Jump to content
House Price Crash Forum

Recommended Posts

Newsflash; some corrupt central bankster just tied interest rates down, linked them to an unemployment imporvement and gave himself an extra 50bps of headroom in the inflation target.

Probability is very low for a while!

Of course, but if I was said couple, I'd be effectively renting the house from a bank for 30+ years, so I'd be looking a bit further than the next election.

It is a valid point, though, as I doubt most people entering in to these massive mortgages look much further than the next year or two.

Link to post
Share on other sites
  • Replies 78
  • Created
  • Last Reply

Top Posters In This Topic

People on this website have been arguing for 10 years that prices are on the verge of a crash and that anyone who disagreed was an ignorant member of the sheeple. The arguments seem to make a lot of sense but the only problem is they've been consistently wrong year after year. It seems extremely unlikely to me that London prices are going to fall anytime soon. Interest rates aren't going anywhere (government will do whatever's necessary to avoid them going up), help to buy is about to kick off, the economy is showing signs of life after years in the doldrums, rents are shooting up, population is growing and we're still not building. The window for a crash has passed. Look at the graph on the front page of the website. It's a good time to buy. Admit you got it wrong and get on with your life.

Link to post
Share on other sites

There are many examples of drops in nominal house prices greater than 40%. I fully expect London to be added to that list given the size of its departure from fundamentals (especially wages) over the last 18 years.

All I see in my nondescript zone 4 suburb is BTL types grabbing everything going when the gross yield reaches somewhere near 5.5%. I can imagine that a large increase in interest rates (without compensating pay inflation) will blow everything apart, but without that what changes?

With the government owning many of the banks and being about to guarantee mortgages for FTB you can bet they will try the printing press approach at the first sign of significant falls.

Link to post
Share on other sites

People on this website have been arguing for 10 years that prices are on the verge of a crash and that anyone who disagreed was an ignorant member of the sheeple. The arguments seem to make a lot of sense but the only problem is they've been consistently wrong year after year. It seems extremely unlikely to me that London prices are going to fall anytime soon. Interest rates aren't going anywhere (government will do whatever's necessary to avoid them going up), help to buy is about to kick off, the economy is showing signs of life after years in the doldrums, rents are shooting up, population is growing and we're still not building. The window for a crash has passed. Look at the graph on the front page of the website. It's a good time to buy. Admit you got it wrong and get on with your life.

I agree unfortunately. I was reading City AM this morning and there was a story on the front page about house price increases driving the economy and this is from a paper that generally understands that economic recovery is based on other factors.

The general public who don't understand that seem to be piling back in with increased demand and massive mortgage borrowing. The longer the government prop this up, the less able they are to ever let it go.

Link to post
Share on other sites

All I see in my nondescript zone 4 suburb is BTL types grabbing everything going when the gross yield reaches somewhere near 5.5%. I can imagine that a large increase in interest rates (without compensating pay inflation) will blow everything apart, but without that what changes?

With the government owning many of the banks and being about to guarantee mortgages for FTB you can bet they will try the printing press approach at the first sign of significant falls.

I am out in zone 6 but seeing the opposite. Flats and typical BTL fare are really struggling to sell, but houses are going very quickly mainly to people moving out of more central areas of London.

One house just sold on the first day for a price that equates to in excess of £800 per sqft which I think is a record for this area. There is another one asking £900 per sqft that hasn't sold so maybe that is pushing the envelope just a little too far at the moment.

Link to post
Share on other sites

I am out in zone 6 but seeing the opposite. Flats and typical BTL fare are really struggling to sell, but houses are going very quickly mainly to people moving out of more central areas of London.

One house just sold on the first day for a price that equates to in excess of £800 per sqft which I think is a record for this area. There is another one asking £900 per sqft that hasn't sold so maybe that is pushing the envelope just a little too far at the moment.

Yes this is another massive trade that is still yet to happen.

If you look at new dwelling creation it is all flats and small houses so now in the south east we have a disproportionate amount of these small dwellings in the hands of BTL and FTBs.

The price of >150sq m vs. <60sq m will explode.

