Is Prime London Crashing? - Merged Threads

[Sancho Panza]

Streatham is still king. SW8 a mere pretender.

In terms of drops for the here and now maybe,but the potential in SW8 is pretty impressive

According to RM SW16

• Pre-owned homes (835)
• Brand new homes (33)

SW8

• Pre-owned homes (581)
• Brand new homes (595)

Also,on top of that,the build up of inventory in SW8 dwarfs SW16.

SW8 Oct 2012 250 to Sep 2014 1276

SW16 OCt 2012 843 to Sep 2014 1163

In 2008,new build flats were the worst fallers.

[TheCountOfNowhere]

In terms of drops for the here and now maybe,but the potential in SW8 is pretty impressive

According to RM SW16

• Pre-owned homes (835)
• Brand new homes (33)

SW8

• Pre-owned homes (581)
• Brand new homes (595)

Also,on top of that,the build up of inventory in SW8 dwarfs SW16.

SW8 Oct 2012 250 to Sep 2014 1276

SW16 OCt 2012 843 to Sep 2014 1163

In 2008,new build flats were the worst BEST fallers.

[Wurzel Of Highbridge]

Halifax figures do not publish monthly data in regions.

[TheCountOfNowhere]

Halifax figures do not publish monthly data in regions.

The historic table is interesting. The index has reported falls in 4 of the last 10 months.

[Damik]

35% of price reductions today in Streatham.

42% of price reductions today in Clapham.

45% of price reductions today in Kensington.

41% of price reductions today in Walthamstow.

Nice 36% hair cut in 3 months:

http://www.rightmove.co.uk/property-for-sale/property-47026040.html

07/10/2014 Price changed: from '£399,950' to '£350,000'

16/09/2014 Price changed: from '£475,000' to '£399,950'

09/07/2014 Initial entry found.

Edited October 8, 2014 by Damik

[mmt]

35% of price reductions today in Streatham.

42% of price reductions today in Clapham.

45% of price reductions today in Kensington.

41% of price reductions today in Walthamstow.

Nice 36% hair cut in 3 months:

http://www.rightmove.co.uk/property-for-sale/property-47026040.html

07/10/2014 Price changed: from '£399,950' to '£350,000'

16/09/2014 Price changed: from '£475,000' to '£399,950'

09/07/2014 Initial entry found.

Mad. Also looks like they have put a bed in the living room to make it a 3 bed. So essentially, asking £350K for a 2 bed ex-council flat in a crap area.

[Grandmasterspank]

In these areas gross rental yield of 4℅ is achievable (based on RM searches) therefore say net 3.5 ~ 3%. What's fair value? 6.5℅ gross gives you a one bed in Balham (where basing calcs) for £250k which feels about right to me but that would be 30% fall. Any thoughts what fair ry should be?

[Damik]

In these areas gross rental yield of 4℅ is achievable (based on RM searches) therefore say net 3.5 ~ 3%. What's fair value? 6.5℅ gross gives you a one bed in Balham (where basing calcs) for £250k which feels about right to me but that would be 30% fall. Any thoughts what fair ry should be?

If you do not got for a capital appreciation and just for rent you should target at least 10/15% of gross rental profit.

You get about 9% in Birmingham or Liverpool. London's 3% is a joke.

http://www.telegraph.co.uk/finance/personalfinance/investing/10257398/Cities-offering-the-biggest-returns-to-landlords.html

Turning London gross rental profit from 3% to 9% would require 60% crash ...

[Ultra Fox]

In these areas gross rental yield of 4℅ is achievable (based on RM searches) therefore say net 3.5 ~ 3%. What's fair value? 6.5℅ gross gives you a one bed in Balham (where basing calcs) for £250k which feels about right to me but that would be 30% fall. Any thoughts what fair ry should be?

Jesus. 250K for a one bed feels about right? The worlds gone mad.

[Grandmasterspank]

There going for £380k now! I've lost all reference as to what's fair value. Happens in London!

[Sancho Panza]

If you do not got for a capital appreciation and just for rent you should target at least 10/15% of gross rental profit.

You get about 9% in Birmingham or Liverpool. London's 3% is a joke.

http://www.telegraph.co.uk/finance/personalfinance/investing/10257398/Cities-offering-the-biggest-returns-to-landlords.html

Turning London gross rental profit from 3% to 9% would require 60% crash ...

