Am I Missing Something?

[Venger]

If house prices do fall, do you think that the majority of the priced out will be able to purchase a house because they are cheap(er)?

I think it more likely that ​the cash rich will be able to garner a bigger share. That may be one or two of the posters on this site but I doubt it will be the majority of those who want to purchase now.

Yes. HPC.

Not all the cash rich are property-mad-heads. If there is a wider market squeeze, there may be fewer cash rich in market. There is the added stamp-duty costs. Some of power is tilting back to tenants. There could be concern of even more regulation for landlords. Look how London prices fell in early 90s. 20% yields. Where were the all the cash rich as prices plunged and plunged again? Scared out of the market. Some bought at the low, but wider homeownership won overall.

You have outlined how it is 'hard-work' being a portfolio landlord. (!?)

Well I tell you what, there was a lot more work involved in renting houses than in deciding what shares to buy or investment brokerage to use. Its one of the reasons I decided to sell my rental properties. First you have to prepare the property, even a new build, then you have to find a tenant. This would involve advertising, showing prospective tenants around the property, taking references, arranging insurance, tenancy agreements. During the tenancy collecting rents, arranging tradesmen to carry out repairs and routine maintenance. At the end of the tenancy making good dilapidations administering the return of deposits. And then the cycle starts again for a new tenancy.

It was much easier to be a wage slave, even if commuting costs weren't tax deductible. It certainly isn't as one sided as you seem to think, just collect an extortionate rent and wait for the property to increase in value.

It certainly sounds exhausting. It sounds like about three days work every twelve months.

Present rents are not extortionate. Extortion is a relationship predicated on relative power. When it comes to setting rents, individual buy-to-let landlords have no power, that is the reality of a competitive market. (Their idiotic belief that they do is evidence of their idiocy.)

Cash rich may pile into banking shares if and when they become extraordinarily good value, in a wider market scramble to raise cash. And a trophic cascade away from housing into productive investment. Perhaps housing as the 'source of all wealth' is clouding your view?

Other costs come into sharp focus when house prices fall, and fall sharply. Such as boiler repair/replacement. New roof etc. Then new rules which mean landlords have to hop to repairs requested by tenants.

Edited January 16, 2016 by Venger

[Bland Unsight]

I know it was never mentioned but has it actually been ruled out ?personally i don't think they have the balls to do it but have not seen anything that says it`s been ruled out but on the flip side i have seen nothing saying it was on the table in the first place

This is an interesting question, probably needs its own thread and definitely deserves better than me trying to keep the ball in the air when I ought to be bumping the OT Bump When You're Drunk Thread. I love to tease people who ask for reasonable things which are probably off the menu as a consequence of the institutional context by saying "You want the Moon on a stick". For example, your computer needs replacing and needs to be replaced. However, we have no budget for that but we have an employee tasked to keep your dying machine from dying, you say, "Wouldn't it be cheaper and easier to skip it and give me a new machine?", I say, "You want the Moon on a stick."

Back to the matter at hand, if you're handed macro-prudential tools but the limit of your political mandate to wield them is financial stability then you need a threat to financial stability before you wield them. I understand it like this. A toddler with matches in the street is unlikely to do any good, and likely to do harm eventually, but the merits of empowering the Fire Brigade to take all matches from all toddlers always everywhere are problematic on reflection. On the other hand when we discover that same toddler in a puddle of petrol it looks different.

Many people want to argue that the present FPC, FCA and PRA committees of the BoE will do nothing because the SFA, FSA and BoE did nothing, but it is muddle-headed. I'd like to sell the analysis that Brown tasked the defunct tripartite regulatory regime to look the other way whilst an alliance of banks, BTLers and OOers poured out a puddle of petrol, clothed themselves in lint and tried to make fire from the frictional heating of Sir James Crosby rubbing his hands with glee at the escalating value of his share options. Osborne tasked the BoE committees with preventing the whole stupid mess blowing up in his face on his watch. There was nobody allocated to think about that, much less empowered to do anything about it, pre 2008.