Link to post
Share on other sites

Yes this is another massive trade that is still yet to happen.

If you look at new dwelling creation it is all flats and small houses so now in the south east we have a disproportionate amount of these small dwellings in the hands of BTL and FTBs.

The price of >150sq m vs. <60sq m will explode.

Yes this is exactly what I am seeing. Back in 2007, a 500sqft 1 bed flat would sell here for £250k wheras an 1,100sqft Victorian cottage would probably make £450k, so £500 per sqft for the flat and £400 per sqft for the house.

Now the flat is still £250k but the house is more like £600k or £550 per sqft. The one I mentioned at £800 per sqft was a very small detached house with a large garden so has easy scope to enlarge it for relatively little outlay. I can totally understand it - if you are moving out of Clapham or Fulham to live in Surbiton,It is only worth it if you get a house or you may as well stay put. Everything is comparatively so cheap that paying way over the (local) odds does not really matter.

Strangely I am not seeing this all over London. I have seen a small 1 bed flat go in in Penge, SE London for £265k! That probably would have been £100k back in 2007, so flat prices are certainly flying in some areas, just not the more established ones.

Edited by worried1
Link to post
Share on other sites

Yes I'm seeing this pattern too. I was talking to one of my colleagues about this a few weeks back, he bought in 2009 or maybe early 2010 he said he had no chance to buy his own house today which is scary.

We think that house prices accelerate much faster than flats in London because there's a large number of regeneration projects in London and they are mainly flats so the ratio is skewed around London especially in area considered family friendly.

Link to post
Share on other sites

Yes I'm seeing this pattern too. I was talking to one of my colleagues about this a few weeks back, he bought in 2009 or maybe early 2010 he said he had no chance to buy his own house today which is scary.

Yep, that is scary alright, especially when you consider that there was already enough unrest with high prices to form this website back in 2002! Since then, we have had the 2007 'peak' and now the 2013 'peak' which for some houses around here is 4x 2002 value and nearly double 2007!

We think that house prices accelerate much faster than flats in London because there's a large number of regeneration projects in London and they are mainly flats so the ratio is skewed around London especially in area considered family friendly.

It is all just supply and demand. In my area houses in the best roads seem to be on Rightmove for a day before being sold, but they come up at the rate of about one a month. Flats on the same roads take about 2 months to sell, but I'd estimate that one comes on the market most weeks.

This area is further skewed by the fact that people come here from central London especially looking for a house so when they come into a market that is 90% flats and start throwing a lot of money around there is only one thing that can happen.

Link to post
Share on other sites

Fact, fiction, or myth? Link please.

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/9655401/More-than-half-of-London-mortgages-still-interest-only.html

It's both incredible that this actually happened and incredible that it's not more widely known.

Edited by Dorkins
Link to post
Share on other sites
  • 2 weeks later...

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/9655401/More-than-half-of-London-mortgages-still-interest-only.html

It's both incredible that this actually happened and incredible that it's not more widely known.

Property ownership in London is certainly very affordable at the moment. That is not in dispute. What is more remarkable is just how cheap some rentals are right now in some areas. In my area - zone 3 west London - rentals are not to far off where they were a decade ago. In nominal terms!! Meanwhile, the traditional differential between areas has been eroded. Both for rentals and for sales. What should be cheap areas are now stupidly expensive, and the more desirable areas are now not much more expensive than the cheaper areas.

Clearly there is something going on in the London market beyond supply and demand and cheap Chinese money. To me, the prime suspect is Housing Benefit. There is effectively a flat rate of HB across London. Zone 6 is pretty much the same as zone 1 now. There is a bit of arbitrage going on as low yields in the centre are traded for higher yields in the periphery. However, there is a lot of choice in the rental market right now. The most i've seen in 14 years. If you have a good job and are not on benefits you can take your pick of a nice place in a nice area for not much more than a dump in a ghetto. Meanwhile, the dumps in the ghettos are becoming unlettable and getting converted into HMOs. It's a reverse gentrification process if you like.

Where will this all lead? I don't know -but I'd be very careful exactly where I bought a property in London right now. All that glitters is certainly not always gold!

