**Don't Buy A House** House Prices Set To Crash!!!

Pakard

The number of houses sold across the UK last month fell 13 per cent compared to the same time last year, according to figures from the Council of Mortgage Lenders.

"Without a shadow of a doubt the market has gone a lot, lot quieter. Houses are coming on to the market but the buyers seem to have dried up."

Asking prices have been slashed by as much as £10,000, with the average asking price in Swansea falling 1.8 per cent between September and October.

"First-time buyers can't afford to buy and because house prices have gone up so high, the buy-to-let market can't get the rental return to cover the loans.

http://www.thisissouthwales.co.uk/displayNode.jsp?nodeId=161629&command=displayContent&sourceNode=161359&contentPK=11169770

Loaded_Bachelor

Would anybody here like to put forward a current available property which if purchased on a 90% mortgage would be a good buy to let proposition? I don't think many exist with prices at these levels.

Therefore buy to let investors who got in earlier must be tempted to sell up and realise an assured profit.

Example: I have just left a rented property which I had been a tenant in for the last 3 and a half years at £340 per month.

When I moved in the property was worth £45K which is about an 8% return on capital for the landlord after letting agents fees and buildings insurance.

The propety is now worth £75K; rents have not risen and therefore the return on capital is now 4.8%. The landlord is selling up which I think is sensible.

People often say (even at these current property price levels) that "buy to let is great because in 25 years your tenats will have paid the whole mortgage off".

I think that this is a very naive sentiment. Firstly because the numbers don't now add up in as much as rental incomes are now lower than mortgage payments, an interest only mortgage may create certain exceptions but then a BTLetter is just punting on property prices going up. Secondly interest rates over the next 25 years could be very volatile as 25 years or even 5 years is a long period of time in economic terms.

I get the feeling that would be buy to letters are using short term promotonal rate mortgage repayment figures when projecting their renatl versus return figures and not correctly using the more conservative and sensible real mortgage rate figures.

Well done to BTLetters who have got in previously; you were both shrewd and lucky at the same time, but I'm sorry, anyone doing it as a new venture at these levels could get badly burnt.

mkdoodle

I truely believe there will not be a crash as the government and other intitutions will not let that happen.

The government and institutions don't have the power to control the market, because the market depends on the behaviour of individual buyers and sellers.

If buyers don't want to buy the government can't frog-march people out of their rented accommodation or out of their parents' homes, down to their local estate agents and building societies, any more than they could frog-march young houligans to ATMs.

The Bank of England has some short-term influence, by setting bank lending rate, but if people don't want to buy, they won't.

deemy2004

Well said mkdoodle

The government and even central banks tend to react to market conditions rather than lead the markets.

I.e. after the stock bubble burst, rates declined, now with rising inflation rates are rising. If they really could manipulate the markets then you would not have had a housing boom, nor would crude be trading at $55.

Dan29

The propety is now worth £75K; rents have not risen and therefore the return on capital is now 4.8%.  The landlord is selling up which I think is sensible.

Why? His mortgage repayments haven't necessarily gone up. They're still covered by the rent he's getting, and in 25 years the house will probably be worth £200,000 or even £300,000 which seems like a good return on an investment of less than £15,000 to me.

I admit that now may not be the best time to get into BTL, but I did so a few months ago because I'd rather do it now than never. If it's a long-term investment, and you take the precaution of getting a fixed rate mortgage, I still think it's a good way of making money.

kesfan

Case for for property down:

• The stock market is stabilising (FTSE100 been 4500 'ish all year) after a massive hammering due to .com + 9/11 + Enron + war. Assuming nothing else bad happens, blue chip is probably going to crawl back up. As I recall, in 1999 no-one seemed to be talking about property, it was .com this and IPO that. Following the crash in shares, people turned to property. Better shares market = less money invested in property = lower prices.
• Recent increases in interest rates.
• First time buyers being priced out of the market = fewer customers at the bottom of the chain.

The case for property up:

• Significant undersupply in the market and everyone needs somewhere to live. No short term fix for this.
• Low unemployment so more cash in the ecconomy.
• Interest rates even though going up still aren't that high.
• No sign of a slow down in lenders willingness to lend on ever more extravagent terms. No shortage of credit availability. Ever more crazy schemes to secure property finance.
• The collective madness. Perceptions of an ever rising market fuels the increases combined with significant media interest in property keeping it at the foremost of people's minds as an investment strategy.

My personal uneducated opinion is that like .com shares property can't possibly keep going up at the present rate. It's just an impossibility and I think everyone knows it. However due to undersupply, I don't think there will be a (significant) crash except in a small number of specific regions. I'm in the camp that thinks the net result will be a small drop of few percent followed by flat prices while while salaries catch up.

MarkyMarkD

I can't agree with loaded, as there are properties which can earn a decent yield.

I am just buying a property in South Wales which will return a 7.8% gross rental yield. The rent will amply cover the mortgage payments at the moment and I don't see rates rising materially in the next few years.

I think I'm getting the house at a fair price, and I'm also not pushing the rent as high as it could possibly be because I want it let quickly.

I'm not in for a fast buck and I am quite prepared that I will lose money (in the short term) if rates spike or I have an unexpected void period. But over the long term, I'm happy that I should do OK out of this investment.

The landlords who are most tempted to sell up in the current environment are those whose policy was to continually expand their business by remortgaging each property as the value rose, to enable them to buy more properties.

Prudent landlords, as in an earlier post, will be sitting on a nice capital gain and their mortgage should NOT have gone up just because the house value has.

mkdoodle

Facts such as the 5 rate rises.
Yes but as I have said before they are still at a historically low level. Take a look at this chart. It is missing the last few rate rises but you get the idea.

The average house price rose steadily from 1985 to 1989, as base rate rose from 12% to 15%, never falling before 8%. Then prices fell steeply, even as base rate was cut to 6%. The current increase from 3.5% to 4.75% is proportionally greater than the rise from 12% to 15% - it’s a 35% increase compared with a 25% increase.

See Nationwide’s “Long Term Real House Price Trend”.
http://www.nationwide.co.uk/hpi/graphs/monthly_graph2.gif

House prices are likely to be more sensitive to interest rates now than in 1989 – lending multiples are higher, and mortgage interest relief (MIRAS), an important contribution to affordability in the eighties, no longer exists.

Reaper

See Nationwide’s “Long Term Real House Price Trend”.
http://www.nationwide.co.uk/hpi/graphs/monthly_graph2.gif

The trouble with that chart is that you are looking at only one factor in isolation - real house prices. Now I don't dispute they are historically high, but what really matters is AFFORDABILITY, i.e. you must take into account incomes and interest rates too.

To put it another way: What proportions of peoples incomes are being spent on mortgages? If you look at CHART 4 on this PDF it becomes instantly clear why there was a crash in the 1980s and will not be one now.

deemy2004

To put it another way: What proportions of peoples incomes are being spent on mortgages? If you look at CHART 4 on this PDF it becomes instantly clear why there was a crash in the 1980s and will not be one now.

LOL

yeh, were REALLY going to listen to an ESTATE AGENT about the future direction of house prices.

Its a bit like listening to Tony Soprana about law and order policy  8)