House prices to crash

[Uncle C]

Prices are CRASHING in the Lake District, you can now but a nice house for £35k - see HERE

That one should go like a shot.

 

[ridda]

Houses are a comodity to which the basic laws of economics will still apply.
In simple terms it comes down to supply and demand [I know most of you will already know this].

The UK housing market [availability] in acknowledged to be in short supply.
The UK propensity for home ownership continues to remain high.

All the time there is a demand for something in limited supply, the price will be controlled and will be higher based on the change in supply and the change in demand.

Just because mortgages are harder to come by, doesn't change the individuals desire to be a home owner - only when the ownership attitude changes will the prices of housing likely to reduce.

To correct and earlier post - all the BTL mortgages I've had [there's been a few] never took in to account my earnings. All they were ever interested in was the rent-ability to loan ratio [usually 125% necessary] to confirm the rent would cover the mortgage payments. The rentable value formed part of the survey.

My view - no housing crash will occur until a change in home ownership culture changes first - this will not happen in my lifetime.

Final comment - when you give up work at retirement - if you don't own your home, how will you be able to afford to rent it? This is what drives the insatiable demand for home ownership in the UK.

Wrong and very old thinking it is not about supply and demand anymore those day are gone and will never to return.

It's now about being able to afford a mortage and whether you can find someone to lend you the money.

 

[Uncle Spielberg]

Thats right. The demand is there especially from ftb's but there are very few lenders willing to lend to them.

 

[jakarta]

Just to pick up on this one point....

This "short supply" argument is often stated, rarely challenged and often taken as read. However it is largely a myth (while accepting that this varies between areas).

It was used by estate agents, lenders, Kirsty, Phil and everybody during the boom years to explain why house prices would always continue to rise and never again fall. It was often quoted that there were 10 potential buyers for each house on the market. On closer analysis though, there were 9 BTL investors and just 1 'real' buyer fighting for each property.

The government fell for it too, setting massive building targets (which haven't materialised since the credit crunch).

The number of properties for sale now outweighs the number of buyers, however for some reason, the 'shortage of supply' myth has persisted. There is absolutely no hard evidence to support it. Yes, the population of the UK has increased, but the number of new houses built has kept pace with that (and in some areas exceeded it).

I would be interested to know what line of work you are in to justify the above statements - surely this mortgage squeeze (generated by Banks & other lenders) rather than an oversupply of properties vs. the numbers of people that will wish to buy one (which will be generated by future demographics) is the issue at present and will not last forever.

As per my previous (unanswered) email - do you really think that there has been a commensurate amount of new houses built in the South East of England (which is where my house is and selfishly all I care about) to compensate for the likely increase in population over the next 20 years?

 

[Uncle C]

As per my previous (unanswered) email - do you really think that there has been a commensurate amount of new houses built in the South East of England (which is where my house is and selfishly all I care about) to compensate for the likely increase in population over the next 20 years?

I dont think anyone on here has said that house prices will be going down for 20 years. My thinking is there will be an imminent price correction which could be of the order of 20-25%. This is still less than the USA and Ireland for instance.
There will then be a period of consolidation perhaps over a few years before the inevitable rise will take place again.

If we suffer very high inflation then all bets are off. If that happens I think house prices may crash further as high interest rates will hit the vulnerable and foolish. Then the investors trying to hedge against high inflation will move in and the market will move up again. This is what happened in the 70s when inflation hit 24% I believe.

 

[beorhthelm]

... It was often quoted that there were 10 potential buyers for each house on the market. On closer analysis though, there were 9 BTL investors and just 1 'real' buyer fighting for each property.

you have a source for this? it sould very much like a narrow market segment, like 1/2bed flats or similar. the supply problem has always been a fluffy and moving target, really meaning quality properties in desirable locations. building a development of 20 1 bed flats in Croydon doesnt really address a need for 3 bed houses in Wimbledon.

 

[Arthritic Toe]

As per my previous (unanswered) email - do you really think that there has been a commensurate amount of new houses built in the South East of England (which is where my house is and selfishly all I care about) to compensate for the likely increase in population over the next 20 years?

No. Why on earth would you want to build houses right now, to cater for those needed in 20 years time?

 

[jakarta]

No. Why on earth would you want to build houses right now, to cater for those needed in 20 years time?

Because the population will not all arrive in 20 years but increase steadily over that time of course - are you being deliberately obtuse?

 

[Uncle Spielberg]

Aldermore has extended its buy-to-let range as it looks to fill the gap left by Lloyds Banking Groups’ decision to reduce its market share.

Aldermore is launching two new fixed rate deals, a 5.69% two-year fix, available up to 75% LTV, with a 2.25% completion fee.

And a 5.99% four-year fix available up to 75% LTV, with a completion fee of £1,495

Loans are available up to £600,000 for either the purchase or remortgaging of up to two buy-to-let properties per applicant, and a free legal facility is available on all remortgage business.

The applicant must own at least one existing buy-to-let property and rental coverage should be at least 125% calculated using the higher of the pay rate or reversion rate.

Colin Snowdon, chief executive of Aldermore Mortgages, says: “Lloyd’s recent announcement was a real disappointment for many brokers, but we’re doing our bit to help fill the market gap they have created. Not only is our new 5.69% fix extremely competitive, but we also expect our four-year fix to be popular with landlords seeking the certainty offered by longer-term rates.

