Debate House Prices


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The Next Nail in the Coffin

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Comments

  • padington
    padington Posts: 3,121 Forumite
    edited 29 March 2016 at 7:01AM
    Generali wrote: »
    Surely as the world gets richer more assets will be created for people to buy....? Otherwise our pensions would be held in shares in the East India Company and we'd be fighting over the 30 houses available for purchase in the village of Putney.

    Don't get me wrong, network effects have made property in places that benefit from them much more valuable but there is a limit to that extra value before political pressure comes to bear to enable people to commute from further away or to provide more housing.

    Just as political pressure is starting to come to bear on the BTL market.

    Would you be hugely surprised if Labour stood on a policy of some Commissar setting rents and imposing tenure periods? I wouldn't.

    You can't build any more regency flats in Brighton near the sea or Victorian cottages with twee gardens within cycling distance of central London. These assets just can't be created, they are finite.

    They will become over time more like a piece of art which doesn't rely on rental appreciation or first time buyers for its worth.
    Proudly voted remain. A global union of countries is the only way to commit global capital to the rule of law.
  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    padington wrote: »
    You can't build any more regency flats in Brighton near the sea or Victorian cottages with twee gardens within cycling distance of central London. These assets just can't be created, they are finite.

    They will become over time more like a piece of art which doesn't rely on rental appreciation or first time buyers for its worth.

    True, you can't although I can build something that looks a lot like it only without the PITA of it being listed with the added advantage of it having decent insulation, wiring, modern layout etc. It's not like those Victorian cottages were built for the rich.

    That doesn't mean they'll increase in value though.
  • chucknorris
    chucknorris Posts: 10,793 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 29 March 2016 at 8:11AM
    Generali wrote: »
    It will be interesting to see what happens as interest rates rise. Increased interest rates will make BTL rapidly worse as an investment due to the new tax treatments and so will make other asset classes more attractive on a relative POV.

    It's not just Central London, a survey of Central Sydney recently showed 70,000 empty properties in prime areas as the yield from renting them out simply isn't worth the hassle, depreciation (which can be expensed anyway) and risk.

    I do have to wonder how much longer this can continue: buying for purely speculative purposes. The original point was to buy a house, tenant comes in and pays the rent and pays off your mortgage and then pays you an income in retirement. If interest rates rise, for more recent entrants to the London market, rents aren't going to be close to covering the mortgage.


    The variable mortgage rate currently has a high margin on the base rate, and I would anticipate that when the base rate starts to climb, the variable mortgage rate will be stubborn to follow suit. If the base rate gets to about 4%, I would anticipate variable mortgage rates to be about 5.5% (so a margin of about 1.5%), currently they are about 4.1% (so a margin of about 3.6%), although I didn't spend that long looking at them, and I did ignore deals with introductory periodical discounts. so rightly or wrongly I am not anticipating much of a drag on house prices below a base rate of 3%. I might well be wrong, but I have to base my decisions on some criteria, because as you rightly say, the danger of rising rates affecting the housing market needs to be considered.
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    The variable mortgage rate currently has a high margin on the base rate, and I would anticipate that when the base rate starts to climb, the variable mortgage rate will be stubborn to follow suit. If the base rate gets to about 4%, I would anticipate variable mortgage rates to be about 5.5% (so a margin of about 1.5%), currently they are about 4.1% (so a margin of about 3.6%), although I didn't spend that long looking at them, and I did ignore deals with introductory periodical discounts. so rightly or wrongly I am not anticipating much of a drag on house prices below a base rate of 3%. I might well be wrong, but I have to base my decisions on some criteria.

    It'd be interesting to know what sort of interest rates BTLers are paying (and how many BTLers actually have a BTL mortgage!).
  • chucknorris
    chucknorris Posts: 10,793 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 29 March 2016 at 8:34AM
    Generali wrote: »
    It'd be interesting to know what sort of interest rates BTLers are paying (and how many BTLers actually have a BTL mortgage!).

    Most of the investors who exit the market property market soon due to the tax changes will be the ones on higher LTV and/or higher rates. It will be difficult for new investors to take my approach on the mortgage margins on the base rate, because they will be taking on a hell of a risk, whereas I am not highly geared and because I am already in the market, not entering the market is not an option for me. So I would expect serious resistance to take on those risks from new potential investors. Plus there is the consideration of whether the chancellor is merely tax grabbing from who he can, or is he changing his stance on landlords for political reasons too. There is a hell of a lot more risk to take on board now for new investors.

