London Housing Bubble Crash - When and Why

berimbolo80

Generali wrote: »

Hard to see why increased interest rates cause lower rents. Where's the link?

The point I was trying to make is that higher interest rates will force people to rent out extra rooms/vacant properties. The extra supply into the market will force down rents.

CLAPTON

berimbolo80 wrote: »

Rise in population is obvious if you ever enter a London shop???
Try telling that to all the high street stores which have closed down across the capital.

Fall in wages...I was referring to a fall in real wages. Inflation is growing faster than wages are.

Rise in unemployment over the last 6 years is undisputed.

If you go into London shops are the chances are you will be served by a foreigner.

Lots of immigration = higher population (as the stats show anyway); are you seriously disputing that the population of London is not rising?

The fall in unemployment (inspite of the rise in population) since 2010 is undisputed and the fall is predicted to continue. Yes it used to be lower but the current trend in rental value is partly determined by the current trends rather than historic events.

Conrad

berimbolo80 wrote: »

One of the major factors supporting the London housing bubble is the high rental yields despite high prices which would suggest that prices will continue increasing.

Current properties under the £1 million will see a rental yield of 4-7%. With mortgage rates available for less than 3% coupled with the tax efficiencies of owning a property and capital gains, it is currently very attractive to buy a property as opposed to renting.

In my view as long as rental yields remain high the property values in London will keep increasing. The only way we will see prices decreasing would be if rents for some reason started to decrease.

So what could possibly cause rents to decrease?

Interest rates increasing!

In my view many home owners are happy to let excess capacity (spare rooms/property owned by foreign investors) go unused as the interest rates are so low. However, when interest rates start to increase....people will start offering any excess capacity onto the market and we will see rental yields plummet. Higher interest rates will also make rental yields look less favourable relative to mortgage rates. This combination will cause a property crash.

You heard it here first.

Taking the late 80's, early 90's boom as an example, buy to let played a very minor role back then, yet none the less prices soared.

When interest rates rise and rents rise, sure some tenants may decide to buy but this then adds to buyer demand.

Furthermore it is also the case that rising interest rates deters some from buying and so they have to rent.

Most buyers simply do not bother with the blizzard of possibilities, they just get on with life and do what feels about right on the day. Statistically speaking, the vast majority sustain a mortgage so I guess in the round we make good decisions.

RootA

berimbolo80 wrote: »

The point I was trying to make is that higher interest rates will force people to rent out extra rooms/vacant properties. The extra supply into the market will force down rents.

That could be true. But then the other option is that higher interest rates will make many want to sell before prices fall much more.

Another possibility is that they try and sell but miss the boat and prices do indeed tumble then they get repossessed. Then prices tumble even more.

All these possibilities are possibe but not crtain. What is certain is that interest rates will have to go back up at some stage to stop inflation getting out of control from all the money printing.

deelo555

RootA wrote: »

That could be true. But then the other option is that higher interest rates will make many want to sell before prices fall much more.

Another possibility is that they try and sell but miss the boat and prices do indeed tumble then they get repossessed. Then prices tumble even more.

The only way prices will go down is if rental yields fall relative to interest rates.

As long as rental yields are above long term interest rates there will be demand from domestic and international buyers.

dktreesea

So far housing benefit was only capped for people out of work. I found it interesting how many households in London (over 8,000 in the weeks coming up to the implementation of the new policy) suddenly decided at least one person in the household working was better than losing their home.

The next logical step for housing benefit would be to cap the amount of rent payable regardless of people's circumstances. A cap to £400 a week would probably result in a vast exodus of subsidised families from the capital, with a drop in rental yields due to the private landlords having to find tenants who can afford their property (as opposed to councils they have been able to fleece).

Prices could fall temporarily as a number of landlords might decide to cash out rather than let their properties directly to residential tenants.

Even with all this, the demand for property among cashed up overseas investors, looking for a safe haven to deposit their families, is soaring. That alone could prop up prices for years to come.

Catherine_Johnson_2

berimbolo80 wrote: »

...........Rise in unemployment over the last 6 years is undisputed.

Possibly true, but there are now record numbers of people employed in the UK.

What you're failing to do is to compare the rise in the number of unemployed people with the ever increasing population which vastly outstrips the rise in unemployment figures.

You have to look at both sides of the equation. You're just looking at the unemployment figure and forgetting the rise in population.

Conrad

ackerleydavan wrote: »

Look at a long-term chart of UK house prices and you will see immediately what I mean. Houses have long cost, on average, just over 3.5 times the average salary.

Largely irrelevant as we will likely have long term relatively low interest rates on many mortgages, huge demand from foreigners wanting a slice of safe haven London, very high rents relative to interest rates, more and more people wanting to get into B2L, much higher incidence of dual income households, rising population and so on.

This is a 10+ year bull run.

Mr._Pricklepants

ackerleydavan wrote: »

Look at a long-term chart of UK house prices and you will see immediately what I mean. Houses have long cost, on average, just over 3.5 times the average salary.

Eh? What you mean? This is your first post in this thread.
Getting confused with all the other socks you're running?

lawlie

There are few things propping up the house prices. One that no one has mentioned yet is the lack of opportunities in other areas of the UK, which has led to people from other cities and other parts of the country seeking opportunities in London, where the employment market is still relatively more promising than somewhere like Newcastle or Belfast. This creates more demand for rental properties which exacerbates the situation. Anyone trying to rent a flat or move flat in London will know that the day a rental property goes on the market, it is pretty much gone by the end of the day, or within the week anyway.

The other point is that any crashing of the bubble may only apply to certain areas of London. In particular, the areas most likely to be affected will be those which have had a massive flux of new builds in the past 5 years. Areas like the boroughs of Westminster and Camden will probably safely stay in the average ridiculous >£1m mark, as most of these properties are purchased by people living in them for medium-long term.