London increased by 12.4% in 2015

HENRY78

Surely this cant continue.


Simply because the banks will only lend so much. Take a typical mid 30's family for example.


Husband works full time earning say a decent salary of £50k
Mrs has a part time job because of the kids - £12k.


Say they have 2 kids. The most the bank will lend because of MMR is around £250k.


They already have a 3 bed house but are looking for a 4 bed house as they are thinking of having a another child and besides to this the house is a bit cramped anyway. They want to stay in the home counties as MR needs to good links into London as that's where he works. Plus they have family and friends in the area and kids are settled at the school


The equity in their own house is around £200k.


To move there is estate agency fees, stamp duty and legal fees to consider.


So by this reckoning their budget is around £420k.


These people are stuck as the prices of a semi detached 4 bed family home is £600k in the area.


This is where the theory of forever HPI falls down for me. The average working family simply cannot afford the price of for me an average family home. This cannot continue IMO.

cells

HENRY78 wrote: »

Surely this cant continue.


Simply because the banks will only lend so much. Take a typical mid 30's family for example.


Husband works full time earning say a decent salary of £50k
Mrs has a part time job because of the kids - £12k.


Say they have 2 kids. The most the bank will lend because of MMR is around £250k.


They already have a 3 bed house but are looking for a 4 bed house as they are thinking of having a another child and besides to this the house is a bit cramped anyway. They want to stay in the home counties as MR needs to good links into London as that's where he works. Plus they have family and friends in the area and kids are settled at the school


The equity in their own house is around £200k.


To move there is estate agency fees, stamp duty and legal fees to consider.


So by this reckoning their budget is around £420k.


These people are stuck as the prices of a semi detached 4 bed family home is £600k in the area.


This is where the theory of forever HPI falls down for me. The average working family simply cannot afford the price of for me an average family home. This cannot continue IMO.

price is rationing supply, too many people too few new builds

The result is that some have to stay put, some who 10 years ago would have bought a 4 bed detached can only have a 3 bed terrace and those who could have a 3 bed terrace 10 years ago now have to have a 2 bed flat

mwpt

cells wrote: »

price is rationing supply, too many people too few new builds

The result is that some have to stay put, some who 10 years ago would have bought a 4 bed detached can only have a 3 bed terrace and those who could have a 3 bed terrace 10 years ago now have to have a 2 bed flat

You better tell your mate, westernpromise, that people today can't afford the properties that people previously could have.

I wonder if he'd be able to afford his £850k two bedroom flat if he was starting out again.

westernpromise

HENRY78 wrote: »

Surely this cant continue.


Simply because the banks will only lend so much. Take a typical mid 30's family for example.


Husband works full time earning say a decent salary of £50k
Mrs has a part time job because of the kids - £12k.


Say they have 2 kids. The most the bank will lend because of MMR is around £250k.


They already have a 3 bed house but are looking for a 4 bed house as they are thinking of having a another child and besides to this the house is a bit cramped anyway. They want to stay in the home counties as MR needs to good links into London as that's where he works. Plus they have family and friends in the area and kids are settled at the school


The equity in their own house is around £200k.


To move there is estate agency fees, stamp duty and legal fees to consider.


So by this reckoning their budget is around £420k.


These people are stuck as the prices of a semi detached 4 bed family home is £600k in the area.


This is where the theory of forever HPI falls down for me. The average working family simply cannot afford the price of for me an average family home. This cannot continue IMO.

It depends what the source of the buying interest is.

My flat is worth somewhere between £900k and £950k, looking at recent sales. It lets for just under £30k a year. For the last 12 years the tenants have with one exception always been 30ish professional couples, one or botj of whom was foreign. Their typical earnings are around £150k to £200k in total. They stay 3 to 4 years then move out to somewhere bigger for the same money.

They can easily afford the rent and they can easily afford to buy after a few years of saving or bonuses. They can get 4x joint salary and they'd then need to put down about £250k, which remains remarkably easy to do among professional Londoners. It's also cheap; a £675k 25-year mortgage will cost about £3,000 a month, which is peanuts when you're on £11,000 a month net between you. Moreover, at the 5-year-fix rate of 2% or so, they're laughing because by the time it ends they'll have paid off 16% of the mortgage which will stand at £586k. So the price could fall 37% and not recover for 5 years yet at the end of that time they'd still be out of negative equity and at liberty to move on.

We are actually living in a bit of a golden age where you can pay debt off faster than inflation used to erode it.

Whether they'll want to I wouldn't know.

HENRY78

westernpromise wrote: »

It depends what the source of the buying interest is.

My flat is worth somewhere between £900k and £950k, looking at recent sales. It lets for just under £30k a year. For the last 12 years the tenants have with one exception always been 30ish professional couples, one or botj of whom was foreign. Their typical earnings are around £150k to £200k in total. They stay 3 to 4 years then move out to somewhere bigger for the same money.

They can easily afford the rent and they can easily afford to buy after a few years of saving or bonuses. They can get 4x joint salary and they'd then need to put down about £250k, which remains remarkably easy to do among professional Londoners. It's also cheap; a £675k 25-year mortgage will cost about £3,000 a month, which is peanuts when you're on £11,000 a month net between you. Moreover, at the 5-year-fix rate of 2% or so, they're laughing because by the time it ends they'll have paid off 16% of the mortgage which will stand at £586k. So the price could fall 37% and not recover for 5 years yet at the end of that time they'd still be out of negative equity and at liberty to move on.

We are actually living in a bit of a golden age where you can pay debt off faster than inflation used to erode it.

Whether they'll want to I wouldn't know.

What has this got to do with my example of a typical working family?

westernpromise

HENRY78 wrote: »

What has this got to do with my example of a typical working family?

What has your typical working family to do with property prices? They're being set by internationally mobile people who haven't had credit controls imposed on them.

Graham_Devon

westernpromise wrote: »

What has your typical working family to do with property prices?

:undecided

:doh:

...........

HENRY78

westernpromise wrote: »

What has your typical working family to do with property prices? They're being set by internationally mobile people who haven't had credit controls imposed on them.

Families will be buying these properties I would of thought. There would only be a small fraction of people earning enough money to obtain a mortgage of the size needed to purchase a property prices at £600k bearing in mind that these properties are pretty much bog standard family homes which are now only in the reach for the top 5% earners in the country. Where does that leave us?


Also I would add that if I was in that top pay bracket and was earning £60k Plus I would personally want more than a 3/4 bed semi in the home counties. Its nothing special. The next run up the ladder would be a detached 4/5+ house which in my area go for around £1m which are now out of reach for people earning this kind of money. You would need to be on £150k a year or have been lucky enough to inherit a vast sum of money. This is around 1% of the population.

Its all bonkers and surely cannot continue.

westernpromise

HENRY78 wrote: »

Its all bonkers and surely cannot continue.

Superficially this sounds like a good argument. If prices were 20x higher than 20 years ago would that suggest they were bonkers and couldn't continue? You'd think so, but that was the situation in 1970, and we know where they went from there.

HENRY78

westernpromise wrote: »

Superficially this sounds like a good argument. If prices were 20x higher than 20 years ago would that suggest they were bonkers and couldn't continue? You'd think so, but that was the situation in 1970, and we know where they went from there.

But surely it comes down to affordability. If only a small percentage of people can afford a bog standard 3 bed semi within commuter distance of London then surely it cant continue.