There won't be a crash

westernpromise

I hate to bring this up, but rents go up in a house price crash. It's because it's worth paying more to avoid negative equity, so your landlord charges you more.

Philuk

westernpromise wrote: »

Tides go in and out. Over the last 70 years the trend has been all one way, with periodic retracements but an obvious direction.

Timing this market is a mug's game. The most advantageous position to be in is to buy and hold for a long time.

Asset inflation has really taken off much later, 30-35 years ago pushed by exceptional demography, deregulations and super favorable macro environment which are extremely unlikely to repeat over the next 30 years. Looking at the past is a very poor indicator of futur performance, and it s never been so true than now.

Philuk

westernpromise wrote: »

I hate to bring this up, but rents go up in a house price crash. It's because it's worth paying more to avoid negative equity, so your landlord charges you more.

as we see with S24, LL can't charge more than te renter can afford, I don't see how a higher unemployment usually associated with a bear market (equity and house) will sustain higher rent. People are mobile, the demand is not captive anymore.

Windofchange

westernpromise wrote: »

I hate to bring this up, but rents go up in a house price crash. It's because it's worth paying more to avoid negative equity, so your landlord charges you more.

Worth paying more to who? Does your renter care about your negative equity? If the market starts to deflate at the same rate it has been inflating do you think you can put rents up high enough to cover your increasing losses? Sorry Mr Smith, your rent is increasing from £1200 per month to £3500 per month to cover me? How's that going to work? For you personally you may own your property, or have so much equity in it that you don't really care, but there will be those who do.

Rents are already coming down in London / S.E - 4.7% YOY in Greater London. Is this because of generous landlords giving us all a hand or is this the market setting price?

https://www.theguardian.com/business/2017/mar/13/uk-average-annual-rents-fall-stamp-duty-hike-letting

GreatApe

1971 to 1991

UK Landlords sold 1.75 million properties

The population went up by 1.5 million people and 4.3 million new homes were built

The result was a 10% house price crash vs wages over the two decade period (and of course a huge boom in nominal prices)

If I were a crashy cheerleader Id be tearing up about now

westernpromise

Windofchange wrote: »

Worth paying more to who? Does your renter care about your negative equity? If the market starts to deflate at the same rate it has been inflating do you think you can put rents up high enough to cover your increasing losses? Sorry Mr Smith, your rent is increasing from £1200 per month to £3500 per month to cover me? How's that going to work? For you personally you may own your property, or have so much equity in it that you don't really care, but there will be those who do.

Rents are already coming down in London / S.E - 4.7% YOY in Greater London. Is this because of generous landlords giving us all a hand or is this the market setting price?

https://www.theguardian.com/business/2017/mar/13/uk-average-annual-rents-fall-stamp-duty-hike-letting

What happened in 1989 to 1995 was that as buying carried such huge risks, people stopped doing it, preferring to rent instead. When you get a surge of people wanting to rent, rents can only go one way.

Broadly, when house prices go up, rents go down or stagnate, because buying is the superior option; and vice versa. Between 1998 and 2017, for example, the value of my flat went up by 300% but the rent went up from £275 a week (what I paid in 1998 just before buying it) to £550 a week now, which is only 100%. Rent increase has badly lagged price increase because renting's less sought after and poor value. Poor rental growth doesn't mean property's a bad bet, it means it's a good one.

It follows that the opposite is also likely - if buying looks bad everyone would rather rent. Thus in 1989 if you were renting a 2-bedroom flat and £1000 a month was as much as you could afford, what happened was that someone trading down from a 3-bedroom bid your landlord £1200 for it. Your landlord then let the place to the new guy for a 20% uplift, and you went and bid your £1,000 a month to someone letting a 1-bed who was paying £800. He then moved to a 1-bedroom in a worse area or further out.

This isn't just conjecture, I was there. In 1990 I was paying so much for my mortgage that my disposable income was 2/3rds of 1% of the gross. I looked into selling up and renting and was astonished to find that the rent on a similar place would be even more than the mortgage, i.e. I'd be worse off.

The idea that landlords will hold onto property and discount it, so others can avoid negative equity by renting it, is pure HPC fantasy I'm afraid. If you can buy a place for £10k a year and incur a further £20k capital loss owning it for a year, or you can rent it from someone who's going to take on those exposures, the annual rent's going to be round about £30k. In reality there will be some landlords who'll take less but equally there will tenants who think they're avoiding an even bigger capital hit who pay more.

It was precisely because rents got so high in 1989 to 1995 that BTL got going. By 1996 you could buy a place with a 75% BTL repayment mortgage and let it out the next day at a rent equal to or less than your mortgage payments. You really could get the tenants to "pay off someone else's mortgage for them", as the urban myth has it. In my case, I was renting a flat for £1200 a month and switched to buying it for £1200 a month.

caronoel

Biggest indication is that there wont be a crash is that the wise old owls on HPC have picked up on this thread:
http://www.housepricecrash.co.uk/forum/index.php?/topic/229494-uk-house-prices-%E2%80%98least-affordable-ever/#comment-1103211336

westernpromise

HPC is a valuable contra-indicator - always wrong.

On some levels I feel sorry for them with their white tile degrees, their call centre jobs, and their single lives in rented bedsits in Middlesborough or Leicester. But on the whole, I think they've ended with what they've earned.

IveSeenTheLight

Philuk wrote: »

Oh dear...

Given the super low interest rates, monthly payments can easily double even with marginal interest rate increase from BOE, you won't see these kind of increase on your rent...

Oh dear indeed......

You do realise that you can save a fortune while rates are low.

I rent out a property with an IO mortgage and the mortgage is less than half of the rent I pay.

So even in the hypothetical situation that the interest rate doubles, an owner is still in a better situation than a renter.

Are you also naive to think that rents would not rise as a result of the increase costs?

Philuk wrote: »

As this IR increase will most likely kick in some price falls, the IO owner, possibly forced seller st this point will also have a fairly large negative equity over their head.

How very crashaholic of you?
I would suggest doing some research with the land registry

Philuk wrote: »

In the meantime, the renter will cruise nicely through the storm with no capital at risk and possibly a much lower rent to pay along these tormented years for the economy.

Really, I would beg to differ.

Please point me to a time when this has occured in the past in the UK

Point of note, I relaise there have been interest rate spikes before and that there have been periods of property decline, but generally, even in the worst of times, property has recovered in approx 6 years whilst at the same time the amortization period has reduced any negative equity issues and the time left paying the mortgage.

Renting can be a viable choice for some at certain times, in generally, owning is always the better economic position to be in.

chucknorris

Philuk wrote: »

Oh dear...

Given the super low interest rates, monthly payments can easily double even with marginal interest rate increase from BOE, you won't see these kind of increase on your rent...

As this IR increase will most likely kick in some price falls, the IO owner, possibly forced seller st this point will also have a fairly large negative equity over their head,

In the meantime, the renter will cruise nicely through the storm with no capital at risk and possibly a much lower rent to pay along these tormented years for the economy.

Where do you store your wealth? You have to put it somewhere, and (net of tax) savings accounts pay less than inflation! Bonds (to me) seem risky due to the possibility of interest rate rises. We have just sold two properties and although we were going to invest the equity in the stock market, on reflection, it just doesn't seem worth it. We don't have anything against the stock market (we already have over £1.5m invested there), but we have decided to seriously upsize the value of our home, we think that is the best place that you can store your wealth, and of course then you get to live in a really nice environment.