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Converted Lurker

The Diversity Of The Property Market These Days

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During the last HPC life appeared to be a lot more simple were property was concerned. The vast majority bought a place to live in. This time, whilst staring into the abyss, we have BTL players, flippers, BMV players, builders doing both, guys at auctions buying at one auction selling in the next, buying in one auction up north and listing it in another down south within weeks, bored housewives having a go, bored blokes having a go, agents not content with doing their job all have deals going on under the table, in fact everyone and his dog having a go..and meanwhile a massive wall of cheap money has been chucked at the activity and has stuck by the very diversity of the afore mentioned activities.

This has to have an impact and gives evidence IMHO that despite the over valuation of property the correction will be long and not that noticeable other than by HPC obsessives.

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On the contrary - BTL players are likely to speed up the process. If you know the price of the roof over your head is dropping, what can you do? You can't even STR, because chances are you're in negative equity already, and trapped. Since you can still meet the payments though, there's no need to panic unless you lose your job. That was the early 90s scenario.

Today, a BTL investor, with rents not meeting the mortgage and sliding prices, is going to be very tempted to cut and run.

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I tend to agree with yandros.

It's not a great comparison, but when you look at the tech boom, everyone and his cat were buying tech shares. The sheer magnitude of activity IMO added to the speed and extent of the subsequent crash.

I'm not saying property will be the same, but I think all these investors will add momentum to the crash just as they did to the boom.

NDL

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On the contrary - BTL players are likely to speed up the process. If you know the price of the roof over your head is dropping, what can you do? You can't even STR, because chances are you're in negative equity already, and trapped. Since you can still meet the payments though, there's no need to panic unless you lose your job. That was the early 90s scenario.

Today, a BTL investor, with rents not meeting the mortgage and sliding prices, is going to be very tempted to cut and run.

I see your point, however, the traditional BTL player is just one of a dozen or so ways to play the market at the moment. The idiots who bought into the newbuild/2 bed flat phenonema are but a small amount of the 300,000 new landlords. There are still plenty of 10% yields out there if you know where to look, and these can only increase as others vacate the market. I`ve a feeling that there will be a lot who do not simply give the game up. As stated this is one of the reasons I see no dramatic crash. Sentiment across the board is holding up, whatever anecdotals we all like to point to.

The property market place is that diverse currently it would take 300,000 investors to dump at once to cause the seismic shock most look for as evidence of a crash.

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Guest Charlie The Tramp

in fact everyone and his dog having a go..

Herein lies the problem when things begin to look a little shakey mass panic is the order of the day.

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Shirley, you are Jesting

Not sure if that remark is aimed at me, however, I never joke re. something so serious. I see a lot more of property investors in all their shapes sizes than you on a regular basis, to that add some of the providers of securitised and structured funds..better placed than you my friend to remove all the science and look at the people element B)

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I see your point, however, the traditional BTL player is just one of a dozen or so ways to play the market at the moment. The idiots who bought into the newbuild/2 bed flat phenonema are but a small amount of the 300,000 new landlords. There are still plenty of 10% yields out there if you know where to look, and these can only increase as others vacate the market. I`ve a feeling that there will be a lot who do not simply give the game up. As stated this is one of the reasons I see no dramatic crash. Sentiment across the board is holding up, whatever anecdotals we all like to point to.

The property market place is that diverse currently it would take 300,000 investors to dump at once to cause the seismic shock most look for as evidence of a crash.

In response to your first question, you seem to say that previously the property market was "simple" but nowdays we have all sorts of people buying property. Was the property market really that simple in the past? Were there not people then buying up properties for rental purposes, "winkling" out tenants. Were there not people in the last boom/bust or the one before that buying properties to flip?

I can't see the "diversity" of the market preventing a crash, because all the types of people you mentioned apart from FTBs are primarily driven by profit. And to make a profit they need to sell the property for more than they paid dor it (even for BTL landlords with yields being typically low). So if it comes to be that these people no longer expect capital appreciation, they are likely to leave the market. Someone else also mentioned profit-motivated buyers speeding the process up as they don't have to have that particular house (or a replacement) to live in.