The 9% in Brum is mainly thanks to taxpayers.

[Frizzers]

In terms of drops for the here and now maybe,but the potential in SW8 is pretty impressive

According to RM SW16

• Pre-owned homes (835)
• Brand new homes (33)

SW8

• Pre-owned homes (581)
• Brand new homes (595)

Also,on top of that,the build up of inventory in SW8 dwarfs SW16.

SW8 Oct 2012 250 to Sep 2014 1276

SW16 OCt 2012 843 to Sep 2014 1163

In 2008,new build flats were the worst fallers.

For sure the king will be SW8.

But for now Streatham is on the throne.

A bit like John Major before Tony Blair.

[Grandmasterspank]

So which is the right yield? Either lpool and Brum appreciate so that yield match London or London prices falls so yields match lpool and brum. Prob a bit of both. 9% sounds frickin good when the 30 year gilt has just gone sub 3%.

[Frizzers]

If you do not got for a capital appreciation and just for rent you should target at least 10/15% of gross rental profit.

You get about 9% in Birmingham or Liverpool. London's 3% is a joke.

http://www.telegraph.co.uk/finance/personalfinance/investing/10257398/Cities-offering-the-biggest-returns-to-landlords.html

Turning London gross rental profit from 3% to 9% would require 60% crash ...

FWIW when I bought my first flat in Fulham 1993 it had a gross rental yield of £15,600 against a purchase price of £75,000.

That's a yield of 20%!

I got lucky. I doubt we'll see that ever again. But is shows what's possible.

I'm a mug for not buying hundreds

[TheCountOfNowhere]

FWIW when I bought my first flat in Fulham 1993 it had a gross rental yield of £15,600 against a purchase price of £75,000.

That's a yield of 20%!

I got lucky. I doubt we'll see that ever again. But is shows what's possible.

I'm a mug for not buying hundreds

No one would have lend you the money in 1993 to buy 100's.

[worried1]

FWIW when I bought my first flat in Fulham 1993 it had a gross rental yield of £15,600 against a purchase price of £75,000.

That's a yield of 20%!

I got lucky. I doubt we'll see that ever again. But is shows what's possible.

I'm a mug for not buying hundreds

Yep, the rental prices have not grown nearly as much as the house prices in London and the surrounds. A flat that you could buy for £100k in my area in 1999 would have rented for £12k pa. The same flat would now cost £500k to buy, and would rent for £18k pa.

5x times increase in the house price, 0.5x in the rental value.

[Grandmasterspank]

Yield compression. Its why holding bonds has been a winner for 20 years. Death inflation and all that.

[FreeTrader]

FT headline on the RICS report:

London house prices drop for first time in three years

For the first time since January 2011, agents in London reported a slight fall over the previous three months and forecast another decline in the next three.

Daily Mail:

London house prices fall in Sept for first time since 2011: RICS

LONDON, Oct 9 (Reuters) - London house prices fell last month for the first time in more than three years, and prices nationwide showed their smallest increase in 15 months, a major house price survey showed on Thursday.

The Royal Institution of Chartered Surveyors said prices in London fell for the first time since January 2011, ending the longest unbroken run of increases in more than 20 years.

Edit: added Mail link

Edited October 8, 2014 by FreeTrader

[mobfant]

FT headline on the RICS report:

London house prices drop for first time in three years

Daily Mail:

London house prices fall in Sept for first time since 2011: RICS

Edit: added Mail link

This is what I was hoping for. Full press release carries a bit more info

http://www.rics.org/uk/knowledge/news-insight/press-releases/steam-evaporates-out-of-uk-housing-market/

[Venger]

FWIW when I bought my first flat in Fulham 1993 it had a gross rental yield of £15,600 against a purchase price of £75,000.

That's a yield of 20%!

I got lucky. I doubt we'll see that ever again. But is shows what's possible.

I'm a mug for not buying hundreds

Couldn't you regret not buying certain shares instead?

I wouldn't buy more than 1 house at good value if I could go back in time with my savings of today.

[FreeTrader]

[mobfant]

Comments from RICS London surveyors this month

Brendon Thomas MRICS, Tower Hamlets/ Hackney / City / Newham, Maitlands Acorn Professional Ltd, 07823777900 - Seeing good demand across most of my patch, underpinned by regeneration etc. New schemes are selling well.

