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Britain's Housing Market Is Pulling The Uk Dangerously Close To A Financial Market Crash

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Britain's housing market is pulling the UK dangerously close to a financial market crash

By Lianna Brinded | Business Insider UK FinanceSat, Sep 17, 2016 07:30 BST

Britain's housing market is pushing the nation closer to a financial market collapse.

This may seem like hyperbole but when you look at the cold hard numbers that form HSBC's huge chartbook this week detailing the state of the UK housing market, there are some key concerns about how easy it would be to topple the banks, if there was a rupture in the property sector.

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The day draws ever closer when us plebs get to find out for sure whether any lessons at all were learned from 2008 and the banks can actually handle an HPC this time, or whether no lessons were learned at all, and the banks, regulators and govts have just carried on buying trebles all round on their shiny new credit card, aka the printing press.

Whichever way it goes there's going to be a shit load of very angry people out there.

Bad time to be a banker or a politician IMO.

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It's nuts. I can't help feeling depressed by our economy. My wife and I have just graduated and earn 45k between us in London - which doesn't leave much after rent and bills. Friends around us are buying new cars, holidays and houses (not so much property recently) with debt. Two weeks of our labour per month go to the landlord.

I've always tried to save money but wonder if the spenders and speculators will always be rewarded. I'm not feeling a great incentive to work at the moment...

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It's nuts. I can't help feeling depressed by our economy. My wife and I have just graduated and earn 45k between us in London - which doesn't leave much after rent and bills. Friends around us are buying new cars, holidays and houses (not so much property recently) with debt. Two weeks of our labour per month go to the landlord.

I've always tried to save money but wonder if the spenders and speculators will always be rewarded. I'm not feeling a great incentive to work at the moment...

Hope you don't mind me saying, but well done on trying to think this through.

I've got two kids in London. They seem to be earning similar to you. Both at home, trying to save. I'm currently advising them to do this and not jump in as I don't see this as sustainable.

But, what do I know. I was calling peak madness in 2007.

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It's nuts. I can't help feeling depressed by our economy. My wife and I have just graduated and earn 45k between us in London - which doesn't leave much after rent and bills. Friends around us are buying new cars, holidays and houses (not so much property recently) with debt. Two weeks of our labour per month go to the landlord.

I've always tried to save money but wonder if the spenders and speculators will always be rewarded. I'm not feeling a great incentive to work at the moment...

You're spending 1500 quid a month in rent as a couple? Where are you living, Kensington?

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I've always tried to save money but wonder if the spenders and speculators will always be rewarded. I'm not feeling a great incentive to work at the moment...

My wife is convinced Help To Buy will be the next big PPI and the government will never repossess a HTB property.

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I offer you this.

http://www.rightmove.co.uk/property-to-rent/property-61107389.html

Would have to pay me to live in 'stow. And provide round the clock bodyguards

Allowing for tax, you'd need to earn circa £24,000 to rent that - before you pay any other bills or for anything else.....which is just ridiculous. There's just no other way of describing it, seriously what is the point of going out to work if all you're doing is paying someone else's mortgage & just about subsisting???

My great gran lived in Walthamstow in a 30's built council flat, consisting of a lounge, a bedroom, a kitchen & a bathroom - that was it. I looked on Rightmove a few weeks ago & an identical flat in the same block (wasn't the exact one) was on at a rather mind boggling £250,000, over £60,000 per room. I bought my house oop North for less than an eighth of that price 3 years ago, anyone thinking London prices have any basis in reality is deluding themselves.

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It's nuts. I can't help feeling depressed by our economy. My wife and I have just graduated and earn 45k between us in London - which doesn't leave much after rent and bills. Friends around us are buying new cars, holidays and houses (not so much property recently) with debt. Two weeks of our labour per month go to the landlord.

I've always tried to save money but wonder if the spenders and speculators will always be rewarded. I'm not feeling a great incentive to work at the moment...

