UK House prices: News & Views

[DoctorSolar]

Sadly, these "motivated" people are ideal sucker-buyers who are oh-so-likely to get caught in the Double bind trap

Yep. The obsession with property in the UK is now a full blown mental illness that affects the vast majority of the population. And I don't say that in any kind of glib way.

 

Two more people I know well have just sold their respective homes for 10-15% more than what they paid for them in 2005. One is in Glasgow the other South East England. The dead cat bounces on higher.

[drbubb]

I thought this (below) was an interesting statistic.

 

http://www.guardian.co.uk/business/2009/au...-fall-recession

 

The report said that the total value of residential houses and flats tumbled by nearly £400bn, or 9%, to £3.9tn. Housing still remains by far the most valuable single asset class, accounting for 56% of the country's net worth. Commercial buildings shed £100bn of value to be worth a total of around £600bn.

 

How much debt against these properties, I wonder?

How much real equity will be left after the crash is finished?

 

[drbubb]

Someone beat me to it : Thread on HPC

 

I was going to start a thread entitled:

"Stuffing the Sheeple... with overpriced property, Offplan is ba-a-a-ck !"

 

It is clear that the Builders are doing their very best to extract the last penny for people:

 

The old tricks are back

 

Housebuilders are also cashing in on the rush for cheaper property by raising prices. One insider said: “Where there is good demand and sales are going well, we edge prices up. Not 20 per cent in one go, but we will take steps to see what the market can take.”

 

The raising of prices will be a blow to first-time buyers considering a new property. Helen Adams, managing director of firstrungnow.com, said: “It might not be up to the builders to help first-time buyers, but it is unfortunate that this is going on at a time when they already have difficulty in obtaining finance and there is a shortgage of property to choose from.”

 

Developers are also spurring buyers into quick decisions by offering incentives, such as fitted wardrobes, to those committing themselves before the launch.

 

This part made me laugh:

Buying off-plan became less attractive as prices fell because it increased the risk that buyers would find that they had overpaid once the building was complete.

 

Experts said the re-emergence of the practice was a sign that confidence was returning to the property market as evidence grows that house prices are bottoming out. However, the option is available only to cash-rich buyers because mortgage lenders remain wary of new property, since they are less certain of a home’s true value.

 

Shall I translate:

Banks are loath to finance new properties, because they are aware that they are systemically overpriced by builders, especially when buyers pay only 10% down. They are commonly priced at 15-20% premiums, or more, in relation to nearby secondhand prices. When the "new" properties are eventually sold, they are seondhand too, and the buyers downpayment is not sufficient to cover the risk of further price falls for the mortgage bank.

 

Buyers should be very careful about purchasing new properties, and they should realise that properties are like cars. The price drops by 15-20% as soon as they close down the showflats.

[sideshow]

How about this scenario ...

 

I'm pondering whether to buy in the next 6 - 12 months. I can possibly buy a new build 4-5 bedroom place for cash, within commuting distance to London.

 

If I see something I like which I can afford with no mortgage then I may be seriously tempted. The reason is that it may enable me to continue taking riskier career moves such as contracting, whereas if I have a mortgage I will probably be more fearful of taking such moves for having a mortgage to service AND family to support.

 

People think about opportunity cost in terms of investment but it can also be applied to broader career & life decisions also. Of course renting and contracting is the other option. But then I have to worry about protecting the "deposit" I've worked hard to accumulate.

 

So my question is does buying a house without a mortgage make sense in this scenario?

[drbubb]

How about this scenario ...

 

I'm pondering whether to buy in the next 6 - 12 months. I can possibly buy a new build 4-5 bedroom place for cash, within commuting distance to London.

 

If I see something I like which I can afford with no mortgage then I may be seriously tempted. The reason is that it may enable me to continue taking riskier career moves such as contracting, whereas if I have a mortgage I will probably be more fearful of taking such moves for having a mortgage to service AND family to support.