All these things change slowly, but they do change.

Edited January 16, 2016 by Bland Unsight

[long time lurking]

All these things change slowly, but they do change.

That should have said have the balls to do it now

But like you say the key is time i think at some point io btl will be no more ,i`m just guessing that time is quite away off

I hope i`m wrong and it happens sooner rather than later

Bump when drunk sounds like the place i should be ATMIT

Edited January 16, 2016 by long time lurking

[winkie]

They're always banging on about 'getting credit into the economy'. The main way it does this is via secured lending. Trouble is, if you let it be paid off every month, it becomes an uphill struggle trying to increase the amount of credit in the economy, as you first have to cover what you've lost thru repayment mortgages. One way around this for a while is to make all housing BTL and all mortgages IO.

This....paying debt off is destroying it.....can't have all land and buildings wholly owned, fully paid for.....for a start we are not building enough to support our growing numbers.....IO and forever withdrawing growth in equity as new secured debt to spend on any consumption of choice has been the new system since the early 80s.....was unknown of before......spending the future today instead of repaying the debt of yesterday....only the debt grows exponentially.

[Venger]

If house prices do fall, do you think that the majority of the priced out will be able to purchase a house because they are cheap(er)?

I think it more likely that ​the cash rich will be able to garner a bigger share. That may be one or two of the posters on this site but I doubt it will be the majority of those who want to purchase now.

You're a right bag of happiness lol.

Have you really sold your BTLs? Post of May 2015 and you still seemed mad for property.

Whereabouts are you?

Where I am in North Hampshire lower priced properties are selling very quickly. To give an example a two bedroom terraced house sold in 2013 for £180K. The identical house next door sold last month for £230K. Apartments at under £200K don't stay on the market for long.

It has now been rented for £1000 per month. That's a 5.2% yield, no letting agent involved and maintenance costs on a 10 year old house are unlikely to be very high. If the new owner has financed it themself that's a much higher yield than cash on deposit. And its an investment as safe as houses.

I know you lot will flame me, but this is the mindset you are disparaging. So far this has prevailed over your hopes for an HPC. If the owner is looking at the investment as a future pension then in 16 years the cost will have been recovered, in nominal terms. Thereon it looks to be a better investment than letting the financial services industry pick your pocket. Even if the capital value falls there isn't really a problem as long as rents stay in line with RPI or CPI.

Banks are going to turn on the BTLers.

[spyguy]

Yes. HPC.

Not all the cash rich are property-mad-heads. If there is a wider market squeeze, there may be fewer cash rich in market. There is the added stamp-duty costs. Some of power is tilting back to tenants. There could be concern of even more regulation for landlords. Look how London prices fell in early 90s. 20% yields. Where were the all the cash rich as prices plunged and plunged again? Scared out of the market. Some bought at the low, but wider homeownership won overall.

You have outlined how it is 'hard-work' being a portfolio landlord. (!?)

Cash rich may pile into banking shares if and when they become extraordinarily good value, in a wider market scramble to raise cash. And a trophic cascade away from housing into productive investment. Perhaps housing as the 'source of all wealth' is clouding your view?

Other costs come into sharp focus when house prices fall, and fall sharply. Such as boiler repair/replacement. New roof etc. Then new rules which mean landlords have to hop to repairs requested by tenants.

Yes. Two assumptions there.

1) That a person with cah is looking to spunk it up ona 10 x time leveraged on a house.

2) There are lot of people with cash in the UK.

Apart from a couple of people I know, most just have several hundred savings max. Its only the odd inheritance or pension lump some thats provides the deposits these days.

UK housing has sucked all the cash out of most people.