If you've just graduated you are lucky as you have plenty of time ahead. At the moment don't think of property, just try working your way up to a better salary and save as much as you can. You should soon earn at least 50K each, then you can save a lot.
What will happen with prices in the meantime? Well, the most likely scenario is that prices won't increase for a very long time.
No one really wanted this to happen and against all belief people in gov are not total idiots. The current level of prices is a result of a silly, but genuine mistake - Osborne wanted to boost transaction numbers and construction sector, but he did not realize the market is skewed this much toward BTL and did not think that straight after 2008 there will be this many idiots jumping into interest only debt.
He actually started to correct his mistake immediately when he had the opportunity - unfortunately this meant he had to wait at least a year for data, then he had to admit defeat, then spend time to make some new regulations etc... total two years - this is actually a very short time for this process. And he was so desperate that he did not even care about the huge face loss coming from making a U-turn on stamp duty. And he has hit BTL with some extra burden and now London is falling.
While a two year period is short for the government, unfortunately it is long time for idiots to jump on the bandwagon and now prices are 50-60% higher. If prices stay this high a lot of families will suffer, if they come down, banks, big builders, GDP and some families will suffer, so it is a quite bad situation to be in right now.
I suppose this is one of the main reasons why he got fired spectacularly by May and I am 99% sure that the new government will do everything to avoid further price rises. Hammond wont be allowed to do anything which would end up in further price rises.
BTL gamblers dreaming about further capital gains and policies supporting them are living in a dream world, it won't happen. Actually the intention was never to help them, these two years have only been an unwanted side effect - a cancer secretly growing in the body - now identified and treatment is started. Gov have all the data and they know exactly what they've done, there is absolutely zero chance gamblers will get any more support. The only thing Autumn Budget will bring to them is more pain.
Landlords cannot see and understand this, cause they got blinded by $$$, the average people cannot see this, because of their huge pain and disappointment.
But if you try to distance yourself from this all, it's all so clear.
If you've just graduated you are lucky as you have plenty of time ahead. At the moment don't think of property, just try working your way up to a better salary and save as much as you can. You should soon earn at least 50K each, then you can save a lot.
What will happen with prices in the meantime? Well, the most likely scenario is that prices won't increase for a very long time.
No one really wanted this to happen and against all belief people in gov are not total idiots. The current level of prices are a result of a silly, but genuine mistake - Osborne wanted to boost transaction numbers and construction sector, but he did not realize the market is skewed this much toward BTL and did not think that straight after 2008 there will be this many idiots jumping into interest only debt.
He actually started to correct his mistake immediately when he had the opportunity - unfortunately this meant he had to wait at least a year for data, then he had to admit defeat, then spend time to make some new regulations etc... total two years - this is actually a very short time for this process. And he was so desperate that he did not even care about the huge face loss coming from making a U-turn on stamp duty. And he has hit BTL with some extra burden and now London is falling.
While a two year period is short for the government, unfortunately it is long time for idiots to jump on the bandwagon and now prices are 50-60% higher. If prices stay this high a lot of families will suffer, if they come down, banks, big builders and GDP will suffer, so it is a quite bad situation to be in right now.
I suppose this is one of the main reasons why he got fired spectacularly by May and I am 99% sure that the new government will do everything to avoid further price rises. Hammond wont be allowed to do anything which would end up in further price rises.
BTL gamblers dreaming about further capital gains and policies supporting them are living in a dream world, it won't happen. Actually the intention was never to help them, these two years have only been an unwanted side effect - a cancer growing on the body - now under treatment. Gov have all the data and they know exactly what they've done, there is absolutely zero chance gamblers will get any more support. The only thing Autumn Budget will bring them is more pain.
Landlords cannot see and understand this, cause they got blinded by $$$, the average people cannot see this, because of their huge pain and disappointment.
But if you try to distance yourself from this all, it's all so clear.

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Welcome jo_gian. I do take issue with Osborne trying to reduce prices. In 2013 he introduced HTB. Are you saying he thought HTB was going to reduce prices?

Osborne wanted to boost transaction numbers and construction sector, but he did not realize the market is skewed this much toward BTL and did not think that straight after 2008 there will be this many idiots jumping into interest only debt

But he wasn't even Chancellor til 2010? Am I missing something? Wouldn't he have seen how it's unfolding before he became Chancellor? BTL was very well established by 2010.

Why also have the BoE been so hellbent on ZIRP if the government didn't want high house prices? (and of course, BoE and the government DO work closely together whatever people say).

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I agree with a lot of what Jo_gian posted.

I genuinely believe that the Government set out with good intentions e.g. the two HTB schemes were intended as policies to address the post-2008 higher deposit requirements for mortgages and to get the house builders building again, FLS was intended to get the banks lending again to businesses, etc.

