After The Crash

[latterdaysinner]

Jesus Christ HPC let's not get ahead of ourselves .....

+1. Past major property price crashes have taken at least 4-5 years to play out fully from start (UK and Tokyo in the late 80s, HK in the late 90s, Ireland and Spain in the noughties). What we're seeing now are just possible premonitions. Assuming these are not false, good buying opportunities before 2020 are unlikely, especially away from London, where the cycle is in a different phase.

[Money Frugality]

You're basically predicting full on anarchy, total societal breakdown. People wouldn't bother working, they'd be smashing up shops and burning down houses. There would need to be martial law to sort it out.

Also in that case I wouldn't bank on owning a house outright to be much of buffer. If you were the only group unaffected the government would be coming after you hammer and tongs for taxes on your property.

What he's predicting is full on ********.. there have been countless monatary collapses since history began and look where we are now.. Back to the start. These kind of dumb posts are why people refer to HPC as "loons" there is good knowledge on this forum.. Don't tarnish it with stupid armagedden posts.. crypto currency after a full on monetary collapse.. Seriously.. Jheeze.

[Quicken]

What he's predicting is full on ********.. there have been countless monatary collapses since history began and look where we are now.. Back to the start. These kind of dumb posts are why people refer to HPC as "loons" there is good knowledge on this forum.. Don't tarnish it with stupid armagedden posts.. crypto currency after a full on monetary collapse.. Seriously.. Jheeze.

What do you mean by back to the start? Sounds very vague to me. I'm into crypto because I currently prefer decentralised, secure, private money to sterling (credit), gold, stocks or bonds. YMMV

Edit to add, it is important to remember that this did happen:

https://en.wikipedia.org/wiki/Executive_Order_6102

It wasn't an armageddon, just a major financial crisis and depression.

Edited February 9, 2016 by Quicken

[Sour Mash]

What he's predicting is full on ********.. there have been countless monatary collapses since history began and look where we are now.. Back to the start. These kind of dumb posts are why people refer to HPC as "loons" there is good knowledge on this forum.. Don't tarnish it with stupid armagedden posts.. crypto currency after a full on monetary collapse.. Seriously.. Jheeze.

Yes, everything is awesome and absolutely nothing disastrous could ever happen ..

http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article

THE collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. It took huge taxpayer-financed bail-outs to shore up the industry.

http://www.thisismoney.co.uk/money/news/article-2415003/ALISTAIR-DARLING-INTERVIEW-Britain-hours-away-total-social-collapse--Former-Chancellor-crisis-erupted-FIVE-years-ago-week.html

‘The risk I have always seen is that people forget just how close we came to a complete collapse and the thing about a collapse of the banks is that it wouldn’t just have been the banks in ruins, it would have been complete economic and therefore social collapse. People without money can do nothing – you can’t buy your petrol, you can’t buy your food, anything.

Okay, that quote is from Alistair Darling but if that's what the guy running the economy thought then it shows just how bad things got. About 2 hours away from the ATMs shutting and the population being left in an Argentina style system.

Worth noting that nothing has really been fixec - just trillions of dollars of new debt created around the World to shore things up. Now deflation is knocking at the door again and we are on the verge of another bust, based on the typical economic cycle.

[honkydonkey]

Europe didn't collapse after we blew the bejesus out of each other twice. Do you think a bank collapsing will cause more doom than an industrial nation dropping bombs on your head for years?

[Money Frugality]

Back to the start as in, in the event of a collapse there will be bail outs, printy print, debt restructuring and play continues if money becomes worthless like it has in the past there will be the rise of of new currency could be chocolate bars who knows but nether less, play continues..

I'm not pretending everything is OK and I'm not saying economic cycles don't occur as a quick wikipedia will show many collapses in history but either way play will continue.. But to be giving someone advice to mortgage a home on the assumption that it will have its debt wiped by a collapse is just plain dumb.

[long time lurking]

surely less supply, rents go up on remaining property.

Who`s buying ? for every BTLsold there will be one less needed

[Saving For a Space Ship]

surely less supply, rents go up on remaining property.

As mentioned in ye old day of Hpc forum... When it goes t!ts, folks don't rent, they share with friends or mum etc. In addition, the more recenty financially squeezed homeowners have to take in lodgers, adding more supply to rental market.