Expect a busy run into Christmas.

Charles Puxley, Chelsea, Jackson-Stops & Staff, 020 7581 5881 - Traditionally Sept ember is a busy month for instructions in Central London. This has not happened this year and there is notably very little activity at just over the £2m mark.

Mansion tax seems to be a

real worry; it will decimate

London prices.

James Gubbins MRICS, Pimlico, Dauntons, 020 7834 8000 - Stock levels began to recover over the summer months as applicant numbers fell back and transaction numbers reduced. As summertime passes, buyer activity returns.

Jeremy Leaf FRICS, Finchley, Jeremy Leaf & Co - There's no question, we're seeing a marked reduction in enquires compared with a few months ago. However, what we lack in quantity is more than made up for in quality as serious buyers chase relatively few well-priced family houses and flats available.

John King FRICS, Wimbledon, Andrew Scott Robertson, 020 8971 4990 -Activity levels are greater below the £1m level than above at present. Good supply of stock coming onto the market across all price ranges. Values are softening.

John King FRICS, Merton, Andrew Scott Robertson, 020 8971 4990 - The number of viewings to offer ratio has moved down the scale. We expect this to be the norm depending on asking prices.

Keith Barnfield FRICS, Enfield, Barnfields, 020 8363 3394 - Activity has yet to pick up after the holidays. More properties are staying on the market longer and offers are being made at figures below asking prices.

Kevin Ryan FRICS, Mayfair, Carter Jonas LLP - The market remains in the doldrums. The spectre of a Mansion Tax on top of the Annual Tax on Enveloped Dwellings and the recently introduced tax on foreign capital used as collateral for mortgage borrowings in the UK is a deterrent to overseas buyers.

Peter Boros FRICS, Henley On Thames, Boros CRE Ltd -Last few months impacted by worldwide holidays and festivals/celebrations.

Peter Rollings FRICS, London, Marsh & Parsons, -A lack of potential buyers entering the market has caused inflated asking prices to be trimmed back, in some cases considerably. More of a buyers market.

Robert Green MRICS, Chelsea, John D Wood & Co., 020 7352 1484 - Chelsea has seen an active market from domestic buyers in September. These buyers are looking to the long term and seem less sensitive to the threat of Mansion Tax than others as many seem unconvinced it will happen, at least in the current form.

Simon Aldous MRICS, London, Savills, 020 7016 3861 - We do think there is uncertainty due to the forthcoming General Election and the changes that may arise to Mansion Tax, Annual Tax on Enveloped Dwellings , Capital Gains Tax, Stamp Duty. Changes to mortgage lending/regulation has softened the market in Prime South West London.

[Grandmasterspank]

Surprised new vendor instructions are flat in London given the volumes we are seeing in Rightmove data. Guess that means stock is just accumulating because sales aren't going through.

[Grandmasterspank]

BTL pay higher mortgage rates, therefore they should logically be the first movers in any crash as they are most sensitive to any rate movements.

Modelled two locations in London: Wandsworth (Low yield) and Croydon (High yield - relatively). Took value and rent values of a one bed in each location from Rightmove.

Assumed a 60% deposit for BTL for each location.

Took best buy mortgage rate from comparison site then modelled for different base rates assuming that 100% increase is passed on.

Assumed rental yield is stable.

Wanted to understand two things, as rates rise:

1. When (assuming rents stable) would each location become a cost centre rather than a profit centre to the landlord
2. When would the opportunity cost i.e. comparable rate in an ISA be greater (assuming base rate passed onto ISA in same way).

