Central London Ea Admits Business "difficult"

[Andy Jones]

Given that interest rates remain historically low (with little chance of hitting double digits, as in the bad old days) why do you want to restrict yourself to a multiple that no longer reflects current affordability.

No wonder property looks expensive if you insist on restricting yourself within artificial limits. Plus, you need to take into account future pay rises and promotions. Is there any reason why a five times mortgage today won't be a three times mortgage in a couple of years.

That's quite some payrises you are banking on.

We won't need 14% interest rates this time. The size and the ratios of people borrowings mean that an interest rate of 7% would be crippling.

Additionally a great many people this time are taking on 5 times ratios of JOINT income. Any split, any illness, any pregnancy and suddenly they are in trouble far faster than was the case in 1989/90 when womens salaries were lower relative to mens. Also flexible working practices today allow people to have a second job on the side. Or trade on eBay etc. So any economic downturn even on the margin can make their mortgage unpayable even if they don't lose their main job.

Lots of the BTL investors will be burnt very badly by the end of the year. A poky flat in the town centre is a luxury that can easily be given up to return to parents or rent a room. Room renting will be the next big thing. The babyboomers are retiring. In their big houses. Which have plenty of spare rooms. A bit extra (4K tax free) from renting out a room to a struggling 20 something would suit them well.

I'm just enjoying myself putting in offers on houses at 85% of the asking price just to spook the market. And you never know when someone is actually desperate.

ANDY

[thedebtisreal]

Given that interest rates remain historically low (with little chance of hitting double digits, as in the bad old days) why do you want to restrict yourself to a multiple that no longer reflects current affordability.

No wonder property looks expensive if you insist on restricting yourself within artificial limits. Plus, you need to take into account future pay rises and promotions. Is there any reason why a five times mortgage today won't be a three times mortgage in a couple of years.

Historically low? Really? Are we still peddling that myth, europa? We're now just three rate hikes away from a level not seen since 1998, years before the boom when houses were a third of their current real value.

At such levels of interest the earnings multiple becomes to be very relevant indeed. Not to mention a plunging rental yield.

[Rachman]

3x mortgage is what everyone should be aiming for if they want a life as well as a property.

Just think of all the fools with 5 and 6x loans who eat spam every night and use the credit card to buy it with.

But surely, when you are starting out, part of it is about the struggle to make ends meet - life is not all comfortable and a 'life' - at times you have to knuckle down and just get through it - I know my parents certainly did - money was tight for several years (still is to an extent) - I think it's delusional to think that with low interest rates (which we still have, and are not likely to go back to double digit interest rates (though it's not impossible)) that traditional multipliers (even with two salaries) are applicable.

Everybody wants to be able to seamlessly go into home ownership without sacrifice and struggle to some extent, however, except for a very tiny minority, that's a pipe dream.

[It is different this time]

Given that interest rates remain historically low (with little chance of hitting double digits, as in the bad old days) why do you want to restrict yourself to a multiple that no longer reflects current affordability.

What you don't seem to understand is the fact that historically low rates can only go one way, up, therefore it is stupid to borrow more than sustainable amount as the high capital debt, for many, will be the reason for repossession.

Give me 10% interes rate with a £60K capital debt than £200K capital debt with 5% IR.

No wonder property looks expensive if you insist on restricting yourself within artificial limits. Plus, you need to take into account future pay rises and promotions. Is there any reason why a five times mortgage today won't be a three times mortgage in a couple of years.

So you think "3 x joint salary" is artificial limit? No wonder UK Plc owes a third of all Europe's debt. I am afraid the people, with your mentality, will suffer the most when the sh&t hits the fan. You can see safe & affordable joint multiple as "artificial & ridicules" but the time will prove you wrong.

Is there any reason why five times mortgage today won't feel like 10 times after crash & high interest rates? I bet those, who bought with five times mortgage @ 3.5% IR in 2003, are feeling their mortgage now is like three times @ 5.50%!

[Wait & See]

But surely, when you are starting out, part of it is about the struggle to make ends meet - life is not all comfortable and a 'life' - at times you have to knuckle down and just get through it - I know my parents certainly did - money was tight for several years (still is to an extent) - I think it's delusional to think that with low interest rates (which we still have, and are not likely to go back to double digit interest rates (though it's not impossible)) that traditional multipliers (even with two salaries) are applicable.