The main issue is how the banks and builders responded to those policies. For the new build HTB scheme, presumably on the basis that the buyer will still max out borrowing, the builders quickly upped the prices by the 20% 'help'. With FLS, the banks simply lent most of it to BTL and house buyers, instead of businesses.

Another example is MMR. It was intended to promote more responsible mortgage lending and when it looked like it was actually leading to very high loan to income multiples again the Government added a policy of no more than 20% at 4.5 x or higher.

So in London and now in the SE, all second steppers with any equity seem to be offered 5 x (joint) income mortgages by the banks no problem, but you get nothing like that in, say, the NE where house prices are still well down on 2007 peak. I can only assume it is the banks that have chosen to apply MMR (or not!) in that way.

ZIRP was not UK-specific. It was applied across Europe and the US and its primary aim was to bail out banks and the Governments themselves, as they all owed shed loads of debt (and still do). But the unintended consequences of that was to destroy savings, a lot of which then went into property in search of yield, keep the over leveraged owners and BTLs above water.

And with BTL Osborne did indeed recognise it was a problem and was (is) trying to fix it, in part at least, with S24.

However, I do think the increase in HPI that all the above contributed to was not considered 'unwelcome' by Osborne when it helped increase GDP as he realised that his 'economic plan' was not actually delivering as he originally hoped. In fact I was working in central Government in 2010 when the Tories got in and I know that he really did want to try and get some real economic growth, and every department was ordered to come with policies and plans for that.

But I also think any significant fall in (nominal) house prices is considered most unwelcome by any Government, particularly the Tories, for both political and economic reasons.

With the mega bubble we have had there is no doubt London and the SE must be at the top now, and will (have) start to fall. Transactions are now well down and prices will follow. But I do think there will be further policies rolled out to try and limit how significant those price falls will be. Plus as long as we have ZIRP the normal forced sales that help accelerate a traditional HPC are less in play.

Also, there is the issue of what to do with the 50,000 odd £0.5-1.5m rabbit hutches being built in London to be sold to now non-existent Asian buyers. Central Government policy here was to allow it as it was considered good for 'foreign investment' while supporting the economy with jobs etc. For London councils it meant lots of gifted money and meeting house building targets. But with the whole 'housing crisis is caused by lack of building' smokescreen that has been sold to all political parties and the plebs through the media, there will have to be some Government and / or London mayoral 'scheme' to bail that out too.

We on HPC know the whole thing is really such a mess. I genuinely believe the Government does too. But the trouble is we both don't want the same solution.

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Hmm, *if* a central bank feels the need to follow a QE policy then thats a sign that the CB has fcked up, massively.

QE for a short - say less than a year - is an emergency. More than a year and you risk destroying the currency.

As far as the BoE, doing QE is not going to help. Without siezing control of the banking system all QE will do is push up fianncial assets and cause futther dmage down the line.

QE should have been followed by the virtual nationalisation of bank policy. They should have forced all high LTV laons to be paid down, close down loans and grab any bit of asset by LL such as pension etc.

All thats happened with the BoE QE of he last 8 years is that theyve dug an even bigger hole. They've alos destroyed wealth creation and economic progress of 10 year,s doubling don on the BoE fckup 2000-2008.

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I offer you this.

http://www.rightmove.co.uk/property-to-rent/property-61107389.html

Would have to pay me to live in 'stow. And provide round the clock bodyguards

I'm paying less than that for a 2-bed house with large garden in a 'prime' area of London. Would cost me 800K to buy.

If you insist on living next to a tube station _and_ pay over the odds you will.

Also, that's quite a big property. You don't need 1000 sq feet and conservatory to live as a couple as a new grad in London.

PS My dad was kidnapped there 30 years ago, just off Hoe Street!

Edited by the_duke_of_hazzard

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Yup, £1500pcm is pretty normal* for a middling-quality 1-bed flat anywhere in Zone 2 with even vaguely decent transport links.

* "normal" adjusted for the current howling batshit insanity, I mean

Utter balls. I recently looked at a 3-bed in zone two 20 minutes from London Bridge. It was on for 1750, then dropped to 1650. They'd have taken 1500.

