scose-no-doubt

Veteren member
4,630 954
...... I was of course waxing ironical. :)
GB makes estate agents, used car salesmen, boiler room conmen, and purveyors of duff trading courses look like saints.

Funny how we hear so little from Gordo these days!

laying low after paying that hooker-maid to stitch up strauss k. gobbling up "consulting" fees from the wealth of various plcs no doubt.
 
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andycon

Active member
170 12
Some of the reasons I don't believe house prices are going to go up Nationally;

1. Overall money supply, the securitised debt market is still virtually non existent and this accounted for 55% of money supply to the mortgage market prior to the credit crash. To attract money from depositors to lend they need to pay higher rates on there 5 year bonds which is difficult with BOE rate at 0.5%
2. Self Certified Lending, although not banned by the FSA just yet (rumoured to be soon) this is not being offered by any lenders. This not only takes out of the market a large proportion of the self employed who like to show a small income to HMRC. This takes out of the market a large number of employed people who had a high % of there total income based on commission or bonuses, it also takes out of the market all self employed and business owners without a minimum of 2 years accounts. It also traps in there current house all the people who previously borrowed under this scheme who are now unable to move house and stimulate the market.
3. Interest only mortgages - these are virtually unavailable for new loans, there are a large proportion of home owners on interest only mortgages as that was all they could afford due to house prices being so high in relation to incomes. Should these people wish to move they will have to have a repayment mortgage, even on today's low interest rates most of these people will not be bale to afford the house they have never mind upgrade so they are not going to contribute to the market.
4. Lending in to retirement - virtually non existent, unless people have a provable income in retirement that would support the loan then new mortgages have to cease at state retirement age. Include point 3 about no interest only mortgages and somebody aged 55 would have to have a 10 year repayment mortgage, even if the customer said yes they wanted one, the chances are the affordability calculations used by the lenders would not allow it. There is already a large problem with existing borrowers on interest only mortgages heading towards retirement with no pension provision other than that provided by the state, regardless of whether the customer can afford them these mortgages are due to be redeemed and there are no products to replace them. Lenders have the problem of forcing retired people to sell up (bad for publicity) or breaking the rules on responsible lending (again).
5. Affordability and loan to value %; Everybody is aware of the lower loan to values being lent, down from 130% to 90% and 85% at punitive interest rates and 75% to 80% if you want a decent rate. Lenders have also tightened affordability considerably, so a large number of borrowers are taken out of the market just on this basis alone.
6. Impaired credit - virtually unavailable, somebody with a CCJ for £550 5 years ago is unlikely to get a mortgage, anything more serious and you can forget it. Another segment of the market that prior to the crash were being catered for is gone.
7. Buy to Let - interest rates and fees punitive compared to what was on offer prior to the crash, loan to value down to 75% from 90%. Many late to the game portfolio landlords trapped with negative equity. Lenders took a large hit on repo's in this area. This is classed as commercial lending and lenders need 8x the amount on deposit for every £1 they lend compared to residential lending.

So even if there is renewed optimism for buying houses, and renewed optimism about unemployment and the economy and the customer wants to buy the house, they have paid of all there unsecured debt so they pass the affordability test, and they have saved the deposit or have the equity in there existing home, until they resolve some of the above points it is not going to happen to any degree. To resolve some of the above points would be classed as the irresponsible lending which got us in to this mess.

So I don't see it happening, but I would love to be wrong.
 
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anley

Senior member
2,730 229
One of the problems about future house price growth is to do with simple maths and that's likely to mean property hardly rises at all over the next 50 years (apart from tracking inflation).

Ever read those stories (or listened to your parents) about how a house used to cost a pittance? How about a nice mews house in Notting Hill that cost £100,000 in 1985 that's now worth £2million+.

That's an increase of about 12% per annum (26 years), and it's a great return.

Now let's take that same house and project 12% forward over the next 26 years shall we?

The price comes in at £38,000,000 :) But be really quick if you want it because next year the price will have risen by £4,000,000 and the year after by £5,000,000 (only a small gain £9,000,000 in 2 years). Give it another 6 years and it will set you back £60,000,000.

Of course inflation over that time plays a role but inflation never compounds at 12% for decades.

So in order to afford that house (say 4 times salary) you'd need to be earning nearly £10,000,000 a year.

You see, small numbers can take big percentage increases no problem. But big numbers can't because they get too big too quick.

So for anyone thinking house prices only ever go up (over the long term) and do so at a great rate then I have 1 word for ya -

Compounding..............

Like I said, it's all to do with simple maths.
 

scose-no-doubt

Veteren member
4,630 954
While I agree that house prices will have to align with wages in principle, is it not possible that housing becomes a store of wealth that most people can't afford - like in the third world.
What if the new norm is based on capital appreciation coving borrowing costs rather than the current rental yield servicing debt payments?
 

andycon

Active member
170 12
While I agree that house prices will have to align with wages in principle, is it not possible that housing becomes a store of wealth that most people can't afford - like in the third world.
What if the new norm is based on capital appreciation coving borrowing costs rather than the current rental yield servicing debt payments?