Everybody wants to be able to seamlessly go into home ownership without sacrifice and struggle to some extent, however, except for a very tiny minority, that's a pipe dream.

What people want is a home at a reasonable price eg. pay the mortgage and have enough cash (no credit) left to feed themselves for the month.

The trouble is, in 2007, everyone if forced to borrow ridiculous amounts for SCUM banks, just to buy what used to be a cheap property in a dodgy area.

I've said this before, but I don't mind living in a run down flat in a shady part of town, if the cost is small. At present every single sh*tty property is overpriced by thousands of pounds.

Personal debt is at monumental levels - not exactly a sign that everyone is managing to pay the mortgage and live in my book.

[@contradevian]

Oh yeah, and which Londoner's are those? I'm on 42k, my wife is on 26k, and if we wanted to stretch ourselves, we could afford a one bedroom fleapit in a cr@ppy area of town.

You are talking b#llocks mate.

I couldn't agree more. Its "affordable" if you want a giant millstone round your neck to

get an ex LA flat in a ghetto.

[Smell the Fear]

Which is a risk that is out there all the time. It's the same as anywhere else, if a major employer goes under, it's pain locally. I suggest that in London it will take far more than one going - e.g. Andersens went - not even noticed.

What is the risk is a significant market event - another Sep 11 being the most likely - which will affect everyone - and if that happens, God help the rest of the UK as well - without London to lead it/finance it, it's simply screwed.

There's crazy borrowing and lending - but what's crazier, Mr 33year old investment banker borrowing £1M (against £250K of earnings) to buy a nice flat in London or Mr 33year old local government worker borrowing £100K (against £25K of earnings) to buy a flat of the same size in say, Bradford ? Who is more likely to be able to find a way to pay the debt off or keep repossession at bay - he won't have treacle on his Yorkshire pud, put it that way.

It's a risk, we all know it is, but there are so many deals around at the moment and there seems to be a pipeline for the next 12-18months already, that unless some lunatic Muslims do something ridiculous in either London or New York that does more than simply blow up one building, then I simply can't see it turning for a while yet.

A few posts you have made recently about how everyone you know is earning £250k+ just proves how out of touch with reality you are. I hear this often from people who move in City circles, it seems that everyone is loaded. How many people working in the City actually earn £250k+, even £150k+? The answer I would suggest is in the tens of thousands.

Set that against a population in greater London of around 10m and it seems that the City is not all that significant. It is also a very risk employment market. Do these guys not realise that the downturn will come sooner or later (you mention a deal pipline of 12-18 months - that is very short term and not enough to pay the £1m mortgage).

A lot of these guys are going to get cleaned out when a downturn comes. To get the job they have to live a lifestyle that consumes most of their huge earnings so I doubt there will be much of a buffer for them.

[Guest Cletus VanDamme]

've said this before, but I don't mind living in a run down flat in a shady part of town, if the cost is small. At present every single sh*tty property is overpriced by thousands of pounds.

Make that 'overpriced by several hundred thousand pounds'. This is what I don't get about new builds. I would have nothing against them if they were cheap, as they should be. Normally built in high density on brownfield sites that the developer has acquired for next to nothing, they should be a reasonable first step on the property ladder for a single person on a low income.

[Nathan]

Could not agree more with this. Fromn what I see most new-builts look crappy only shortly after being finished. Also, from the

construction sites I am walking by every now and then, I would say, no, I wouldn't buy any of these.

be careful here. advances in foundation design (many sixties houses, especially terraces etc don't even have foundations, hence all the cracking). also, advances in cavity wall developments and all the insulation issues these days (floor, wall AND ceiling) and also using non-iron wall ties these days etc etc (loads of other stuff) make houses much more solid and 'better built' than they were certainly from the 50's and 60's onwards.

However, as soon as anyone skilled gets involved with a major (or minor) housebuilder these days, it's all about volume and often quality is compromised, there are cowboys all over. Chances are, yer mate who's a brickie is being encouraged to throw them up asap hence his lack of enthusiasm. Or he works for a cowboy firm and the sites are poorly supervised etc.

The house he lives in might be better built 'decades ago' but it's less likely en mass. Having said that, go back further and houses over 100 years old are usually totally over-engineered and will probably last forever...