[Economic Exile]

As mentioned in ye old day of Hpc forum... When it goes t!ts, folks don't rent, they share with friends or mum etc. In addition, the more recenty financially squeezed homeowners have to take in lodgers, adding more supply to rental market.

Yes.

I was just talking to someone today who is going to rent a room out in their home. She's a financially struggling single parent of 2 grown up but not yet independent girls and the lodger has hit hard times with reduced hours.

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

[BorrowToLeech]

As mentioned in ye old day of Hpc forum... When it goes t!ts, folks don't rent, they share with friends or mum etc. In addition, the more recenty financially squeezed homeowners have to take in lodgers, adding more supply to rental market.

These are second order effects, which are hard to predict. Mostly, rents are driven by wages according to the Laffer curve.

The number of landlords is more or less irrelevant. Landlords don't provide a supply to meet a demand, they transform homeowners into renters so they can extract a tax.

[Guest]

+1. Past major property price crashes have taken at least 4-5 years to play out fully from start (UK and Tokyo in the late 80s, HK in the late 90s, Ireland and Spain in the noughties). What we're seeing now are just possible premonitions. Assuming these are not false, good buying opportunities before 2020 are unlikely, especially away from London, where the cycle is in a different phase.

I was hoping to start a thread which looked to the future and showed the real benefits of a crash. Yes its dreaming, but that dream relies on sentiment and large numbers of participants... I.e. the fence sitters who end up on this site after yet another depressing trawl through rightmove.

It's those fence sitters that we need to persuade to say "no, I'm not spending my inheritance now, with a 6x salary mortgage on top just to live in a 1970 semi in god knows where. This has to change."

[pmf170170]

Who`s buying ? for every BTLsold there will be one less needed

The problem occurs when the rental is withdrawn from the market but doesn't sell. There is another family looking for a resource which is getting scarcer.

[Bear Hug]

The problem occurs when the rental is withdrawn from the market but doesn't sell. There is another family looking for a resource which is getting scarcer.

The family will overpay a little or stay in a smaller place for a while. A much bigger loss for the landlord, still paying mortgage and watching the price fall.

[pmf170170]

Incredible all these landlords will pay the BTL mortgage and any upkeep and just leave the properties empty. I wish I had their cash and financial acumen .... oh wait if they are so rich why don't they just pay off the mortgage and continue to rent out the property.

They won't, they (the portfolio landlords) will be bankrupted but it's easier to sell a property without a tenant and post Clause 24, why have a rental income if you are going to be taxed on it rather than the profit. If the rent only just pays the mortgage, any income is essentially a 20% tax liability which will only be avoided on bankruptcy.

The biggest problem will be the stringent mortgage requirements preventing the working poor from taking advantage of cheaper property for sale even when buying would cost less than their rent but I guess that HB subsidises rent whereas I'm guessing it doesn't subsidise a mortgage.

[goldbug9999]

The problem occurs when the rental is withdrawn from the market but doesn't sell. There is another family looking for a resource which is getting scarcer.

If the rental has a mortgage on it then the lender will usually foreclose pretty quickly if a payment is missed. Forbearance is more or less non existent in the BTL market.

Edited February 10, 2016 by goldbug9999

[Sour Mash]

Back to the start as in, in the event of a collapse there will be bail outs, printy print, debt restructuring and play continues if money becomes worthless like it has in the past there will be the rise of of new currency could be chocolate bars who knows but nether less, play continues..

I'm not pretending everything is OK and I'm not saying economic cycles don't occur as a quick wikipedia will show many collapses in history but either way play will continue.. But to be giving someone advice to mortgage a home on the assumption that it will have its debt wiped by a collapse is just plain dumb.

Calling people 'loons' because they point out that a full-on financial system collapse is a possibility (given the fact that we came within two hours of one in 2008) is what I would call 'dumb' (and arrogant).

No-one is saying go ahead and take on loads of debt because it will surely all come crashing down. But anyone thinking that we are just going to get a nice normal market correction is being naive in the extreme and people should be prepared for extreme economic turmoil when the plates stop spinning. That's common sense.