 

People think about opportunity cost in terms of investment but it can also be applied to broader career & life decisions also. Of course renting and contracting is the other option. But then I have to worry about protecting the "deposit" I've worked hard to accumulate.

 

So my question is does buying a house without a mortgage make sense in this scenario?

 

Emotionally, I reckon it makes sense.

Indeed, I originally bought in HK some similar emotion logic. (helped by the gf)

 

But cyclically (if you buy into the notion of the 18 Year cycle, and the risk of a BFC future for London),

it makes no sense at all! Prices could fall 40-50% from where they are now.

 

If you RENT a place you like AND WAIT, isnt your risk far lower ??

 

Others here may have different opinions. Let's hear from those with other market views.

[G0ldfinger]

... But cyclically (if you buy into the notion of the 18 Year cycle, and the risk of a BFC future for London),

it makes no sense at all! Prices could fall 40-50% from where they are now. ...

The cycles work for cashbuyers like sideshow in particular. For people who need a mortgage, affordability depends to a great extent on mortgage rates as well.

 

I am possibly going to move to another European country within the next 6 months. I checked out places there: buying on a 10-year fixed is substantially cheaper there than renting, and the quality of a renter's life is much better there than in the UK (better flats, more rights etc.). Also, there has been no property bubble. So, ironically enough, I might seriously consider buying there sometime in the not too distant future.

[drbubb]

The cycles work for cashbuyers in particular. For people who need a mortgage affordability depends to a great extent on mortgage rates as well.

 

I agree.

 

The cash buyer can use the cycle to his advantage, while high LTV buyers can only buy when Lending appetite

and house prices line up. And most often, when they do line up, there's a rapid jump in prices, because the

lemming rush in. So many wind up buying at high prices because that's when they can get credit.

 

The answer is to keep building up the size of your deposit, so that YOU are in control of the timing, and not

the banks.

 

If, after getting burned by commercial property loans, the banks pull back again in 2010-13, and lend only 50%

or 60% towards a property, prise will fall sharply. That's when you will want to go shopping for property, when

most are frightened, and only a few buyers have the courage and "the scratch."

 

The false bottom that we have just seen was a trial run. But the fears never really became big enough to create

a real bottom.

[TrueNorth]

How about this scenario ...

 

I'm pondering whether to buy in the next 6 - 12 months. I can possibly buy a new build 4-5 bedroom place for cash, within commuting distance to London.

 

If I see something I like which I can afford with no mortgage then I may be seriously tempted. The reason is that it may enable me to continue taking riskier career moves such as contracting, whereas if I have a mortgage I will probably be more fearful of taking such moves for having a mortgage to service AND family to support.

 

People think about opportunity cost in terms of investment but it can also be applied to broader career & life decisions also. Of course renting and contracting is the other option. But then I have to worry about protecting the "deposit" I've worked hard to accumulate.

 

So my question is does buying a house without a mortgage make sense in this scenario?

 

Just wanted to chime in about being able to take riskier moves career-wise because you don't have a mortgage. It has had a very positive impact on my quality of life, not being tied to a mortgage. Career also far more interesting because of this.

 

PS I agree with Dr Bubb that prices will fall and that renting is a sensible thing to do.

[drbubb]

I liked this chart from HPC

 

This is the provisional inflation-adjusted fall-from-peak chart.

 

I normally post this on the inflation thread when the RPI numbers come out but it's equally relevant on the Halifax thread, so I've made the assumption that the latest month's RPI index will be the same as the previous month (the actual number won't change the shape of the chart much, and in any case the Halifax figure will almost certainly be revised next month too).

 

source: http://www.housepricecrash.co.uk/forum/ind...21856&st=90

[ziknik]

EDIT: Great chart above btw. It really helps keep the DCB in context

 

How much debt against these properties, I wonder?

How much real equity will be left after the crash is finished?

