Jump to content
House Price Crash Forum

Recommended Posts

There's an article in the Guardian today from Patrick Collinson, Is it time to close the door to foreign buyers of British property?

The interesting thing is that Collinson is reporting on a paper from a Conservative think-tank, The Bow Group.

There's a link to the actual report on The Bow Group website here. And here's a comment from the Bow Group chairman from that page.

“The UK housing crisis is at a point where radical solutions are required to prevent a situation where property ownership in the UK becomes ever more an aspiration of the few, not the many.
Whilst a strong free market foundation is essential, foreign and corporate influence on the UK market has hurt UK citizens, and will continue to do so without intervention.
We believe it is time to put British citizens first again in the UK housing market, and therefore certain restrictions on foreign property purchases should be considered as part of a wider holistic solution to the growing crisis.”

Share this post


Link to post
Share on other sites

From the paper:

“The housing crisis” is the common name for the growing realisation by many British people that they are unlikely ever to own a house. The problem is both general throughout the UK, but also particular severe in the South-East of England. The average house price in England is now 5x the average salary, requiring a long period of waiting whilst a deposit is built up, unless parental assistance can step in. The multiple is over 11 in the SE, since the average salary is £28,400 and the average house price is £337,288. Since the typical salary multiple that a person can get for a mortgage is 3, this would require a deposit of £200,000. As house prices continue to escalate, the required deposit will keep escalating faster than an individual’s ability to save. Most people not already on the ladder will never own a house. This is a crisis and tragedy that neither the public nor the government has yet fully grasped.

The author, Daniel Rossall Valentine is Miles Shitside and I claim my £5.

Share this post


Link to post
Share on other sites

'The multiple is over 11 in the SE, since the average salary is £28,400 and the average house price is £337,288. Since the typical salary multiple that a person can get for a mortgage is 3, this would require a deposit of £200,000. As house prices continue to escalate, the required deposit will keep escalating faster than an individual’s ability to save. Most people not already on the ladder will never own a house. '

Surely that means that anyone on 'the ladder' will not be able to sell their house either?

Markets need buyers and sellers.

No buyers then you are illiquid.

Share this post


Link to post
Share on other sites

Surely that means that anyone on 'the ladder' will not be able to sell their house either?

Markets need buyers and sellers.

No buyers then you are illiquid.

There are still some buyers at the bottom rung, but BTL instead of OO.

Share this post


Link to post
Share on other sites

So he's advocating giving the BOE a target of house prices at 4x earnings, which would be a 60% reduction in the SE (or a trebling of wages). Can't see that one being a vote winner (apart from mine, of course).

Share this post


Link to post
Share on other sites

I know quite a lot of South Africans (not mega rich) who live in the UK, send their kids to school here and have a few BTLs. It is not just the mega rich "foreign" buyers who are buying up the housing stock. Even lower down the chain they are doing it (and they buy in the London suburbs, not PCL).

Share this post


Link to post
Share on other sites

I was in Amsterdam recently, speaking to a friend of mine who lives there. He said Amsterdam has been declared a "special zone" and homes were not allowed to be left empty. Any empty homes can be appropriated for use as social housing. Since you need be registered with a council if you live in Holland, you can't register two homes at once - so second homes in Amsterdam are effectively banned. Not a bad idea if you ask me - should sharpen a few minds.

Share this post


Link to post
Share on other sites

I was in Amsterdam recently, speaking to a friend of mine who lives there. He said Amsterdam has been declared a "special zone" and homes were not allowed to be left empty. Any empty homes can be appropriated for use as social housing. Since you need be registered with a council if you live in Holland, you can't register two homes at once - so second homes in Amsterdam are effectively banned. Not a bad idea if you ask me - should sharpen a few minds.

what an excellent idea :)

Share this post


Link to post
Share on other sites

I was in Amsterdam recently, speaking to a friend of mine who lives there. He said Amsterdam has been declared a "special zone" and homes were not allowed to be left empty. Any empty homes can be appropriated for use as social housing. Since you need be registered with a council if you live in Holland, you can't register two homes at once - so second homes in Amsterdam are effectively banned. Not a bad idea if you ask me - should sharpen a few minds.

The interesting thing is that there is loose UK precedent, in terms of a part of the UK which is supposedly not really part of the UK, which is Jersey.

