Impact of House price crash..?

abaxas

Finally the topic of 'my house is worth X' would be removed from general conversation.

X is a value based on what their neighbours house was marketed for. But it isnt as nice as 'ours' hence add £50k.

ReportInvestor

pollyanna24 wrote:

Does it go hand in hand that with a house price crash, interest rates will go to silly levels?

Not necessarily.

Interest rate rises were one cause of the last crash.

Each crash is different. If prices have just got way ahead of themselves then one effect of a crash could be to reduce pressure on interest rate rises - assuming that house prices falls have an dampening impact on people's economic activity like shopping.

Sisyphus

pollyanna24 wrote:

Does it go hand in hand that with a house price crash, interest rates will go to silly levels? Or is this just something that might happen because it happened last time?

Not too concerned if my house goes down in value cos I intend to stay in it a long time, it's just the interest rates I concerned about as my fixed rate is up in about 17 months time.

Not necessarily, higher interest rates are just one of the burdens that are making life difficult for households at the moment. If non-discretionary spending such as taxes and 'almost' non-discretionary spending such as utility bills have been rising faster than wages then these could trigger a crisis too.
A few weeks ago I read a report by one of the big accountancy firms (I think PWC) saying that households are poorer to the tune of 10% less discretionary spending power than 5 years ago.
If households cannot tighten their belts any further and default on their credit, there will be trouble.

liz545

If a crash hit BTL's hardest, wouldn't this also have a knock-on effect on rental prices? If BTL's get repossessed, the tenants will probably lose their homes, and as there are fewer properties on the market, the remaining landlords will be able to ask a higher price, surely?

ReportInvestor

But there might be fewer tenants.

In a property boom the b-t-letters have done well a) from capital gains and b) from a rising rental market from people priced out of buying.

On the way down they could lose out both ways as well.

RHemmings

liz545 wrote:

If a crash hit BTL's hardest, wouldn't this also have a knock-on effect on rental prices? If BTL's get repossessed, the tenants will probably lose their homes, and as there are fewer properties on the market, the remaining landlords will be able to ask a higher price, surely?

As the prices of rentals rise, the number of people willing and able to pay those prices decreases. Imagine if rents were £50 a month. How many more teenagers would flood the rental market? How many more people would live alone rather than share? How many fewer people would be "on the street". But if single rooms were £2000 per month, things would go to the other extreme. If houses rise in rental price, more people will go for cheaper flats. And in many locations there are huge numbers of flats being built.

So if homes get repossessed, rents might rise a bit due to the effect you mention, but by how much? I would think it would be a small amount.

And there's a second effect. If homes get repossessed and sold at auction, then the new buyer may rent them out. If the price at auction is less than the flats were previously sold for, which is quite common, then the new buyer can afford to rent them for less. They wouldn't do so as a matter of course, but if there was competition for tenants, then they are going to be able to survive when other, more amateur BTLs can't. And then more flats/houses get repo'd.

scorpio_princess

liz545 wrote:

If a crash hit BTL's hardest, wouldn't this also have a knock-on effect on rental prices? If BTL's get repossessed, the tenants will probably lose their homes, and as there are fewer properties on the market, the remaining landlords will be able to ask a higher price, surely?

If this did happen, at least tenants who currently cannot afford to buy (me!) could actually have the opportunity to own their own home. At the moment, a large number of the cheaper end properties (flats and 1 bed homes) are owned by BTLers. Of these, I don't know how many are owned by professional landlords (those in it for the long term) compared with the amateur 'get rich quick' types, but i'd be a lot happier if there was more balance in society. It's really horrible to think that I could be paying someone elses mortgage for the rest of my life, and once that mortgage is paid, the LL can sell the flat, and (assuming property prices are on the up) sell up for a profit, or live on a nice healthy income from the rent. Meanwhile, I'll have to work til I've got one foot in the grave, just to pay the rent! There's something very wrong in society when there are a few 'haves' holding all the wealth, who subsequently prevent the plebs (the 'have-nots') from getting anywhere. At the moment, renting suits me because my personal opinion is that property prices will start to wobble - I wouldn't feel comfortable getting even a 95% mortgage right now. BUT I live in hope that things can change and that EVERYONE gets an opportunity own the place they live in, if they so wish.

I eagerly await the Thatcherite comments...

btw I was a small child when Thatcher was in power and so have no recollection of her policies. I'm just giving my opinion and sharing the way I see things.

Guy_Montag

All we, those without our own homes, have to do is start voting.

One of the reasons no-one in politics gives a toss about us being priced out is that we don't vote. Though I guess as the average age of a ftb pushes well into the 30s, that's not quite so true.

Anyway if you don't like the current setup, write to your mp, if you get no support from them, contact the other parties. See who's most interested (Vince Cable, Lib Dem) seems to be aware of the situation.

Some minor changes to tax law, & hey presto, btl is no longer a viable proposition & the market gets flooded with properties. Perhaps we could do with a loosening of the planning laws, too, though that's debatable.

Rather than see all these pathetic "shared ownership" & "buy with your entire circle of friends". We could see houses being sold only to owner occupiers as part of the covenent.

aderbyshirelad

Can anyone here confirm what percentage of the UK housing stock is actually BTL and not owner occupied? I could swear I read somewhere that it was 8%, but I can't recall if that was the proportion of mortgage lending that was for BTL or whether it was the proportion of housing stock held by BTLers.

If it is such a "small" percentage then would it be far-fetched to conclude that the overall effect of BTL "pricing" FTBs out of the market is rather over-egged?

dunstonh

So if homes get repossessed, rents might rise a bit due to the effect you mention, but by how much? I would think it would be a small amount.

You would have a counter to that. Many of those that are already renting will now find that they can buy properties much cheaper and the mortgage payments are now closer to the rents. So, they will stop renting reducing the demand for rental properties. Which could also create a spiral as more landlords could have periods of no rental income and whilst experienced landlords can cope with that, many lemming landlords wouldnt. Further releasing more properties and creating a downward price trend.

Guessing how a property crash will happen and when is a bit like guessing how the world would be today if Hitler had won the war or France had never had a revolution. Its all theory and potentials. However, its a good discussion all the same