Are you talking about residential property, commercial property or both?

For capital appreciation to cover borrowing costs as opposed to affordability of servicing the debt there would have to be a complete re-write of the FSA rules for residential mortgages. Prior to the crash lenders were mainly interested in capital appreciation covering borrowing costs. Current commercial lending decision making puts servicing the debt ahead of loan to value.

If housing became a store of wealth that most people couldn't afford wouldn't that limit the market and potential growth in the market?
 

scose-no-doubt

Veteren member
4,630 954
Are you talking about residential property, commercial property or both?
I'm just propositioning a scenario whereby property ownership is reserved for the rich leaving the rest to rent.

For capital appreciation to cover borrowing costs as opposed to affordability of servicing the debt there would have to be a complete re-write of the FSA rules for residential mortgages. Prior to the crash lenders were mainly interested in capital appreciation covering borrowing costs. Current commercial lending decision making puts servicing the debt ahead of loan to value.
Or just to get rich people interested as I said and add a bit of negative gearing legislation a lá Australia etc.

If housing became a store of wealth that most people couldn't afford wouldn't that limit the market and potential growth in the market?

Well there's the crux innit. Sustainability.

All extremely unlikely of course but a possibility, no?
 
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andycon

Active member
170 12
All extremely unlikely of course but a possibility, no?

I think a very real possibility.

A big political theme worldwide for the last 30 years is that home ownership creates domestic stability, hence govt. desire to sell social housing and encouraging banks to lend to all. So it will stuff up that hypothesis as well.
 

scose-no-doubt

Veteren member
4,630 954
I was bored.

F9 to generate random digits innit dawgz if you didny know that already.
 

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Hoggums

Senior member
2,176 878
The only way this is going to happen is if RPI rises 30pc to record highs by 2015.

Interest rates cannot be lowered so there's no further stimulus available to the housing market and if prices can't increase currently with virtually no interest rates then once the rate rises come I cannot see how they can be sustained.

Until then I predict stalemate - with prices going pretty much nowhere unless recession #2 really starts to bite.
 

Atilla

Legendary member
19,852 3,107
Attila,

I am sure this will be of interest to you :)

House prices to rise 14pc to record highs by 2015


Paul


Cheers for the link Paul,

I do agree and not saying it because it suits my vested interests but purely because of fundamental economic analysis and 40 years history of house prices.


Right now the Arab Spring will be the rescue package Europe needs. The future is looking very rosy especially so if peace prevails in the ME.

Amount of pent up demand for houses, white goods and reconstruction is substantial.

Purchasing power in India and China as well as Latin America will bring bodies into Europe the favoured destination. These are likely to be the children of rich families in search of education and European life style...

Supply of housing is pretty inelastic and not likely to change soon.

Bovernment imho is right to consider opening up the green belt and relaxing some planning laws with some discretion to be applied - to reduce the cost of land.


I always think the Olympics not to mention the European football cup will bring out the cheerio factor in us all next year.


1. Inflation will prevail to pay off the debt in consequence to collosal injections.
2. Real interest rates will remain negative for some time to come.
3. Property is about the only real investment one has control over in these uncertain times.
4. If capital gains don't materialise the return on investment by letting will appreciate beyond the standard 6-7% for buy to lets so it's a no brainer to me that property is a good time to buy right now.

In fact best time was in Feb 2009 when the green shoots showed up. Like I said... :cheesy:

You pays your price and you takes your risk... ;)


Time will tell...
 
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forker

Senior member
2,688 500
I would agree if i was privy to the % of investors relative to average Joe. The problem I have with the foreign investors theory is their proportional influence on the market. Added to that is the level of liquid funding because lets face it, lending ain't cheap
 

Atilla

Legendary member
19,852 3,107
I would agree if i was privy to the % of investors relative to average Joe. The problem I have with the foreign investors theory is their proportional influence on the market. Added to that is the level of liquid funding because lets face it, lending ain't cheap

Foreign aspect is to buy and rent. One person I know went to some university with fees of £16K p/a + London's living expenses. If he is one there must be 100s if not 1000s of others like him.

You've got to ask what will all the Indians and Chinese do with their money. Yes that's right go on holiday.

Like when the Brits bought Spanish property - started off as a trickle and in the end led to the Spanish responding with such quantity the bubble could not last. What drove the bubble in Spain you've got to ask? Was foreign purchases a factor?

Before it is taken out of context - not saying they will drive the market but they add to demand. Especially in Southern England and key university towns.


Addenda: There is a lot of slush cash swirling in the system. It is simply in the hands of those who are sitting on it waiting to unleash hyperinflation soon enough. We've been here before...
 
 
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