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UK House Prices: Bubble On A Bubble

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UK housing market is a bubble with Help to Buy pushing up prices, warns bank strategist
http://www.propertyindustryeye.com/uk-housing-market-is-a-bubble-with-help-to-buy-pushing-up-prices-warns-bank-strategist/

 

The UK housing market is a “bubble on a bubble” – and property prices, reported this morning to average over £302,000, are over-valued by around 12%.

The ‘bubble’ warning comes from Societe General global strategist Albert Edwards, who says the bubble has been inflated by a decade of loose monetary policy and, in particular, Help to Buy.

Edwards said: “What you are doing is lending them [buyers of new-build homes] more money backed by the taxpayer to push up house prices even more.”

He said that while US house prices had corrected back to normal levels after the financial crisis of ten years ago, the UK housing market had become a “bubble on top of the previous bubble”.

He said that the housing bubble could burst in the next recession, which he believes would also wipe 80% off the value of equities and herald a new “ice age”.

Edwards, who works for the French bank in London, said that it was a damaging myth that it is a lack of supply that is causing the UK housing crisis.

He blamed the “free money” of Quantitative Easing and Help to Buy, which he told yesterday’s Telegraph had been implemented under “that moron” George Osborne.

Edwards said: “There’s a lot of stock there that could just be dumped on to the market. Nothing engenders selling more than falling prices.

Under Help to Buy, purchasers of new-build homes need put down only a 5% deposit, but can take out a 20% government loan to bring the total deposit to 25%. They are not charged fees on the loan for the first five years, but must then start paying interest. When the home is sold, the Government will reclaim its 20% stake plus a share of any increase in value.

Meanwhile the International Monetary Fund says that house prices in some of the world’s largest economies, including the UK, could be over-valued by as much as 12%, and separately this morning the Daily Telegraph’s front page story was a call to cut Stamp Duty “to end our housing disgrace”.

Boris Johnson said Theresa May should cut “absurdly high” Stamp Duty and abandon affordable housing targets that developers currently have to meet.

The LSL Acadata survey reported this morning that the average house price in England and Wales now stands at £302,251 after a tiny monthly fall of 0.2%.

The figure, for July, is still up 1.6% on an annual basis.

In London, the average property price is £625,529 with annual falls in 21 out of the 33 boroughs.

Transactions during the month were an estimated 75,000, 2% down on June. In the first seven months of this year, transactions are thought to be 4% down on the same period last year.

There was also a 7% drop in sales in the second quarter of this year.

  • In today’s Telegraph, Boris Johnson says that the proportion of owner-occupiers aged between 25 and 34 has “plummeted to 39%”. However, the Halifax says that first-time buyers now represent 51% of the market and has also reported that Help to Buy has been a significant factor in the rise of first-time buyers – see our next story today.

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16 minutes ago, rantnrave said:

Under Help to Buy, purchasers of new-build homes need put down only a 5% deposit, but can take out a 20% government loan to bring the total deposit to 25%. They are not charged fees on the loan for the first five years, but must then start paying interest. When the home is sold, the Government will reclaim its 20% stake plus a share of any increase in value.

Yet another missed opportunity.

He has house prices only going up and no mention of the governbankment handing taxpayer's money to bankers when houses are re-sold at a loss.

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2 hours ago, workingatthepyramid said:

I dread to think how much Societe General pay this "global strategist" for these stunning insights, all of which they could have picked up years ago, for free, from here.

 

He did, and sat on them, waited till he felt the time was right and then charged a fortune for the information, so he has enough money to weather the storm

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5 hours ago, rantnrave said:

UK housing market is a bubble with Help to Buy pushing up prices, warns bank strategist
.... /// ....

He blamed the “free money” of Quantitative Easing and Help to Buy, which he told yesterday’s Telegraph had been implemented under “that moron” George Osborne.

 

WOW!!!   I SO SO SO agree --- "Help to Buy Sell" is utterly, utterly moronic.  My estimation of Osborne went down to zero after he did that. Beyond words stupidity.

 

Edited by eric pebble

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23 minutes ago, eric pebble said:

That makes him more of an idiot.

Or a genius.Lots of my daughters friends have all bought with HTB.They all have jobs and now will have to work for at least 30 years before they can even start to save anything else.Working and paying tax forever.When they go into massive negative equity so what?.They wont be able to move then and can just suck it up as the estate starts to look terrible and as the local HA ship in the benefit class into the 20%+ of the houses that are "affordable" ie free if your on welfare.The houses are falling apart after a couple of years near me,but the house builder execs have already banked the millions.