Link to post
Share on other sites

Property ownership in London is certainly very affordable at the moment. That is not in dispute. What is more remarkable is just how cheap some rentals are right now in some areas. In my area - zone 3 west London - rentals are not to far off where they were a decade ago. In nominal terms!! Meanwhile, the traditional differential between areas has been eroded. Both for rentals and for sales. What should be cheap areas are now stupidly expensive, and the more desirable areas are now not much more expensive than the cheaper areas.

Clearly there is something going on in the London market beyond supply and demand and cheap Chinese money. To me, the prime suspect is Housing Benefit. There is effectively a flat rate of HB across London. Zone 6 is pretty much the same as zone 1 now. There is a bit of arbitrage going on as low yields in the centre are traded for higher yields in the periphery. However, there is a lot of choice in the rental market right now. The most i've seen in 14 years. If you have a good job and are not on benefits you can take your pick of a nice place in a nice area for not much more than a dump in a ghetto. Meanwhile, the dumps in the ghettos are becoming unlettable and getting converted into HMOs. It's a reverse gentrification process if you like.

Where will this all lead? I don't know -but I'd be very careful exactly where I bought a property in London right now. All that glitters is certainly not always gold!

Agree residential property is very affordable to rent and buy......what could possibly go wrong?

Link to post
Share on other sites

Agree residential property is very affordable to rent and buy......

That's not quite what I said. Right now property purchase in the capital is affordable, but not cheap. Meanwhile, rentals are cheap, but not affordable. Let me explain.

Firstly rentals. The demographics in the PRS has changed fundamentally in the last decade. Certainly in London, possibly nationally too. A decade ago, most rentals were to professionals, couples or singles sharing. People with good jobs with reasonable wages who would go on to buy houses or take their savings back to Oz, NZ, etc. Rents were high, but clearly affordable by the tenants with the high London incomes. Low income households were largely excluded from the PRS and relied on social housing. Since then the PRS in London has expanded massively, but now more tenants are on low incomes and supported by housing benefit. The young professionals have largely disappeared. Educated Ozzy backpacking accountants have been replaced with polish builders. More supply in the PRS has kept down prices. However the cheap rents are clearly unaffordable as so many households need government support to pay their rent.

Meanwhile, over in sales, unfeasibly low rates make interest payments affordable on just about any property you can scrape a deposit together for. BTLers and professionals with the means to escape the PRS do the sums and and bid up properties to match the cashflow in the PRS. ie. interest payments equal rents. So while interest payments might be affordable no one can ever pay down the principle. The numbers are just too huge. Inflation would help, but that would force up rates which would destroy many players in the process and bring down prices anyway. Es Property is not cheap.

Outside of the most exclusive areas, rents and house prices are suspiciously uniform across the capital. Essentially flat rates of HB are the cause of this. The main London property market is supported by the benefit system and there is no public support or political will to maintain the system. Some parts of London will get very burnt I think.

Link to post
Share on other sites

That's not quite what I said. Right now property purchase in the capital is affordable, but not cheap. Meanwhile, rentals are cheap, but not affordable. Let me explain.

Firstly rentals. The demographics in the PRS has changed fundamentally in the last decade. Certainly in London, possibly nationally too. A decade ago, most rentals were to professionals, couples or singles sharing. People with good jobs with reasonable wages who would go on to buy houses or take their savings back to Oz, NZ, etc. Rents were high, but clearly affordable by the tenants with the high London incomes. Low income households were largely excluded from the PRS and relied on social housing. Since then the PRS in London has expanded massively, but now more tenants are on low incomes and supported by housing benefit. The young professionals have largely disappeared. Educated Ozzy backpacking accountants have been replaced with polish builders. More supply in the PRS has kept down prices. However the cheap rents are clearly unaffordable as so many households need government support to pay their rent.

Meanwhile, over in sales, unfeasibly low rates make interest payments affordable on just about any property you can scrape a deposit together for. BTLers and professionals with the means to escape the PRS do the sums and and bid up properties to match the cashflow in the PRS. ie. interest payments equal rents. So while interest payments might be affordable no one can ever pay down the principle. The numbers are just too huge. Inflation would help, but that would force up rates which would destroy many players in the process and bring down prices anyway. Es Property is not cheap.

