Housing Affordability has peaked, now decreasing

[Deleted User]

Emy1501 wrote: »

Unless they are moving to another part of the country which is cheaper there is no benefit from HPI if they are trading up. The property the maybe selling maybe worth less but the property they are planning to buy will be worth less too.

As I said immediately after the paragraph you highlighted in bold (highlighted below in red):

Deleted_User wrote:

If house prices go up they have a larger profit should they choose to sell. Now if they sell simply to move to a bigger house they'll have to pay more for that house but they'll get more for their old house. Once in the new house they'll have an even bigger pot of money tied up in their house. And so it continues. The benefit to house prices continuing to rise above the rate of inflation is that it doesn't take long to get to the stage where you're paying a micky mouse morgage for a house worth a small fortune.

Now sure, you don't actually get to spend that money if you're living in your house but it gives you lots of options. Those with children might take pleasure out of being able to give their kids a HUGE financial gift. Singles with small flats can marry, sell up and have a huge deposit on a shared, larger house. Maybe they'll both move into one of the houses and they'll release the money previously tied up in the other. Maybe they'll emigrate, sell up and live in a boat, release equity to start a business - it will give them the options and wealth in later life that previous generations have benefited from.

You also have not answered how future generations will pay for a mortgage or rent if HPI continues way above inflation

I didn't answer because you didn't ask me about my predictions for the future.

As with everything it comes down to supply and demand. In areas where demand is far greater than supply you get property selling for silly prices. Parts of London for example where people pay millions for little flats when they could have vast country estates for less elsewhere. As long as people have silly money and there's competition for houses prices will go up.

As more and more people get priced out of the market in places like London I would expect price increases to slow a little there as people start to move out to cheaper places. That means big price hikes in those previously cheap areas. My guess is that's where the money is to be made. In this day and age it's getting more common for people to work from home over the internet so location is less important.

So I guess my prediction is a leveling of prices across the country. I doubt that will mean a fall in prices in the city, but rather a greater escallation out in the sticks.

Now if property values keep increasing above the rate of inflation (and thus the rate of wage increases) you'll get to a point where people can no longer afford to buy houses and that is when prices will stop rising above inflation rate. But currently there are significantly more households than there are homes and it would take a huge amount of new development to change that. I expect that there will be enough people afluent enough to buy houses to keep prices increasing above inflation rate for some time to come. Perhaps not in the already saturated areas like London but most of the country has many years to go before we get to that point.

But lots of people will be forced out of the housing market long before prices start to level off. What happens to them? Well houses don't actually cost too much to build so my guess is that local authorities will somehow find a way to buy up greenbelt land at low prices and then start a mass building program. Those on lower incomes that don't have families to help them out may well end up back in council housing. And depending upon who's in government those people might forever be council tenants or they might be allowed to part-buy part-rent...thus getting onto the housing market along with everyone else. Now that will level off prices once there's enough property to go around....except in the most desireable areas of course where everyone wants to live.

The problem isn't the cost of property. The problem is that there aren't enough houses to go around. If houses cost 10p each tomorrow you'll still have large numbers of future generations unable to buyor rent a home. The solution is to build enough homes to go around and thus satisfy demand. Government/councils have control over this to some degree as they have the power to free up greenbelt land for building thus bringing the cost of land down in a given area. And it's the land that costs rather than the building itself.

I suspect the day will come when it's no longer the norm to make a lot of money out of property. Who knows what new opportunites the future will bring.

[Deleted User]

chucky wrote: »

to be fair and i hope that i'm not patronising or come across arrogant in any way but in the South East we are luckier than most being where we are. places like Swindon and parts of Wales are probably getting hurt hard at the moment.

I'm up in Scotland and we've had our most afluent years throughout this recession. I'm not seeing any signs of recession up here. I'm sure some are suffering but my impression is that for most it's business as usual.

