The Main Problem With This Crash...

[R K]

Well we had interest rates of 16% back then and borrowing was a lot more expensive, kind of different really. Plus we had mass unemployment and low wages.

I'm not saying a crash can't happen but at the moment the mechanisms are pointing to a slow down rather than a crash.

Make your mind up please. One minute you are saying a multi-billionaire cash rich family with no borrowing own most of Nottingham, and the next you are saying in the last crash interest rates (i.e. expensive borrowing) prevented our multi-billionaire cash rich family from buying property.

Which is it?

I am not disputing your anecdotal story, but I would be suprised if someone woke up one morning and found he suddenly had multi-billions in cash and didn't know what to do with it so he went on a property shopping spree.

They are also working against their best interests to some extent since the more properties they hold to rent, the fewer tenants there are to rent to and as prices fall the less people want to rent and instead want to buy.

[Bloo Loo]

But mortage rates were higher than IRs back then, especially for "specialist" loans like BTL. Even if we assume "just" 12% mortgage rates, it's a lot worse than today.

Were you around in the late 80s? We had fudged figures and 'economically inactive' back then too, you know. But trying to find a half decent job was much, much harder then. There is no comparison to today.

Could all change, of course, but to say that today's IR and employment situation is remotely like the late 80s is just not true IMHO.

you couldnt properly borrow 6- 10 times salary then, you had to prove your income and checks were made, so people didnt borrow stupid sums- 3.5 to maybe 4 times salary- as I say and they checked.

so if you borrowed at say 9%, and increase to 12 % may sound large, but it was a 30% rise on your IO mortgage (backed by endowment)

MOve on to a couple of years ago, you borrow whatever you like, like the nurse on Paranana, on 30K with 300,000 debt, at say 3.99% fixed, then the rates climb to, lets say for argument 8% at the end of the fix. Yes thats still less Interest rate than the last crash, but the monthly payment has gone up 100%- 3 times as much as in the "old days".

Its just criminal. An FA I knew said there was no chance of rates going up agian because we follw the eurozone- some crystal ball they had

[Its-Already-Crashing]

I keep on bleating about this, but I've got 14 words: 2005 £280k, same house the other week sold for £212k. Repossession. Zone 4, London.

Can somebody on this site please update that homepage graph? I want to see how high young Icarus can fly!!!!!

Hi do you have a link to substantiate this?

Thanks.

[madasafrog]

Does your boyfriend know that you're using this pic?

Your mother gave it me

[Guest ceewbee]

Hi do you have a link to substantiate this?

Thanks.

Current: http://www.homesandproperty.co.uk/agent.as...&pid=635934

(we viewed it and offered £212 but then pulled out cos we didn't like the area. It was subsequently sold by the vendors, via Bairstow Eves Bromley, for £212 to another buyer who had matched our offer.

Previously: http://www.nethouseprices.com/index.php?co...0&curPage=4

Or search for the following -

593 Downham Way,

Lewisham,

Bromley,

Greater London,

BR1 5HX £280,000

Semi-Detached

Freehold

New Build 09-May-2005

Map (BR1 5HX)

There you go. All the bears are right - there are crashing property prices, but you won't see this reflected in the chart on the homepage as it's only a small segment of the market which is seeing the 30-40% real prices correction. You will see them on an individual basis where there have been repossessions from sub-prime borrowers who have been fleeced. How big this will be is to be seen, but it is happening as we type. As far as I'm concerned the crash is already happening, albeit in small doses (although as a FTBer, you only need one house to crash to bag yourself a bargain).

[Guest ceewbee]

Your mother gave it me

What's your situation then? Do you own any property? If so, what and when did you buy?

[Guest wrongmove]

Rich people don't need to borrow money, so why didn't they buy?

The yield on cash was better than on property.

[EssexFTB]

Hi - first post on here, so Hi

Mainstream papers are also reporting that the BTL market is still cranking along just fine - (Metro today) and while the US has had its fall in prices, papers like the independant are saying that now is the time to buy in the US due to falling prices. - UK could be the same for potential FTB's as well.