My thoughts would be that as London starts to walk and talk like a tax haven for the world then it will have to adopt some rules regarding ownership of property to deal with the inevitable consequences of that state of affairs, particularly now that faith in bank credit and other notionally risk free and fairly liquid assets such as government bonds is not what it once.

As things stand, money is flooding into UK property, both from asset rich UK nationals and from foreign investors, and a lot of that money is also leveraged by UK banks using buy-to-let mortgages before being expressed as demand and contributing to the discovery of prices.

I think that some of the mechanisms that drive UK house prices have been changed post-crisis. In my opinion MMR means that it's not owner-occupiers driving prices, it can't be. Mortgage-financed owner-occupiers have moved from a situation of being able to finance interest-only at Loan-to-Income multiples set by made up (self-certified) incomes to financing on a repayment basis against strict affordability criteria referencing, amongst other things, an escape from the zero rate bound. Yet house price inflation is way, way ahead of earnings growth. Even allowing for the effects of relatively small transaction volumes it's a big ask to suppose that owner-occupiers are driving this.

However, some other mechanisms are as yet totally unchanged. The banks behave as if there was no risk attendant to their lending into a market where prices move ever further away from earnings. This is rational from the perspective of the executives lining their pockets. However it is not rational for us as a society to tolerate this state of affairs. The matter of allowing and enabling unsustainable conduct by crap banks is as yet unchanged. For me this is perhaps the most problematic part of the UK situation. We have an institutional rentier (an oversized, corrupt and largely socially useless banking sector) and it has found a way to divide and conquer the society from which it extracts rents (HPI and BTL). The divide and conquer strategy rewards owner-occupiers, particularly older cohorts, and aspiring rentiers (Borrow to Let speculators) at the expense of those from who the rents are extracted, (working renter-savers).

Edited by Bland Unsight

Share this post


Link to post
Share on other sites

There are still some buyers at the bottom rung, but BTL instead of OO.

As far as I can tell BTL loans have stopped dead.

Anybody pouring cash into a BTL on these yields is insane.

Look, Im not 100% on the demographics but I would guess more than 50% of people over 60 today will not be around in 20 years time.

Share this post


Link to post
Share on other sites

As far as I can tell BTL loans have stopped dead.

Anybody pouring cash into a BTL on these yields is insane.

Look, Im not 100% on the demographics but I would guess more than 50% of people over 60 today will not be around in 20 years time.

It's got to end, there is no doubt about it. The only question is how long.

And I also agree you would need to be nuts to get into BTL now, but unfortunately there doesn't yet seem to be a shortage of people satisfying that criterion.

Share this post


Link to post
Share on other sites

I know quite a lot of South Africans (not mega rich) who live in the UK, send their kids to school here and have a few BTLs. It is not just the mega rich "foreign" buyers who are buying up the housing stock. Even lower down the chain they are doing it (and they buy in the London suburbs, not PCL).

Interesting. I suspect the fact everything is in English, we have a somewhat transparent legal system and limited corruption makes the UK a prime choice for foreign money.

Share this post


Link to post
Share on other sites

It's got to end, there is no doubt about it. The only question is how long.

And I also agree you would need to be nuts to get into BTL now, but unfortunately there doesn't yet seem to be a shortage of people satisfying that criterion.

Buy a houe, do it up. Mr + Mrs HUTH.

I know a couple. Grossly overbid on a wreck.

Spent the summer doing it up.

Saw that they'd be liable for capital gain tax - doubtful as I don't think there was much of a gain.

The word 'tax' scared them.

So they decided to let it out.

Equally, the word 'tax' on rental income will scare them.

Share this post


Link to post
Share on other sites

Really interesting read. Miles Shiteside rocks & you can have your £5

+ 1

Some interesting stuff in there that either directly refers to, or is equally applicable to, homegrown buy-to-let as well. From the paper itself:

Cities need large populations of workers of all economic levels. Families benefit from stability of accommodation, and accommodation of sufficient size. Large numbers of houses in unproductive use are a nuisance. Outside of home ownership, the UK offers little in the way of accommodation stability. Tenants in the UK only have power when they stop paying rent since eviction processes are slow. But law-abiding tenants have very few rights.

[. . .]

The substantial growth of housing stock since 1998 has failed to check price growth. This fact is used erroneously by the property lobby as an argument for an even greater building programme. A more logical response would be to look elsewhere for the causes of house price inflation.

Recent UK house price inflation is not driven by supply but by demand. The nine principal demand-side causes are shown in Figure 6 below:

[. . .]

