Have The Tories Messed Up Big Time With Their Mega Bubble ?

[zugzwang]

If only the damage were limited to naive and greedy home owners! All across the country rents continue to hit record highs on a monthly basis.

http://www.theguardian.com/money/2015/oct/16/average-monthly-rent-hits-record-high-of-816-highlighting-housing-shortage

[long time lurking]

Beware, the money supply is growing too quickly!

City AM clown identifies Osborne's wild debt bingeing but fails to acknowledge the terrible bubble he's already caused.

http://www.telegraph.co.uk/finance/economics/11934954/Beware-the-money-supply-is-growing-too-quickly.html

Nowt to worry about it`s all the HPC`ers house funds it`s going nowhere

[Guest]

Older owners are affected in other ways by the mega-bubble. Hopefully they are now realising that the fact their 20-something and 30-something children aren't buying houses and having children is because it's impossible, rather than because they bought too many iPods...

Wait what am I saying. These people 'worked hard all their life'. They'll never admit that the windows have closed and a life of hard work is now pretty much worthless.

[Dorkins]

Older owners are affected in other ways by the mega-bubble. Hopefully they are now realising that the fact their 20-something and 30-something children aren't buying houses and having children is because it's impossible, rather than because they bought too many iPods...

Wait what am I saying. These people 'worked hard all their life'. They'll never admit that the windows have closed and a life of hard work is now pretty much worthless.

I see zero recognition from my 1950s-born parents that housing is vastly more expensive for my generation than it was for theirs. They bought their current house in the mid 1990s and seem to have no idea of how lucky they were to be able to access house prices at 3x single incomes throughout their 20s, 30s and 40s. They have no idea what it's like to spend your 20s and 30s looking at house prices >7-8x single incomes with no end in sight.

Edited October 16, 2015 by Dorkins

[Democorruptcy]

I see zero recognition from my 1950s-born parents that housing is vastly more expensive for my generation than it was for theirs. They bought their current house in the mid 1990s and seem to have no idea of how lucky they were to be able to access house prices at 3x single incomes throughout their 20s, 30s and 40s. They have no idea what it's like to spend your 20s and 30s looking at house prices >7-8x single incomes with no end in sight.

Houses bought using one income are now sold to people having to use two incomes. Second incomes used to be largely disposable. Some experts argue housing is cheap historically as a percentage of income but it's masked by the switch from single incomes to household incomes on mortgage application forms.

If people stopped signing up to joint income mortgages, houses would be cheaper. It's largely how much people are prepared to borrow that governs house prices. Though of course we would need a government (of the people) to build more houses instead of the governbankment (of the banks) we have now.

[Venger]

If you were leading the Tories or was the one hoping to get elected in 2020 as PM would you deliberately cause house prices to fall ... if I was George or Dave I would certainly not do it.

That's why I am not hostile towards them.

Either them or Carney or someone (perhaps the system as a whole including voices of young Treasury officials) getting the squeeze in to implement policies leading to that. Higher stamp duty top end, offshore company buyer stamp duty, IHT 'carry-down' as a trigger to encourage downsizing vs fewer upsizers in market (and values are set at the margin), and the excellent rebalancing with the BTLers.

Sometimes you may have to bring in more malinvestment to allow the banks to unload positions into it, to get through when it finally unwinds. Then there is the prospect of lending against crashed house prices (all the trillions of equity in them on the owner side right now). Lower prices = lower risk lending. Article after article at the moment of oldies snubbing cashing in gains... 'probably worth £850K today.. bought for £10,500'. 'My choice if I have 4 empty bedrooms, I worked hard to pay off my (minisucle 1970s mortgage)'. S'gonna come back to haunt many an older owner, or at least those who can immediately put stupid high values on their homes. And the profits/gov revuenue from that HPC/fresh lending... wow... and stable transactions for decades thereafter... double wow. It's all building up because some market participants have evermore reason to slaughter the equity rich owners/BTLers (for capital gains / tax).

There are different types of BTL investors.

My parents-in-law would never have bought a BTL flat (indeed they were massively against it) however they had several hundred k sitting in a bank account earning 1%.

If they'd shopped around they'd be getting 2% at best in a savings account (maybe slightly more)

If they'd bought shares they might have gone up, maybe down and with dividends they'd be making maybe 4%. However in living memory the stock market has lost and recovered 50% of its value.

