BoE's ability to kill the housing market

Thrugelmir

Malcnascar wrote: »

The UK rewarded investors by allowing them to offset the cost of borrowing (interest they paid) to the income they received (rent).

Nothing new in this. The tax treatment has never changed in my lifetime (at least until the Autumn statement of 2015). What changed was the growth in available credit from the early 70's. .

buglawton

I know of several developments and conversions - flats- where a large proportion were sold off plan before completion to BTL investors. They would still be brownfield sites today if that BTL market didn't exist. Demand does beget supply. Those who have a hankering to live in a socialist paradise should think on that.

mwpt

buglawton wrote: »

I know of several developments and conversions - flats- where a large proportion were sold off plan before completion to BTL investors. They would still be brownfield sites today if that BTL market didn't exist. Demand does beget supply. Those who have a hankering to live in a socialist paradise should think on that.

So we cannot possibly think of a better way to get building, other than BTL?

Carl31

buglawton wrote: »

I know of several developments and conversions - flats- where a large proportion were sold off plan before completion to BTL investors. They would still be brownfield sites today if that BTL market didn't exist. Demand does beget supply. Those who have a hankering to live in a socialist paradise should think on that.

So no one would have bought them other than BTL investors?

Whys that? pretty sure there's plenty of FTB's who would have bought them?

mwpt

Carl31 wrote: »

So no one would have bought them other than BTL investors?

Whys that? pretty sure there's plenty of FTB's who would have bought them?

Almost every property will have a price to an OO, but there may be some that really don't. Perhaps there are some which would be terrible to own for some reason, eg. anti-social behaviour of neighbours, but an investor could buy and house social tenants.

But I'm not sure how many of those exist, probably a low percentage of total stock.

princeofpounds

[quotes]I have no idea what he means by that and wondered if anyone could shed some light?[/quotes]


A short question, but you could write books on the answer(s).


The BOE has two missions, at present. It is tasked with attempting to control inflation ('monetary stability'), which is does through monetary policy (interest rates, and things like that).


It is, nowadays, also charged with ensuring financial stability, which is a much broader term but in simple terms means making sure the banking system is ok.


You can read about it in their own words here:


http://www.bankofengland.co.uk/about/Pages/onemission/default.aspx


The problem with the housing market is that it is one of several areas where the two objectives of the BOE can conflict.


They have judged that we need very low interest rates for the good of the economy, to avoid deflation.


However, low interest rates have a whole range of effects in the economy, and one of those is to fuel rises in house prices. There are different ways to conceptualise how and why this works, but put bluntly the lower the interest rate, the bigger the mortgages we can service.


The boom in housing is now judged to be a potential risk to financial stability. That doesn't mean the bank thinks that there will be a crash very soon. It means there is the potential for one (for example, if we eventually need to raise interest rates). And that could damage the financial system, as mortgage loans (and other forms of lending) face problems.


To be frank, it's not always easy to spot bubble except in hindsight. If rates stay low forever, there is nothing too strange about house prices right now. However, rates might not stay low forever.


So the BOE is considering whether to introduce other types of restrictions to the supply of credit towards housing, in order to cool things down.


It might do nothing except observe. It might act to restrict lending. All we know really is that they have started to think about it.


Now, behind all of this there is a conceptual debate about how much central banks should intervene in these sorts of things. The trend is for central banks to get more and more involved in these sorts of issues underneath the aggregate economy, but I have my doubts about how well you can manage economies.

buglawton

mwpt wrote: »

So we cannot possibly think of a better way to get building, other than BTL?

I referred to flats. I'd say around 30% of the ones I mentioned earlier are owner-occupied. Quite likely that would be zero without BTL financing since the buildings would not now exist.

The way that the rest of the UK gets building is exactly what I've seen in my neighbourhood and on commutes:

- Enclaves carved out of large back gardens, each with 2 to 6 houses on them. Starting price £400k for 2 bed, £750k for 4 bed. Usually sold long before building completes.

- Some out-of-town new estates being built on controversially permitted (deal done with council) change of use land. Typical example (Berkshire) - 3 bed town house style semi, starting from £450,000.

The quantities are not huge.

padington

Japan is moving into negative interest rates, I think that talks volumes about what the next ten years are going to be like.

Samsonite1

One thing I noticed in the past week is that house prices in my area are plummeting on Zoopla, but the reality is that people are paying way more than the Zoopla valuations, so not sure what has "instructed" Zoopla to drop its valuations. The 3% stamp duty increase seems to have massively inflated prices here especially being a short journey into Central London (so good for investors). I am really curious as to why Zoopla is lowering its valuations. We had our house on the market for ages and the value was going up on Zoopla (by a lot). Now that it has dropped back down to what it was many months ago, we get offered above the asking price (and 3 offers in a day!).

Now, you may say Zoopla is just silly, but all of the estate agents that valued our house came prepared with a printout of the Zoopla valuation, so I guess it has some influence?

Anyway, back to the OP - yes it is grim indeed with the situation and the competition pushing up the price. I think that maybe after April, the rush will slow down a bit potentially, so you may grab a bargain for sales that fell through (as they have to complete before April). I would definitely keep your ear to the ground in April.

We got a huge discount on our Greater London house a few years ago because a previous sale fell through and we were chain free - the owner just decided to take our low offer and be done with it.

mark5

Zoopla is way out where I live, always has been and probably always will be. I think anyone who looks at rightmove regularly and checks the sold prices can value most houses in their local area pretty accurately.

Surely the introduction of the 3% rate for investors and 2nd home buyers will cool the market by reducing the amount of buyers, it seems a good way of controlling house prices without increasing interest rates. It would be nice to see it go further.