What percentage of properties do you claim will give 10% yields. Unless it's a pretty sizeable chunk of the full rental market, I can't see that being much of a factor in the future of the market. When you say that there are "plenty" of these properties, can you be more explicit about what "plenty" means? 10% of properties on sale, 50%, 1%? Also, are these properties widely spread across the country, or are they localised in only a few parts of the country?

Billy Shears

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In response to your first question, you seem to say that previously the property market was "simple" but nowdays we have all sorts of people buying property. Was the property market really that simple in the past? Were there not people then buying up properties for rental purposes, "winkling" out tenants. Were there not people in the last boom/bust or the one before that buying properties to flip?

Yes it was very simplified, consider one point, the growth in the "if you have a heartbeat mortgage" for one, due to the growth in securitised/structured lending over the past 5 years (mainly). This has allowed a diversification and complexity not seen before. There is an argument that the current housing market is, in some ways, a new market due to the new found diversity created in the past 5 years.

I can't see the "diversity" of the market preventing a crash, because all the types of people you mentioned apart from FTBs are primarily driven by profit. And to make a profit they need to sell the property for more than they paid dor it (even for BTL landlords with yields being typically low). So if it comes to be that these people no longer expect capital appreciation, they are likely to leave the market. Someone else also mentioned profit-motivated buyers speeding the process up as they don't have to have that particular house (or a replacement) to live in.

Now here`s a thing, lots of the newcomers are in business that`s new to them. Some may have left a job, been made redundant, they`ll wait perhaps 2-3 years before they finally give up. let`s not forget, although we mock the motives and intelligence, lots of them are in it "for the long term". As previously mentioned a huge stock dump would have to take place IMHO to create a cardiac arrest in the market. To give you one example recent auctions I visit, they`re not selling as much at the auction but lots of buyers are now getting clued up, contacting the solicitor selling directly, approaching auctioneers before/after auction..this has the effect of the 60% sales on the day reaching a near 90% a few weeks later. I see no evidence of panic selling or panic buying now just a slower churn. You could argue there has been a shake out, however there are survivors and casualties in every business, which the property world has now become for so many more, simple mainstream business.

What percentage of properties do you claim will give 10% yields. Unless it's a pretty sizeable chunk of the full rental market, I can't see that being much of a factor in the future of the market. When you say that there are "plenty" of these properties, can you be more explicit about what "plenty" means? 10% of properties on sale, 50%, 1%? Also, are these properties widely spread across the country, or are they localised in only a few parts of the country?

They are there if you work the property and I`m not talking TTRTR style here. I`ve a contact buying places with more than 10% yields nationally, some AST, some regulated (which can have problems). My overall point is that there is life left in the market due to the diversity and complexity. I`ve always been steadfast in my views and have never changed from day one irrespective of reports etc..the market is at least 25-30% over-valued across the board, however, I do not expect to see 25-30% falls in 6 months, more like 6 years :( Overall far too many of the arguments/discussions/points made on here take no account of that old chestnut, the irrational exuberence issue.

Billy Shears

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Guest Charlie The Tramp
the irrational exuberence issue.

How I love irrational exuberence, reminds me of a keen squaddie years ago who withdrew a pin from a grenade, threw the pin and dropped the grenade. :rolleyes:

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All quotes from Converted Lurker's post

Yes it was very simplified, consider one point, the growth in the "if you have a heartbeat mortgage" for one, due to the growth in securitised/structured lending over the past 5 years (mainly). This has allowed a diversification and complexity not seen before. There is an argument that the current housing market is, in some ways, a new market due to the new found diversity created in the past 5 years.

OK, but how much more diversified is it? And would this diversification lead to stability or instability? If there are a larger number of "if you have a heartbeat" mortgages than before, then I would presume you'd agree that there must also be a larger number of people stretched closer to the limit than before. For example, would you classify rising income multiples as one facet of "if you have a heartbeat mortgage"s? If so, then smaller rises in interest rates should cause more pain than before.

