Question about house prices

[Scam]

The same one I used when I made £60k in 2006 and the one I am sitting on making me £80k. All in the pocket and a nice chunk of change.

House prices will never drop again ever and if you think otherwise your a crackpot.

They might fluctuate a few grand but the will never ever be a property crash again.
Sounds crazy I wish it would but it wont happen, most it could float around +/- 20% but you will never see the crashes of the late 80`s and 90`s too many foreign investors and immigrants now.

So the only way is up.

Judging by your previous "money making" it sounds like wishful thinking more than anything. You say "too many foreign investors and immigrants" but once the public will is there, these things can be solved (more so investors than immigrants, as the latter is debatable). Even the Tories have started to clamp down on second homes, BTL etc. Can you imagine what could happen not-only with a Labour mayor, but if we get a Labour government? Once investors are put off they could all leave the market in droves. And you know what will happen? The prices will come down because ordinary schmucks like myself can't afford to buy a £500k flat as a FTB, and people that have clambered onto the ladder already can't afford £800k for their next step up. Not-only can we not afford them, but a lot of people are saying they're just not willing to pay that much.

There's already talk of all those foreign investors struggling to re-sell the flats they bought at Battersea, Royal Wharf etc and having to mark them down significantly. All these new "luxury" flats have been built, but if there's no foreign investors to buy them, there will be a glut of them in the market. That means supply may actually be outstripping demand.

 

[glenimp617]

That's Gainsborough though, which is an absolute ****hole! You can still buy 3 beds there for 50k...

I know, i'd never live there but just goes to show what 169k can get you

 

[leaskovski]

London price increases are spreading out to all commutable towns.

I sold my house in Reading two months ago for 35% more than I bought if for three years ago and since I sold it, the prices have gone up again by about 4%. In two months.

Yup, I currently living in a 500k house which I paid 335k (3.5 years ago) for! lol

 

[McPhee]

Judging by your previous "money making" it sounds like wishful thinking more than anything. You say "too many foreign investors and immigrants" but once the public will is there, these things can be solved (more so investors than immigrants, as the latter is debatable). Even the Tories have started to clamp down on second homes, BTL etc. Can you imagine what could happen not-only with a Labour mayor, but if we get a Labour government? Once investors are put off they could all leave the market in droves. And you know what will happen? The prices will come down because ordinary schmucks like myself can't afford to buy a £500k flat as a FTB, and people that have clambered onto the ladder already can't afford £800k for their next step up. Not-only can we not afford them, but a lot of people are saying they're just not willing to pay that much.

There's already talk of all those foreign investors struggling to re-sell the flats they bought at Battersea, Royal Wharf etc and having to mark them down significantly. All these new "luxury" flats have been built, but if there's no foreign investors to buy them, there will be a glut of them in the market. That means supply may actually be outstripping demand.

Itchy isn't really wrong. He's suggesting that long-term, housing will only go up. Any crash is likely to be a short-term fluctuation. The reason for that crash will determine the severity and how quickly the market recovers. But it is likely to recover. London is no different to the rest of the UK, except any crash could be much more severe and take longer to recover (or it could result in London property winding up in the hands of an ever smaller group of people - those wealth enough to buy with cash during a crash).

In the case of the OP's mother, now is too soon to sell up. I'd give it another 5 years, then look at whether or not it's viable (maybe relocating to a cheaper part of the country?). That gives her a 7 year safety net to hedge against any imminent crashes. Staying until the 12 years are up is risky. I'd aim to be out in no more than 7 (and that's pushing it).

However, if Labour look set to win the next election then I'd consider getting out of London. Not because I think they'll cause a crash, but because I expect they'll place restrictions on foreign buyers and further restrictions on second homes. If there is then a crash, there's every chance the London bubble won't reinflate.

 

[Slam62]

Now is the peak, sell.

 

[Narj]

All this, "my house is now worth 50% more lol" stuff is fine until you want to move. My house is now worth more than double what I paid for it but if I want to move and take any money from it, I will have to downsize.

All that happens is the gap between what you have and what you want to move up to on the next rung gets larger, and I struggle to understand why this is a good thing for anyone.

 

[glenimp617]

All this, "my house is now worth 50% more lol" stuff is fine until you want to move. My house is now worth more than double what I paid for it but if I want to move and take any money from it, I will have to downsize.

All that happens is the gap between what you have and what you want to move up to on the next rung gets larger, and I struggle to understand why this is a good thing for anyone.

Not really if you are moving out of London or the surrounding area. Plus if you are downsizing it helps.

 

[Scam]

All that happens is the gap between what you have and what you want to move up to on the next rung gets larger, and I struggle to understand why this is a good thing for anyone.

As a non-homeowner this is probably what infuriates me the most.

