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AntiSpeculator

Alternative Hp Scenario - Apologies If Unoriginal.

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Leaving aside well-reasoned economic arguments... this is one theory - wastage in the middle and then the bottom falls out.

I think that this has already started to happen in some ways.

If there's no general large HPC (correction / whatever) then the BTL brigade will be able to hang on to the low end flats (to ride out any short term discomfort) causing prices there to remain high. Maybe even more BTLers will buy flats.

This means most FTBs would remain priced out of the first "rung" of the "ladder" for the foreseeable future.

Eventually the market would reach a saturation point at which point all the vaguely sustainable new BTLing that can happen has happened. (We may at this point now.)

At that point there would be very, very few people selling their flats and moving up to the next rung (three bed semi or whatever). This would by neccessity put strain further up the ladder/whatever you want to call it. This reduction in demand for 3 bed semis must make the price attainable on those properties go lower... and so on up the ladder. This is the first stage of the correction.

At some point the gap between flats and 3 bed semis would become narrow enough to make FTBs think "hang on - if I just save up a bit longer for a bigger deposit I can afford a much better place for the same mortgage"

That's what I would do - Failing a "proper HPC" in a reasonable timescale I will just save up for longer and leapfrog the first rung (or two) of the "ladder". "No way am I paying loads of money for a cr@ppy flat when I can pay loads of money + £1 for a house" etc

During that time of saving I would have to rent, supporting the rental sector and BTL margins by more than would normally be the case. Of course, I don't care that I'm renting because it's still cheaper than buying!

When enough people have saved up the extra deposit required...

Eventually demand for three bed semis and upward would pick up after the initial correction.

At this point, however, things start to look bad for the bottom rung and the BTL crowd as no one would aspire to own a flat at that point, and what's worse is... people are moving out of rented flats to (dare I say it) buy property :ph34r: . Prices of flats would fall, as would rental income.

This scenario would be odd because the prices of bottom rung would fall only after the rest of the market has already corrected itself!

Maybe it's always worked in this fashion to some extent and I was too thick to see this before...

Or maybe the whole market will just carry on redefining "impossible".

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For the market as a whole such changes happen concurrently rather than sequentially.

Eventually the market would reach a saturation point at which point all the vaguely sustainable new BTLing that can happen has happened. (We may at this point now.)

In most parts of the country the market is already long past that point -- a large letting agent in my locality, for example, has a steadily lengthening list of properties on offer and is now offering tenants a full refund of all fees.

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I think that's an interesting point, if the price differential between typical btl property such as 1-2 bed flats and say 3 bed houses is too narrow, why would anybody buy a flat? I think the bands have already narrowed, it would be interesting to see the average prices for different types of property now compared to say 5 or 10 years ago.

If the bands become too narrow I couldn't see the prices of smaller, btl-style property being sustained. It's just supply and demand, if no-one wants them at a certain price, then prices drop. If the smaller properties are priced corectly, but the price differential with larger properties is small then demand chases up the prices of the larger properties to restore the differential.

Perhaps running costs of houses will become more of a factor too. Ever increasing council tax and fuel bills, combined with tax rises through fiscal drag and stealth taxes are leaving us poorer and poorer. At some point there has to be a correction with things stabilising. How does that happen? Lower tax through public sector efficiencies (v.unlikely) wage inflation (leading to higher interst rates) or controllable costs such as retail spending or housing dropping. How do you reduce housing costs? down-size, live with your parents, get a lodger or rent/buy with a friend.

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AS,

I think this may well play out.

My personal plan is to "get on the property ladder" when I think there is some sanity in the market. Until then I plan to rent and save/invest to increase my deposit etc and potentially leap over the bottom rungs of the ladder as you suggest.

As far as I can see, prices of "typical" FTB properties have been driven up to very high levels by "investors" who don't mind that the rental yield is now very low (below 5% in my case).

If prices fall to more realistic levels I will look at buying. If not and, as is the case at present, prices are high but volumes are down and there is a distinct mis-match between supply and demand of property we will see many FTBs still priced out of the market but less and less NEW BTL buying (their net new purchases are the only thing really sustaining current price levels in my opinion).