Nothing has been done to address any of the problems that brought the system so close to the edge back in 2007/8. The 'too big to fail' banks and financial institutions are even bigger. The amount of debt on the books is massively larger. Interest rates are pretty much at zero already and will likely need to go strongly negative, bringing a whole new set of problems.

Abolition of physical cash is a very real possibility (almost required for negative rates) and bank bail-ins using depositor funds are a near certainty (legislation has been put in place to facilitate this).

People sitting on some savings now need to think very carefully where to go from here. Given the extreme dependence on property lending for credit creation, just assuming that when a HPC happens you'll be able to snap up a place using savings/investments with no hassle could be a very big mistake. If you have all your funds in a bank account and it goes belly-up requiring a bail in, say goodbye to goodness knows how much of your house buying fund. If you have it in equities and the market craters (most likely in tandem with property asset price drops) then you're not looking quite as pretty as you thought you were.

For the above demographic (which is probably many on this forum), now is not the time for complacency and assuming everything is just going to sort itself out whilst you cherrypick bargains with your nest egg.

[Funn3r]

People sitting on some savings now need to think very carefully where to go from here.

Doesn't matter how hard you think. Unless you take risky options such as physical gold then what is there that could survive a general collapse of everything.

[Assume The Opposite]

The biggest problem will be the stringent mortgage requirements preventing the working poor from taking advantage of cheaper property for sale even when buying would cost less than their rent but I guess that HB subsidises rent whereas I'm guessing it doesn't subsidise a mortgage.

This is what I have wondered as well. I read this paper where there is a good link with house prices and job losses. Think it was shared on HPC? Given that our economy is over 70% services, we could enter a self sustaining decline, and people may not be able to take advantage of a crash. Someone's expenditure is someone else's income.

Edited February 10, 2016 by Assume The Opposite

[Errol]

Calling people 'loons' because they point out that a full-on financial system collapse is a possibility (given the fact that we came within two hours of one in 2008) is what I would call 'dumb' (and arrogant).

No-one is saying go ahead and take on loads of debt because it will surely all come crashing down. But anyone thinking that we are just going to get a nice normal market correction is being naive in the extreme and people should be prepared for extreme economic turmoil when the plates stop spinning. That's common sense.

Nothing has been done to address any of the problems that brought the system so close to the edge back in 2007/8. The 'too big to fail' banks and financial institutions are even bigger. The amount of debt on the books is massively larger. Interest rates are pretty much at zero already and will likely need to go strongly negative, bringing a whole new set of problems.

Abolition of physical cash is a very real possibility (almost required for negative rates) and bank bail-ins using depositor funds are a near certainty (legislation has been put in place to facilitate this).

People sitting on some savings now need to think very carefully where to go from here. Given the extreme dependence on property lending for credit creation, just assuming that when a HPC happens you'll be able to snap up a place using savings/investments with no hassle could be a very big mistake. If you have all your funds in a bank account and it goes belly-up requiring a bail in, say goodbye to goodness knows how much of your house buying fund. If you have it in equities and the market craters (most likely in tandem with property asset price drops) then you're not looking quite as pretty as you thought you were.

For the above demographic (which is probably many on this forum), now is not the time for complacency and assuming everything is just going to sort itself out whilst you cherrypick bargains with your nest egg.

Good post.

[Sour Mash]

Doesn't matter how hard you think. Unless you take risky options such as physical gold then what is there that could survive a general collapse of everything.

Bank credit carries counter party risk (once again coming to the fore) and of course could be subject to negative interest rates.

Equities are for sure risky.

Just about the only 'risk free' option at the moment would be bonds - which for most people means NS&I - or physical cash (subject to loss or theft of course) which cannot be transacted in amounts large enough to buy property and may well be abolished when negative IRs come along.

Edit: In case anyone is interested, I'm currently 60% sterling bank savings, 30% Swiss Franc savings and 10% Allocated Gold. I plan to take half of the bank savings and put them into premium bonds and to start purchasing Gold sovereigns in lieu of saving more money.

Edited February 10, 2016 by Sour Mash

[Bland Unsight]

I think there are too many butter renters on this forum who 8 years on from when I first started reading this have grown even more self centred!

I buy my butter. Money down up front.

[Bear Hug]

1. Taxed income is better than no income at all.

2. Why do you think only the working poor are potential buyers? There are some renters who could even buy now but refuse to do so as they see potential for substantial price falls.

