exaggerate the negative.

It will be interesting to see what excuses people continue to come up with if things continue not to pan out as they expect, given the overwhelming confidence displayed here.

[Marina]

Amongst the responses, sentiment is being used as the main argument for a crash. Yet this very much depends on convincing the majority of would-be buyers that prices are going to fall significantly in a relatively short period of time. If people believe that prices are going to rise slowly, stay still, or fall slowly, they won't feel that there's much risk in buying, especially if you combine that with the belief that interest rates aren't going to go up, and the belief that their jobs are relatively safe.

I think the forced sellers argument is irrelevant, as the numbers are probably insignificant. How often do you hear people saying they are selling their house because they have to?

Any falls there may have been will have to become more widespread and accelerate for your sentiment argument to work. There is no evidence that this is happening. Of course, this is the point where people pitch in to say "give it another six months" like I've kept on reading almost since this site started. I was not convinced back then, and I am not convinced now. Every tiny bit of negative news is wildly exaggerated on this site. It's amazing how much people are willing to believe and exaggerate the negative.

It will be interesting to see what excuses people continue to come up with if things continue not to pan out as they expect, given the overwhelming confidence displayed here.

I'll ask the question again. How do you expect a FTB paying £150k NOW for his first flat to ever make it up the ladder to a 4 bed detached house? Or even a semi? Where I live, at the moment, fairly bog-standard ones are 300k and 250k respectively. That means that, deposit apart, those people will eventually have to borrow all that money in order to own those houses. How does it work? And if you factor in some HPI above wage inflation - then it gets even worse. They might have to borrow 500k to live in a 3 bed semi. Quite a trick on an average wage of 25k plus whatever a partner earns.

This is nothing to do with sentiment. Just simple facts. Average house prices are about twice as high as they should be in relation to average wages. You can't buck by thinking there is some magic pressure that will sustain prices where they are. It actually isn't possible.

Edited October 24, 2005 by Marina