What causes HPI ?

Graham_Devon

Blacklight wrote: »

The same economic fundamentals apply to all sorts of things, including rare and expensive sports cars. I'm certainty priced out of buying most of them because of the higher earners wanting/willing to pay for them. There is a limited supply, thus the prices are high.

Unfortunately there's not much you can do on this island to fix that.

Untrue.

There is only a limited supply of rare sports cars because that's exactly what they are and were intended to be. Rare. They manufacture the price by making a limited number.

In the case of housing, you'd have to have a situation where the number of homes built it manufactured to keep costs up.

Linton

DervProf wrote: »

(I`ve just read that statement, then looked up at the picture of Martin Lewis in the top left corner of my screen. I`m sure I saw him cringe a little).

Really ? I take it that you are suggesting this of other people, and not yourself, Linton.

If that is true, then the UK is inhabited by far more short-sighted, snobbish, vane, insecure fools than I thought.

So people don`t just want to buy a house, they want to pay more for it ! :rotfl:


Buyer : How much do you want for this property ?

Vendor : £184,000 please.

Buyer : I`ll give you £200,000, if that`s OK. People will think I have a higher status in society.

Me : I think you are an idiot.

Prospective Buyer: Mr Bank I am thinking of buying a house. I have seen a house in Bogton that will do for us for £150K

Bank: Actually Mr FTBer, with you and Mrs FTBer earning a good salary I can lend you £200K. You can afford it.

What happens?

Prospective buyer: Oh no, a £150K house is fine for me, nothing wrong with Bogton, why would I want more. Anyway, the less I spend on the house the more I can spend on other things.

OR

Propective buyer: Oh good, if we economise a bit and M&D help out we will be able to afford a house in Niceville. Better schools, fewer chavs and benefit scroungers, and there's a Waitrose in the High street.

Oddly enough - you made the same point in another thread.

IveSeenTheLight

Graham_Devon wrote: »

In the case of housing, you'd have to have a situation where the number of homes built it manufactured to keep costs up.

Building companies do this Dev.
It is not also helped by the planning requirements.

Building companies will only release properties in a development in phases, thus restricting supply, so that they get increasing prices throughout the development.

Blacknight point is that if there is a limit on supply, the prices are maintained high.

There's certainly been plenty of posts detailing the supply of property and the increase in population.

DervProf

IveSeenTheLight wrote: »

I'm in full agreement, however you seem to be in contradiction.

More people with the choice to own is indeed much better.
It seems however that this was only achieved by the easing of credit, which in turn helped to fuel HPI.

What do you want?
a) People to have access to credit and the choice to own albeit with the likely impact it will have on demand and house prices
or
b) There to be less access to credit such that less people have the option to buy and own.

I`ll take a), but with a few "extras".

No self-cert or IO mortgages are allowed. All mortgage applications are thoroughly checked, proof of income will be required.

A control on BTL investment. I`m not saying stop BTL all together, but introduce something like - 40% deposit required for a mortgage to buy a BTL. More impotantly, the equity in one BTL property can`t be used to raise finance for another one. Obviously these rules need to be fine tuned, to prevent a shortgage of property available to rent. The main objective would be to prevent too many properties being owned by investors, which would otherwise be bought by owner/occupiers.

A responsible rate setting plan to be introduced by the BoE. HPI should be taken into consideration when setting rates. Although they won`t admit it, that`s what they are now doing. As they have allowed the UK economy to become ever more reliant on the property market, they now have to protect the UK economy by protecting mortgage payers. 2001 - 2007, "no need to worry about property prices, it`s a free market, the market will look after itself". 2010, "if we put up interest rates, the property market will suffer". Talk about being backed into a corner.

Linton

DervProf wrote: »

I`ll take a), but with a few "extras".

No self-cert or IO mortgages are allowed. All mortgage applications are thoroughly checked, proof of income will be required.

A control on BTL investment. I`m not saying stop BTL all together, but introduce something like - 40% deposit required for a mortgage to buy a BTL. More impotantly, the equity in one BTL property can`t be used to raise finance for another one. Obviously these rules need to be fine tuned, to prevent a shortgage of property available to rent. The main objective would be to prevent too many properties being owned by investors, which would otherwise be bought by owner/occupiers.

A responsible rate setting plan to be introduced by the BoE. HPI should be taken into consideration when setting rates. Although they won`t admit it, that`s what they are now doing. As they have allowed the UK economy to become ever more reliant on the property market, they now have to protect the UK economy by protecting mortgage payers. 2001 - 2007, "no need to worry about property prices, it`s a free market, the market will look after itself". 2010, "if we put up interest rates, the property market will suffer". Talk about being backed into a corner.