You say that your are wanting to buy. How long do you wait untill you buy. Just think, there are thousands of people like you in the same predicament, what is to say they bet you to the house your expecting to fall further in price? Ie they buy it thinking they have got a good deal.

Credit is still available, just not for the sub prime.

Yes, Credit is available, but it is only available to people who are not sub-prime. So if the average house is £200,000. Its only going to be all those FTB'rs on £50,000 salary who can afford it, and there aint that many of them is there!!!!

Its come to the point were you wonder not why but how the market is staying buoyant. If GB can hold this monster up and even recusitate it, then you have to admire the ****** dont you!

[Guest wrongmove]

Precisely.

Current yield on cash is about 6.7% (eg. Nationwide 1 or 2 year bond)

Current yield on property (in west Suffolk) 4% (and that's being generous!)

Prices have a long way to fall before the smart money starts talking.

Net yield on cash is about 4% then, so if you are reinvesting profits and avoiding tax, there isn't much difference.

And cash is subject to inflation - with RPI at 4%, net, taxed yield on cash, even with the deal you used, is just about zero.

[sirius]

These people aren't share holders wanting a quick buck, these are family businesses where wealth is passed down generations. They know that property is a good investment in the long term and in the mean time there portfolios are still generating a very good income. They didn't borrow to buy land and property so interest rates and borrowing levies won't affect them, these people are literally worth billions and know how to protect there money. They are also secretive types who tend to hide profits by buying other investments....they don't want to appear in the forbes rich lists.

In the event of a slight down turn such investors will start buying up cheap properties thus preventing a major crash. You might see falls of 10-15% but not for long as this prevents a good opportunity to any investor with surplus cash.

Lets face it property in 20 years time is going to be more expensive than it is now, in fact we'll probably be seeing another boom. These investors will be passing down these properties to there kids in way that will avoid all inheritance taxes.

I think we are about to witness a never ending descent in property and asset values generally. Anyone buying now will hold an asset that has less real value in 20 years time. The period from, say the 50's to the turn of the century, is unprecedented in human history. This will never be repeated. If you are expecting the next 20 years to be like the last be prepared to be sorely dissapointed.

Property is a long term loser. it used to be a long term winner. Houses will just be places to live in again.

[geneer]

Never underestimate the belief of the uber bears (these are past bulls who called the top of the market in 2003/2004 and STR. careful what you say as they are still a bit miffed)

What both of them? LOL, theres a certain perception that all HPC'ers STR'ed 2 a few years ago and expect financial armageddon at the drop of a hat.

This however is utter rubbish. Mainly its being trotted out by tired bulls who can no longer throw scorn in the face of HPC expectations, and instead can only give grief to bears for being "wrong" for a couple of years.

Edited October 10, 2007 by geneer

[Guest wrongmove]

Rental income is subject to tax just like interest on cash deposits.

Business profit is taxable. If you spend most of your rental income on new properties, you wont have much profit left to tax.

I'm not saying that this is going to be a major factor. All the newbie BTLs are in a very different position to the low-geared, long term pros.

[madasafrog]

What both of them? LOL, theres a certain perception that all HPC'ers STR'ed 2 a few years ago and expect financial armageddon at the drop of a hat.

This however is utter rubbish. Mainly its being trotted out by tired bulls who can no longer throw scorn in the face of HPC expectations, and instead can only give grief to bears for being "wrong" for a couple of years.

Dont take it seriously. Its just a bit of fun. Its aimed at a few of the uber bears who dream of a global collapse and anarchy. You might disbelieve me but i have seen some of these posts. Wacko doesn't describe it

[Mr Nice]

And this equity has a yield, so they have huge incomes - which go straight into their bank accounts, rather than just pay off the mortgage.

If they spend all the rental income on more property, they don't pay much tax, so the yeild needn't be that high to beat cash-tax. Property types don't tend to like shares in my experience, so they won't care what the stock happen to be doing that week. They think in terms of yield, so gold is anathema)

IMO, serious, long term, cash rich "empire builders" will buy when the yield is right - they have no reason to be worried about the price as many of these large outfits are family based - the equity just gets passed down the generations.

