House Market Quiet

Conrad

Talking to old contacts that work as reps in B2L mortgage lenders, that market is very very quiet due to the tax rise plans which caused lenders to significantly tighten lending criteria on grounds of affordability (in plain English - investors typically need now around a 35% deposit, instead of 25% in addition to a massive chunk of stamp duty).


Outside of buy to let, the refurb and sell-on market is dead. Time you factor in stamp duty, cgt and all the fees and costs it rarely stacks up now unless you are an owner occupier in which case no cgt and higher Stamp is due

westernpromise

The interesting thing is that despite a supposed acute housing shortage, there is absolutely bu99er all interest on the part of homeowners in selling. Agents are leafleting house-to-house in the streets around their offices pleading for stock.

I know I keep banging on about this but surely it is abso-bleedin'-lutely obvious what the problem is?

The costs and risks of transacting are now so high that for most putative sellers, they simply aren't worth it.

In no particular order:

1. To relocate yourself sideways from one £1 million house (pretty average for London) to another costs about £15k in transaction costs plus a tax penalty of a further 300% of that (£43,750 SDLT). The tax penalty on moving house is higher than the tax penalty for smoking, drinking, or driving.
   
   
2. As you can't pay SDLT with mortgage funds, the reduction in your equity may actually make moving house impossible because you'd be at a higher LTV. Therefore, there is certainly some number of homeowners who can afford to live in their house, but who - farcically - couldn't afford to move to it.
   
   
3. You can no longer buy the place you need first and let the previous place out until you sell it because post-MMR, this is much harder to do.
   
   
4. In the above example, if you did do such a thing but didn't manage to sell the first property within a couple of years; or if you bought first then sold later using bridging finance, you'd be judged to be buying a second property, and the tax penalty goes up by £30,000 to 500%. That's five hundred per cent.
   
   
5. Likewise, if you buy a new place but stay in the old place without selling it for 6 months or so, because the new place needs gutting and is uninhabitable, you'll pay the 500% second home penalty rate and you'll have to prove you're entitled to have it back. Meanwhile you'll have to find that money in cash and there is a risk of 4 above eventuating.
   
   
6. It used to be the case that if a couple each with a bachelor flat got together and decided to move to somewhere with decent primary schools, they could let their flats out and use the rental income to fund the rent on a house in a new area. They now can't do this because the gross rent is treated as net income and penalised by tax.
   
   
7. Equally they can't sell just one flat as there's a stamp duty penalty if they then buy a house, while if they sell both flats, they are in case 1 above.
   
   
8. It is now constructively impossible for most people to downsize. If you're selling a £1.5 million house such as say this one http://www.rightmove.co.uk/property-for-sale/property-64053158.html so as to downsize to say this one http://www.rightmove.co.uk/property-for-sale/property-64638704.html you'll pay £20k to sell, £45k stamp duty to buy, you'll have to dispose of half your stuff, and you'll have to have the whole place refitted to your taste / needs. At £5k per room, £30k for a kitchen or bathroom, £30k if it needs new windows and any number you like to sort out a garden, of your supposed £500k downsize cash, you will have maybe £200k left to compensate you for living in half the space you had. For most, not worth it.
   
   
9. It is more tax efficient to refit your existing house using equity release as this is tax deductible for IHT purposes (but I bet it won't be for much longer). Another better alternative to selling.
   
   
10. It is also now constructively impossible for most people to upsize. If you're doing the above move but in opposite directions, i.e. selling the £995k house and buying the £1.5 million one, you'll pay £15k to sell, £100k stamp duty to buy, and you'll have to have the whole place refitted to your taste / needs. Your nominal £500k upsize will cost you at least £750k. For most, not worth it; if you can stretch to another £500k, but that has to include the SDLT and refurb bill, you can't upsize at all. You are back at the situation in the first point above of the 300% tax.

The market now looks exactly like you'd expect it to look if a lot of ill-considered obstacles and costs had been placed in the way of anyone actually transacting. They have indeed, so nobody's transacting. I find it deeply comical that the nutters over at HPC cheer this stuff on. How do they imagine they're going to get a nice cheap house if selling at any price is penalised worse than smoking or drinking?

I'm increasingly of the view that SDLT needs to be abolished altogether as utterly unfit for any worthwhile purpose. The increase in it brought in almost no net extra tax revenue, so reversing the 2014 to 2015 changes would entail no net cost. Any lost revenue could be replaced by, say, a tax on trade unions that call strikes, or some other genuine evil that needs to be discouraged.

setmefree2

Miles Shipside, Rightmove director and housing market analyst, said sellers would be taking a risk by overpricing their properties

Estate agents reported that buyer interest was significantly diminished if properties were priced more than 5% too high.
Rightmove analysed more than 100,000 newly listed homes and found that sellers were 40% more likely to sell with that agent if the property was correctly priced when it first came to market.

