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El_Pirata

The Impending 2br New Build Collapse

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It was predicted long ago on HPC and it is finally coming to pass - a glut of 2BR "luxury" flats has been built, and they have been sold at hyped-up prices to gullible BTL-ers who have no hope of covering the mortgage with the rent. There are thousands sitting empty just in the Docklands area.

This has finally been recognised in the mainstream press (see recent Telegraph, Guardian articles), by Portman (ending BTL mortgages on new-builds) and by the CML. We can argue about the scale of the problem, but it seems clear to most that there is a massive scandal brewing and a lot of wanna-be property emperors in deep doo doo.

So the question is - what effect will this have on the wider market? Is it enough to kick the slow decline in property values (according to Hometrack) into crash-speed?

I see three possibilities:

1. Prices for these unwanted and loved flats fall so far that they start to suck away FTBs from older properties. FTBs (now largely in their 30s) generally shun 2BR newbuilds as they are not suitable for settling down and raising a family. However perhaps there is a limit to the "quality premium" for more traditional FTB properties - ie 2BR could fall to a level where they are so cheap that FTBs would accept living in less than ideal properties in exchange for much smaller mortgage. This would suck demand away from other FTB properties, bringing prices down. The counter-argument to this is that low prices would bring out latent demand from prospective FTBs who would otherwise be completely priced out of the market.

2. It will lead to credit tightening. The lenders will take some big hits from the 2BR newbuild disaster and will compensate by charging higher interest rates to the market and clamping down on salary multiples and self-cert. Tighter credit will ultimately translate into lower prices. I think this is the most likely outcome.

3. The newbuild disaster will be isolated and the wider market will start rising again.

So kids, whaddya think? Let's have fun discussing it!

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I dunno, TBH. I'm one of the potential FTBs who would encourage a 1. scenario, since I don't really need anything more than a 2 bed flat unless my wife suddenly gets broody (she's 31 now, and no signs yet). If we don't end up having kids I'd quite happily live in a moderately sized place and save our spare income for a holiday home/motorbike/pension/bacchanalian lifestyle etc. :).

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I dunno, TBH. I'm one of the potential FTBs who would encourage a 1. scenario, since I don't really need anything more than a 2 bed flat unless my wife suddenly gets broody (she's 31 now, and no signs yet). If we don't end up having kids I'd quite happily live in a moderately sized place and save our spare income for a holiday home/motorbike/pension/bacchanalian lifestyle etc. :).

Perhaps there are ftbs who would be happy to live in a two bedroom flat but when prices fall and a two bedroom house comes into price range or perhaps a three bedroom flat comes into price range the two bedroom flats will start to look a lot less attractive.

At the moment we are all looking at the minimum we would be content to buy because prices are so outrageous but there was a time when people would consider an extra bedroom for guests and an extra bedroom to be turned into a study etc. etc.

I agree that there will always be a proportion of people who will buy smaller in order to either purchase outright in cash or have a very small mortgage but I have always thought that flats generally are unlikely to be attractive to people in this group. Not unless the block of flats concerned is exceptionally well-run and well-maintained and the flats are of exceptionally good condition. This is simply not the case with regard to the majority of this 2 bed new builds, most are extremely small, badly built and are unlikely to attract the top end of the market shall we say. As such I could easily see a time when these might be bought up by local authorities who have not been building social housing but still desperately need it - and then we are back to the old problems of high rise social housing.

No, I think those people who want to buy outright will avoid these 2 bed newbuilds, skip straight over them and buy something small but at least freehold, I know I would.

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So then the prices of the 2 b. r. flats fall still further, thereby making them 'attractive' again, with a consequent impact on the prices of 2 b. r. houses, and other properties & so on -but it'll take an awfully long time, unless the owners of the 2 bed flats have to sell, and even then it'll take quite a long time. I'm convinced prices will continue to fall, but think it'll be a very long drawn out process.

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So then the prices of the 2 b. r. flats fall still further, thereby making them 'attractive' again, with a consequent impact on the prices of 2 b. r. houses, and other properties & so on -but it'll take an awfully long time, unless the owners of the 2 bed flats have to sell, and even then it'll take quite a long time. I'm convinced prices will continue to fall, but think it'll be a very long drawn out process.

No rush.

d :D

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As such I could easily see a time when these might be bought up by local authorities who have not been building social housing but still desperately need it - and then we are back to the old problems of high rise social housing.

Couldn't agree more. Roll on the future.........

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Couldn't agree more. Roll on the future.........

+1

I seriously can't see any alternative - the people who actually want to live in these just won't fill them.

Housing associations will start buying up when they crash and combined with direct local authority ownership, entire blocks will end up as social housing. Thirty years later and they're run-down drug infested holes and up for nomination in 'Demolition' on BBC 12!

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I rent a 3 bed semi now, so there is NO WAY I would be buying a new-build 2 BR flat!

You could always buy it and rent it out to a down and out BTL'r :lol:

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Gladedale Homes

This development is going up not far from me, I drive past from time to time and so far it has not come up out of the ground. Interestingly there is a whole row of EAs directly opposite. The sign outside says there will be 152 apartments.

