Property !!!!!! A Nation Hypnotised? Blog Discussion

ManAtHome

The alleged "boom" has been largely based on money supply sleight-of-hand. Pump an extra 10% in, people push it into assets then cash in the assets - free money! Unfortunately, the "free money" is actually coming out of the pockets of the following generations. And of course the more you then have to pay for your assets, the less you have to spend in the shops - bit of a looming disaster for any economy mainly based on consumption rather than generation.

Even worse when all the cash is going into one asset class, still it's given foreign companies the chance to pick up a few UK companies on the cheap and/or force the remaining ones into defensive positions.

whambamboo

inmypocketnottheirs wrote:

It all depends where we are talking about. There is no price drop round here (Cheshire).

There is no price drop anywhere else either.

Yet.

The question is, is it risky to buy at current high levels?

The answer is yes, it is.

Prices might drop. It is more likely they will drop 15% than rise 15%, over say the next 2 years.

Dora_the_Explorer_5

Do we have lots of first and second time buyers havin to take in lodgers to help with their finances, as in the 1950's, 60's and 70's ? Do we have lots of singles, couples and families having to rent a couple of rooms in someone else's house because renting a whole flat/house is beyond their finances?

If we do, property is too expensive. If we don't, then it isn't. QED

billion25

tonyhamm wrote:

Looking on the ground, rents are rising swiftly, and property is still rising at double digit rates. The U.K. of a decade ago, with controlled migration, and peoples wages being able to buy them a piece of thier own country, a home - no longer exists.

I've rent in a fairly affluent area of London and my rent has not risen for 3 years. A family I know on the same street has paid the same rent for 5 years. By my judgement, the landlord (before paying the letting management company) is earning about 3.7% rental yield on our property. They could sell the house and get a risk free return of 4.75% in an ING direct account.

I'm not sure what you mean by property rising at double digit rates. With the exception of some pockets of London, property is rising in the low single digits.

The massive wave of migration is creating a need for additional housing...but...it is also keeping wage growth low. You simply can't have house prices rising faster than wages indefinitely. That, my friend, is simple economics.

NeilW

At the moment renting is the place to be. You can have your pick of some very nice houses and it will cost you a hell of a lot less renting the bricks than it will renting the money to buy the bricks. And somebody else has to pay if the boiler breaks down.

As another poster has already pointed out, rents are being held down by market forces - a surplus of supply. If you are renting you need to be happy to move at the drop of the hat. That then gives you the edge against landlords trying to raise rent prices. If you have a landlord that is more scared of void periods than you are of moving then you have the upper hand in the negotiation stakes and might even be able to get your rent to go down if you are mercenary enough. (For example asking for a three year fixed price lease at a lower rent).

However the really neat trick is to have your money in an entirely different asset class - shares. At the moment you can have a good portfolio of blue chip income producing shares that will pay the rent on a property for a lot less money than it would cost to buy it. Shares like property tend to go up in value, and historically have outstripped property in capital appreciation. And the income from them tend to go up as well, hopefully covering any forced rent rises.

If you invest the difference between a mortgage payment and a rent payment you will over time build up a significant capital sum paying a decent income.

NeilW

snuffy

My partner and I are 24. We want to move out but don't know what to do, what's happening with interest rates etc.
Average price range round my way for a 2/3 bed is about £185,000.
We have a 10% deposit which we have saved up for a few years. We have no debt between us.

Look at these figures:

£18,500 deposit
£1850 stamp duty
£2000 solictor fees

£22350 just to get into the house / through the front door.

A mortage then of £166500 would cost me £900 a month for 30 years. 30 years of knowing a thousand pound a month is coming out of our account! What happens if interest rates hit 6, 7, 8 %?!?!?!?
How on earth is this sustainable?!

ReportInvestor

snuffy wrote:

How on earth is this sustainable?!

By wage increases above the level of inflation?

My partner - who has not changed jobs - started on £300 pm net & looks on course to eventually retire on £3,000 pm net assuming 3.5% wage inflation. My mother starting saving for her house deposit from £25pm.

Rents will go up, perhaps tracking wage inflation rather than inflation. Mortgage payments may not go up. [I agree with you that if they do rise significantly it's a different story.]

What the "house price crash" brigade perhaps don't factor in, is that home ownership in this country has risen to over 70%, but why shouldn't it fall back to nearer 50% over time?

The problem for many approaching retirement is finding a source of income that will rise with inflation. And rents from tenants fit that bill.

ericthekidstoner

tonyhamm wrote:

Much of Martins advice on renting rather than buying at many multiples of income is unlikely to apply to a country undergoing mass immigration. It not property !!!!!! shows that make any difference - they are a byproduct of this huge change.

The immigration comment is very interesting. Any economists out there who can confirm/dispell such an observation???

Personally, I don't consider the affordability issue to be at an impass - i.e. property values not too high for average wage.

If you look at the mortgage levels in other countries - most notably in Asia, with big densely populated cities (which is the way we are moving towards here in the UK). People there borrow a lot more than the 3.5 times annual salary. They simply get tied into a much longer mortgage term.

The lenders there are willing to lend up to 5, 6, 7 times annual salary bc disproportionate property prices have been the norm for years and is deemed acceptable - indeed the only way.

What it has done in countries like Hong Kong is encouraged saving (for a deposit) and also the constant healthy trading of properties. So as to the "property prices is simply too high for wages" argument, I think it is likely to get worse, bc that is the long term trend... unless the economy busts, unlikely (imho) given the government's measures to stablise economic growth (obsessively?!).

Another war (closer to home) would certainly dent the economy, so that is possible infuence on the whole economy, and hence house prices.

Great debate btw! :T

Dead_Eye_Jones

a lot of sense in the blog, as always. I bought a house because I wanted a stable home - being kicked out by a landlord aint much fun. To me the emphasise was very much on a place to live, perhaps I will lose perhaps I wont, im not too bothered as a large deposit provides me with some security and my repayments are very manageable (for now).

I think people who want to buy should do so, and people who dont want to shouldnt fell pressurised.

ericthekidstoner

absolutely

a friend of mine has recently just bought. it is very much a home first, investment second.

if you're doing it as an investment, the financial sense can always be disputed. what's never disputed is that it's a roof over your head! (Assuming repo's)