The media, even the government force it down people's throats that rising house prices are a good thing. Once you get sensitive to the language used in the newspapers it can really **** you off! You read articles saying that because prices only rose 5% or something then the market is "in a slump" or other such nonsense. Only now is the tide of opinion starting to turn. For example in London more people now rent than own, so nobody wants to see house prices go further out of reach.

http://www.cityam.com/238524/trying...-london-boroughs-have-cut-their-asking-prices

Not really if you are moving out of London or the surrounding area. Plus if you are downsizing it helps.

Most people moving out of London would probably stay in the SE where prices are rising just as fast, especially in the commuter belts. So no, it doesn't help them. If you're downsizing you're making a conscious decision to spend less on putting a roof over your head, but that doesn't mean you'll end up paying more for that than you technically should, should we not be in such a ridiculous house bubble.

 

[dowie]

Judging by your previous "money making" it sounds like wishful thinking more than anything. You say "too many foreign investors and immigrants" but once the public will is there, these things can be solved (more so investors than immigrants, as the latter is debatable). Even the Tories have started to clamp down on second homes, BTL etc. Can you imagine what could happen not-only with a Labour mayor, but if we get a Labour government? Once investors are put off they could all leave the market in droves. And you know what will happen? The prices will come down because ordinary schmucks like myself can't afford to buy a £500k flat as a FTB, and people that have clambered onto the ladder already can't afford £800k for their next step up. Not-only can we not afford them, but a lot of people are saying they're just not willing to pay that much.

There's already talk of all those foreign investors struggling to re-sell the flats they bought at Battersea, Royal Wharf etc and having to mark them down significantly. All these new "luxury" flats have been built, but if there's no foreign investors to buy them, there will be a glut of them in the market. That means supply may actually be outstripping demand.

To be honest your post sounds a little bit like wishful thinking too, while there could easily be a drop in prices as per 2008 or a steady decline/stagnation temporarily London's population is still growing thanks to migration from within the EU and immigration and simply people moving there from the rest of the UK + births. Demand for property is only increasing and there are plenty who might take the opportunity to buy if prices dip.

The other thing is that putting off BTL landlords isn't going to kill the whole BTL market, currently it would be a silly idea for the local takeaway owner to get in on a second BTL as he has extra stamp duty to pay and can't offset mortgage interest. That sort of investor has been put off and maybe that will get rid of some of the unscrupulous landlords. However the larger investor who has incorporated and has 15 properties or more can get around the mortgage interest issue. The thing that can act as a buffer to having too much of a dip from BTL properties being sold off by amature landlords who've over-leveraged is that if prices do drop it won't necessarily mean rental prices change much so suddenly the yield for BTL properties increases and it is worth while for some of the better financed landlords to buy more.

There are also a whole bunch of first time buyers coming into the market all the time and for any dip in prices the people for whom property is just out of reach are suddenly able to buy and it can still be worth while as a long term investment for them compared with renting.

So I think from the perspective of anyone who is way way off being able to buy it simply isn't going to change much - there might well be a drop in prices, there might well be a slow down but if you're got no chance at all of buying in London now then that 500k flat isn't likely to become a 250k one... more like it is 420k for a bit and the banks tighten up lending requirements a bit. If you were way off being able to buy it before it isn't likely to happen in the event of a dip anyway.

 

[Narj]

Most people moving out of London would probably stay in the SE where prices are rising just as fast, especially in the commuter belts. So no, it doesn't help them. If you're downsizing you're making a conscious decision to spend less on putting a roof over your head, but that doesn't mean you'll end up paying more for that than you technically should, should we not be in such a ridiculous house bubble.

I was looking at moving, but commuter towns/cities further out can be just as expensive as London like you say. You then have the double whammy of much larger travel costs unless you're fortunate enough to be able to work locally. I've got a 3 bedroom place when in reality, I only need 1 or 2 beds so it's more practical for me to downsize than most people.

If only I had a valuable, practical skill I could use anywhere instead of being an IT bod, I'd look at naffing orf to the countryside.

 

[Washout]

Long term the trend seems to be only up. 2008 was quite the blip though. I got lucky and got a 2 bed flat in a nice part of London for less than I thought I'd get a studio flat during that.
Current prices are mental to the point I'm toying with the idea of selling up and moving further out to be almost mortgage free.

Problem is I quite like where I live!

 

[dowie]

I was looking at moving, but commuter towns/cities further out can be just as expensive as London like you say. You then have the double whammy of much larger travel costs unless you're fortunate enough to be able to work locally. I've got a 3 bedroom place when in reality, I only need 1 or 2 beds so it's more practical for me to downsize than most people.

If only I had a valuable, practical skill I could use anywhere instead of being an IT bod, I'd look at naffing orf to the countryside.

Yeah moving further out doesn't make much sense if you're only getting a small home. I could buy a larger flat further out or a house in somewhere like High Wycombe but the extra travel costs is almost like an additional mortgage.