This in turn might mean the traditional "property ladder" collapses. Those FTBs who did max out their debt do not build up equity (with no notable price rises - and perhaps the stagnation theorists' seven/ten years of flat prices) nor benefit from notable rises in income so they are "stuck" on the bottom rung. And if BTL landlords continue to prop up the market by buying duff yields and increasing their gearing yet further then, without further capital growth, they will be unable to release these owners of FTB properties to move up the chain.

I think it may well (by no means certain) be that astute potential FTBs (with good earnings, good deposits, good investments) can then provide liquidity to the next step up the ladder... where it may in time become yet more of a buyers' market even if the bottom rung dries up.

I have been wondering to myself recently whether the traditional property ladder exists in the way it used to. I'm not sure it does. And to stretch an analogy, perhaps the ladder has slipped.

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Interesting point. I for one will be leap frogging onto a 3 bed (I hope). I've just decided that all this is ridiculous and I don't want to go through it again if I need to move up to something bigger.

But yes, I will be saving a bit more and going in on the 2nd / 3rd step up.

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Leaving aside well-reasoned economic arguments... this is one theory - wastage in the middle and then the bottom falls out.

I think that this has already started to happen in some ways.

If there's no general large HPC (correction / whatever) then the BTL brigade will be able to hang on to the low end flats (to ride out any short term discomfort) causing prices there to remain high. Maybe even more BTLers will buy flats.

This means most FTBs would remain priced out of the first "rung" of the "ladder" for the foreseeable future.

Eventually the market would reach a saturation point at which point all the vaguely sustainable new BTLing that can happen has happened. (We may at this point now.)

At that point there would be very, very few people selling their flats and moving up to the next rung (three bed semi or whatever). This would by neccessity put strain further up the ladder/whatever you want to call it. This reduction in demand for 3 bed semis must make the price attainable on those properties go lower... and so on up the ladder. This is the first stage of the correction.

At some point the gap between flats and 3 bed semis would become narrow enough to make FTBs think "hang on - if I just save up a bit longer for a bigger deposit I can afford a much better place for the same mortgage"

That's what I would do - Failing a "proper HPC" in a reasonable timescale I will just save up for longer and leapfrog the first rung (or two) of the "ladder". "No way am I paying loads of money for a cr@ppy flat when I can pay loads of money + £1 for a house" etc

During that time of saving I would have to rent, supporting the rental sector and BTL margins by more than would normally be the case. Of course, I don't care that I'm renting because it's still cheaper than buying!

When enough people have saved up the extra deposit required...

Eventually demand for three bed semis and upward would pick up after the initial correction.

At this point, however, things start to look bad for the bottom rung and the BTL crowd as no one would aspire to own a flat at that point, and what's worse is... people are moving out of rented flats to (dare I say it) buy property :ph34r: . Prices of flats would fall, as would rental income.

This scenario would be odd because the prices of bottom rung would fall only after the rest of the market has already corrected itself!

Maybe it's always worked in this fashion to some extent and I was too thick to see this before...

Or maybe the whole market will just carry on redefining "impossible".

...sure it is possible,BUT:

BTL are not interested in just providing a service.they want to make money.

...now what happens when it becomes crystal clear that they could make more money doing x(a subject of the media's choosing)?.....simple.they bail out and go headlong into the newly announced get-rich-quick scheme.

we've seen it with shares,with property,and now the new one(although the sheep don't know what it is yet)

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...sure it is possible,BUT:

BTL are not interested in just providing a service.they want to make money.

...now what happens when it becomes crystal clear that they could make more money doing x(a subject of the media's choosing)?.....simple.they bail out and go headlong into the newly announced get-rich-quick scheme.

we've seen it with shares,with property,and now the new one(although the sheep don't know what it is yet)

I thought this until fairly recently and then I was thinking about the pychology of big investments...and property is a BIG investment...

What happens when people put a huge amount of money into something they think has great potential? They hold on to it because they think it must succeed. In the face of small losses they say "oh well, in the long run I'll make it up". As the losses mount they say "I can't sell now because I need to make up for the losses I've accrued".

It takes serious discomfort before people will admit the mistake and cut their losses short - which in many cases is gonna be bankruptcy.

I just reckon the BTL crowd are gonna take longer to crack than people think.

BTW I don't think the scenario I painted describes the situation very well or full detail, it was just a different possible scenario.

Edited by AntiSpeculator

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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