How interest rates affect property values

Filo25

Thrugelmir wrote: »

What's the income to price ratio ratio for an average home in London?

In essence at what point is the market no longer sustainable. As more people look to exit than are buying. Everything runs through a natural cycle eventually. That's life.

As long as rates remain low though there is a BTL backstop against very the sort of massive falls the HPC crowd seem to be talking about.

Even with the changes to tax treatment, its hard to ignore the fact that very large price falls, without rate rises or collapses in rents, would start to make BTL a very attractive investment in many areas again.

Like I say, that's not an argument against a correction, which many would say is overdue, but just against the kind of collapse that some seem to be hoping fervently for.

westernpromise

economic wrote: »

yes and what I found the hard way is that crap areas just don't appreciate as in value that much if there is no scope for improvement in the area. I learnt the hard way.

yes its a nice area and very close to the station (within minutes). perhaps my forever home.

I'd qualify this a little. Crap areas outperform good ones at a certain point in the cycle. Thus if you had a £500k flat in Highgate, you might find that yours went up to £575k but Archway or East Finchley went from £350k to £525k over the same period. They're almost Highgate, so people pay almost Highgate money for them because they can't afford actual Highgate money.

When the cyclical correction comes along, buyers wise up and realise it's potty to pay Highgate money for Archway. So Archway, having gone up like a rocket, goes down like a stick.

I saw this in 1989 to 1995 when my bit of W9, which had "West Kilburn" printed over it on the London A to Z, cratered 40%. Meanwhile the superior bit of W9, which had "Regent Canal" printed on it, barely budged.

As an investment I'd sooner have a 1-bedroom in Holland Park than a 3-bedroom in Shepherd's Bush because one's nice and the other's a dump, and the former will always be habitable, by you or by someone.

Thrugelmir

Filo25 wrote: »

As long as rates remain low though there is a BTL backstop against very the sort of massive falls the HPC crowd seem to be talking about.

Even with the changes to tax treatment, its hard to ignore the fact that very large price falls, without rate rises or collapses in rents, would start to make BTL a very attractive investment in many areas again.

Like I say, that's not an argument against a correction, which many would say is overdue, but just against the kind of collapse that some seem to be hoping fervently for.

Not only do BTL investors ( of the leveraged kind) face tax changes, increased stamp duty. For new borrowers there's also going to be tougher lending criteria introduced such as 145% rather 125% for rent to interest calculations.

At what point do alternative investments provide a better return? I can buy (indirectly) prime RMBS yielding 8%. My money is secure as the asset provides security. No need to have the hassle of running a business.

economic

westernpromise wrote: »

I'd qualify this a little. Crap areas outperform good ones at a certain point in the cycle. Thus if you had a £500k flat in Highgate, you might find that yours went up to £575k but Archway or East Finchley went from £350k to £525k over the same period. They're almost Highgate, so people pay almost Highgate money for them because they can't afford actual Highgate money.

When the cyclical correction comes along, buyers wise up and realise it's potty to pay Highgate money for Archway. So Archway, having gone up like a rocket, goes down like a stick.

I saw this in 1989 to 1995 when my bit of W9, which had "West Kilburn" printed over it on the London A to Z, cratered 40%. Meanwhile the superior bit of W9, which had "Regent Canal" printed on it, barely budged.

As an investment I'd sooner have a 1-bedroom in Holland Park than a 3-bedroom in Shepherd's Bush because one's nice and the other's a dump, and the former will always be habitable, by you or by someone.

thank you. I obviously I have way less experience and knowledge then you. however even I can see its all about location and when the cycle does turn, location will be even more crucial. another reason why I sold up in Kilburn and bought in Highgate. my view is at this point in the overall cycle it makes sense, but only time will tell if I made the right move (from an investment perspective - from a life perspective I know I have made the right move).

padington

Currently the downward pressure is being caused by larger taxes for the top end and threats to clean up prime. Personally think it's still the cheap end that will sit pretty and top end is going nowhere fast.

Come the 2019 crash, top end might get pulverised.

westernpromise

economic wrote: »

even I can see its all about location and when the cycle does turn, location will be even more crucial.

I call it quality of money. Being long in Highgate at £600k is a sounder position than being long in Kilburn at the same price because although the latter might inflate more in a rising market, nobody really hankers after living in Kilburn. They live there only because they can't afford Queen's Park or Maida Vale.

People actively do want to live in Highgate, Queen's Park and Maida Vale, so the value is more robust. It's simply a more volatile bet to buy in a grottier adjoining area.

Your previous point is well made BTW. Some grotty areas cannot actually gentrify because there's insufficient private housing (or potential for it) for this ever to happen. There's no critical demographic mass for Lisson Grove and the Harrow Road to improve despite one abutting Marylebone and the other abutting Notting Hill. This would be why both look as grotty today as they did 30 years ago.

cells

My views for many years were/are that London will benefit more from globalisation than rEngland so its economy and population would grow more rapidly than rEngland. This will drive London prices higher than rEngland.

I don't think that will change over the next 10 years even the ONS projections show London GVA and population growth exceeding rUK for a long time


However I accept that the boom in prices over the last 5 years in London might now have a lot of that priced in. I still think we can see +30% by 2020

economic

no idea what will happen to prices tbh. too hard for us mere humans to compute what will happen. just live and let it be.

Crashy_Time

economic wrote: »

no idea what will happen to prices tbh. too hard for us mere humans to compute what will happen. just live and let it be.

It`s not that hard to compute if you take the blinkers off.

wotsthat

Crashy_Time wrote: »

It`s not that hard to compute if you take the blinkers off.

Prices look a bit mental in London - I first said this when I turned down a 50% share in a Bermondsey flat which, with a full RTB discount, would've set me back less than £50k. That was 1993/4.

If house prices were so very easy to predict then I'd be in a large Cornish house with land and sea views. You wouldn't have spent 20 years chasing cheap digs.