Is property in a bubble?

Filo25

AG47 wrote: »

Quarter of a percent is hardly worth mentioning.

We are talking about IRs going back up a few % per year next few years

If you are hoping for rates to go up a few percent each year for the next few years, you should prepare yourself for likely severe disappointment......

We are likely looking at 0.25 - 0.5% this year

slapmatt

There are so many indicators of a house price bubble right now.

When I look at the mortgage forum and people taking out 4 and 5 times joint salary mortgages I can't see how this will end well.

Local house prices, especially for new builds seem to be getting beyond the realms of affordability. When you're advertising a £600k house on Facebook, you know things are getting desperate.

Brexit will have a significant impact on housing demand. How much remains to be seem however a drop in demand coupled with BTL becoming much less attractive will result in a glut of housings on the market.

House prices never experienced a correction post-2008, so a fall is long overdue.

Lornapink

Brexit wont have any meaningful impact on house prices, but mortgage criteria could well do as it's so hard getting a mortgage these days. Looking at a Landlords forum the other week they were moaning about the huge deposits lenders now require and many were saying they'd stopped buying because of this and the stamp duty. I've noticed Galliard Homes on radio appealing to first time buyers, whereas to my knowledge they'd always marketed to the investor market.

westernpromise

slapmatt wrote: »

When I look at the mortgage forum and people taking out 4 and 5 times joint salary mortgages I can't see how this will end well.

Why?

A couple on £50k joint salary borrowing £250k over 25 years at 2% would be repaying £1,060 a month. The same couple borrowing £150k over 25 years at 12% would be repaying £1,580 a month.

After 5 years in the first scenario, the couple will have repaid 16% (=£40k) of their mortgage. After 5 years in the second, they'll have repaid a measly 4% (=£6k) of their mortgage.

Why is the former scenario less likely to "end well" than the latter?

In 1987 I can remember people of my parents' age being horrified at these people taking out £100k mortgages.

slapmatt

A couple with a joint salary of £50k and a monthly mortgage of £1,000 is very exposed in my opinion. If one loses their job, suffers a long term sickness or for any other reason doesn't receive an income, I don't believe they will be able to support the mortgage on a single salary. How many have any kind of meaningful income protection? It certainly isn't a cost most people seem to be factoring in to their calculations.

That is a far more plausible scenario that any comparison to 12% interest rates.

Filo25

slapmatt wrote: »

A couple with a joint salary of £50k and a monthly mortgage of £1,000 is very exposed in my opinion. If one loses their job, suffers a long term sickness or for any other reason doesn't receive an income, I don't believe they will be able to support the mortgage on a single salary. How many have any kind of meaningful income protection? It certainly isn't a cost most people seem to be factoring in to their calculations.

That is a far more plausible scenario that any comparison to 12% interest rates.

Certainly might be a concern if the job market weakens, for now though we are pretty near full employment, I know someone who was made redundant recently, best thing that ever happened to them, pocketed a hefty payoff and went straight into their next job.

At current rates there is a fair bit of headroom in the 4x multiple anyway

westernpromise

slapmatt wrote: »

A couple with a joint salary of £50k and a monthly mortgage of £1,000 is very exposed in my opinion.

If so then you will never buy. They're taking home £3400 a month, which means the mortgage is 29% of their net. When a £150k mortgage cost £1580 a month, back in the 80s and 90s, personal allowances were lower and tax rates higher, so that would have been 50% or more of take home.

FTBs have never had it so good.

ProDave

slapmatt wrote: »

A couple with a joint salary of £50k and a monthly mortgage of £1,000 is very exposed in my opinion. .

When I bought my first house I had a sole £11K salary and my mortgage was £500 per month, over half my take home pay. To say I had to live a frugal life was an understatement.

I would be quite comfortable earning £50K and only spending £1000 on the mortgage.

slapmatt

ProDave wrote: »

When I bought my first house I had a sole £11K salary and my mortgage was £500 per month, over half my take home pay. To say I had to live a frugal life was an understatement.

I would be quite comfortable earning £50K and only spending £1000 on the mortgage.

There are two key differences in my opinion. Firstly, job security. It is not unreasonable for people to change jobs every 3 to 5 years nowadays often not through choice, whereas even twenty years ago that was less common. What do people have in place today to mitigate the impact of being out of work? When I look at people's mortgage proposals on the other forum no one is talking about critical illness or income protection cover.

Secondly, inflation. When inflation was running at 5% or more it steadily eroded debts. Nowadays inflation, particularly of salaries is very low and in some cases even below the cost of living. It certainly doesn't inflate away debts like it used to.

GreatApe

slapmatt wrote: »

There are two key differences in my opinion. Firstly, job security. It is not unreasonable for people to change jobs every 3 to 5 years nowadays often not through choice, whereas even twenty years ago that was less common. What do people have in place today to mitigate the impact of being out of work? When I look at people's mortgage proposals on the other forum no one is talking about critical illness or income protection cover.

Secondly, inflation. When inflation was running at 5% or more it steadily eroded debts. Nowadays inflation, particularly of salaries is very low and in some cases even below the cost of living. It certainly doesn't inflate away debts like it used to.

Long term unemployment is extremely low. Of you want a job there is a job in the UK economy for you. Personally I am amazed at how low unemployment is its only about 1% while the proportion of dysfunctional persons has to be closer to 10-20% of the population. That means even alcoholics drug users and gambling addicts are and do hold down jobs.

Also while inflation is low so are mortgage rates.
Inflation over the decade averaged 2.8% and mortgage ages about 3% so borrowing is effectively nearly free. This is one of the great things about advanced nations following capitalism. Show the most basic of common sense and you can borrow hundreds of thousands in capital for effectively free.

London is expensive the south east is fair prices while the other ten regions are affordable or even too cheap