[Rachman]

A few posts you have made recently about how everyone you know is earning £250k+ just proves how out of touch with reality you are. I hear this often from people who move in City circles, it seems that everyone is loaded. How many people working in the City actually earn £250k+, even £150k+? The answer I would suggest is in the tens of thousands.

Set that against a population in greater London of around 10m and it seems that the City is not all that significant. It is also a very risk employment market. Do these guys not realise that the downturn will come sooner or later (you mention a deal pipline of 12-18 months - that is very short term and not enough to pay the £1m mortgage).

A lot of these guys are going to get cleaned out when a downturn comes. To get the job they have to live a lifestyle that consumes most of their huge earnings so I doubt there will be much of a buffer for them.

No, I said that doing well in the City was £250K - it is a lot of money to be on. As for dealflow, that's the current volumes - more gets added as they trickle through and get done. I do know a fair few people on £250K plus. By the same token, I know a hell of a lot (as couples) making north of £200K a year.

If you are making £250K a year, you take home £13K a month, give or take. Your £1M mortgage is £6K, that's an awful lot of Krug and charlie to get through - these people overpay their mortgages/build nest eggs/save for rainy days - that's why they are in these jobs that pay like that.

I'd also say that there are also limited areas where property prices are going this nuts - the headline bits refer to SW3, SW1, SW6 and 7, NW3, N1 etc, not to places like Thamesmead, Croydon and Harlesden, which is where most of the 10million live.

I know the downturn will come, that's why I pay several times of my scheduled mortgage payment every month (and am lucky enough to be able to do so). If it hits, I'll be sitting on a mortgage that is a lot less than it was - it's potentially less lucrative than increasing my risk by upsizing and taking on more debt, BUT it's safer - which is why I am more of a tortoise than a hare. You make hay whilst the sun shines - and these people are doing it.

[Wait & See]

Make that 'overpriced by several hundred thousand pounds'. This is what I don't get about new builds. I would have nothing against them if they were cheap, as they should be. Normally built in high density on brownfield sites that the developer has acquired for next to nothing, they should be a reasonable first step on the property ladder for a single person on a low income.

I've never understood why new build flats are so expensive either. Why do people pay 150k for a 1bedroom box that has been thrown up in 2 days,

using bad materials?

I don't care what any bull spouts about markets etc etc... - a tiny 1bedroom flat should always be a stepping stone to something better.

Not something that bankrupts you for 30 years.

[Smell the Fear]

No, I said that doing well in the City was £250K - it is a lot of money to be on. As for dealflow, that's the current volumes - more gets added as they trickle through and get done. I do know a fair few people on £250K plus. By the same token, I know a hell of a lot (as couples) making north of £200K a year.

If you are making £250K a year, you take home £13K a month, give or take. Your £1M mortgage is £6K, that's an awful lot of Krug and charlie to get through - these people overpay their mortgages/build nest eggs/save for rainy days - that's why they are in these jobs that pay like that.

I'd also say that there are also limited areas where property prices are going this nuts - the headline bits refer to SW3, SW1, SW6 and 7, NW3, N1 etc, not to places like Thamesmead, Croydon and Harlesden, which is where most of the 10million live.

I know the downturn will come, that's why I pay several times of my scheduled mortgage payment every month (and am lucky enough to be able to do so). If it hits, I'll be sitting on a mortgage that is a lot less than it was - it's potentially less lucrative than increasing my risk by upsizing and taking on more debt, BUT it's safer - which is why I am more of a tortoise than a hare. You make hay whilst the sun shines - and these people are doing it.

earning £200k as a couple and having a £1m mortgage in the wildest speculative property market in history does not sound like they are "making hay while the sun shines", it sounds like hubris.

Even on these salaries they would need a long, long run of good times to pay that off. I am just amazed that so many bright people are so wrapped up in their little "exclusive postcodes" world to not see that their income is one of the riskiest in the country and they should actually be borrowing a lower multiple than the average person for this reason.

[Wad]

With the last crash it took over 10 years to get back to what people payed at the top of the boom. 15 years in some cases outside London. With this longest property bull market in history it may take over 20 years to get back to what one payed at the top of the boom.

Interesting point of view. Beginning to think that perhaps I will never have to or want to buy a house for me and the wife and kids to live in but just rent until the kids leave home then pick up something dirt cheap to retire into.