Historically low interest rates of 0.5% since March have fuelled a domestic surge of buy-to-let landlords, who can achieve rental income out of even highly overpriced properties, simply due to the artificially low interest rates.

[. . .]

The financialisation of the property market

Four of the nine factors (shaded grey in Figure 6) are related to the “financialisation” of the UK property market. Financialisation is the process by which markets are converted into financial markets, making products into investments and buyers into investors. This financialisation has occurred at a rapid pace; in the 20 years since buy-to-let mortgages were first offered on a large scale in 1996 the number of private landlords has grown to over 2 million. The financialisation of the housing market has divided the UK into property owners who are benefiting from house price inflation, and non-owners who are trapped in rented accommodation or living with parents.

[. . .]

The buy-to-let phenomenon turned many ordinary people into property investors. The phenomenon was facilitated by the increase in landlord power in the 1980s including the abolition of rent controls and the introduction of assured shorthold tenure (AST) in 1988, which gave landlords much greater powers of eviction. Mortgage lenders coined the term “buy-to-let” in 1995 and began to promote mortgages for buy-to let properties. These mortgages had always been available to a minority of trusted property developers but were now promoted to high-street customers. This lead to a growth in the private rental market as ordinary people were now able to become property investors, previously buyers had to pay cash for properties they were intending to let out. The 1996 housing act increased landlord power further by making ASTs the default tenancy offered to private renters. In retrospect the growth of “buy-to-let” has had a very detrimental effect on the availability of housing stock for owner-occupation. More than two million people are now private landlords. The trend did not start immediately in 1996. In 2000, less than two per cent of mortgages in Britain were buy-to-let. The number of buy-to-let mortgages grew most strongly in the years 2005-07. They now account for 15% of all home loans, and the proportion is still growing, since they account for 18% of all new mortgages. Buy-to-let investors have been helped by favourable tax arrangements through tax relief on interest payments on buy-to-let mortgages of up to 45% alongside a 10% wear-and-tear allowance. Between 1999 and 2011, the number of outstanding buy-to-let mortgages grew from 73,200 to 1.39 million, with the value of mortgages outstanding increasing from £5.4 billion to £159 billion in 2011. Government figures show that between 1986 and 2012 about 5 million new homes were built. Of these just over half are now owned by private landlords and let. In 2000, Gordon Brown ended the “Mortgage Interest Relief at Source” (MIRAS) scheme. MIRAS had been introduced in 1969 and allowed home buyers to claim tax relief on their mortgage payments, of up to £30,000 per annum per house. The tax-break was ended for owner-occupiers but retained for buy-to-let landlords, giving them a substantial tax advantage when buying a home. In the summer budget of 2015, George Osbourne announced that the tax break for landlords will be cut. From 2017, the amount landlords can claim as relief will be gradually reduced to basic rate of tax – currently 20 per cent, rather than 45%.

[. . .]

Investment buyers provoke price inflation because they are less price-sensitive, prone to herd behaviour and have considerable buying power.

[. . .]

Figure 8 shows the connections between cause and effect in house price inflation. Price inflation is naturally the result of a growing gulf between demand and supply, but it is principally caused by demand rather than supply, because it is demand which is increasing rather than supply which is shrinking. Although supply is actually increasing, much of this increased supply is not turning into additional houses for owner-occupiership, but being eaten up by foreign and domestic investors who have three other uses for property. This is explored in the next section.

[. . .]

• Unwise investments in property can be very harmful, and not just for the investors but also because of the shock that investment collapse can cause within the sector involved. During the 1990s, the belief that owning property is a simple way of making money, and that managing property and tenants is little more than common sense, became widespread. The number of amateur landlords rose sharply after the creation of the buy-to-let mortgage which enabled people to take on multiple mortgages simultaneously. The wider economic risks associated with the housing market means that the Government is justified in regulating the investment market in housing in order to protect the wider economy.

• Housing is closely related to social welfare and the achievement of the British dream. Houses are not just buildings but produce two vital building blocks for society: homes and communities. Security of property tenure is an important contributor to the quality of family life, and carefully planned configurations of housing is an important contributor to the quality of neighbourhood and community life.

[. . .]

