Is house price inflation advantageous or a massive con?

GreatApe

Koldweather1 wrote: »

Because if IR rates shoot up, they aren't going to be able to service their levels of debt and thus will have almost a forced sale. It won't be through choice. Given the recent changes in S24 etc, I'd suspect alot of landlords are probably not making huge yields, and if IR shoots up to say 7-9% like the HPC people want, then the landlord is going to be shafted and any profit will be long gone.

Policies are not set out for destruction of the economy, much to the annoyance of the hpc crew

The only conceivable way interest rates can be 7-9% is if inflation is running at 10%+
That is not all that bad for landlords, it will wipe their debts off

Thus, they will have to sell to make their money back, or at least as much as they can before HPC erodes away the paper profit.

Well most landlords dont have a mortgage they own outright.

The logic of HPC is any collapse in the prices will be down to a high shift upwards in Interest rates beyond say 7-8%. In the 2008-2010 the interest rates plummeted so no wonder landlords brought more, especially at lower prices.

No, real interest rates in 2008-9 were high, credit was difficult to get.
The reason landlords bought so much property 2008-9-10 is because all the negative sentiment at the time meant people didnt even try to sell homes. For instance someone who inherited a property who normally may have sold it, just kept it and rented it out rather than put it on the market and see offers of 10-20% below what they thought it was worth.

Not all landlords are borrow to buy landlords, in fact I would suggest they are the minority. Most property wealth, general wealth in face, just cycles around. Like I say about £200 billion moves from older people to younger people annually just try to get your head around that number it is VAST

In the HPC forum scenario, the landlords are probably the ones who suffer the most due to their large levels of mortgaged debts (either IO or Repayment) and thus put into a position where they would have to at the very least sell some of their property to just be able to pay the bills as the rent won't be able to shoot up fast enough to cover the deficit.

Yes that is a great theory but in practice interest rates will only go up if the economy is on fire (Booming) and if the economy is booming rents will be booming so the increased cost to service the debt will be covered by rent increases

Also landlords are mostly without mortgages, more rental proeprties are owned outright than owned with mortgages.

Also importantly let me give you an example of London, any landlord who bought say in 2012 or before then needs a 50% house price crash just to get back to where they were in 2012. Why would they be forced sellers? House prices in inner east London are up 75% since 2012.

If someone bought a £300k flat with a £200k mortgage, its now worth £525k.
Lets say prices crash 30% (impossible imo but lets say it happens) this landlords flat is now worth £367,500 its terrible that he has made a massive paper loss but he still owns a £367,500 flat with only a £200k mortgage on it why does he need to sell?

And since only about 3.5% of properties trade hands each year, that means only 17.5% of properties were bought post 2012. That means 82.5% of properties were bought 2012 or before then so 82.5% of properties are already massively insulated from a crash by the fact that prices have gone up a lot in the last 5 years.

The HPC group do themselves a disservice, they ban anyone and everyone who says anything other than a huge crash very soon. They have been at it for 20 years still hoping for a crash.

If only they would engage people who disagree they would see why their views are so wrong.

Another favorite is to highlight that with interest rates so low now, not buying is a huge risk.
With 2% interest rates and 6% rental rates (typical average across the uk). Over a 5 year term prices need to fall 20% just to break even! So a renter is not gambling on prices falling they are gaming on prices falling MORE THAN 20%. If prices fall 19% over 5 years said renter would have made a mistake waiting

GreatApe

Koldweather1 wrote: »

Not enough to counter what would probably be an uprise of +£500 a month in such a situation, especially with wage growth stubbornly staying behind inflation. Especially given people now JUST about afford to keep going when they are renting. Put simply something like a rent cap would probably become justifiable in such a situation, indeed even now its certainly being mussed by some.

However, I'm by no way a HPC advocate. My personal ideal would be slow and steady growth, bubbles only help the already rich established.

That is too general an assertion. Most renters comfortably afford their rents.

Rent controls are a risk, they would cause a lot of problems not least a black/grey market and misallocation of housing.

I am not sure what the price consequences would be. If there was an quick house price crash. Lets say 50% off in the south east then Landlords couldn't sell before prices fell and they wouldn't want to sell after prices fell.

I dont see the logic in the hpc who think prices would fall 50% and all the landlords would sell to them after that. Why would the landlords sell up once prices fall? The opposite is true, if prices doubled tomorrow I would sell all my properties. If prices halve I would sell none of them.

chucknorris

andromedean wrote: »

I had to laugh at this Mash article, because it must describe the real situation to many home owners.