Now it's funny that you should say that you're luckier in the South East. From reading peoples comments about the price of property I was getting the impression that those of us that lived in areas where house prices are still affordable and wages/employment levels OK are better off than those in places where large numbers of people are priced out of the property market? Or is it not really the case that fewer young people in the South East are able to get on the property ladder?

Chrysalis

Emy1501 wrote: »

Interest rates are as low as they are going to get. I suspect some will be willing to do as you say but professional landlords rely on rental yields not HPI. Its only the amatuer landlords who may allow rent at less than the mortgage and rent on the basis of HPI. I do not know how much cash is in the system but I doubt there is enough. Banks want you show that the rent will cover at least 125% of the mortgage when you take out a BTL. A couple of years ago they would ignore this to get the deal but times are different now.

As for everyone being able to buy a house people on benefit are using housing benefit money to pay the rent hardly likely they would get a mortgage. As for most others well if they could get a deposit etc then they could afford the mortgage as there is not much different between an interest only mortgage and the rent on a property but if prices rise by 100% in real terms then rent has to follow a similar path unless as you say many landlord are going to subsidsed the rent and therefore be pretty cash rich and I'm not sure there is enough cash in the economy to do this.

cant speak for all landlords, but a friend of mine who has been doing it for 15 years and has nearly 400 properties, various of his properties rent for below the mortgage. He can do this because of the reasons I stated and due to the fact many of his properties were brought outright with cash so on some properties there is no mortgage at all.

I actually think the opposite to you and its the amatuer landlords who are more likely going to need their mortgage covered as they tend to be only in it for the short term.

Chrysalis

Emy1501 wrote: »

Dont know but everything I have read suggests that you should be looking for decent yields of above 3-4% which I cant see happening if nobody can afford to pay the interest plus some on the Landlords mortgage.

The beauty of BTL has been you can take someone else money get some one else to pay the mortgage, get a decent yield on your investment and get HPI in the long run not only on your investment but the money you borrowed as well. People looking at cash only investments could have probably done alot better out of other investments than property. There was someone from Barclays on TV the other day who dealt with rich investors who was saying that there are better investments than property for people with lots of cash. I therefore cannot see what Hamish is saying comming true

Of course BTL isnt all fun and games.

lets say you charge £400 rent and the mortgage is £350, if the property is empty for just 1 single month then it will take 7 months to just break even again. 2 months then it becomes 14 months and so on. Many amatuer landlords become unstuck very fast as they tend to have very little liquid cash, in addition many go into the market without realising the implications, such as safety standards to be met and the fact they responsible for maintenance such as broken boilers. I know recently a common occurance has been landlords having to drop rent to market value to get a tenant, the market value been less then their mortgage, and then they try to increase the rent after 6 months. Usually results in a void.

This is what I think the problem is today with the mindset of the british person. In germany, france, holland etc. who incidently all have higher standards of living they think nothing of renting for the long term, 10-20 years of renting no problem. Here renting is seen as something you do if you dont want to settle down and only live somewhere short term hence our 'assured shorthold tenancy', it is assumed people will buy a house if they want long term security of residence. Crucially the big problem as well is when a house is brought it is now seen as an investment rather than a roof over your head. The result is people buying houses they cant afford as they dont want to miss the boat, since the british see renting as throwing money away, they dont see it as you paying for a roof over your head a service. As well as people who want to rent long term been treated poorly, its not uncommon for someone who has lived in a rented property for 3 years to have gone through half a dozen 6 month agreements and paid £150 each time to renew. Also not uncommon for someone to move into a rented property only to find the landlord then wants to sell or the bank is repossessing.

Chrysalis

Graham_Devon wrote: »

Well the area is a big area, hence the hospital.

The type of property, yes, I get this, but demand for these was very high hence building so many.

Hamish talks as if demand will always be the biggest thing. So I'm wondering why demand hasn't worked here. Demand is demand. Surely if, as he says, all these families need houses, they would be in them, regardless of the property type, as desperation forces your hand. But they are not, so where they all living?!