“These products complement our existing buy-to-let range, which includes two year discounts starting at 4.98%, a 5.78% three year fix and a 5.93% five year fix. Our buy to let products and free legal facility will particularly appeal to landlords who want to remortgage and we anticipate significant interest from intermediaries.”

 

[Arthritic Toe]

Because the population will not all arrive in 20 years but increase steadily over that time of course - are you being deliberately obtuse?

Sorry, but you asked you asked a very specific question - whether I thought there are enough houses to cater for the population expansion over the next 20 years. I wasn't sure why you asked it, but I answered anyway. My argument is about whether there is a shortage of housing right now, influencing the current market (and I don't believe there is).

Of course we need to increase the housing stock steadily over time to accommodate an expanding population, but to base policy on there being a huge shortage now, based on 'perceived wisdom' and the advise of estate agents and TV property 'experts' (the Conservatives employ air-head Kirstie Allsop as an advisor for gods sake), is idiotic.

 

[Uncle C]

Aldermore has extended its buy-to-let range as it looks to fill the gap left by Lloyds Banking Groups’ decision to reduce its market share.

Aldermore is launching two new fixed rate deals, a 5.69% two-year fix, available up to 75% LTV, with a 2.25% completion fee.

And a 5.99% four-year fix available up to 75% LTV, with a completion fee of £1,495

Loans are available up to £600,000 for either the purchase or remortgaging of up to two buy-to-let properties per applicant, and a free legal facility is available on all remortgage business.

The applicant must own at least one existing buy-to-let property and rental coverage should be at least 125% calculated using the higher of the pay rate or reversion rate.

Colin Snowdon, chief executive of Aldermore Mortgages, says: “Lloyd’s recent announcement was a real disappointment for many brokers, but we’re doing our bit to help fill the market gap they have created. Not only is our new 5.69% fix extremely competitive, but we also expect our four-year fix to be popular with landlords seeking the certainty offered by longer-term rates.

“These products complement our existing buy-to-let range, which includes two year discounts starting at 4.98%, a 5.78% three year fix and a 5.93% five year fix. Our buy to let products and free legal facility will particularly appeal to landlords who want to remortgage and we anticipate significant interest from intermediaries.”

Those are interesting figures. So If I decided to go BTL then I would need to get a return of 5.69 x 125% = 7.11% rental income on my investment.

 

[stewardxxx]

Slightly off the topic here but I just want to say thanks to UncleSpielberg for his advice on mortgages the other day - very useful and I would recommend anyone who needs advice to contact him.

 

[Uncle Spielberg]

Those are interesting figures. So If I decided to go BTL then I would need to get a return of 5.69 x 125% = 7.11% rental income on my investment.

No 5.69%.

 

[Bold Seagull]

The demand for housing is not down to population increase on it's own, it's down to a changes in society, and who now demands a home and from when. 30 years ago you would live in your family home until you got married, then settled down in your new home. That no longer applies (a generalisation, but largely true). Taking out population increase altogether and there is still a large demand for homes from a huge increase in individuals wanting their own place. This effectively doubles the demand for that demographic age group compared with 1/4 of a century ago leaving any population increase aside.

Essentially that has driven the rise of the 'flat' or 'apartment' in recent years, and why that has been the first sector to be badly hit because that part of the market has simply decided to live at home until the market improves. The South East is currently awash with flats, but desperate for good size family homes. Most developers are currently scrapping their flatted schemes in favour of larger units, simply because the first time/young buyers market can't get a mortgage.

 

[Uncle C]

No 5.69%.

So what does this mean?

"rental coverage should be at least 125%"

 

[Uncle Spielberg]

To batter an industry already on its knees and going through its death throes I read this good news today.

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It has been reported that Christopher Farrell, who is due to start on The Apprentice next week, is being investigated for fraud and no longer works as a mortgage broker.

The Sun reports that he is on police bail after being arrested on suspicion of fraud.

The newspaper claims he was sacked as a broker by a mortgage company in August last year after working for them on commission for just ten months.

It claims police were called in to investigate mortgages arranged for several clients.

It alleges that after a year-long investigation, Farrell was arrested and quizzed by detectives over alleged financial irregularities.

In September last year, he admitted possessing offensive weapons - a knuckleduster and an extendable baton - found in the glovebox of his Mercedes car.

He was given a two-year conditional discharge and ordered to pay £847 costs.

Devon and Cornwall Police are believed to have contacted a number of clients as part of their fraud probe.

 

[Uncle Spielberg]

So what does this mean?

"rental coverage should be at least 125%"

The rental coverage for the lender.

The mortgage would be £ 100000 x 5.69% = £ 5690 pa or £ 475 pm.

 

[Bozza]

So what does this mean?

"rental coverage should be at least 125%"

My interpretation was, being simplistic, that if the loan was for £100,000 then you would have to have rent of at least £592 per calendar month.


(being £100,000 * 5.69% / 12 * 125% (ignores capital repayment, I know))

 

[Uncle Spielberg]

Bozza is right.

Well your both right. The rental income would need to be £ 592 pm but the mortgage itself would be £ 475 pm.

 

[Westdene Seagull]

(being £100,000 * 5.69% / 12 * 125% (ignores capital repayment, I know))

To be honest you'd be daft to take out a BTL mortgage with capital repayment - you'd be out of pocket every month.