House prices could fall... Blog Discussion

ginger_nuts

I bought a BTL last year for £40000 .In 11 months it went up £15,000 .
I am now looking for my next BTL , not as easy this time but I will get there .

ollyk

MSE_Martin wrote:

Tony while I understand your sentiment. I don't agree that all economists predict either flat or drop. In fact last night I was on news 24 with the chief UK economist from Barclays Group who said "there's a limited supply of housing, which indicates house prices will continue to rise."
Martin

Martin, is this guy from Barclays going to ever suggest otherwise while the company / group he works for sells mortgages?

I am glad you have come out with this (and previous) blogs on house prices, it's about time a non VI released an opinion that suggests house prices might not carry on rising for ever :rolleyes: Thankyou!

Oh, will you be bringing this up on the next jeremy Vine show by any chance

odorus

ginger_nuts wrote:

I bought a BTL last year for £40000 .In 11 months it went up £15,000 .
I am now looking for my next BTL , not as easy this time but I will get there .

If you haven't sold you property then it hasn't gone up by £15k. Estate agents will tell you one thing, and there might be strong evidence with sales of similar properties in the area to suggest that it has gone up by £15k. But when you come to sell it might have dropped. I just re-mortgaged a BTL and the bank agreed the place had gone up £13k, but then they would agree if it means additional lending. What a buyer is prepared to pay is another thing altogether.

A diverse portfolio is the way to go. Some property, some shares e.t.c. I was going to take the money that I got from the re-mortgage to pay off the home mortgage, as that money is tax deductible. So I pay less on my mortgage, and also don't pay a lot on the income from the flat. But I have invested it in a business instead.

Also remember any money you make on a BTL is subject to capital gains tax. The interest you will pay on the BTL mortgage can also outweigh any increase in property price.

IMHO if everyone is getting on the band wagon then, unless you get a great deal on a property, it's time to get off, but then again each to their own. I could be totally wrong.

meanmachine_2

landroverboy wrote:

Yes property prices WILL fall at some point and the also WILL rise again, but taken over a long period of time putting money into property (in the UK at least, I don't study foriegn markets) is good and better than shares, whether it be buying a property as a home or an investment.

Take the last 25 years as an example, yes we've had record rises in prices, long periods of flat-lining as well as the severe plummeting we saw in the early 90s, yet taken year on year over the last 25 years the average price for the average home has risen by 12% per year. When you look back as far as the war, property prices have virtually doubled every ten years.

:j

I don't even know where to begin with this post.

Firstly, you're wrong. The stock market outperforms property every time.

Secondly, OK, property has gone up 12% if you include these last few boom years.

What did they "go up" during the last crash?

Also, houses tend to go up in line with wages. In the last 25 years we've had massive inflation (ergo wage inflation).

Not any more.

And if wages do start going up significantly then interest rates will go up and your 12% pa gains will become a distant memory.

So yes, looking back property has done well. What will it do in the next five years is the only question I'm interested in.

By the way, until May "experts" were crowing about the stock market and how it had gone up by X amount per annum. At which point muppet investors piled in thinking it would last forever. It didn't.

I'm not saying the same thing will happen in the housing market, but if it does, as Martin suggests it *might*, don't be surprised and don't ask for sympathy.

F_T_Buyer

landroverboy wrote:

Yes property prices WILL fall at some point and the also WILL rise again, but taken over a long period of time putting money into property (in the UK at least, I don't study foriegn markets) is good and better than shares, whether it be buying a property as a home or an investment.

Take the last 25 years as an example, yes we've had record rises in prices, long periods of flat-lining as well as the severe plummeting we saw in the early 90s, yet taken year on year over the last 25 years the average price for the average home has risen by 12% per year. When you look back as far as the war, property prices have virtually doubled every ten years.

Look at it from a different angle:
- If you have hypothetical £10,000 to invest and you choose shares and those shares rise by 10% in the first year you have made a gross profit of £1,000.
- Alternatively, if you take that hypothetical £10,000 and use it as a deposit to invest in a property worth £100,000 and that property increases by 10% in the first year you have made a gross profit of £10,000.
Granted there are taxes to pay and monthly mortgage payments but if you either let it out or live in it, pound for pound I'd rather have the net balance from the property investment than that from the shares.