Couple 'makes £100k' selling house only to realise they have to buy another on

Assuming you still intend to live in a similar house in a similar area for the rest of your life all what house price inflation achieves is to make it more expensive for first time buyers to purchase a home. For those who already own a home there is no additional advantage because similar homes will cost the same. However, if like most people you move to a bigger house later in life surely inflation causes this to be more expensive and disadvantageous. So nearly everyone loses, yet society perceives it as a good investment.

Yes there are circumstances were house price inflation could result in a gain, for example moving to a cheaper area or downsizing, but surely more people do the opposite. Would we be not truly materially richer if houses cost thousands rather than hundreds of thousands of pounds?

HPI is what it is, it is up to the individual to try and capitalise from it or not. Just like managing other financial assets.

padington

If British house weren't price high, say they only cost 10p. Given our inability to build new ones or knock down old ones to build new ones. No one would ever sell them and there would be queues much longer than current council waiting lists to buy the odd few that ever do come up for sale.

chucknorris

GreatApe wrote: »

I dont see the logic in the hpc who think prices would fall 50% and all the landlords would sell to them after that. Why would the landlords sell up once prices fall? The opposite is true, if prices doubled tomorrow I would sell all my properties. If prices halve I would sell none of them.

In fact, if they halved you would probably buy more, I know I would (if it wasn't for my age).

Graham_Devon

chucknorris wrote: »

In fact, if they halved you would probably buy more, I know I would (if it wasn't for my age).

Which is exactly what is said on a dodgy AIM penny share forum every time there is a fall in the share price.

Everyone suggests they are buying more to bring their average down, hoping for heard mentality. Yet the figures on buys, wich are public information, simply don't back up what the heard are saying.

If people simply "bought more" when there was a reduction in house prices, we'd never have seen the crashes we've seen.

Cornucopia

The mechanics of HP crashes are more complex than that, and in some cases the BTL and Homeowner responses may have been similar and in others, different.

There are external factors in play such as the availability of financing and the overall state of the economy. Decrease in the number of properties being offered for sale is often a feature of crashes or of the recovery period following them.

However, surely the logic that FTBs would buy in the event of a crash and LLs would buy more in the event of a crash are using the same slightly flawed logic.

MobileSaver

Koldweather1 wrote: »

I assume alot of HPC are fairly cash rich

I doubt that very much given they still need to be living somewhere while they're waiting for the pipe dream 50% crash; most if not all of them are paying off their landlord's mortgage for them as well as adding some profit to the landlord's bottom line!

Crashy_Time

andromedean wrote: »

I had to laugh at this Mash article, because it must describe the real situation to many home owners.

Couple 'makes £100k' selling house only to realise they have to buy another on

Assuming you still intend to live in a similar house in a similar area for the rest of your life all what house price inflation achieves is to make it more expensive for first time buyers to purchase a home. For those who already own a home there is no additional advantage because similar homes will cost the same. However, if like most people you move to a bigger house later in life surely inflation causes this to be more expensive and disadvantageous. So nearly everyone loses, yet society perceives it as a good investment.

Yes there are circumstances were house price inflation could result in a gain, for example moving to a cheaper area or downsizing, but surely more people do the opposite. Would we be not truly materially richer if houses cost thousands rather than hundreds of thousands of pounds?

Not any more, many many people now realise that it is just a con to enrich bankers, developers, and hide wage stagnation. If the Tories don`t pop the property bubble JC will be PM, and that is going to be a BARREL of laughs if you have a big mortgage or need to sell a house.

Crashy_Time

GreatApe wrote: »

That is too general an assertion. Most renters comfortably afford their rents.

Rent controls are a risk, they would cause a lot of problems not least a black/grey market and misallocation of housing.

I am not sure what the price consequences would be. If there was an quick house price crash. Lets say 50% off in the south east then Landlords couldn't sell before prices fell and they wouldn't want to sell after prices fell.

I dont see the logic in the hpc who think prices would fall 50% and all the landlords would sell to them after that. Why would the landlords sell up once prices fall? The opposite is true, if prices doubled tomorrow I would sell all my properties. If prices halve I would sell none of them.

Landlords are mainly selling up because of taxes and voids, if you are heavily mortgaged voids are the landlord killer.