This is the thing, I do buy the demand argument, but not to the extremities pushed on here at times.

here is why.

when times are rough, people will live in someone else's spare room to save living costs. Stop living in your own flat/house move into mum's spare room instead, that sort of thing.

Emy1501

Graham_Devon wrote: »

Well the area is a big area, hence the hospital.

The type of property, yes, I get this, but demand for these was very high hence building so many.

Hamish talks as if demand will always be the biggest thing. So I'm wondering why demand hasn't worked here. Demand is demand. Surely if, as he says, all these families need houses, they would be in them, regardless of the property type, as desperation forces your hand. But they are not, so where they all living?!

This is the thing, I do buy the demand argument, but not to the extremities pushed on here at times.

Property is seen as an investment for many, there is no immediate need for the vast number of flats being built but many believe like Hamish that one day there will be a massive supply and demand problem and this will keep pushing prices up. The problem with property unlike many other investments is that you need credit to buy them. This has dried up and therefore many investors can no longer buy.

kabayiri

Deleted_User wrote: »

So I guess my prediction is a leveling of prices across the country. I doubt that will mean a fall in prices in the city, but rather a greater escallation out in the sticks.

Why on earth should prices equalise?

We have seen a greater polarisation of prices between different regions in recent years.

The gap between the 'haves' and the 'have nots' has grown under the current government. I don't see it changing anytime soon.

[Deleted User]

kabayiri wrote: »

Why on earth should prices equalise?

We have seen a greater polarisation of prices between different regions in recent years.

The gap between the 'haves' and the 'have nots' has grown under the current government. I don't see it changing anytime soon.

Yes, but in recent years people have been able to get huge mortgages to buy property wherever they choose. And they've felt confident about doing that because house prices have been going sky high. It seemed a safe investment.

Now large numbers of people are saying that they can't afford (and aren't willing to pay) rediculous prices for property. Prices aren't showing any signs of falling because enough people are willing and able to pay good prices for the few houses on the market.

Those that aren't willing and able to pay those prices have to live somewhere. They might choose to rent. Or they might start to realise that there are parts of the country where they can buy a beautiful house that's well within budget and have a better quality of life. It only takes a few to do it and others cotton onto the idea. Then you have more competition for property out in the sticks (pushing up prices) and less competition in the city (keep prices more level).

It's also getting easier for people to work from home so location is less important.

Graham_Devon

Deleted_User wrote: »

Those that aren't willing and able to pay those prices have to live somewhere. They might choose to rent. Or they might start to realise that there are parts of the country where they can buy a beautiful house that's well within budget and have a better quality of life. It only takes a few to do it and others cotton onto the idea. Then you have more competition for property out in the sticks (pushing up prices) and less competition in the city (keep prices more level).

Hmmm, I very much doubt it. In the real world, the country does not offer that many jobs, and it's a difficult place to live due to lack of ammenities.

What you have said is ok for the retired.

Yes, everyone has to live somewhere, but they also need a job to be able to pay for where they live. Therefore, thousands of people are limited to where they live due to their job, and or kids being in school, family etc.

kabayiri

Deleted_User wrote: »

Those that aren't willing and able to pay those prices have to live somewhere. They might choose to rent. Or they might start to realise that there are parts of the country where they can buy a beautiful house that's well within budget and have a better quality of life. It only takes a few to do it and others cotton onto the idea. Then you have more competition for property out in the sticks (pushing up prices) and less competition in the city (keep prices more level).

That's too simplistic.

I know friends who work in the same IT sector as me, a niche sector if you will.

One of them, top of his game, can work pretty much from home. Did he choose Scotland? Nope. What about the home counties? No again. His main residence is in Majorca now, but he is considering more tax friendly locations.

The same will be true of financiers no doubt. I don't imagine they are going to choose the colder locations of Scotland any time soon.