Outside of the most exclusive areas, rents and house prices are suspiciously uniform across the capital. Essentially flat rates of HB are the cause of this. The main London property market is supported by the benefit system and there is no public support or political will to maintain the system. Some parts of London will get very burnt I think.

Agree with a lot but all.

1) Prices have not been bid so that cash flows between mortgage interest and PSRs are matched, go back to the original post and you will see that prices are roughly bid so that mortgage capital and interest payments equals PSRs. The notion that no-one can pay down the principle is not entirely correct. Seen a lot of nonsense on here about interest only mortgages in the capital, the problem is no-one has found out what the embedded LTV is in these mortgages but given the trend in nominal prices it is hard for anyone to be under-water.

2) I would question that there is limited public support or political will for this. 64% of families in the UK receive benefits and of this group 47% get more than half of their income from the welfare state. Using the working assumption that politicians need votes then it is clear that this irresponsible use of borrowing from future generations will continue to keep peace on the streets. Secondly we live in a country where the legal system is built around land ownership and the concentration of real wealth is contained with land owners. So to keep the 1% or the 0.1% happy then the politicians need to keep property incomes strong AND price the riff-raff out of ever owning land and breaking away from serfdom.

3) Unfeasibly low rates, they've been that way for 5 years! What is unfeasible is high rates - all in, the UK is 9x levered, so by definition 10% is the upper limit before we implode, so we need to be comfortably below this level! Are we going to have 5% interest rates and have an interest bill all in that is 45% of GDP – no way!! Also, Carney said yesterday if the market rates move against him he will print market rates back down again through more manipulation of the gilt market.

Link to post
Share on other sites

Agree with a lot but all.

1) Prices have not been bid so that cash flows between mortgage interest and PSRs are matched, go back to the original post and you will see that prices are roughly bid so that mortgage capital and interest payments equals PSRs. The notion that no-one can pay down the principle is not entirely correct. Seen a lot of nonsense on here about interest only mortgages in the capital, the problem is no-one has found out what the embedded LTV is in these mortgages but given the trend in nominal prices it is hard for anyone to be under-water.

2) I would question that there is limited public support or political will for this. 64% of families in the UK receive benefits and of this group 47% get more than half of their income from the welfare state. Using the working assumption that politicians need votes then it is clear that this irresponsible use of borrowing from future generations will continue to keep peace on the streets. Secondly we live in a country where the legal system is built around land ownership and the concentration of real wealth is contained with land owners. So to keep the 1% or the 0.1% happy then the politicians need to keep property incomes strong AND price the riff-raff out of ever owning land and breaking away from serfdom.

3) Unfeasibly low rates, they've been that way for 5 years! What is unfeasible is high rates - all in, the UK is 9x levered, so by definition 10% is the upper limit before we implode, so we need to be comfortably below this level! Are we going to have 5% interest rates and have an interest bill all in that is 45% of GDP – no way!! Also, Carney said yesterday if the market rates move against him he will print market rates back down again through more manipulation of the gilt market.

Your numbers in the original post are not typical London prices. No-one I know is paying anything near £1500pm for a 1 bed. I pay less than that for a 3 bed house. You've chosen outliers to make your numbers work. The simple reason a repayment mortgage won't beat rents, especially taking into account the opportunity cost of your deposit, is that optimistic BTLers who only ever work in interest-only will always be able to outbid you using the same cashflow.

We might be splitting hairs about the relative merits of the cost of renting versus purchase in the capital? Even so, you are relying on the ability of the government to simultaneously keep interest rates low and maintain the standard of living of the least productive portion of society. I believe the gravity-defying London market requires both these things for support, but in fact they are mutually exclusive.

Time will tell. Good debate though.

Link to post
Share on other sites

The simple reason a repayment mortgage won't beat rents, especially taking into account the opportunity cost of your deposit, is that optimistic BTLers who only ever work in interest-only will always be able to outbid you using the same cashflow.