Without strict regulation the housing market will generate substantial negative externalities of crime, ill-health & unemployment. In any society these externalities would be problematic. In a welfare state the cost of these externalities will be incurred by the public at large and so it becomes economic for the nation at large to regulate housing to save the public from the cost of dealing with the externalities and also rebuilding the housing stock at public expense every half century. Whilst regulation is economic for the nation as a whole, it is in the private interests of landlords and the rest of the property lobby to promote an unregulated market in the short term, in order that tactics of private landlord profiteering can go unchallenged.

[. . .]

This report suggests that policy making should be informed by the reality of housing economics, the interests of the ultimate consumer and the presence of externalities. Since it is excess demand from investment buyers that has caused the inflation of property prices, the building of more houses is a counter-productive response, which cannot bring down property prices, no matter how many school playing fields or how much green-belt is sacrificed to the developers. In a market that suffers from excess demand and anti-social allocation of resources, market rules need to be introduced that fix these problems.

[. . .]

The property industry, whilst benefiting from the hyper-inflation in house prices, recognises the public trauma and the potential for regulatory action and so offers an interpretation of the problem. The problem of price inflation is presented as caused by lack of supply caused by a cumbersome planning system that prevents homebuilders from building on greenfield sites such as parks, lack of land supply, underdevelopment, state planning laws and regulations, local council red tape, and stamp duty. The industry insists that the answer to price inflation is to release green belt land, and to deregulate planning. The housing lobby has persuaded a diverse universe of think-tanks, charities and pressure groups that new-build is the only answer to the house-price crisis, such as Shelter and the Social Market Foundation. Alternative opinions are drowned out by a carefully engineered consensus.

However, the rise in house prices cannot be principally be a problem of supply, since supply has increased consistently since 1997, the year when the house hyper-inflation began. UK house price inflation is almost entirely a demand problem, which can only be solved by restraining demand, and by isolating the housing market from the investment market.

[. . .]

Further reforms were made in 2015 with the reduction of mortgage interest tax relief. Tax relief on interest payments on their buy-to-let mortgages will be reduced from 45% to 20% over a four-year period, and the removal of the 10% wear-and-tear allowance are both welcome. This will put pressure on many of Britain’s two million landlords. This will create a more level playing field between first time buyers and investors. However landlords investing through limited companies will avoid this new tax increase. However, given the scale of price increases that UK property has delivered over the past 30 years, such small increases in tax are unlikely to deter any investors.

[ . . .]

Limiting the scale of the financialisation of the UK housing market would not only deflate the housing market and release more properties for owner-occupiership but also make the UK more impervious to financial shock. It was a crisis in a small sector of the US mortgage market in 2007 that caused a global banking crisis. Separating the owner-occupier market from the investment market would protect owner-occupiers from both the price hikes and the price crashes that are an inescapable feature of investor activity.

[. . .]

The building of more houses under conditions of excess demand will have no effect on price. Current house prices are a demand phenomenon. If the government persists in its neglect of demand-side issues, the proportion of British housing that is owned by landlords will keep increasing, and an ever increasing proportion of British people will find themselves as permanent tenants, or unable to move out from parental homes, locked out of a secure home for their family and a chance of leaving property to their children.

A safe, secure, home is the cornerstone on which individuals and families build a better quality of life, develop relationships and gain independence. Given the evidence for the value of owner-occupiership to the quality of life, the fact that successive UK Government have refused to prioritise owner-occupiership over various forms of investment ownership is both bizarre and socially harmful. Gross inequality eventually becomes a problem for everyone, not just the poor. Everyone who believes in the “one nation” tradition should reflect on current housing trends and whether the practical and incremental reforms suggested in this report would help the citizens of Britain buy a home of their own. The political party which solves the problem of housing affordability and helps British people achieve their ownership dream can expect a substantial reward of gratitude.

[. . .]

Won’t a reduction in demand cause prices to fall?

Yes, prices will fall because current prices are inflated. It is excess house prices which is the main reason for the housing crisis in the UK. A price correction will occur in time anyway, when Chinese money dries up, so it is better for the correction to occur sooner than later, and it is better for the correction to be controlled by UK Government policy rather than global economic pressure.

Share this post


Link to post
Share on other sites

Reached a point where money, anyone's money from anywhere, printed, borrowed or not is far more important than the welfare and well being of the population that work to pay the taxes of the land....

Share this post


Link to post
Share on other sites

There's an associated petition to parliament for anyone who is interested: Introduce restrictions on foreign purchases of UK homes.