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11 hours ago, workingatthepyramid said:

I dread to think how much Societe General pay this "global strategist" for these stunning insights, all of which they could have picked up years ago, for free, from here.

 

Same  guy described HTB a moronic policy back in 2013....Google his name and help to buy.... He was and is a voice in the wilderness.  Too many are profiting from this cynical scheme.

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5 minutes ago, Wayward said:

12 %...?? A 12% correction is no use. Perhaps 12% per annum for a number of years....

That is more like it; 12% compounded over 5 years would be about a 50% drop which would be closer to what we need.

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7 hours ago, TheGreatestFool said:

Osborne is not stupid. He knew perfectly well what he was doing.

Err.

He lost his job. Lost the Brexit referendum.

 

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1 hour ago, Wayward said:

Same  guy described HTB a moronic policy back in 2013....Google his name and help to buy.... He was and is a voice in the wilderness.  Too many are profiting from this cynical scheme.

Fair do's. He didn't mince his words back then did he :)

I guess he is repeating himself now as the 5 year grace period on the first bunch of HTB loans is up. Wonder if he expects that to be the straw that breaks the camels back.

 

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I am tempted to say great article, but there is nothing I did not think myself years ago or read on here.

We should have had our LATE correction in 2007 with house, probably 2003/04 ish would have been about the perfect time for a non fatal correction, but now it is going to get ugly, just waiting now for that one small trigger, and there is a few possibilities on the way in the next 6 months alone.

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2 hours ago, dougless said:

That is more like it; 12% compounded over 5 years would be about a 50% drop which would be closer to what we need.

1.12^5=76%

so it’s way better than 50% 😁

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1 hour ago, inbruges said:

I am tempted to say great article, but there is nothing I did not think myself years ago or read on here.

We should have had our LATE correction in 2007 with house, probably 2003/04 ish would have been about the perfect time for a non fatal correction, but now it is going to get ugly, just waiting now for that one small trigger, and there is a few possibilities on the way in the next 6 months alone.

https://www.gov.uk/government/news/help-to-buy-mortgage-guarantee-launches-today

This from October 2013. So there will be a big wave of HTB loans passing their 5 years around Christmas.

 

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4 hours ago, Frugal Git said:

1.12^5=76%

so it’s way better than 50% 😁

That's on the way up. On the way down it's 0.88^5 = 53% of the initial price, so 47% down after 5 steps

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14 minutes ago, rantnrave said:

They have to start paying back the govt as well as the bank.

Oh I see, 

I stopped looking at the details of the endless ramping schemes which  keep the plates spinning  a few years ago now when the Government/s went All in or die gamble. What else do we have apart from that, the interest only mortgages that were once seen as something not to worry about until the distant future, the debt that is loaded onto credit cards and personal loans to pay for deposit and monthly mortgage payments, seen it before.

It all has to crumble soon, just one little recession, one world event, The UK is now a battered old Ford Cortina running on fumes.

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How common are 35 year mortgages? I've read several articles recently where the young person gets 35 years to "help them on the property latter". A combination of HTB and 35 year mortgages must be pouring lots of petrol on the fire.

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I cant help thinking that the HTB schemes are going to be another PPI scandal where people are missold HTB thinking the govt is giving them free money not realising it is going to have to be paid back.

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Quote

A recent innovation in the Japanese real estate industry to promote home ownership is the creation of a 100-year mortgage term. The home, encumbered by the mortgage, becomes an ancestral property and is passed on from grandparent to grandchild in a multigenerational fashion. We analyze the implications of this innovative practice, contrast it with the conventional 30-year mortgage popular in Western nations and explore its unique benefits and limitations within the Japanese economic and cultural framework. Through the use of simulation, the conclusion is reached that the 100-year mortgage has failed to increase the affordability of homes. Instead, affluent homeowners are more likely to employ long-term mortgages as an estate-planning tool to reduce inheritance taxes.

 

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5 minutes ago, crazypabs said:

I cant help thinking that the HTB schemes are going to be another PPI scandal where people are missold HTB thinking the govt is giving them free money not realising it is going to have to be paid back.

But it is not HTB it is help to sell expensive properties to people who can't afford to buy.;)

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  • 150 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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