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Matt

On What Basis Are House Prices Going To Stay At This Level?

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No links here, just my thoughts. All economic commentators say that prices are 30-40% above their long term or 'true' value, as based on prices relative to affordability and rental value. Rents are not able to cover the costs of buying a property today (in general) and first-time buyers are priced out. Eventually (now) fewer people are going to buy property and this will cause prices to fall. Simple. So what argument do the 'bulls' have to justify prices today?

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No links here, just my thoughts. All economic commentators say that prices are 30-40% above their long term or 'true' value, as based on prices relative to affordability and rental value. Rents are not able to cover the costs of buying a property today (in general) and first-time buyers are priced out. Eventually (now) fewer people are going to buy property and this will cause prices to fall. Simple. So what argument do the 'bulls' have to justify prices today?

If interest rates in the 2000s and 2010s continue at half or less of the levels that were seen in the 1980s and 1990s, then rental yields that are half of recent historical levels look quite attractive, and much higher mortgage to income ratios can be sustained. It's really that simple. If interest rates go back to around 10%, then houses are certainly very overpriced.

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Yes, but current rental income can only support house prices that are about 30-40% lower than today. This is what I can't understand in the house-prices-are-not-a-rip-off argument.

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Yes, but current rental income can only support house prices that are about 30-40% lower than today. This is what I can't understand in the house-prices-are-not-a-rip-off argument.

You're ignoring the capital growth. With salary increases (and thus trend house price increases) at 4% and BTL mortgage rates at 5.5%, you only need yield of over 1.5% plus the costs of voids and maintenance in order to make money in the long run, although admittedly the cash flow position is not great.

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Captial growth in a falling market? Still don't get it. There's no point in buying to let unless you're paying off the mortgage and even with interest only mortgages prices are sitll well overvalued.

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You're ignoring the capital growth. With salary increases (and thus trend house price increases) at 4% and BTL mortgage rates at 5.5%, you only need yield of over 1.5% plus the costs of voids and maintenance in order to make money in the long run, although admittedly the cash flow position is not great.

Ah, now I get it. It's a savings scheme. You pay in £300 or £400 a month (the difference between rent received, maintenance and voids and your mortgage payment) and you hope that capital appreciation will be greater than the money you've 'saved'. Sounds great. No wonder so many people are pouring into BTL at the moment.

Edited by Marina

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Captial growth in a falling market? Still don't get it. There's no point in buying to let unless you're paying off the mortgage and even with interest only mortgages prices are sitll well overvalued.

What falling market?

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Some factors you need to consider ....

1. The market is slow to adjust. Unlike the stock market which adjusts in a few hours, it take a couple of years. This is partly because many of the market participants are badly-informed, unbusinesslike and driven by emotion (which is no reproach to them - buying houses is not their main occupation) and partly because transactions take months not seconds.

2. Recent BTL purchasers are making the classic novice investor's mistake of buying AFTER a run of capital appreciation on the naive idea that it will continue. They will lose money, but they have fuelled the end of the bull market for a couple of years.

3. Recent owner-occupier purchasers can actually afford their repayments at present. They are paying a higher share of monthly income for their home than most people in the UK have previously, but they can afford it for the time being. The issue is that if there is a change to current circumstances (higher rates, job losses) then some of the will not be able to. A secondary issue is whether there is a point at which they (or subsequent prospective purchasers) will get fed up with paying such a high percentage for housing.

More if I don't get shouted at .... :):):)

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  • 335 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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