But But But....

You objective would appear to be to reduce house prices. Presumably you are of the view that if only houses were cheap enough every FTBer could afford to buy one.

It doesnt work. There arent enough houses available. So you need some form of rationing.

At the moment we have price plus availability of credit. What would you prefer - perhaps a government committee to allocate houses to the most deserving?

Also, go back to what we agree - people are willing to pay the maximum they can afford to get a house. Assuming this culture continues what would happen if your mechanisms succeeded and kept HPI down?

Well people could afford and therefore would afford bigger and better houses in nicer areas. So the average house price would inflate. Especially as the availability of big houses in nice areas is even more limited.

Sorry, unless you tackle the fundamentals, no matter what you do the market will have its way.

For example, your proposals on BTL will reduce the availability of rental properties to the benefit of owner occupation no matter what fine tuning you do. So rents go up which is a bit tough on the poorest people in the community and owner occupation becomes more economically justifiable. I will leave you to work out what happens then.

IveSeenTheLight

Just a few comments below

DervProf wrote: »

I`ll take a), but with a few "extras".

No self-cert or IO mortgages are allowed (Why no IO mortgages. People can show and proof an alternative investment vehicle which provides a better return than the mortgage interest?). All mortgage applications are thoroughly checked, proof of income will be required.

A control on BTL investment. I`m not saying stop BTL all together, but introduce something like - 40% deposit required for a mortgage to buy a BTL (There are already deposit restrictions and also a need to proove that the achievable rental income is 125% of the mortgage interest). More impotantly, the equity in one BTL property can`t be used to raise finance for another one. (Why not? If the LTV is maintained then what stops your redistributing funds accross the business?) Obviously these rules need to be fine tuned, to prevent a shortgage of property available to rent. (They probably already are. BTL did not replace the percentage of properties that was sold from social housing. Indeed in some areas, rents are such that there could be an argument for more rentable properties in order to limit the rent recieved) The main objective would be to prevent too many properties being owned by investors, which would otherwise be bought by owner/occupiers (It's a free market, investors will only invest in marketable properties i.e. a strong rental market. I once bid on a property as a BTL and lost out to a home owner as they were prepared to pay more than I though was value as an investment. There is definately a need for rental properties as not everyone wants to or can afford to buy).

A responsible rate setting plan to be introduced by the BoE. HPI should be taken into consideration when setting rates. Although they won`t admit it, that`s what they are now doing. As they have allowed the UK economy to become ever more reliant on the property market, they now have to protect the UK economy by protecting mortgage payers. 2001 - 2007, "no need to worry about property prices, it`s a free market, the market will look after itself". 2010, "if we put up interest rates, the property market will suffer". (Isn't this banks protecting themselves? If you were to lend out something, wouldn;t you want a way of protecting the assett until it was paid off? The last thing the banks wants is to have lent at X and then find that the value is lower i.e. X/2) Talk about being backed into a corner. (It's not about being backed into a corner, it's about protecting your asset's)[/QUOTE]

DervProf

IveSeenTheLight wrote: »

Just a few comments below

DervProf wrote: »

I`ll take a), but with a few "extras".

No self-cert or IO mortgages are allowed (Why no IO mortgages. People can show and proof an alternative investment vehicle which provides a better return than the mortgage interest?) What, like an endowment ? Stock market investment ? . All mortgage applications are thoroughly checked, proof of income will be required.

A control on BTL investment. I`m not saying stop BTL all together, but introduce something like - 40% deposit required for a mortgage to buy a BTL (There are already deposit restrictions and also a need to proove that the achievable rental income is 125% of the mortgage interest). More impotantly, the equity in one BTL property can`t be used to raise finance for another one. (Why not? If the LTV is maintained then what stops your redistributing funds accross the business?) Why not ? Because those are the rules I would like to see. Rules to prevent landlords taking on too much debt, which they will struggle to pay back during a downturn. I`ve seen a few examples of people on very modest incomes, ending up with more than a few properties in a relatively short space of time. The problem is, they also end up with very large debts in a short space of time. That`s all well and good in a rising market, but how would they fare in a downturn ? Obviously these rules need to be fine tuned, to prevent a shortgage of property available to rent. (They probably already are. One would hope. BTL did not replace the percentage of properties that was sold from social housing. Indeed in some areas, rents are such that there could be an argument for more rentable properties in order to limit the rent recieved) The main objective would be to prevent too many properties being owned by investors, which would otherwise be bought by owner/occupiers (It's a free market Is it ? I`ve just heard on the news that reposessions are down. The explanation being that government schemes and pressure on banks to be more lenient on people in arrears. This is obviously a good thing for those behind on their mortgage payments, but is it a free market ?, investors will only invest in marketable properties i.e. a strong rental market. I once bid on a property as a BTL and lost out to a home owner as they were prepared to pay more than I though was value as an investment. There is definately a need for rental properties as not everyone wants to or can afford to buy).