With the flat they bought they get a yield of about 4% (after costs and contingency), price might go up or down (up about £50k so far) in the long term.

Put it this way if they could get 4-5% in a savings account - like was common up to 2008 - there is no way they'd own a BTL flat. But as they want an income in retirement BTL is a sensible way of getting a BTL income.

Now levereged BTL for flats in Bulgaria is another matter...

And it worked for John Major.

You have heard the reasoning before... politicians have high-speed printing presses. They can make them run as fast as they please. In a choice they would always want to inflate. It is a sweet, simple argument. If it were true, it would make your job as an investor incredibly easy. All you would have to do to make a fortune is place a whole-hog bet on inflation. Just hock every asset you have, run your credit to the limit and lie back to wait for the silly politicians to float your easy chair to paradise on a river of red ink.

We don't think it is that simple. Those who say government has the power to prevent deflation are right, but they are answering the wrong question. Obviously government can print all the money it wants, but it is a mistake to stop your inquiry there, because you have merely answered a misleading question. One could just as well say that 'government has the power to prevent you dying of cancer.' It can. By taking you out and shooting you first. The cure in that case is worse than the disease.

The key is to understanding the dangers is to recognise the processes of deflation is less transparent than the process of inflation. Inflation corresponds to an understandable motive on part of the politicians..... [.....] Therefore it is difficult for many to understand how deflations happen. Those who estimate the chance of deflation at zero are missing several facets of a complex situation. [.....] We believe that rising debt levels create economic feedback that forces a deflationary reaction. Put simply, debt cannot indefinitely compound faster than income. [......]Such changes are not an act of perversity by authorities, but the culmination of an historic process that takes years to unfold. Deflation is not something politicians choose, any more than people choose to have cancer, midriff bulge, or the infirmities of old age. Sometimes, however, the system as a whole is led to outcomes that are tolerable only in comparison to alternatives that are even worse. (-Davidson)

[Venger]

These greedy ******* are going to help banks absorb the HPC. They deserve to go down.

Have a listen to the Radio 4 Moneybox Buy to Let episode from last Saturday: http://www.bbc.co.uk...rammes/b0631nq3TBH I'm surprised I haven't seen anything on the forum about it

This will give you an idea of who is paying these ridiculous prices. E.g. late middle aged couple paid £490,000 for a one bedroom flat, with stamp duty and furnishings that must be at least £510,000 outlay. They receive £1300 pcm rent, net after service charge etc. That's 3% yield gross! they seem to be happy about probably losing money month to month on the rent because they are in it for the long haul and the massive capital appreciation that will undoubtedly materialise over the next couple of decades. After all, the lady being interviewed bought her own flat in the area for £107,000 which is now worth £650,000!

There will be no price correction until these types of people have been well and truly scared away from BTL

£490,000 1 bed flat. £1,700pm ... after service charge we get around £1,300pm, which covers the mortgage at the moment. Fixed rate mortgage that goes up in 2 years.

Bought her own flat decades ago.

And I've lived in his area for 25/26 years. When I bought my flat it was £107,000. It went down to £82,000 and the mortgage rate went from 7% to 15%. Now my flat is worth about £650,000 and I feel reasonably confident it's a good investment.

Husband went "Oh" - with a disappointed groan when heard about the Budget, but it's swing and roundabouts and long term investment.

--------------------

^ Remember this when hpcers try to instigate Breakdown 2.0 excuses (like 2008-2011) if and when prices begin to soften. Noticed it last week with a HPCer claiming "It's not buyers fault for paying £500,000 because they can't see it in real money.. if they saw it stacked up in notes they would know." Made me feel like Tony Soprano felt when he dealt with Coco.