There is £1.23tn of debt secured against housing (Residential and Housing Association only)

 

Average equity is surprisingly high – 1.23/3.9 = 32% LTV

 

Assuming prices drop another 30% and net lending stays flat. The average LTV will be 1.23/(3.9 x 0.7) = 45%

 

I’ve downloaded a load of data, I will make a chart later today

 

...

So my question is does buying a house without a mortgage make sense in this scenario?

I’d say buy with the maximum amount of debt and wait for Gordon Brown to wipe away your mortgage with unborn childrens’ blood (inflation).

 

Hold some gold & silver. AND hold enough Sterling to see you through some rough times.

 

You can sell some of your gold/silver at any time and reduce your mortgage* risk if you feel uncomfortable at any point.

 

That’s my plan anyway

 

* You need a mortgage that will allow overpayments to do this

[leviathan]

Have recently been looking at some below market value property in the USA. Admittedly the location would equate to a depressed and oversupplied Northern town than to London per se but the crash has gone a lot lot further and gross yields in the 25-40% range are not uncommon. I dont think we will get to that position in the UK but at the moment the property bulls are salivating at gross yields between 8-12% in cities like Manchester. If we follow the American model we could be talking 20-25% yields and a further 50% reduction in price from here at least in equivalent towns. I doubt that can be achieved without Sterling interest rate rises but it has been in parts of the USA with LTV slipping to 60% and below.

 

So I think in answer - we are ex UK property owners and landlords who still own property in America and Asia but not the UK so we are not bearish by nature - the downside risks in property ownership in the UK still outweigh the benefits. I had expected the UK market would be 30% plus down from the 2007 highs by now but the crash needs another leg down and the stimulus must be either IR rises, more job losses (perhaps a real cull of public sector jobs) and ever tightening credit - all of which lead to over supply of property and advance the rate of foreclosure. If people think we have bottomed then they must ask themselves how quickly will property prices and rents will rise from here and how they would sit if - base of 5% plus bank margin of 3% were to become the norm. My proposition is the downside risks outweigh the upside benefits and the risk reward does not favour a purchase. However a further 15% down from here and I think the risk reward is much more evenly balanced particularly to the long term investor/owner occupier. Then you only have to estimate the overshoot - and I now think parts of the US market are in overshoot territory. Why shouldn't overshoot come to the UK too - the govt can't bail everybody out - or at least you would think the next govt would take some unpopular decisions early in the term that will complete the crash. You certainly wouldn't want to delay it another two to three years and have people see their policies as the cause of others misfortune.

 

 

[drbubb]

Have recently been looking at some below market value property in the USA. Admittedly the location would equate to a depressed and oversupplied Northern town than to London per se but the crash has gone a lot lot further and gross yields in the 25-40% range are not uncommon. I dont think we will get to that position in the UK but at the moment the property bulls are salivating at gross yields between 8-12% in cities like Manchester. If we follow the American model we could be talking 20-25% yields and a further 50% reduction in price from here at least in equivalent towns. I doubt that can be achieved without Sterling interest rate rises but it has been in parts of the USA with LTV slipping to 60% and below.

It would be good to hear more about the plan.

Can you tell us what cities you are looking at? Any small towns, near farming?

 

Holland, Michigan is one of my own favorites, but I haven been there for years

[burbelly]

banks and builders gone crazy...crash canceled......must make you very angry if you have lost your job recently watching the news lately

[Eiji]

banks and builders gone crazy...crash canceled......must make you very angry if you have lost your job recently watching the news lately

 

Yeah, BDEV has been going up, up and away in the past few days.

[drbubb]

Yeah, BDEV has been going up, up and away in the past few days.

Indeed. I dont think it will last much longer,

But do not expect a downturn in property until sometime AFTER you see it sliding

[GTG]

Indeed. I dont think it will last much longer,

But do not expect a downturn in property until sometime AFTER you see it sliding

 

There are sold signs going up all over the place in the corner of Hertfordshire where I live, including three in my street in the past few weeks. These properties had previously been on the market for months. It's very encouraging for me as I've decided to market my second home even though it will be missed for our occasional breaks away. The opportunity cost of keeping it has been eating away at me for awhile now. It's at the other end of the country but hometrack is showing price increase there too.