Not so long ago this is exactly the kind of property that would have appealed to BTLs and SIPP investors but not any more. So who is left to buy it? I think it will only appeal now to FTB couples who have no immediate plans to have kids, but how much can these people afford to pay? Unlikely they will reach the £250k the developer will be asking for, more likely around £160-180K. There is another similar development just started near the station and I have seen at least one other smaller one just started so perhaps 250 2bd apartments currently being built in one small town.

These apartments must be sold. I can not seen any alternative except that prices tumble and the effect of this must ripple all the way up the property market to the most expensive executive houses.

The greater effect though maybe that for every one of these new-builds that is sold to FTBs there is another chain of property sales that fails to get off the ground. Every property sale in a chain requires a FTB or cash buyer at the beginning to get it started. Take away 250 FTBs from the whole process in one small town and that is 250 chains that never get started. The result must be larger more upmarket properties still stuck on the market and sales only occurring when vendors are forced to reduce to sell to the few who are actually in a position to buy.

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Depends how badly it affects the whole BTL market. If the new build collapse makes BTLers realise that prices can go down and are not on an ever upwards path then it could hit the whole sector.

If BTLers realise that sub 5% yields make no sense then there could be floods of them selling up which could then trigger the wider crash.

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perhaps 250 2bd apartments currently being built in one small town.

Add to this all the houses (particluarly in London) that have been seperated into flats and bedsits for letting out and thats an awful lot of first time buyer properties and when you consider that many first time buyers are in their thirties and will be having or wanting to have children and a family home, well it does make you wonder who is going to buy all these "investment opportunities".

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I am one of those young FTB for whom a flat is what I want. The thing is running a 2 bed flat is so much more expensive than running a 4 bed house when you sublet those rooms. Sharing all the utlities and council tax amongst 4 instead of 2 makes a major difference; you also decrease the risk of a significant void if you are renting 3 rooms instead of 1.

As these extra costs of living go up (council tax, energy etc) I think the young will be more inclined to house share. This will decrease further the demand for 2 bed flats.

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Depends how badly it affects the whole BTL market. If the new build collapse makes BTLers realise that prices can go down and are not on an ever upwards path then it could hit the whole sector.

If BTLers realise that sub 5% yields make no sense then there could be floods of them selling up which could then trigger the wider crash.

I think you've hit on another important point here. The newbuild disaster could really undermine the "property only ever goes up" mantra and cause a big change in psychology.

There are a lot of people sitting on what they still think are rock-solid investments, once they see the pain of the newbuild BTLers they will realise that they too are exposed, and perhaps many holding more traditional proerties will sell up in an attempt to avoid any contagion.

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I think you've hit on another important point here. The newbuild disaster could really undermine the "property only ever goes up" mantra and cause a big change in psychology.

There are a lot of people sitting on what they still think are rock-solid investments, once they see the pain of the newbuild BTLers they will realise that they too are exposed, and perhaps many holding more traditional proerties will sell up in an attempt to avoid any contagion.

Exactly, the whole BTL market is supported by misplaced confidence that prices can only ever go up and whatever they loose on the rents they will make up on the capital gain. The new build scandal could shake this confidence, kicking the stool from under the market.

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Is it possible for one part of the market to be badly hit without effecting the rest?

I don't think so.

If the 2 bed new builds collapse then the whole flat market must surely go with them. Aside from the BTLs this leaves flat owner-occupiers with reduced or even negative equity. Those who had hoped to move upmarket can no longer do so, or if they can they have less money to put down. So the 3 bed semi market comes down as well, and so it goes on all the way up through the market right up to the £1m+ houses.

A 20% hit on the 2 bed flats may not translate into 200K off a £1m property but it could result in a 100K reduction, with everything else in between hit to some extent.

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Is it possible for one part of the market to be badly hit without effecting the rest?

I'm not sure. To be honest I can't really see it having much effect. These flats exist in a BTL-funded bubble reality. Nobody (besides investors) really wanted them so no-one (besides investors) is going to miss them. People will lose money, yes, but it's hard to imagine the effect rippling out to genuinely desirable houses that people actually want to live in for years and years, rather than just invest in.

In fact the negative sentiment surrounding these flats may help to stabilise the rest of the market, which arguably looks 'safer' in comparison. Perhaps BTL flats will end up absorbing the general appetite for a crash?

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What I can't understand, and perhaps you could enlighten me. But why is city living in flats so desirable on the continant but so undesirable here?

Its not that its undesirable, just that there is a limit to who wants them. Generally its 20 to very early 30s and that's about it. Sure there will be some late 30s (mainly men) who want them but there is a limit.

The thing is there *was* a shortage, because young adults (20-30) live apart and get married later there was a need for more flats to house these people. However that demand has been filled and filled over again. There is a limit too how many are wanted. The generation where this demographic shift happened now want to move into houses. That and the old don't like moving out of their houses and you can see that a greater % of the population want houses (because its getting older).

You also now get the reverse trend. Flats are more expensive per room than houses so the young facing increased costs just move into houses with more people where rates & council tax are shared.