Kevin Shaw, national sales director at estate agency Leaders, said: “Tempting as it may be, it’s never in the interests of a seller to set an asking price above what a property is really worth. Setting an accurate price, based on local market conditions, is crucial for achieving both a quick sale and the best possible price.
“Overpricing, particularly in a price-sensitive market, will result in the property sitting on the market until the price is dropped, losing the interest of buyers and ultimately achieving a lower price in the end.”
Brian Murphy, head of lending for the Mortgage Advice Bureau, said the report suggested buyers were sticking to their budgets with very little “wiggle room”.

“It’s likely that this is due to stricter lending criteria, and suggests that buyers are getting their ducks in a row financially before they start their property search, in terms of applying for their mortgage, to understand how much they can spend,” he said. This meant that agents were finding it harder to “upsell” properties by encouraging buyers to look at properties that were out of their price range.

https://www.theguardian.com/business/2017/feb/20/uk-house-prices-growth-slowest-rate-four-years-rightmove-survey

Conrad

westernpromise wrote: »

The costs and risks of transacting are now so high that for most putative sellers, they simply aren't worth it.

Very good points.
As ever when Parliamentarians are grandly pontificating on such matters and producing legislation, they are far removed from coal face realities, the age old British disease.


They probably took evidence from the Chairman of Halifax and other far removed 'experts' that simply do not posses the forensic day to day insights necessary.


We are back to WW1 pompous Generals making poor decisions for the trenchies. Cant see this ever being addressed, the British establishment consult one another, coal face plebs are not welcome.


I saw the dreadfully inept Rebecca Long Bailey pontificating on business the other week at some committee - she's straight out of the clutches of the lefty University world, utterly naïve and has never set up or run a business. I've met plenty like her in my life, often higher managerial within regulators, not a clue about the coal face.


If you confronted these drippy regulator pen pushers with your real world examples they would think you were talking about a fringe of cases only.




Its a key reason social services keep needing serious case reviews, and old ladies die of thirst on hospital beds - those at the top designing systems are utterly removed from the coal face

lisyloo

So what does this mean for the future direction of the housing market, given that it's generally agreed that sometimes we get forced sellers (the 3 D's) but no-one is ever forced to buy.


I can only see how this would put downward pressure on prices - if all other things were equal, which of course they never are.

kabayiri

There was this elderly Irish bloke around here who used to make an offer by saying "how much for poundies?".

He really did think that offering to pay you with wads of notes was somehow an attractive idea :rotfl:

It seemed to work for him though. I've never seen a scruffier bloke in a top line motor.

Is that the problem in London? The fact you can't easily carry around a wheelbarrow of cash?

Masomnia

kabayiri wrote: »

There was this elderly Irish bloke around here who used to make an offer by saying "how much for poundies?".

He really did think that offering to pay you with wads of notes was somehow an attractive idea :rotfl:

It seemed to work for him though. I've never seen a scruffier bloke in a top line motor.

Is that the problem in London? The fact you can't easily carry around a wheelbarrow of cash?

Paying with your poundies for housing is practically encouraged in some circles down here.

westernpromise

lisyloo wrote: »

So what does this mean for the future direction of the housing market, given that it's generally agreed that sometimes we get forced sellers (the 3 D's) but no-one is ever forced to buy.


I can only see how this would put downward pressure on prices - if all other things were equal, which of course they never are.

No-one's ever forced to buy, true, but most people want to. But there has to be something to buy. For my money, what is keeping prices up at present is that there is nothing to buy - hence the desperate leafleting from estate agents with no stock on their books. To sell and move on in any of the usual ways is now so expensive and so risky that not selling simply looks better to most people.

I have a buy-to-let with a 25% mortgage and about £700k equity in it. Ordinarily I'd sell it and do something else with the money about now. But if I ever need that place again, for example as a salubrious place for my daughters to live in when they start work in London, I'm going to blow at least £160k just on the transaction costs of selling, paying CGT, and buying back in. London prices could fall 20% and I'd lose less than that. So transaction costs and BTL tax changes have made it irrational for me to sell.

Perversely, because nobody's selling, prices are holding up.

This was wholly to be expected given the taxes that have been repeatedly heaped onto transacting since 2014.

Thrugelmir

westernpromise wrote: »

The interesting thing is that despite a supposed acute housing shortage, there is absolutely bu99er all interest on the part of homeowners in selling.

Unless people have a reason to ( job, relationship, death, etc) why would you move often?

Masomnia

Quite honestly I think people have an idea in their head of what their property is worth, which is not necessarily the same as the reality - ie what someone else is willing to pay.

I accept it may be 'difficult to sell' a flat in zone 2, but the subtext is that it's difficult to sell at the price you think it is worth.

I agree though that the taxation changes are taking a lot of buyers/sellers out of the market, but I don't see this keeping up prices.