[pig]

This is an interesting question, probably needs its own thread and definitely deserves better than me trying to keep the ball in the air when I ought to be bumping the OT Bump When You're Drunk Thread. I love to tease people who ask for reasonable things which are probably off the menu as a consequence of the institutional context by saying "You want the Moon on a stick". For example, your computer needs replacing and needs to be replaced. However, we have no budget for that but we have an employee tasked to keep your dying machine from dying, you say, "Wouldn't it be cheaper and easier to skip it and give me a new machine?", I say, "You want the Moon on a stick."

Back to the matter at hand, if you're handed macro-prudential tools but the limit of your political mandate to wield them is financial stability then you need a threat to financial stability before you wield them. I understand it like this. A toddler with matches in the street is unlikely to do any good, and likely to do harm eventually, but the merits of empowering the Fire Brigade to take all matches from all toddlers always everywhere are problematic on reflection. On the other hand when we discover that same toddler in a puddle of petrol it looks different.

Many people want to argue that the present FPC, FCA and PRA committees of the BoE will do nothing because the SFA, FSA and BoE did nothing, but it is muddle-headed. I'd like to sell the analysis that Brown tasked the defunct tripartite regulatory regime to look the other way whilst an alliance of banks, BTLers and OOers poured out a puddle of petrol, clothed themselves in lint and tried to make fire from the frictional heating of Sir James Crosby rubbing his hands with glee at the escalating value of his share options. Osborne tasked the BoE committees with preventing the whole stupid mess blowing up in his face on his watch. There was nobody allocated to think about that, much less empowered to do anything about it, pre 2008.

All these things change slowly, but they do change.

It's a nice story but it evades most of the interesting stuff...

No more [Tory] boom and bust proclaims the Big Bad Staln, as he takes the economy towards a globalised post 9/11 economy.

I'm a Bigger Badder Stalin proclaims his successor just a couple of years after calling for all those annoyingly restrictive regulations to be lifted...

The way left and right wing ideology has been smashed is funny when you think about it. I have no idea whether these are left or right concerns but the Moons I expect any chancellor to deliver on sticks are:

Never bailing out the banks again

Weathering global storms as best we can and

House prices stagnating against wages

Happy to forgo a crash if that last is delivered - but not vice-versa

[Venger]

House prices stagnating against wages

Happy to forgo a crash if that last is delivered - but not vice-versa

I've not got another 25 years for a soft hpc, to smooth it out. Protecting the £650K boomers homes.

No way.

HPC.

[Venger]

Yes. Two assumptions there.

1) That a person with cah is looking to spunk it up ona 10 x time leveraged on a house.

2) There are lot of people with cash in the UK.

Apart from a couple of people I know, most just have several hundred savings max. Its only the odd inheritance or pension lump some thats provides the deposits these days.

UK housing has sucked all the cash out of most people.

Agreed. A lot of people like to believe themselves cash rich, when they look at value of their own homes, and BTLs.

Actual money in the bank.....? Exactly. And houses are not really any sort of investment in a normal market.

Eh? Owner side can sell. Prices are painfully high. Inventory on market so low. We're at the early stages of more property coming to market imo, with values set at the margin.

Multiple property BTLer, August 2015. Years of dancing about HPI, BTL, more debt more leverage more gains.. 'inflation wiping away the debt' etc etc. All-in, with a recent upsize house (6-12 months before budget).

I certainly would not be keeping £50,000 in the bank when I could make the money work harder elsewhere.

So many owners see value of their homes/BTLs, but it's not money until turned to money - which in most instances requires to sell. And values are set at the margin.

[Bland Unsight]

The way left and right wing ideology has been smashed is funny when you think about it. I have no idea whether these are left or right concerns but the Moons I expect any chancellor to deliver on sticks are:

Never bailing out the banks again

Weathering global storms as best we can and

House prices stagnating against wages

Oh, you're one of those. That explains a great deal.

[pig]

I've not got another 25 years for a soft hpc, to smooth it out. Protecting the £650K boomers homes.

No way.

HPC.