    Dividend income looks much more attractive now with the new £5,000 (£10,000 for a couple) tax free allowance too, which means that a couple can invest over £250k and the dividend income is tax free! When you start to add their SIPP's and IAS's that amounts to a hell of a lot of capital that can be invested where the income is tax free, and of course it is easy enough to avoid capital gains tax buy using the annual allowance every year (unlike property).
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • tkane
    tkane Posts: 333 Forumite
    Generali wrote: »
    True, you can't although I can build something that looks a lot like it only without the PITA of it being listed with the added advantage of it having decent insulation, wiring, modern layout etc. It's not like those Victorian cottages were built for the rich.

    That doesn't mean they'll increase in value though.

    Location, location, location.
  • tkane
    tkane Posts: 333 Forumite
    cells wrote: »
    In London if prices stop going up then it is now a bad investment. Anyone buying this year is really hoping for at least a 8-10% HPI uplift to cover the now very high transaction costs.

    I'm still buying but its definitely more risky than it has been. Threads like this do make me think and question a bit more but when I look at my local market its on fire.

    Properties you agree to purchase by the time of completion look like good value compared to what is arriving on the agents books. That gives me enough confidence to go ahead with things.

    Its like agreeing to buy a share a $10 and the market moving to $10.50 by the time you are actually exchanging.


    I think this year I will spend a bit more time on downside risk management. Maybe top up the pension (free from creditors AFAIK) and maybe look into trusts. It feels a bit like the nutters who prep for the end of the world but that's the pressure/influence of group think

    I wouldn't pay much attention to what is written on online forums to inform your investment decisions.

    The mantra here is completely detached from reality.

    Whilst everything has been thrown at BTL and investing for yield has undeniably become more difficult, the fact of the matter of is that both RICS and estate agents are reporting massive pent up demand in Greater London which will most likely be unleashed post June 23rd.

    You can invest in London knowing that a) interest rates will not rise for the foreseeable future b) the UK electorate will not vote for Brexit.
  • cells
    cells Posts: 5,246 Forumite
    Generali wrote: »
    Surely as the world gets richer more assets will be created for people to buy....? Otherwise our pensions would be held in shares in the East India Company and we'd be fighting over the 30 houses available for purchase in the village of Putney.

    Don't get me wrong, network effects have made property in places that benefit from them much more valuable but there is a limit to that extra value before political pressure comes to bear to enable people to commute from further away or to provide more housing.

    Just as political pressure is starting to come to bear on the BTL market.

    Would you be hugely surprised if Labour stood on a policy of some Commissar setting rents and imposing tenure periods? I wouldn't.


    Well yes as the world gets richer more assets are created to both own and rent.

    London will benefit in a way stoke on Trent won't or even Madrid won't. The asset management industry in London will have more assets to manage. The hedge funds will have more rich clients. The currency trading houses will trade more currency. Private equity will have more private equity to manage etc etc.

    That is before you consider all the other London specific industries like fashion advertising software tourism etc all of which will benefit from a richer world pushing London further ahead from stoke or Madrid.


    Yes there is political risk. But I would hope that they are not dumb enough to stab the gold laying goose.
  • cells
    cells Posts: 5,246 Forumite
    Generali wrote: »
    True, you can't although I can build something that looks a lot like it only without the PITA of it being listed with the added advantage of it having decent insulation, wiring, modern layout etc. It's not like those Victorian cottages were built for the rich.

    That doesn't mean they'll increase in value though.


    The idea of building more doesn't work so well in inner London which is already dense.

    You can knock down and rebuilt estates or streets at twice the density but it ain't cheap it ends up costing two or more times the price it would to build a few miles out on brownfield or Greenfield.

    Imagine your argument applied to offices.
    Why do builders build and companies rent really really expensive offices in central London. Why don't they build them on Enfield for 1/4th the price and rent or in Stoke at 1/8th the price or rent?
  • cells
    cells Posts: 5,246 Forumite
    Generali wrote: »
    It'd be interesting to know what sort of interest rates BTLers are paying (and how many BTLers actually have a BTL mortgage!).

    Well last year the rental stock grew by 440k units and 100k BTL mortgages were given out which suggests the majority are outside BTL funding.

    The rates are in the 3% region for 75% LTV
    Of the two big lenders I think last time I checked it was 3.14% and 2.79% with 2k fees

    If HPI is 15% over 2 years you can remortgage onto a 60-65% band which takes them to around 2.2% rates.
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