You can only compare the interest portion of a repayment mortgage to the rent i.e. this is the money going to service someone else's capital. If a repayment mortgage matches rent on a cashflow basis then property is the biggest buy I've ever seen!! The opportunity cost of of your deposit is minimal, risk free it has a negative real return and there aren't exactly too many exciting cheap assets out there in the world to buy right now. Also, after help to buy 2 you don't even need a deposit.....

We might be splitting hairs about the relative merits of the cost of renting versus purchase in the capital? Even so, you are relying on the ability of the government to simultaneously keep interest rates low and maintain the standard of living of the least productive portion of society. I believe the gravity-defying London market requires both these things for support, but in fact they are mutually exclusive.

Yes London requires both of these things but I'm not sure they are mutually exclusive. Print money, supress bond yields, pile on more debt in every possible pocket of the economy and we can limp on with current living standards until the big crash that our children can pay for.

Time will tell. Good debate though.

Indeed!

Link to post
Share on other sites
  • 2 weeks later...

I've seen a lot of posts on this website implying that property prices are expensive but it is rather clear this is not the case....

Lets look at a working couple in an average London 1-bed flat. This now costs £350k with the average rental yield at about 5.5% (click here). This means that a couple is typically paying on average £1600 a month for that standard 1-bed; this seems a bit high so lets call it £1500 per month.

Now lets look at the economics of buying post Jan 1st 2014.

Buyers will need a 5% deposit so £17.5k and the stamp duty of £10.5k. Then they can get a 95% LTV mortgage at around 4% on a 5 year fix or at around 2.5% on a tracker. For these mortgage rates I am using current 80% LTV mortgages, once help to buy comes in the 95% LTVs will have same risk-weighting as 80% LTVs today so rates should move down to those levels.

Using the conservative 4% fixed rate, this couple would be paying £1108 a month in interest and the capital re-payment mortgage would be £1587 so only £87 a month worse off on a cash flow basis and paying £479 of house equity every month.

So after 5 years the mortgage equity paid down of c. £29k is much more than the £10.5k of stamp duty flushed down the tubes and most importantly the payments are fixed whereas that £1500 of rent will be nearer £1700 after 5 years.

So a couple will be better off on a cash flow basis and stop having to pay an inflation linked perpetuity to a greedy landlord who is over protected by the law.

On the basis that you need somewhere to live, buying London property is cheap when you compare it to the only sensible alternative.

Rents are falling in London, according to a few reports.

Wait until after your teaser rate mortgage deals end for buying, and more people slapped on 4%-6.5%+ SVRs.

Well, based on the loan value for standard SVR mortgage I've just looked at on my Banks website, you would actually be looking at £400k interest on a £400k loan over the next 25 years (that's if interest rates stay as low as they currently are - which I don't think anyone believes will happen.)

Now, look at some of the daft £450k terraced we've been discussing. I can easily see those dropping by at least 10-20% in value over the next 5 years; maybe much more. But even at just over a 10% fall and no rises in interest rates, that's your £50k deposit gone (plus the loss of the interest it could have earned in an ISA/etc..)

And in the first 5 years of mortgage payments, at £2.6-2.7k per month? Well, you've only paid off £26k of your house. But remember the interest on the loan? That's cost you another £121k in just the first 5 years. So, after 5 years, you are ~£180k down on a £450k house - if interest rates don't go up at all and your house only drops in value by about 12%.

The reality is likely to be something much more severe, IMHO - a 30% fall in prices and interest rates at just 2% higher than today gives a loss of over £300k on a £450k house in just five years. And what have you got for that £180k-£300k of investment? Just £26k worth of equity in a house (and minus all your other costs for 5 years - moving costs, stamp duty, maintenance, etc., you don't even have that!)

So that, to me at least, is what is so frightening about buying in the current market. Not a single young person under the age of 35 I speak to can afford to buy at current prices. And for those that do, the doubling and trebling of houses prices needed to wipe out the enormous amount of interest they'd paid in the first 5-10 years of ownership is just not going to happen. Scary stuff indeed.