And a report from Civitas linked to the petition, Finding Shelter Overseas investment in the UK housing market by David G Green & Daniel Bentley

The UK property market is being used as an investment vehicle by the global super-rich – and increasingly the simply well-to-do. The inflationary impact of this extra cash is good news for property owners (until they want to trade up the housing ladder). It is good news for estate agents on commission, who report with glee every pulse and surge in the market. But it is not good for those already being priced out at the bottom.

Share this post


Link to post
Share on other sites

There's an article in the Guardian today from Patrick Collinson, Is it time to close the door to foreign buyers of British property?

The interesting thing is that Collinson is reporting on a paper from a Conservative think-tank, The Bow Group.

There's a link to the actual report on The Bow Group website here. And here's a comment from the Bow Group chairman from that page.

that does not just finger point at foreign buyers though.

the problem is multiple ownerhip with overly generous tax breaks.....applicable to both domestic and foreign portfolios.

domestic domiciles are a domestic need..so should be taxed punatively for the need of owning more than one.

the real rate of house price:income should be 3.5 - 4:1.

taxation is required on those who are stretching that multiple.

I don't want to limit the number of properties people wish to accumulate, but it should be stipulated in no uncertian terms that those who accrue substantial holdings should be prepared to pay for stuff like utilities, regardless of whether the property is vacant or not.

hence my previous posts on tax multiplier for BTL in tiers., conducted via land registry,and payable by owner, not occupier.

BTL has done untold damage to stuff like seaside towns...which would have under normal circumstances had a "get just about by" industry with tourism and fishing....but now the people required to crew the boats cannot affor to live there

in short, the UK government needs to be a bit more mindful of UK citizens, and a bit less in thrall to this happy clappy universal socialist utopia that they are trying to build.

Edited by oracle

Share this post


Link to post
Share on other sites

'The multiple is over 11 in the SE, since the average salary is £28,400 and the average house price is £337,288. Since the typical salary multiple that a person can get for a mortgage is 3, this would require a deposit of £200,000. As house prices continue to escalate, the required deposit will keep escalating faster than an individual’s ability to save. Most people not already on the ladder will never own a house. '

Surely that means that anyone on 'the ladder' will not be able to sell their house either?

Markets need buyers and sellers.

No buyers then you are illiquid.

WELL SAID that man!!!! I keep telling people this --- You can buy something for x squillion quid -- but you may well find that you CAN'T sell it for x squillion + quid...... or even x squillion quid....... or even x squillion quid -1 [etc etc.] :rolleyes:

Edited by eric pebble

Share this post


Link to post
Share on other sites

He's right about the myths, building and demand but why does he write all that to then conclude on the foreigner-angle when Australia, Denmark, Switzerland etc still don't have particularly sane prices either. I'd worry less about foreign buyers and more about existing ownership, incentives and subsidies.

Share this post


Link to post
Share on other sites

WELL SAID that man!!!! I keep telling people this --- You can buy something for x squillion quid -- but you may well find that you CAN'T sell it for x squillion + quid...... or even x squillion quid....... or even x squillion quid -1 [etc etc.] :rolleyes:

The other thing is the age of OOO shooting up.

I've said this recently on another thread - in 20 years most of the people aged 60+ will be dead.

Share this post


Link to post
Share on other sites

I'm just not convinced these changes - tax, macropru regulation etc will lead to sustainably lower prices.

Hong Kong has much more restrictive ownership conditions than london and still high prices.

In India, you probably couldn't buy a shed as a foreigner.

Yet the prices in mumbai were eye wateringly ridiculous, even compared to here.

The problem there, as everywhere else is the loosest of loose credit. The first thing i saw in the first paper i picked up were adverts for 'no documentation mortgages'. Liar loans.

The whole world has been captured by crooks, and is populated by idiots queuing up to be scammed.

Share this post


Link to post
Share on other sites

He's right about the myths, building and demand but why does he write all that to then conclude on the foreigner-angle when Australia, Denmark, Switzerland etc still don't have particularly sane prices either. I'd worry less about foreign buyers and more about existing ownership, incentives and subsidies.

It's just the madness and delusions of crowds. Property prices move because of their very special qualities and a lack of a suitable framework to prevent an asset price credit cycle in property. Then huge swathes of human endeavour (investment choices, structure of banking, details of taxation policy, global mobilization of capital, existence and financing of trade surpluses) line up behind the moving asset price. No single part of the problem is the explanatory and responsible part. Every part must be addressed, or, more likely we follow the process to its bitter end.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   40 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

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.