No point having a crash and it all happening all over again. Lots of pain and everybody (many on here excepted) trapped as they were before.

This hpi mania will only end if it's gradually crushed out of existence and wages are liberated to be spent productively elsewhere. That's the real sea change we need.

Couldn't give a feck that I saved a few pounds on taxes, especially if it's just funding the deficit. I not only think rent should be halved, but that housing generally should be rising in quality while the land value stagnates.

Yes I know - Moons on sticks....

[sleepwello'nights]

Not the case really, why are cash rich not buying up millions of barrels of oil then?

They probably would if storage wasn't such a problem.

Look back to 2008 - 10, most of the buyers at property auctions were property developers and speculators. They had the cash resources to buy and rental yields were better than they are now if they had to rent the property if it couldn't be sold.

It didn't look to me as if it were aspiring property owners who were buying. They were more concerned about their employment prospects. The posters on here were still waiting for the HPC, even those who had STR'd.

Edited January 16, 2016 by sleepwello'nights

[sleepwello'nights]

Cool, I love it when you quote my old posts.

[Venger]

No point having a crash and it all happening all over again. Lots of pain and everybody (many on here excepted) trapped as they were before.

This hpi mania will only end if it's gradually crushed out of existence and wages are liberated to be spent productively elsewhere. That's the real sea change we need.

Couldn't give a feck that I saved a few pounds on taxes, especially if it's just funding the deficit. I not only think rent should be halved, but that housing generally should be rising in quality while the land value stagnates.

Yes I know - Moons on sticks....

So you're anti-HPC? Okay.

In your view. The pain is on the younger side, and renter-side of things, vs these house prices. Priced out of the market and with house prices beyond all measure of earnings in so many areas. There are no lessons from gradual smoothed corrections. It just protects vested interests. There should be no such policies or interventions in markets to do that.

New Taboo on Debt?

A more positive sign for the future and those who invest in it would be the emergence of a new taboo on debt. When people have suffered from overindulging in some practice, rules often change in the wake of a trauma to place it off limits. The bitter experience of debt default and debt bondage could lead to a partial repudiation of policies which encourage debt. That would be far more constructive for the future.

- Davidson.

Was concerned your focus appeared to be on the amateur landlord, rather than the tenant being doorstepped and put under incredible stress, a few days ago. *Amusing*.

Even as things turn to HPC, you're doubting some pretty clear evidence.

In other words it's a measure to keep the party going, not end it:

That just doesn't stack with the numbers.

By my calculation, the public domain data supports the contention that well over half current BTL properties are going to be affected by these changes, and that the effect will be to turn them into 'investments' with significant negative carry costs. A significant slice of those properties are going to be part of portfolios where the carry costs will make the borrowers insolvent in no time flat. A close examination of the numbers explains the horror felt by the PovertyLater guys.

If your idea of a party is bankrupting half the guests, don't expect next year's bash to be well attended.

A year ago the pro BTL minds were absolutely on the full brag. Get some 9-5 sweatshop-monkey tenant in, and get the mortgage paid down. Loaded. On the BTL forums there is real concern and squealing about the positions they've put themselves in. Financial oblivion for those who've laid claim to millions of homes since 2000. They need to learn. And no one dragged anyone else into the banks for jumbo mortgages to outbid other families. So many old owners own outright. Some pain from HPC - simply ego.

Whereabouts are you?

Where I am in North Hampshire lower priced properties are selling very quickly. To give an example a two bedroom terraced house sold in 2013 for £180K. The identical house next door sold last month for £230K. Apartments at under £200K don't stay on the market for long.

It has now been rented for £1000 per month. That's a 5.2% yield, no letting agent involved and maintenance costs on a 10 year old house are unlikely to be very high. If the new owner has financed it themself that's a much higher yield than cash on deposit. And its an investment as safe as houses.