[Cogs]

There's crazy borrowing and lending - but what's crazier, Mr 33year old investment banker borrowing £1M (against £250K of earnings) to buy a nice flat in London or Mr 33year old local government worker borrowing £100K (against £25K of earnings) to buy a flat of the same size in say, Bradford ? Who is more likely to be able to find a way to pay the debt off or keep repossession at bay - he won't have treacle on his Yorkshire pud, put it that way.

The local government worker is going to find it far easier.

What possible logic is there for believing otherwise?

[skhudy]

What is wrong with three times joint earnings for a multiple? surely it is safer than 6 x IO mortgage. It is ridicules to call "three times joint earnings" ridiculously modest. It is safe, sustainable & affordable but of course VI don't like it as they wouldn't be able rip people off and make them debt slave with "ridiculously modest multiple such as three times joint earnings"!

Why do people have to live in the past. The world as we know it is not the same as it was 10, 20 or 30 years ago. 3x earnings is not a one glove fits all thing either. Property will never go back to 3x joint average earnings.

I agree current multiples are getting silly (HPI will tail off and only drop should their be a recession) but don't think we will ever go back to 150k semi's (3x average salaries?)

[Rachman]

earning £200k as a couple and having a £1m mortgage in the wildest speculative property market in history does not sound like they are "making hay while the sun shines", it sounds like hubris.

The thing is, these £200K couples are not saddled with £1M mortgages on £1M properties, they owe say £500K as they have chunks of equity- you can shift that in 6 and a bit years and still have a grand a week to live on....

[Rachman]

The local government worker is going to find it far easier.

What possible logic is there for believing otherwise?

Er, no he won't - he'll find it easier to get another job that pays about the same, BUT he won't find the cost easier to swallow when the rest of life costs a lot more and where he has less to live on each month because of it.

Mr £250K is likely to be able to find another job or be mobile and to have large savings and the intellectual capital (sadly lacking in a lot (note not all) of the local government people(IME)) to go find another well paying job and to be able to service his debt or make large inroads into it whilst he is making lots of money. Plus, that £1M plus London property will, unless he's really been an idiot, won't be as hard to sell to lock in profits/stop losses as a flat in Bradford - in a down market, I suggest.

I suggest that's the difference between the mentalities, Mr Plodder and Mr Carpe Diem. I'd rather be mostly the latter with just enough of the former.

EDIT to add- can I make it clear I am not saying, everyone should on these wages and anyone who is not is a loser/failure etc. what I am saying is that there are lots of people here who pick on the excessive edges of realistic numbers and then use them for their own ends. I am trying to thread a more sensible path through that.

Edited June 5, 2007 by Rachman

[Fancypants]

Why do people have to live in the past. The world as we know it is not the same as it was 10, 20 or 30 years ago.

Quite, why should property "only ever go up"?

[Wait & See]

Why do people have to live in the past. The world as we know it is not the same as it was 10, 20 or 30 years ago.

What is the same, however, is the need for affordable shelter when the cold winds of winter start to blow.

Being homeless is the same no matter what decade your talking about.

[Smell the Fear]

Er, no he won't - he'll find it easier to get another job that pays about the same, BUT he won't find the cost easier to swallow when the rest of life costs a lot more and where he has less to live on each month because of it.

Mr £250K is likely to be able to find another job or be mobile and to have large savings and the intellectual capital (sadly lacking in a lot (note not all) of the local government people(IME)) to go find another well paying job and to be able to service his debt or make large inroads into it whilst he is making lots of money. Plus, that £1M plus London property will, unless he's really been an idiot, won't be as hard to sell to lock in profits/stop losses as a flat in Bradford - in a down market, I suggest.

Now that really is hubris! These oh-so-talented individuals who are making £250k p.a. on the back of the world's biggest ever credit bubble will be able to find another £250k job when the bubble bursts, when the debt markets lay people off, when the country is in recession?

Don't you see that their income is mainly a product of clipping a few % off our rapidly expanding money supply? That when the process slows down these people will have nowhere else to go, and certainly will not find others outside the City sympathetic of their plight or willing to tolerate their egotistical self-indulgent pampered behavoiur?

A coke habit is not a sign of status out here in the real world, it is a sign of a pathetic fool who will do anything necessary to hang with the in-crowd.