Flat cost £ 200,000.00 Croydon Rent £ 850.00 Gross Yield 5.1% Costs 1.0% Net Yield 4.1% Base rate Incremental increase Mortgage rate House value Deposit Outstanding Mortgage Rental income Mortgage costs Return net of mortgage costs Yield Net Mortgage costs ROCE ISA rate 0.50% 0 2.25% 200,000.00 80,000.00 120,000.00 8,200.00 2,700.0000 5,500.0000 2.75% 6.88% 1.50% 1.00% 0.50% 2.75% 200,000.00 80,000.00 120,000.00 8,200.00 3,300.0000 4,900.0000 2.45% 6.13% 2.00% 1.50% 0.50% 3.25% 200,000.00 80,000.00 120,000.00 8,200.00 3,900.0000 4,300.0000 2.15% 5.38% 2.50% 2.00% 0.50% 3.75% 200,000.00 80,000.00 120,000.00 8,200.00 4,500.0000 3,700.0000 1.85% 4.63% 3.00% 2.50% 0.50% 4.25% 200,000.00 80,000.00 120,000.00 8,200.00 5,100.0000 3,100.0000 1.55% 3.88% 3.50% 3.00% 0.50% 4.75% 200,000.00 80,000.00 120,000.00 8,200.00 5,700.0000 2,500.0000 1.25% 3.13% 4.00% 3.50% 0.50% 5.25% 200,000.00 80,000.00 120,000.00 8,200.00 6,300.0000 1,900.0000 0.95% 2.38% 4.50% 4.00% 0.50% 5.75% 200,000.00 80,000.00 120,000.00 8,200.00 6,900.0000 1,300.0000 0.65% 1.63% 5.00% 4.50% 0.50% 6.25% 200,000.00 80,000.00 120,000.00 8,200.00 7,500.0000 700.0000 0.35% 0.88% 5.50% 5.00% 0.50% 6.75% 200,000.00 80,000.00 120,000.00 8,200.00 8,100.0000 100.0000 0.05% 0.12% 6.00% 5.50% 0.50% 7.25% 200,000.00 80,000.00 120,000.00 8,200.00 8,700.0000 - 500.0000 -0.25% -0.63% 6.50% Flat cost £ 400,000.00 Wandworth Rent £ 1,300.00 Gross Yield 3.9% Costs 1.0% Net Yield 2.9% Base rate Incremental increase Mortgage rate House value Deposit Outstanding Mortgage Rental income Mortgage costs Return net of mortgage costs Yield Net Mortgage costs ROCE ISA rate 0.50% 0 2.25% 400,000.00 160,000.00 240,000.00 11,600.00 5,400.0000 6,200.0000 1.55% 3.88% 1.50% 1.00% 0.50% 2.75% 400,000.00 160,000.00 240,000.00 11,600.00 6,600.0000 5,000.0000 1.25% 3.13% 2.00% 1.50% 0.50% 3.25% 400,000.00 160,000.00 240,000.00 11,600.00 7,800.0000 3,800.0000 0.95% 2.38% 2.50% 2.00% 0.50% 3.75% 400,000.00 160,000.00 240,000.00 11,600.00 9,000.0000 2,600.0000 0.65% 1.63% 3.00% 2.50% 0.50% 4.25% 400,000.00 160,000.00 240,000.00 11,600.00 10,200.0000 1,400.0000 0.35% 0.88% 3.50% 3.00% 0.50% 4.75% 400,000.00 160,000.00 240,000.00 11,600.00 11,400.0000 200.0000 0.05% 0.13% 4.00% 3.50% 0.50% 5.25% 400,000.00 160,000.00 240,000.00 11,600.00 12,600.0000 - 1,000.0000 -0.25% -0.62% 4.50% 4.00% 0.50% 5.75% 400,000.00 160,000.00 240,000.00 11,600.00 13,800.0000 - 2,200.0000 -0.55% -1.38% 5.00% 4.50% 0.50% 6.25% 400,000.00 160,000.00 240,000.00 11,600.00 15,000.0000 - 3,400.0000 -0.85% -2.13% 5.50% 5.00% 0.50% 6.75% 400,000.00 160,000.00 240,000.00 11,600.00 16,200.0000 - 4,600.0000 -1.15% -2.88% 6.00% 5.50% 0.50% 7.25% 400,000.00 160,000.00 240,000.00 11,600.00 17,400.0000 - 5,800.0000 -1.45% -3.63% 6.50%

Return on capital employed is c. 7% for Croydon and c. 4% for Wandsworth. Wandsworth doesn't become a cost centre until base rate hits 3.5% and 5.5% for Croydon. But makes sense to sell out of Wandsworth when base rate hits 1.5% because ISA rates higher and 3% for Croydon.

Bottom line, I can't see a crash until rates rise. That said, this analysis assumes risk premium of holding property is zero!

[mmt]

BTL pay higher mortgage rates, therefore they should logically be the first movers in any crash as they are most sensitive to any rate movements.

50% of London/SE mortgages are IO (at least, that was the case a couple of years ago). They are going to be pretty sensitive to any rate movement, even a little one. But we all know that is not going to happen.