I know you lot will flame me, but this is the mindset you are disparaging. So far this has prevailed over your hopes for an HPC. If the owner is looking at the investment as a future pension then in 16 years the cost will have been recovered, in nominal terms. Thereon it looks to be a better investment than letting the financial services industry pick your pocket. Even if the capital value falls there isn't really a problem as long as rents stay in line with RPI or CPI.

One moment it's 'hard-work' - next it's all about the cash-rich and their endless money, buying up the homes if prices fall.

[Bland Unsight]

It didn't look to me as if it were aspiring property owners who were buying. They were more concerned about their employment prospects. The posters on here were still waiting for the HPC, even those who had STR'd.

That's a good point. 2008-2010 goes back to before I had any interest in property or mortgage finance, (I didn't even know this forum existed till 2011). For me the relationship of prices to earnings in London looked mental in 2003. If you look at prices today in terms of the profile of risks and their level relative to both earnings and rents the motivation to sit on your hands and see how the whole mess resolves itself is pretty compelling.

At the local minimum (wrt time) post the 2008 peak, prices in London and the South East were still pretty wild. They were wilder before and they've got wilder again since. However, and for people who are outside of the reach of the London bubble and for whom house prices are a matter of idle curiosity because they are older and have houses this is easy to overlook; house prices are totally f**king insane relative to median earnings. This may sustain, but it may not.

When I first took an interest in any of this there were two things that struck me as particularly astonishing, and for both of which I was also astonished by the fact that you could (as I had been) be oblivious to those changes; firstly, the rise of interest-only lending (via both owner-occupier and BTL lending channels) and secondly the correlated step change in house prices as multiples of local median earnings.

The economy is inherently complex, so it's possible that we can remove the interest-only lending and keep the interest-only prices somehow, (but I don't think we will see that). In 2010 it would have been quite a prescient analyst who would have foreseen the removal of interest-only from the owner-occupier sector, but it has happened, and was largely achieved by 2012. Today, we are speculating that the combined detail of Clause 24, FPC ICR rules on BTL and BCBS risk-weights will surreptitiously achieve the same result in the BTL sector by 2020 latest.

[Bland Unsight]

Yes I know - Moons on sticks....

As a teacher, one is faced with two options, either get into BTL game or go full time pedant. As I object strongly to leveraged speculation on residential homes I have chosen the second path. You can't have "Yes I know - Moons on sticks". By employing the capitalisation you establish that the referent is the Earth's moon. The Earth only has one moon, the Moon. "You want the Moon on a stick" is different to wanting a moon on a stick. For example, somebody who wanted any moon, and would make do with, for example, Charon (pictured) could be said to want "a moon on a stick"

I suddenly feel much better about everything. I wonder if the BTL game confers the same sense of serenity and tranquillity?

[pig]

As a teacher, one is faced with two options, either get into BTL game or go full time pedant. As I object strongly to leveraged speculation on residential homes I have chosen the second path. You can't have "Yes I know - Moons on sticks". By employing the capitalisation you establish that the referent is the Earth's moon. The Earth only has one moon, the Moon. "You want the Moon on a stick" is different to wanting a moon on a stick. For example, somebody who wanted any moon, and would make do with, for example, Charon (pictured) could be said to want "a moon on a stick"

I suddenly feel much better about everything. I wonder if the BTL game confers the same sense of serenity and tranquillity?

?

And good on you for taking a path that should make your life more worthwhile...

[pig]

So you're anti-HPC? Okay.

In your view. The pain is on the younger side, and renter-side of things, vs these house prices. Priced out of the market and with house prices beyond all measure of earnings in so many areas. There are no lessons from gradual smoothed corrections. It just protects vested interests. There should be no such policies or interventions in markets to do that.

Was concerned your focus appeared to be on the amateur landlord, rather than the tenant being doorstepped and put under incredible stress, a few days ago. *Amusing*.

Even as things turn to HPC, you're doubting some pretty clear evidence.