[pipllman]

Banks are the key to it

As private companies, they need to increase profits year on year. They achieve that by lending more money to more people, on interest

As Venger rightly points out, they are itching to get more of the unencumbered properties onto fresh loans

It might be that a HPC is necessary to make that happen

But it doesn't get away from the fact that the big lenders want more profit next year than this and that means they need to lend more money

Their willingness, nay requirement, to lend against housing has been a key driver of HPI in the last 20+ years and I don't see signs of it changing

MMR reduced their ability to lend to OO, so they went after BTL

BTL finance relief removal will cut down the market for BTL perhaps, but they still need to lend more somehow, someway

[zugzwang]

Banks are the key to it

As private companies, they need to increase profits year on year. They achieve that by lending more money to more people, on interest

As Venger rightly points out, they are itching to get more of the unencumbered properties onto fresh loans

It might be that a HPC is necessary to make that happen

But it doesn't get away from the fact that the big lenders want more profit next year than this and that means they need to lend more money

Their willingness, nay requirement, to lend against housing has been a key driver of HPI in the last 20+ years and I don't see signs of it changing

MMR reduced their ability to lend to OO, so they went after BTL

BTL finance relief removal will cut down the market for BTL perhaps, but they still need to lend more somehow, someway

There's an unvoiced assumption that the global economy will hold up. It's certainly not one that I share. Decades of fat profits for UK banks to look forward to? More like the margin call from hell!

[pipllman]

There's an unvoiced assumption that the global economy will hold up. It's certainly not one that I share. Decades of fat profits for UK banks to look forward to? More like the margin call from hell!

I hope you are right.

But don't underestimate the fight they can & will put up

[sikejsudjek]

Have the Tories messed up ?

Yes.

1). Tax credit cuts will haunt them for a long time. They cynically broke an election promise and the cuts are severe and in no way offset by the 'living wage'.

2). It is obvious that they are quite happy to see corporate tax evasion continue on an industrial scale.

3). They have continued to create a massive speculative bubble in housing threatening the stability of the economy. There is a very good chance it will collapse before the next election given the scale of the cuts Osborne is planning.

4). They have very little support for their 'austerity experiment' from mainstream economists. Where is the growth coming from ? Corporate millionaires don't re-spend a lot of their tax rebates in the UK !

5). The cuts to the basic safety net and the NHS will start hitting many more people including their core blue rinse vote.

Corbyn has a good economic panel at his disposal and there is every chance he can give the ex-paper towel folder at Selfridges a run for his money ! The Conservative party are full of swivel eyed loons that want their moats cleared out at tax payers expense, or get a hard on when they see homelessness go up (they were laughing about it in Parliament). They truly are the real Bullingdon club, rotten to the core, and would sell their grandmother to the Saudi's for gang rape if they thought they could make a profit on it.

Can you tell I'm not impressed ? I voted Tory in 2010. Never again....

[Meerkat]

Have the Tories messed up ?

Yes.

3). They have continued to create a massive speculative bubble in housing threatening the stability of the economy. There is a very good chance it will collapse before the next election given the scale of the cuts Osborne is planning.

I asked fru-gal the other day, but don't think got a response - re Corbyn, what is his take on HTB? I don't follow the man closely, so an honest question.

[wonderpup]

1). Tax credit cuts will haunt them for a long time. They cynically broke an election promise and the cuts are severe and in no way offset by the 'living wage'.

A Tory voter on question time last night was ranting about being 'betrayed' by the Tories decision to cut her tax credits- she was not a happy bunny.

Just wait until she realizes that the latest propaganda offensive from the people she voted for is to rebrand her tax credits as handouts- so not only is she worse off but she's also a scrounger as well. I doubt she see the funny side.

Edited October 16, 2015 by wonderpup

[EUBanana]

rebrand her tax credits as handouts

Not exactly a rebranding, more a bald fact.

[zugzwang]

Not exactly a rebranding, more a bald fact.

It doesn't matter what they're called, only why they're deemed necessary: Mr Austerity's wild inflation of the basic cost of living.

[mrtickle]

Have the Tories messed up ?

Yes.

1). Tax credit cuts will haunt them for a long time. They cynically broke an election promise

No they didn't.

They promised not to cut Child Benefit. That promise hasn't been broken.

No promise was made not to cut Tax Credits.

[wonderpup]

Not exactly a rebranding, more a bald fact.

Branding is the art of replacing bald facts with more creative interpretations- it suited the creators of tax credits to give them this rather positive sounding name- they could have called them 'in work benefits' which would have been closer to the truth.

The problem for the Tories is how to reposition tax credits as a bad thing without alienating the very 'hard working families' who have come to rely on them and regard them as a legitimate income stream rather than the handouts they actually are.