I am not saying that these types will have enough impact to prevent a crash, but they certainly won't be waiting for 40% (or even 80% ) falls before they buy in.

thinking like this would be a fast track to becoming extremely poor. the yield on property is rents minus costs. unfortunately, the rents on a new purchase arent even close to covering the costs of ownership, so every property bought with cash would be a money LOSER until rents are high enough to do so.

rents arent going up, so there wont be profitable cash buyers until prices come down.

[Guest wrongmove]

rents arent going up, so there wont be profitable cash buyers until prices come down.

I didn't say that prices don't need to come down. I just said not by 40%+.

[Mr Nice]

Net yield on cash is about 4% then, so if you are reinvesting profits and avoiding tax, there isn't much difference.

And cash is subject to inflation - with RPI at 4%, net, taxed yield on cash, even with the deal you used, is just about zero.

unfortunately you are leaving out all of the costs in being a homeowner to make your argument. cash in a bond has no ongoing cost until you take your profits.

houses have recurring and ongoing maintenence of 1-2% per year. hundreds in taxes per months. insurances etc.

by the time you add it all up, the house is a very poor choice unless the rents are enough to cover it, or the hpi can make up for any lack.

that isn't the situation now.

Edited October 10, 2007 by Mr Nice

[Guest wrongmove]

unfortunately you are leaving out all of the costs in being a homeowner to make your argument. cash in a bond has no ongoing cost until you take your profits.

houses have recurring and ongoing maintenence of 1-2% per year. hundreds in taxes per months. insurances etc.

by the time you add it all up, the house is a very poor choice unless the rents are enough to cover it, or the hpi can make up for any lack.

that isn't the situation now.

Nobody (sensible) spends 1-2% a year on their rental houses, and certainly not the type of landlord we are discussing here. Somewhat rundown terrace houses are their stock in trade.

What taxes? Insurance is a couple of hundred a year.

If you are buying cash, then the rents obviously do cover it.

I agree that gearing into property right now (or at any time in the last couple of years) is speculation, very risky, and probably very unwise.

But if you have loads of cash, the equation is different. Yields on cash are really, really rubbish if you account for tax and RPI.

[Nathan]

Replying to The Main Problem With This Crash... you coud die waiting for it.

You could die waiting for a bus too so whats new?

The crash is happening all around you, it just takes YEARS. On a day to day basis nothing much will change at all.

Patience and all that.

Cheers

Nathan

BTW the tories made such a smart move announcing an inheritance tax raise to £1m. They know full well that many properties over the current threshold wont be over the threshold for too much longer. Labour know this too of course but can't admit it as it's an outright admission of 'boom and bust', which of course there's 'no more' of.

[Mr Nice]

Nobody (sensible) spends 1-2% a year on their rental houses, and certainly not the type of landlord we are discussing here. Somewhat rundown terrace houses are their stock in trade.

What taxes? Insurance is a couple of hundred a year.

If you are buying cash, then the rents obviously do cover it.

I agree that gearing into property right now (or at any time in the last couple of years) is speculation, very risky, and probably very unwise.

But if you have loads of cash, the equation is different. Yields on cash are really, really rubbish if you account for tax and RPI.

A. a minimum of 1% is the long term average of home ownership maintenence. you might not do it every year, but when the roof needs replacing, or the hot water heater etc. it all averages out. to allow for anything less would lead to your DEPRECIATING your asset over the long term as it finally slides into something that just has to be torn down.

B. you are saying that you guys don't have any sort of taxes over there on property ownership? no council taxes etc?

C.with rates what they are now, there is little difference between buying in all cash, or buying through a mortgage. you still have to count for the opportunity cost of tying up your money in the house, usually equal to a local gvt bond rate.

So if it doesnt make sense to do it through a mortgage, it doesn't make sense to do it through an all cash purchase. thats a recipe for disaster.