A year ago the pro BTL minds were absolutely on the full brag. Get some 9-5 sweatshop-monkey tenant in, and get the mortgage paid down. Loaded. On the BTL forums there is real concern and squealing about the positions they've put themselves in. Financial oblivion for those who've laid claim to millions of homes since 2000. They need to learn. And no one dragged anyone else into the banks for jumbo mortgages to outbid other families. So many old owners own outright. Some pain from HPC - simply ego.

One moment it's 'hard-work' - next it's all about the cash-rich and their endless money, buying up the homes if prices fall.

In order of preference - for the reasons I outlined above I'd love:

A house price crash followed by indefinite stagnation in land values (ie as far as anyone is concerned forever)

Stagnation in land values (would probably need political support and most likely policy driven tied to thinking about how the economy as a whole works).

House price crash - due to 'laws of gravity' (better shows our collective stupidity, but let's face it we've never learnt in the past).

House price crash - due to external event (oh well something is better than nothing).

I've not included 'deliberate government induced' house price crash' basically because I find the idea currently laughable - though it would be equally hilarious if Bland Unsights assumptions bear out and show Osbourne has cocked up.

[Bland Unsight]

In order of preference - for the reasons I outlined above I'd love:

All very reasonable. I really rate Adair Turner's book and I wouldn't claim to accurately précis a lengthy argument here, but he argues that if we have banks the way we have banks, then given how are economies are and how they have been changing (technological change and growing income inequality) then you are going to end up with lots of new credit money created and the associated loans extended for the purchase of existing real estate assets, particularly in the places where people actually want to live. This will tend to lead to a bust with a debt overhand that is very difficult to deal with. Sound familiar?

I think there is tension at times (perhaps an unnecessary tension) between two perspectives and I feel personally that I flip between both. One is a face pressed up against the glass, clock ticking personal perspective and the other is an idle intellectual curiosity perspective.

With regard to the first, I am part of the age cohort who were really divided by when they bought. I was eighteen just as the post-1989 bust in London was bottoming out in the late 1990s. At that point I was headed off to university hoping to be if not the next Albert Einstein (or even the next John Bell) maybe the dimwit in the department who helped run some of the experiments, (whilst I did have the dimwit bit largely covered, the rest of it still didn't work out). I recall a member of our peer group who was not going to uni but headed into retail talking about how cheap houses were, but it was something regarding which I had no frame of reference, (I guess I just assumed that as houses were a kind of generic and simple thing the market would provide when you decided it was time for that kind of thing - another thing I was wrong about...). Maybe a year later another pal who'd skipped uni, or rather dropped out of an art foundation without completing it, and joined the police, bought a house, with a very small deposit and quite a high LTI. Many of us had grown up in households which if not directly affected by the 1989 bust knew people who were, and we all thought this was if not crazy, certainly very risky. I recognise now that effectively my last chance to buy passed in about 2002. At that point I had the income but I was not settled in my line of work so I passed.

Seen from this perspective, the whole business of the continuation of the madness up to 2008 and the astonishing pace of its return by about 2010 is annoying, to put it mildly. I think there is more to it than a "It's not fair!" shout, complaining about the striking discontinuity in the level of prices relative to earning. I think that there is also a continuing battle over what deserves to be treated as reality. The reality of this is brought home by the ridiculous Edwina Currie piece that appeared in The Telegraph. Part of (a lot?) older cohorts do not recognise that anything changed and when I feel that I am dealing with that kind of insouciant ignorance, the gloves come off.

With regard to the second, I'm definitely on the same page as you pig; it would be rather grim if we are not at a turning point on this. The obsession with bricks and mortar is a serious impediment to allowing the UK economy to reconfigure itself (as the wider world reconfigures) in order to provide the best possible standard of living for the largest number of people. However, part of that reconfiguration ought, in my opinion, to include older cohorts recognising that they've cut themselves such a healthy portion of pie that the anger engendered is going to come back to bite them. I seem to recall that as social animals, humans go in for a bit of strong reciprocity.