A responsible rate setting plan to be introduced by the BoE. HPI should be taken into consideration when setting rates. Although they won`t admit it, that`s what they are now doing. As they have allowed the UK economy to become ever more reliant on the property market, they now have to protect the UK economy by protecting mortgage payers. 2001 - 2007, "no need to worry about property prices, it`s a free market, the market will look after itself". 2010, "if we put up interest rates, the property market will suffer". (Isn't this banks protecting themselves? Yes, but why didn`t the banks "protect themselves" by increasing interest rates earlier (2005) ? This would have the effect of limiting the increase in HPI, which would mean that there was less chance of a disastrous fall in the value of their assets at a later date. If you were to lend out something, wouldn;t you want a way of protecting the assett until it was paid off? What, by reducing the cost of borrowing, or keeping it low, so that others can borrow more to pay more for other similar assets, which protects the value of the asset you lent out on ? Sounds like a recipe for disaster. The last thing the banks wants is to have lent at X and then find that the value is lower i.e. X/2) Talk about being backed into a corner. (It's not about being backed into a corner, it's about protecting your asset's) As I tried to explain above, it is like backing yourself into a corner.[/QUOTE]

House prices rise, on the back of fairly low interest rates. House price rises start to slow, as affordability starts to reduce. Rates are lowered to increase affordability............


Low interest rates. Pressure on banks not to repossess. Pressure on banks to lend more. Pressure on banks to reduce deposits. Seems like a lot of pressure to maintain or increase property prices.

DervProf

Linton wrote: »

But But But....

You objective would appear to be to reduce house prices. Presumably you are of the view that if only houses were cheap enough every FTBer could afford to buy one.

It doesnt work. There arent enough houses available. So you need some form of rationing.

At the moment we have price plus availability of credit. What would you prefer - perhaps a government committee to allocate houses to the most deserving?

Also, go back to what we agree - people are willing to pay the maximum they can afford to get a house. Assuming this culture continues what would happen if your mechanisms succeeded and kept HPI down?

Well people could afford and therefore would afford bigger and better houses in nicer areas. So the average house price would inflate. Especially as the availability of big houses in nice areas is even more limited.

Sorry, unless you tackle the fundamentals, no matter what you do the market will have its way.

For example, your proposals on BTL will reduce the availability of rental properties to the benefit of owner occupation no matter what fine tuning you do. So rents go up which is a bit tough on the poorest people in the community and owner occupation becomes more economically justifiable. I will leave you to work out what happens then.

Of course, we all have opinions on how much property should cost, and these will differ. I honestly don`t know what the average property price should be, or how much a 2 bed semi in Manchester should sell for. What I do have is a strong feeling that the property market has too much "encouragement" to rise, and when it wants to fall, it isn`t allowed to. The property market certainly isn`t left to it`s own devices, there always has to be rules and parameters controlled by government/BoE. Rules on lending multiples, setting of interest rates. These rules always seem to favour HPI.

I don`t expect every 25 year old to be able to buy a home. I will try to put some more concise figures on it though. I would like to see 25 years olds on a salary of 25K, with a deposit of £15K, be able to buy a reasonable flat or small house within a reasonable distance of their workplace. OK, there`s a shortage of property, I`ll accept that. If there are more people wanting to buy properties than there are properties available, I`ll accept that prices will rise. It must happen. What I question, is what steps are, or can be taken to limit these rises ? An ever increasing availabilty of credit would mean ever increasing prices. A careful rationing of credit, and careful priceing of that credit could limit price rises, or even reduce them. My opinion is that prices were always going to rise over the past decade (rising population, not enough building), but it didn`t seem that the government/banks had any intention of controlling those rises, until now. And now, they seem very keen on promoting the conditions for further price rises. Ok, the FSA have at last woken up, and are touting the possibility of banning self-cert and IO mortgages, which arguably help to fuel HPI.

IveSeenTheLight

DervProf wrote: »

House prices rise, on the back of fairly low interest rates. House price rises start to slow, as affordability starts to reduce. Rates are lowered to increase affordability............

Low interest rates. Pressure on banks not to repossess. Pressure on banks to lend more. Pressure on banks to reduce deposits. Seems like a lot of pressure to maintain or increase property prices.

I understand all this, but what do you do about.
Accept the situation and adapt to it, or moan (without any real impact) that it should be different.
Most people in life just get on with it.