Also, if your logic was true, there never would have been the FIRST HPC, as all of the all cash buyers would have bought the prices up, and there would have only been a slowdown.

Obviously that didn't happen. I wouldn't count on it happening this time either.

Edited October 10, 2007 by Mr Nice

[Foobar]

For those who are tired of the media/government spin and statistical obfuscation. Here is a graph of UK real estate going down as we speak, courtesy of those nice people at cmcmarkets spread betting service. This is what the financial markets are making of the sector, so take heart all is definitely not well (this whole thing has my head so f**ked up: hoping for a crash in the hope of a decent standard of living wtf ). Not sure what's in the index, I imagine a mix of builders, property companies, mortgage lenders? It's comforting to see it going down unless you own the stocks or property behind it I guess:

[Foobar]

bump

anyone care to comment on the graph?

[Guest wrongmove]

A. a minimum of 1% is the long term average of home ownership maintenence. you might not do it every year, but when the roof needs replacing, or the hot water heater etc. it all averages out. to allow for anything less would lead to your DEPRECIATING your asset over the long term as it finally slides into something that just has to be torn down.

So an amateur who gets ripped off by savvy builders pays the same as a DIYer/pro with good reliable contacts?

B. you are saying that you guys don't have any sort of taxes over there on property ownership? no council taxes etc?

The tenent pays council tax, not the owner, doh!

C.with rates what they are now, there is little difference between buying in all cash, or buying through a mortgage. you still have to count for the opportunity cost of tying up your money in the house, usually equal to a local gvt bond rate.

So if it doesnt make sense to do it through a mortgage, it doesn't make sense to do it through an all cash purchase. thats a recipe for disaster.

Also, if your logic was true, there never would have been the FIRST HPC, as all of the all cash buyers would have bought the prices up, and there would have only been a slowdown.

Obviously that didn't happen. I wouldn't count on it happening this time either.

But the opportunity cost is rather low when IRs minus tax are the same as RPI.

I have stated several times that this will not stop a crash. I am just pointing out that large scale, long term, serious landlords are not quite as stupid as some here would like to believe.

[Disillusioned]

bump

anyone care to comment on the graph?

I like it. It indicates that we're 10 months in to falling prices!

EDIT to add: I don't necessarily mean house prices, but maybe some relevant ones like "a mix of builders, property companies, mortgage lenders" as Foobar pointed out. Can anyone provide the actual breakdown?

Edited October 10, 2007 by Disillusioned

[red]

Don't take me entirely literally! However it would be good to see some more realistic prices beginning to emerge. Waiting is beginning to feel like faith rather than economic sense.

TD

Make a silly offer in Feb 2008. You might be surprised by the answer...

[Mr Nice]

And this equity has a yield, so they have huge incomes - which go straight into their bank accounts, rather than just pay off the mortgage.

If they spend all the rental income on more property, they don't pay much tax, so the yeild needn't be that high to beat cash-tax. Property types don't tend to like shares in my experience, so they won't care what the stock happen to be doing that week. They think in terms of yield, so gold is anathema)

IMO, serious, long term, cash rich "empire builders" will buy when the yield is right - they have no reason to be worried about the price as many of these large outfits are family based - the equity just gets passed down the generations.

I am not saying that these types will have enough impact to prevent a crash, but they certainly won't be waiting for 40% (or even 80% ) falls before they buy in.

This is mostly what I am replying to. you are implying that there is yield on the current housing valuations and that just isn't the case. rents are not enough to cover costs at todays prices, the difference was being made up for in HPI.

I agree 100% that the people that have cash/capital will come out and repurchase once the yields are profitable, but the point is that housing prices will have to come down 30-40% before that happens. so it's not out of line to expect to see that come to pass.

as far as DIY repairs, you are shortchanging yourself if you dont account for the opportunity cost of your time and effort.

One thing I would really like to see from one of the people here that have actually bought a BTL in the last year, is a breakdown of all their costs and income. I think that would help clarify alot of things.

Edited October 10, 2007 by Mr Nice