Makes more sense if you have a family etc.... as the price difference when you need a much larger place make the cost of commuting a minor expense.

 

[McPhee]

All this, "my house is now worth 50% more lol" stuff is fine until you want to move. My house is now worth more than double what I paid for it but if I want to move and take any money from it, I will have to downsize.

All that happens is the gap between what you have and what you want to move up to on the next rung gets larger, and I struggle to understand why this is a good thing for anyone.

It's good for the banks. X% interest on £300k is a lot more than X% interest on £150k. Same goes for stamp duty.

The only people that really benefit from the house price rises are those moving from an expensive area to a much cheaper one, those who have made it far enough up the housing ladder to downsize significantly, and those with 'BTL' investment properties.

So you're right. The vast majority don't benefit. I've always considered the obsession with house price rises a pastime of my parents generation TBH. Most people I know seem to understand it's futile.

 

[dowie]

I know a few people who wanted to work in London early on in their careers then decided to have a family elsewhere - some of them did quite well from the house price rises, like switching their small 3bed house/flat in London for a decent sized 4/5bed family home in the midlands.

Though it helps if you're in a profession/career where there are good jobs available outside London - if you're in finance or fin tech you're kind of screwed.

 

[MatteH Oxford]

Base rates are nearly 1/12 of what they were in 07 & mortgage rates around 1/3 for those with 25% equity or deposit.

No wonder prices have gone back up, if the base rates had remained at 5.75% there would have been around 50% falls imo.

How much longer before we again reach the limit of what people can afford each month at current rates? Will base rates go negative and propel the market further or will they rise and crash the market? For someone on a rate of 4%, if they rise to what my brother was paying around 1992 (19%) then the interest portion would go up by nearly five times.

Scary **** tbh.

 

[joeyjojo]

Base rates are nearly 1/12 of what they were in 07 & mortgage rates around 1/3 for those with 25% equity or deposit.

No wonder prices have gone back up, if the base rates had remained at 5.75% there would have been around 50% falls imo.

Good point well made.

SW-L wrote something similar in a blog post in March:

Why high house prices are partly down to austerity

He blames the continued low interest rates (which are pushing house prices up) on the low demand due to Osborne's austerity.

 

[Scam]

Base rates are nearly 1/12 of what they were in 07 & mortgage rates around 1/3 for those with 25% equity or deposit.

No wonder prices have gone back up, if the base rates had remained at 5.75% there would have been around 50% falls imo.

How much longer before we again reach the limit of what people can afford each month at current rates? Will base rates go negative and propel the market further or will they rise and crash the market? For someone on a rate of 4%, if they rise to what my brother was paying around 1992 (19%) then the interest portion would go up by nearly five times.

Scary **** tbh.

This is part of the reason that even if I was in a position to considering dumping £450k on a flat in London; I wouldn't. I'd imagine even if rates rose by 1% across the board, there'd be a lot of people that stretched themselves badly to get on the ladder and will find themselves up ****creek. Again, who wins? The banks.

 

[dowie]

it is also the other reason why house prices won't necessarily become any more affordable... if rates rise then we'll very likely see a drop... however that drop isn't necessarily going to help lots of people who couldn't afford to by previously as the cost of borrowing has increased (thus part of the reason for the drop in the first place - less buyers) meaning things could well be just as out of reach as before albeit with a lower price for the property but also less money available for a mortgage and higher monthly payments

so long as lots of people want to live in London and the South East then the competition is still going to be there regardless of any drops or rises in price

main event that could make things more affordable for anyone in a relatively safe job would be brexit, secondary to that there is the new mayor's plans for more social/affordable housing however that could well be a bit of a lottery if you want to buy even if you do fit the criteria of living in the right borough for 5 years+ etc...

 

[Scam]

it is also the other reason why house prices won't necessarily become any more affordable... if rates rise then we'll very likely see a drop... however that drop isn't necessarily going to help lots of people who couldn't afford to by previously as the cost of borrowing has increased

Hmn. I'm not so sure. For most people wanting to buy, the issue is raising a deposit. Most people now can afford the equivalent mortgage quite easily, meaning a 1-2% rate rise won't cause them much difficulty. Generally most people that want to FTB are renting, and thus paying a lot more than the equivalent mortgage anyway.

 

[MatteH Oxford]

Hmn. I'm not so sure. For most people wanting to buy, the issue is raising a deposit. Most people now can afford the equivalent mortgage quite easily, meaning a 1-2% rate rise won't cause them much difficulty. Generally most people that want to FTB are renting, and thus paying a lot more than the equivalent mortgage anyway.

A 2% rise on a mortgage of 4% is an increase of 50% on the interest portion, to put the 90s crash in perspective people got in trouble with an average rise of around only 33% afaik.

That is a significant increase in payments.