 

DrBubb, do you reckon the lag in the builders share price to the drop in property will be about the same as it was at the top i.e. circa 6 months?

[drbubb]

There are sold signs going up all over the place in the corner of Hertfordshire where I live, including three in my street in the past few weeks. These properties had previously been on the market for months. It's very encouraging for me as I've decided to market my second home even though it will be missed for our occasional breaks away. The opportunity cost of keeping it has been eating away at me for awhile now. It's at the other end of the country but hometrack is showing price increase there too.

 

DrBubb, do you reckon the lag in the builders share price to the drop in property will be about the same as it was at the top i.e. circa 6 months?

 

No.

Though 6 months is possible, I expect a lag of 1-2 months, and possibly less.

But there are also lags in reporting, so if we see the BDEV turn in the next 2-3 weeks, it may be late Sept/Oct

or even a month later before we get actual negative indices.

 

You should consider this to be "intuitive guesswork", and no better than that

 

[GTG]

No.

Though 6 months is possible, I expect a lag of 1-2 months, and possibly less.

But there are also lags in reporting, so if we see the BDEV turn in the next 2-3 weeks, it may be late Sept/Oct

or even a month later before we get actual negative indices.

 

You should consider this to be "intuitive guesswork", and no better than that

 

Thanks, the average time to sell property in the area according to Hometrack is 13 weeks and I'm hoping as it's an attractive FTB property I should be in with a chance of getting it sold before the turn. May have to throw in a sweetener for a quick completion if necessary/possible.

 

[ziknik]

Thanks, the average time to sell property in the area according to Hometrack is 13 weeks and I'm hoping as it's an attractive FTB property I should be in with a chance of getting it sold before the turn. May have to throw in a sweetener for a quick completion if necessary/possible.

Don’t forget Capital Gains Tax. You might need to move into it for a while before selling.

[nicejim]

Don’t forget Capital Gains Tax. You might need to move into it for a while before selling.

I don't think you have to move in, you just declare it your main residence. Perhaps there is an MP who visits these forums and can advise?

[InternationalRockSuperstar]

oh dear...

 

http://www.timesonline.co.uk/tol/money/pro...icle6788443.ece

Banks force up mortgage deposits to 50%

 

Lenders’ are supposedly lending more than ever, but the average loan relative to value is still high, preventing a market rally.

 

High-street banks are squeezing borrowers to such an extent that the average deposit on new loans can now be more than 50%, in the latest threat to the housing market recovery.

 

HSBC['s]...average loan relative to the value of the property fell to 49.9% in 2009

 

This means the average deposit — or equity — supplied was more than 50%, or £100,000 on the typical £200,000 property.

...

The figures come in a week when the banks claimed they were lending billions to households and businesses to kick-start the economy. However, the small print of their accounts reveals a £26 billion gap between the funds they say they lent out and the reality. While Barclays said it lent £8.5 billion to households in the first half, net new mortgage lending (after redemptions) was just £2.2 billion. The rest was lending through its Barclaycard arm.

 

Lloyds said it lent £18 billion to borrowers in the first half but the net figure was just £1 billion, while Royal Bank of Scotland boasted of £7.2 billion of lending when in fact the net figure was just £4.1 billion.

 

HSBC said the main reason for the drop in the amount it will lend was fewer applications from borrowers with small deposits, but Sunday Times readers with enough equity to get the best deals have complained of being turned away.

 

First-time buyers James Newbound and his girlfriend, Alex, of London, both 25, had a combined income of £95,000 and a deposit of £180,000 — or 45% for a property worth £400,000 — made up of savings and money from their families. They applied for a two-year fix from HSBC — which says it requires a 40% deposit — but were refused.

 

Adrian Bell, an Anglican clergyman from Fakenham, Norfolk, applied to HSBC for a mortgage with a 40% deposit on a three-bedroom home in Norwich, where he plans to retire, valued at £157,000. He was turned down by both HSBC and Abbey.