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Welcome jo_gian. I do take issue with Osborne trying to reduce prices. In 2013 he introduced HTB. Are you saying he thought HTB was going to reduce prices?

But he wasn't even Chancellor til 2010? Am I missing something? Wouldn't he have seen how it's unfolding before he became Chancellor? BTL was very well established by 2010.

Why also have the BoE been so hellbent on ZIRP if the government didn't want high house prices? (and of course, BoE and the government DO work closely together whatever people say).

The changes in 2015 was intended to stop landlords pushing up prices further.
Up until 2012-2013 the market was more or less flat and everyone was talking about prices dropping further. With HTB I think he genuinely thought he will boost HTBs finance - he will be the saviour of working class + helping economy too - but it started a nasty chain reaction no one could really predict and it all gone wrong in moments. Then even he tried to correct it.
I agree with Konig, no government wants to see falling prices, but it seems to me they are aware how bad is the situation and while they might not make policies directly targeting prices, they might make some indirect ones, like really starting to build and changing planning which will bascially finish BTL on this extent on the long term.
I think this is what will happen, if you listened Hammond's speech he actually talked about the need of bringing down house prices on a sustainable basis without any question provoking this.

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I think people have forgotten this gem of a quote from 2013, when HTB was first introduced:

"Hopefully we will get a little housing boom and everyone will be happy as property values go up," the Chancellor reportedly told the cabinet.

http://www.newstatesman.com/politics/2013/10/osborne-reveals-true-aim-help-buy-inflate-house-prices

http://www.independent.co.uk/incoming/inside-westminster-george-osborne-s-housing-boom-will-echo-into-the-future-8869835.html

Edited by rantnrave

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I think people have forgotten this gem of a quote from 2013, when HTB was first introduced:

"Hopefully we will get a little housing boom and everyone will be happy as property values go up," the Chancellor reportedly told the cabinet.

http://www.newstatesman.com/politics/2013/10/osborne-reveals-true-aim-help-buy-inflate-house-prices

http://www.independent.co.uk/incoming/inside-westminster-george-osborne-s-housing-boom-will-echo-into-the-future-8869835.html

Yes, but I don't think he wanted that big of a "housing boom" and landlords buying into London to this extent. I think he actually got fcking angry about these idiots messing up his plan about a little boom and distorting values this much, so instead of the saviour he became the public enemy.
We need to understand government cannot change their mind every second, they work on a basis that they make a change, then collect data for a while to evaluate results, then they adjust policies. These things take quite a lot of time, so we might have a false sense of being let down.
Now Osborne is gone and Hammond is actually talking about bringing down the prices on a sustainable basis and let all kind of developers and private builders build. He seems not to like how local authorities restricting land supply in places of high demand. He seems not to like big companies banking land. While interest only debt is the main issue, solving these issues would also help on the pressure and would undermine the whole business model of exploitation of basic human needs - without directly attack BTL or everyone else.
I don't know what landlords are dreaming about, gov knows that people are overextended, pushing up prices even more would be a suicide for them.

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This is ground-breaking research. I for one had no idea that the housing market was an issue. Surely nobody could ever have foreseen this?

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I'm paying less than that for a 2-bed house with large garden in a 'prime' area of London. Would cost me 800K to buy.

If you insist on living next to a tube station _and_ pay over the odds you will.

Also, that's quite a big property. You don't need 1000 sq feet and conservatory to live as a couple as a new grad in London.

PS My dad was kidnapped there 30 years ago, just off Hoe Street!

Thanks for reality check. We're on the lookout at the moment and we were seriously considering this at the price advertised:

http://www.rightmove.co.uk/property-to-rent/property-55843687.html

Beds are advertised as double, which means one is regulat single (7sq m) and another one is large single (12sq m). I don't consider anything below 15sq m 'double', There's also a tree leaning against the windows from the North, making that side even darker that it would've already been..

1733pm, reduced from 1850 a week ago. Crazy. I've put in an offer of 1500 (with some extra perks, like first 6 months upfront, quarterly payments, 2-3 year deal), which EA refused on the spot without even bothering the LL.

On the other hand, today I came across this:

http://www.rightmove.co.uk/property-for-sale/property-56148520.html

Sure, it's a council estate and it's still easily 40% overpriced, but it's the first time I've seen anything below 400k in this area. And I love the fact it's a BTL :)

Edited by kibuc

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