[skhudy]

What is the same, however, is the need for affordable shelter when the cold winds of winter start to blow.

Being homeless is the same no matter what decade your talking about.

Cold Winds of Winter? Global Warming's done away with that!

The people who can't afford will rent, Average salary multiples will be 4x-4.5x, child birth rates will continue to drop, we'll be turned into machines, there will be no such thing as a classless society unfortunatly...

What would be a good idea is for someone to compile a list of all the empty property up and down the country (speculators), and dish out the lists to homeless people so they could squat. It would encourage owners of empty property to sell or rent them, rather than loose them!

[Timm]

Make that 'overpriced by several hundred thousand pounds'. This is what I don't get about new builds. I would have nothing against them if they were cheap, as they should be. Normally built in high density on brownfield sites that the developer has acquired for next to nothing, they should be a reasonable first step on the property ladder for a single person on a low income.

Cletus, I think you're playing Socrates there!

Problem is twofold:

1) Cost of development.

While build costs have not changed a huge amount, the cost of land has risen a huge amount.

At the same time, local authorities try to extract the maximum amount for "infrastructure".

2) Gullibility of buyer.

For some years, buyers seem to have been willing to calculate their spending power by the maximum a lender would give them, and then take the least bad property they could find.

[Rachman]

Now that really is hubris! These oh-so-talented individuals who are making £250k p.a. on the back of the world's biggest ever credit bubble will be able to find another £250k job when the bubble bursts, when the debt markets lay people off, when the country is in recession?

they won't need to, they will have reduced that mortgage down to say £700K in a couple of years and will have more chance of finding a job at £150K or thereabouts - interest only on £700K is £4K a month at 7% - then it's a question of rental prices versus sale prices (rents don't historically fall massively in a recession so I gather). The jobs don't just disappear - the banking and finance world still turns for many many people - the talented ones tend to get through and the dross gets found out.

I appreciate you have your view and I have mine, but I know which I'd rather be - if I had the £250K salary, I'd be taking my debt down by huge amounts now and making sure I was well placed for any future downside - that probably would not mean renting and squirrelling.

You seem to think everyone in the City is like you see on the idiot box. There are some who are, but also a lot of smart people who are not shysters or sharks and are very good at what they do and as such, tend to make money in ups or downs...

Edited June 5, 2007 by Rachman

[It is different this time]

Why do people have to live in the past. The world as we know it is not the same as it was 10, 20 or 30 years ago. 3x earnings is not a one glove fits all thing either. Property will never go back to 3x joint average earnings.

I agree current multiples are getting silly (HPI will tail off and only drop should their be a recession) but don't think we will ever go back to 150k semi's (3x average salaries?)

Why do people think they live in the future when UK plc has the highest debt & most expensive house prices in Europe? If you think this is the sustainable future you can continue to delude yourself.

We are talking about £200K average HP on £23K average salary in this country and yet you come up with “property will never go back to 3x joint salary” rubbish. You are right it will never go back to 3x joint salary as long as the banks throw 5x6x IO mortgages to some muppets but that won’t last nor would it save the miracle economy.

The clue is in the first line of my signature. We'll see

[Smell the Fear]

they won't need to, they will have reduced that mortgage down to say £700K in a couple of years and will have more chance of finding a job at £150K or thereabouts - interest only on £700K is £4K a month at 7% - then it's a question of rental prices versus sale prices (rents don't historically fall massively in a recession so I gather). The jobs don't just disappear - the banking and finance world still turns for many many people - the talented ones tend to get through and the dross gets found out.

I appreciate you have your view and I have mine, but I know which I'd rather be - if I had the £250K salary, I'd be taking my debt down by huge amounts now and making sure I was well placed for any future downside - that probably would not mean renting and squirrelling.

You seem to think everyone in the City is like you see on the idiot box. There are some who are, but also a lot of smart people who are not shysters or sharks and are very good at what they do and as such, tend to make money in ups or downs...

Like £150k jobs grow on trees......wise up. In the real world you need rare skills and qualifications to get paid that. In bubble-world you need the right accent and an elitist attitude.

I used to work in the City so you don't need to tell me what it is like. Smart people, sure. But I've met smarter in other walks of life doing much more challenging things for less money.

The City is just a well connected elite class taking advantage while they can. Sadly many of them (you included it seems) actually believe the hype.