Now here`s a thing, lots of the newcomers are in business that`s new to them. Some may have left a job, been made redundant, they`ll wait perhaps 2-3 years before they finally give up. let`s not forget, although we mock the motives and intelligence, lots of them are in it "for the long term". As previously mentioned a huge stock dump would have to take place IMHO to create a cardiac arrest in the market. To give you one example recent auctions I visit, they`re not selling as much at the auction but lots of buyers are now getting clued up, contacting the solicitor selling directly, approaching auctioneers before/after auction..this has the effect of the 60% sales on the day reaching a near 90% a few weeks later. I see no evidence of panic selling or panic buying now just a slower churn. You could argue there has been a shake out, however there are survivors and casualties in every business, which the property world has now become for so many more, simple mainstream business.

I'd agree with your claims that it will take longer than 1989/1990. But I think the biggest effect there is going to be on house prices is when popular sentiment changes to an expectation that there won't be useful capital gains from property. And I'm sure that lots of them are in it for the long term while they're making a good return, but I think sentiment can change pretty quickly. Herd behaviour, tipping points, and all that. But mainly because it doesn't take more than a small proportion of people to sell to tip the balance in favour of FTBs. After all, if only one house sells in the entire country one year, that house sets the market price. Property owned by BTLs can fall in value even if they don't sell them, because the market price is set by those that do sell. If FTBs have fallen to 7.8% of all purchasers, then if new BTL investors disappear due to a change of sentiment, then things change in FTBs favour pretty quickly. Or, in terms of setting the market value, it may be potential BTL'ers rather than current BTL'ers who hold the key concerning what will happen with property values.

They are there if you work the property and I`m not talking TTRTR style here. I`ve a contact buying places with more than 10% yields nationally, some AST, some regulated (which can have problems). My overall point is that there is life left in the market due to the diversity and complexity. I`ve always been steadfast in my views and have never changed from day one irrespective of reports etc..the market is at least 25-30% over-valued across the board, however, I do not expect to see 25-30% falls in 6 months, more like 6 years sad.gif Overall far too many of the arguments/discussions/points made on here take no account of that old chestnut, the irrational exuberence issue.

I can accept that there might be some high yields available somewhere for somebody, but in terms of having an effect on the market, there have to be a fair number of them. Without some sort of numbers and estimate of spread throughout the country, then it's impossible to evaluate your claim. I mainly know rents versus prices in Leicester as that's the market I've been looking at, and I can't see any such yields around here. I'd agree that there is life left in the market even around here. I attended an auction last month and saw properties going for high prices, with numbers of bidders competing hotly. But I didn't see any good yields there. When you say that 10% yields are available, would that be due to higher than normal rents, lower than normal prices, or both? Purchase price bargains would show up in land registry figures ... eventually. Higher rents wouldn't, so I wouldn't necessarily spot them. It's not something like the way that militaries will pay unbelievably high prices for nuts and bolts is it? Like that executives from one particular country will pay, or their companies will pay, far over the odds for rents?

Billy Shears

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During the last HPC life appeared to be a lot more simple were property was concerned. The vast majority bought a place to live in. This time, whilst staring into the abyss, we have BTL players, flippers, BMV players, builders doing both, guys at auctions buying at one auction selling in the next, buying in one auction up north and listing it in another down south within weeks, bored housewives having a go, bored blokes having a go, agents not content with doing their job all have deals going on under the table, in fact everyone and his dog having a go..and meanwhile a massive wall of cheap money has been chucked at the activity and has stuck by the very diversity of the afore mentioned activities.

This has to have an impact and gives evidence IMHO that despite the over valuation of property the correction will be long and not that noticeable other than by HPC obsessives.

CL, You may have access to better information than has been published on this site. I've never seen any sensible analysis of the exposure of the BTL landlords. We hear anecdotes from the fringes of those who have MEWED several times, and those who subsidise their mortgages, but I'm a little suspicious of the theory that BTL will be the worst hit sector of the house owning public.

My suspicion (based on people I know and discussions with accountants who perform tax work on behalf of Landlords) is that other than the professional landlords (50+ properties or a lower number of high value prime site places) the vast bulk of BTL's do have positive cash flows and also have decent jobs which allow them, at a stretch, to cover most outgoings from monthly income even if they have empty properties.

I guess the main risk they face is an increase in substantial increase in interest rates (and having held onto a lousy investment).

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  • 301 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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