I was one of those people actually looking to buy a 2/3 bed flat but the high prices made me pause. I am now realising that actually I would prefere to be in a house with more people. That and the economics make better sense.

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Of course if 2005 is anything to go by these "city lifestyle appartments" won't actualy drop in value.

Incentives such as 40% cash-back, mortgage paid for 2 years, 8% rental yield paid up, will prevail......anything to keep the indicies and LR stats up and maintain the illusion of a GSD....better to get stung for a few extra £100's on stamp duty than shattering the dream of ever riseing prices....afterall admission of anything else and the whole pack of cards they are constructed with will come crashing drown.

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Of course if 2005 is anything to go by these "city lifestyle appartments" won't actualy drop in value.

Incentives such as 40% cash-back, mortgage paid for 2 years, 8% rental yield paid up, will prevail......anything to keep the indicies and LR stats up and maintain the illusion of a GSD....better to get stung for a few extra £100's on stamp duty than shattering the dream of ever riseing prices....afterall admission of anything else and the whole pack of cards they are constructed with will come crashing drown.

Superb, the quality of the quality posts on this board are just getting better and better.

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Guest Bart of Darkness

What I can't understand, and perhaps you could enlighten me. But why is city living in flats so desirable on the continant but so undesirable here?

Good question.

Maybe the continentals just do it better than we do? Bigger flats, better build quality, decent parking (that doesn't cost an arm and a leg), these are all aspects I've seen mentioned in these forums.

Maybe there's more a tradition of living in flats over there as well. Aside from the very exclusive areas of London, flats tend to be seen by the Brits as being for young singles or poor people who can't afford a house (I live in a council flat BTW so I'm not being snobbish -- I hope).

We Brits do seem to be very aspirationally fixed on houses rather than flats and on living in the suburbs rather than the city centre. I'm guilty of this myself. I live on the edge of the South Yorks/Derbyshire border (usually described as the "back of beyond" by friends) and would like a house in the S20 area, which is even further away from Sheffield city centre than I am now.

I must admit my attitudes might be a touch old fashioned in this respect. :)

What puts me off "centro" living, apart from the fact that the prices of 2-bed "luxury" flats are often the same (or more) than a 3-bed detached house in my target area is a general antipathy towards living in the city centre. When I'm there I can't wait to get out. I'm not the type to go clubbing or spend much time in wine bars. I don't buy into the kind of phoney "cafe culture" lifestyle that the ads for these places promote. This is something that comes naturally to say the French, it's a bit forced when we do it (we may change, give it time). City centre living in the average UK town or city would seem to involve binge drinking, fighting, copious vomiting, public urination, staggering around very loudly at 2.00 AM, police cars going by with their sirens blaring....

OK, maybe a bit strong but you get the picture.

Why would I want to live here

http://www.rightmove.co.uk/viewdetails-773...pa_n=1&tr_t=buy

When I could live here

http://www.rightmove.co.uk/viewdetails-824...pa_n=1&tr_t=buy

If that flat was half its current price I'd (possibly) think about it.

There is a bar as part of the West One complex where that flat is situated. I was there on Tuesday (business meeting -- honest). For several hours I had a good view of 6 or 7 chavs getting drunk across the street and pestering people going by. Very "cafe culture" I don't think!

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It was predicted long ago on HPC and it is finally coming to pass - a glut of 2BR "luxury" flats has been built, and they have been sold at hyped-up prices to gullible BTL-ers who have no hope of covering the mortgage with the rent. There are thousands sitting empty just in the Docklands area.

I see three possibilities:

1. Prices for these unwanted and loved flats fall so far that they start to suck away FTBs from older properties. FTBs (now largely in their 30s) generally shun 2BR newbuilds as they are not suitable for settling down and raising a family. However perhaps there is a limit to the "quality premium" for more traditional FTB properties - ie 2BR could fall to a level where they are so cheap that FTBs would accept living in less than ideal properties in exchange for much smaller mortgage. This would suck demand away from other FTB properties, bringing prices down. The counter-argument to this is that low prices would bring out latent demand from prospective FTBs who would otherwise be completely priced out of the market.

2. It will lead to credit tightening. The lenders will take some big hits from the 2BR newbuild disaster and will compensate by charging higher interest rates to the market and clamping down on salary multiples and self-cert. Tighter credit will ultimately translate into lower prices. I think this is the most likely outcome.

3. The newbuild disaster will be isolated and the wider market will start rising again.

So kids, whaddya think? Let's have fun discussing it!

4. I see into the future.................I see "Luxury Executive" FLAT appartments.

They are the NEW 60's tenement flats and the tower blocks of tomorrow!

They will all be dozed in a few years to make way for regular family type housing with garages and gardens.

Until then they will be gradually taken over by housing associations and sheltered accommodation, turning them into ghetto's, forcing the original buyers out. It's going to happen.

I don't know why everybody's so hostile to btl'rs on here? I'm sure with hindsight many of you would have got on that old band wagon.

People forget that while they still rent they are further feeding the btl world.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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