Hence why I rent cheaply and push cash onto the "buy-outright when prices fall-back" fund.

Link to post
Share on other sites

Rents are falling in London, according to a few reports.

Wait until after your teaser rate mortgage deals end for buying, and more people slapped on 4%-6.5%+ SVRs.

Go try and rent somewhere, I mean somewhere vaguely appropriate for a functioning member of society and you'll see there is no downward pressure on rents. Every now as again you'll get a 50+ block of BTL new build crop up which might dampen the odd neighbourhood but supply and demand is tight anywhere liveable.

Why look at SVR? This is a penalty rate for people too lazy to re-fi. We might as well look at Wonga loans for our interest rate. So what you presented is an example with an interest rate about 250-300bps too high. If mortgage rates move that much then yes I agree it doesn't work BUT that isn't the current environment.

Link to post
Share on other sites

what you presented is an example with an interest rate about 250-300bps too high. If mortgage rates move that much then yes I agree it doesn't work BUT that isn't the current environment.

Some might say that if the biggest interest rate hike you can afford is 250bps, that's maybe just a touch on the tight side.

Link to post
Share on other sites
  • 2 years later...

Yeah still here obersiving; but I don't post anymore. I think I laid out a pretty clear thesis back then that for the last 2.5 years played out;

1) rental yields WERE juicy

2) mortgage spreads WOULD come in

3) underlying rates WERE low, and would stay that way

4) government support WAS very evident (Carney talking about protecting house prices/HTB in full swing)

5) investors/foreign buyers WERE still coming in

Every single leg of my bull thesis has now been blown away....apart from maybe 3 - but I don't think they are going to cut to negative before the crash I think it will be during or after.

So gravity will drag this market down, the question is how much of the =40% since 2013 will get eaten way, a 30% draw down would only get us back to 2013 levels now. Will we see more than 30% draw down, of course we should but then everything depends on policy repsonse, what bailouts happen, whether we get negative rates this time etc etc.

Link to post
Share on other sites
  • 2 weeks later...

That is the scary bit about it - 30% drop required to get back to 2013 prices! Along with most here, I found the prices after the slight falls in 2008 far too high, then they went mad again until 2010 when a lot of London got back to over 2007 prices, madder still from 2011-2013 and then sped up even more.

It will be interesting to see where we actually end up, I doubt it will be lower than 2010 prices, and even that could take a long time, but who knows.

Link to post
Share on other sites
  • 8 months later...

It's fun to read the old postings. I could kill myself for not having bought in 2010.  London was so cheap by that time! I remember in the aftermath of the crisis flats in mayfair being thrown after clients... I thought for myself about buying a 2 bedr in Mayfair. Today, it  would be worth something like 2 or 3M.. :blink:

Next time, the bubble drops, I'll buy as much as I can.

 

Just as @ Aldi :D

Link to post
Share on other sites
  • 3 years later...
On 12/01/2016 at 11:53, qejunkie said:

Yeah still here obersiving; but I don't post anymore. I think I laid out a pretty clear thesis back then that for the last 2.5 years played out;

1) rental yields WERE juicy

2) mortgage spreads WOULD come in

3) underlying rates WERE low, and would stay that way

4) government support WAS very evident (Carney talking about protecting house prices/HTB in full swing)

5) investors/foreign buyers WERE still coming in

Every single leg of my bull thesis has now been blown away....apart from maybe 3 - but I don't think they are going to cut to negative before the crash I think it will be during or after.

So gravity will drag this market down, the question is how much of the =40% since 2013 will get eaten way, a 30% draw down would only get us back to 2013 levels now. Will we see more than 30% draw down, of course we should but then everything depends on policy repsonse, what bailouts happen, whether we get negative rates this time etc etc.

1) BTL is toast and is just full of forced landlords left holding the bag

2) mortgage spreads are getting close to zero bound

3) government support packages have yet to be renewed 

4) BofE and all central banks are a joke, total monetary support for asset prices now - not sure UK resi is the best way to play

5) investors/foreign buyers probably won't come in hard until we get a sterling crash 

Peace, qejunkie 

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    No registered users viewing this page.





×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.