 

He said: “We were accepted on the Friday for a mortgage only to be told on the Monday that the offer had been withdrawn. No reason was given, even though we were classed as a customer . . . with a perfect financial track record.

 

“Having been with HSBC for over 25 years I was amazed that we were refused with a £62,000 deposit. It took almost a year to obtain our retirement home, which we could well have lost by the delay.”

 

The moves will worry thousands coming up to remortgage who think that, with decent equity, they will have access to the best deals. They are being urged to pay off as much of their debt as possible.

...

[drbubb]

oh dear...

http://www.timesonline.co.uk/tol/money/pro...icle6788443.ece

 

Very interesting, and understandable on the part of the banks.

But how are all these "new buyers" getting finance?

Or is HSBC the only sensible bank in the UK?

[John Doe]

Very interesting, and understandable on the part of the banks.

But how are all these "new buyers" getting finance?

Or is HSBC the only sensible bank in the UK?

I was wondering the same.

 

I guess quite a few are in the same position as me and Mrs JD. STRed and now our high rate fixed rates are coming to an end, 20% falls reported in the HPs and looking at the rent vs buy argument again.

 

Could possibly buy something small for cash, but with rates so low, a small mortgage would make sense so we could keep our isa's and other investments. The rent saved would be more than the interest and would offer a buffer to small further falls.

 

However, that said, while things were looking very busy again a few weeks back, suddenly everything has gone quiet again over the last week or so, even have estate agents ringing us up again. Could just be summer holiday time, could be something more fundamental.

 

I expect quite a few of the people looking around the for sale houses were just looking. Of course, some genuine buyers saw this and thought it best to rush in.

 

Personally, we will wait at least until winter and see what happens before deciding to place (low) offers.

 

 

[nicejim]

A favourite topic from HPC last time I went here regularly was the size of housing on offer. As Dr Bubb has shown, the US wasted its resources on large "McMansions" spread thinly over land which could have been used for food, but in the UK we get smaller and smaller homes with their own negative impacts on society. Not enough room for furniture or even recycling bins. Not enough room for a dining table, so families cannot eat together and people can't invite friends round for a meal. Apparently lack of space has negative impacts on health and education. Is Britain still Britain if working people cannot afford the space to cook and eat a Sunday Roast in their own home?

 

I don't know if this is a result of planning restrictions but you can bet that if there is a bureaucrat behind it then the Mail would have said so.

http://www.dailymail.co.uk/news/article-12...ook-unwind.html

 

Also, mortgages up again in June

http://news.bbc.co.uk/1/hi/business/8194768.stm

[G0ldfinger]

http://www.dailywealth.com/archive/2009/aug/2009_aug_03.asp

My Friend Can't Wait to Default on His Mortgage

By Tom Dyson

Monday, August 03, 2009

 

"We're considering stopping our mortgage payments..."

 

A friend of mine lives in Las Vegas. He and his wife both have safe jobs. They have no kids and no debt. They live in a modest house in the outskirts of the city. Their house has a spare room. They rent it to a friend...

 

In short, my friend and his wife can comfortably afford their monthly mortgage payment. But they may stop paying anyway.

...

A "strategic default" is where the homeowner can afford to make the monthly payment but decides he's better off defaulting anyway.

 

...And in the meantime, his wife can buy a house (the mortgage is only in his name).

 

It's a buyer's market in Las Vegas, and his wife can buy at a 50% discount to what they paid the first time around. Interest rates have fallen... so they'll have lower monthly payments. And to top it all off, the government is offering an $8,000 tax credit to first-time homebuyers who buy a home before December 1, 2009.

 

By defaulting on his loan, he'll save himself over a hundred thousand dollars... and still own a home.

 

"Everyone's doing it," says my friend. "I know three other people who are doing [strategic defaults] too," he says. "They're buying bigger houses with lower monthly payments. And that's just from my work..."