While I appreciate not everyone is in a position to buy their own home, however I would recommend to those that are to do so because over a 25 years period rents WILL rise, whereas eventhough interest rates fluctuate mortgage payments stay around the same as when you took the mortgage out, for example when I took out my mortgage some 10 years ago my mortgage was around 28% of my monthly take home pay, today it works out at around 14% of my take home pay.

So if you can afford to, buy! Either buy your own home and if you have your own home buy more property as an investment.

:j

Yes. but this works both ways. If property fell 1% you would lose £10k, if shares fell 1% you lose £1k. Also you could add stop loses on shares, and liquidate to cash very quickly. Property you can't. Also, as you are borrowing money with property you are open to other factors, such as debt servicing costs (interest rates) and what if you can't cover the interest payments (e.g. you have a void on your BTL).

When you borrow money to invest, you are taking on very high risks. This is why so many people get burnt when property prices fall!

But why would you invest in property today? Net yields are less than debt servicing costs. If you had cash, you could get a better return in a savings account with no risk. The only reason to invest in property now is it will go up in value - yet by every measure (e.g. Price/Earnings) it is overvalued!

---

What amazes me about this website, is when it comes to Stoozing, sueing the banks etc etc you all seem to look at it logically, and question every angle. Yet when it comes to property, well dur, it's a no brainer to invest in it! A lot of people seem to be saving pennies, wasting pounds!

We'll soon see what you're wearing when the tide goes out! :j

Haggy_3

I firmly believe that the thing that you learn from history is that no-one ever learns anything from history.

My point is that when (because it will at some point) a crash happen in the housing market it will occur because a lot of people will be selling and not many buying.

The obvious trigger for this will be if interest rates start to get out of control. Imagine if you can yourself 15 years ago - could anyone seriously have thought that rates would be as low as they are. Now picture yourself in the present day - can you imagine interest rates back to double digits? I can't either BUT that doesn't mean it won't happen.

I am sure that the average base rate over the last 50 years is around the 8-9% mark - look it up if you don't believe me. Now picture the scene if (or maybe when) rates go back up to 6-7-8%. There will be a lot of buy-to-lets come back on the market because people want to take some of the profits while they can. Trouble is selling houses isn't like selling shares - you can't sell a house instantly. In a situation like this those who have over extended themselves will get badly burnt.

HeyBigSpender

If you think things are bad here in the UK, have a look at property prices in Ireland. (e.g. https://www.myhome.ie )They are pretty shocking, particularly given the public transport network is so bad and so many people are forced to commute huge distances to get to work. Whatever about a house price crash here, I believe it is going to happen in Ireland at some stage. The UK has a long way to go before it gets as bad as Ireland has.

BernieB_2

The Economist, https://www.economist.com, has been demonstrating for 2 or 3 years that house prices in the UK, US and elsewhere are very seriously overvalued. You can't predict when the correction will come, but history is clear that it will irrespective of the inevitable "special circumstances this time," yet again. The only bright thing is to buy at the darkest hour, when everyone else is deserting the market, just as with shares, or rent for the time being.

MickKnipfler

Don't forget also that last time inflation was high enough to erode negative equity.

navelgazer

When buying a home it is always orth remembering that it is, for most people, just that...a home. It is a long term investment that will almost certainly increase in value over the term of a mortgage. Investing in property can be highly lucrative but also highly risky if it is looked at as a short to medium term investment.

It's certainly possible that prices could fall and have done so in the past BUT it is VERY unlikely that this will result in a long term decline of prices. Many will remember the crash of the 1990's and other crashes before that but house prices bounced back up again after a year or so.

Remember, we live on an island with a growing housing need and, as one of my developer clients used to say,

I buy land because they don't make it any more!

History, and supply and demand strongly suggest that property has always been and probably, will always be a good long term investment.

There is nothing wrong with renting, ownership is not right for everyone and no-one should borrow more than they can safely afford BUT, if you can afford to buy and are sensible in your choice and location of home, it is a pretty safe way to invest your money.