They won't, they (the portfolio landlords) will be bankrupted but it's easier to sell a property without a tenant and post Clause 24, why have a rental income if you are going to be taxed on it rather than the profit. If the rent only just pays the mortgage, any income is essentially a 20% tax liability which will only be avoided on bankruptcy.

The biggest problem will be the stringent mortgage requirements preventing the working poor from taking advantage of cheaper property for sale even when buying would cost less than their rent but I guess that HB subsidises rent whereas I'm guessing it doesn't subsidise a mortgage.

[pmf170170]

1. Taxed income is better than no income at all.

2. Why do you think only the working poor are potential buyers? There are some renters who could even buy now but refuse to do so as they see potential for substantial price falls.

1. Maybe but for a portfolio landlord, revenue that is taxed as income simply creates a liability to the very government that is deliberately and inevitably bankrupting them. Unless they can raise rents sufficiently to cover the liability; very unlikely in my opinion, albeit that this is what happened in Ireland, albeit from a much lower base, they will go bankrupt anyway. I do wonder whether the landlord will bother to let a loss making property. Maybe they will.... time will tell. Simply evicting tenants that are creating a liability and making a property harder to sell may have more appeal whilst also making a very public point that the government are making families homeless via their taxation policies. The fact that the government were warned that this would happen would make them appear uncaring with no empathy for the poor. I guess that a Conservative Government would wear that moniker with pride though.

2. I don't but they are the people that I fear will share the consequences of this policy along with the portfolio landlords and those recently suckered into the market by HTB. Personally I think that prices at the bottom end of the market will tank with the speed and extent of the falls being roughly inversely proportional to the rise in this segment of the market post 1995. I believe that there will be some great buying opportunities for those who wish to buy a typical B2L property and whilst price falls will cascade up the value chain, the impact will become less significant the further up the value chain properties sit. I also think that banks and consequently the wider economy may become victims of the policy such is the potential for price falls and I suspect that any B2L landlord who thinks that they can shelter their portfolio in a company will find that they have been suckered into a trap designed to maximise tax income for HMRC. It won't be long before Mr Osborne decides that he wants a completely flat playing field.

Are price falls good? Absolutely if managed in a controlled way as it will release much needed disposable income into the real economy (hopefully more than offsetting the ponzi that is equity release). Whilst many on this site will welcome a precipitous fall, I do worry about the unintended consequences that I believe will accompany such a fall. There will also be a lot of victims of negative equity and I fear that it is the young who; in my opinion are already royally shafted by recent governments', that will be badly affected.

One thing that is certain is that this is going to be interesting to watch play out and I suspect that the impact will feature in future economic textbooks. Personally, I bought in 2008 at 2002 prices (having STR in 2007) and I'm quite content in my home but any falls in value simply make it much easier for me to trade up should I ever feel the need.

[Bland Unsight]

1. Maybe but for a portfolio landlord, revenue that is taxed as income simply creates a liability to the very government that is deliberately and inevitably bankrupting them. Unless they can raise rents sufficiently to cover the liability; very unlikely in my opinion, albeit that this is what happened in Ireland.

Would you care to evidence that claim?

[dryrot]

Bank credit carries counter party risk (once again coming to the fore) and of course could be subject to negative interest rates.

Equities are for sure risky.

Just about the only 'risk free' option at the moment would be bonds - which for most people means NS&I - or physical cash (subject to loss or theft of course) which cannot be transacted in amounts large enough to buy property and may well be abolished when negative IRs come along.

Edit: In case anyone is interested, I'm currently 60% sterling bank savings, 30% Swiss Franc savings and 10% Allocated Gold. I plan to take half of the bank savings and put them into premium bonds and to start purchasing Gold sovereigns in lieu of saving more money.

Another trenchant if depressing post. There seems no obvious way out. You wrote: "I plan to take half of the bank savings and put them into premium bonds"

which is a max of £40k if you dont have any now? If you've only £80k bank savings I'm not sure we can accept you as a poster on hpc?

And PBs can be confiscated too? I have some cash in various accounts (under the 78k limit), some PBs, some stock (and a small house with small mortgage). They all seem to be losing value except the house, and I'm sure thats just a matter of time..