House prices: 50% falls before fair value

Lotus-eater

snoopy78 wrote: »

Sorry but you obviously don't really understand how it all works, for BTL to increase they relay on the market value increasing, they are highly geared and need CHEAP debt to increase investments.

So they buy a house woth £50K, with a £10K deposit two years later the house is worth £60K, they release £10k from the 1st property add £2k and buy another property, with £12k deposit etc.

As you can see they are highly geared (meaning they have large debt figures than actual capital, own money, invested.) This is great while interest rates are low.

BTL are not fools and as such they know whilst rates are high, and we are talking about 6%+ for BTL mortgages they will not stretch themselves and will not increase investments. Cheap debt and raising house prices are what they look for, take away both cheap debt and raising house prices and many will not wish to increase there investment.

I understand how it works, I also understand that the ones I am talking about bought most of their properties over three or more years ago, they are not that worried about huge capital increases, more about the margins being good.
They are the ones that are not highly geared and I believe there are enough of them to make a difference when they believe the right time has come.

snoopy78

HammersFan wrote: »

By no means are the majority highly geared. There are lots with cash ready to go on the right deal. Money has not just diappeared from the these people.

But I do agree that the 6% BTL deals out there at the moment will put many off. I also think that as soon as some deals around 5.25-5.5% become available (with low fees at 80% LTV) then there will be a return (such figures would make sense in my area for instance).

First off you are probably over estimating how much BTL has effected the market, I posted something a few weeks back from fool.com a report that states BTL have only added 7% to the house prices over the last 10 years (if I remember correctly). So the idea they they, alone, could hold UK house prices up is on shacky ground.

BTL has increased hugely but it does not effect the market as much as people would lead you to believe. FTB prop up the house prices, not BTLers,

The only realistic way of making huge profits on the housing market is to be highly geared, good for tax reductions and spreading you investment. Very few BTL will have huge amounts of cash lying around (not saying it does not happen but its not the norm).

Further to this anyone with large amounts of funds ready to place into an investment will probably be looking towards stocks and shares at the moment.

snoopy78

Lotus-eater wrote: »

I understand how it works, I also understand that the ones I am talking about bought most of their properties over three or more years ago, they are not that worried about huge capital increases, more about the margins being good.
They are the ones that are not highly geared and I believe there are enough of them to make a difference when they believe the right time has come.

There is not enough BTL with the capital to make any effect on the UK housing market, even if they all decided not was the right time.

As I said before over the last 10 years they have only had a 7% effect on the market, what makes you think they alone can prop up the market all of a sudden. BTL is a result of the HPI not the cause (it helped speed up HPI nothing more), it really shows so little understanding of the market to think it is. The BTL market piggy-backed on the HPI.

I am not saying that all BTLers are going to sell and add to the HPC but whilst prices are not increasing BTL will be silent. When prices start to increase again they will again piggy-back. It will be FTB who start a recovery,

WTF?_2

Lotus-eater wrote: »

I don't know, I still know BTL'rs buying now, they are professional guys though and know what they are doing. I wonder about all the BTL'rs that have made money over the last few years and have it sitting around waiting for the right time to buy again.
Many on here think that BTL'rs are all idiots, but many are not, when margins are right again I can see them coming back into the market and not worrying about catching the exact bottom of the dip.

Sure, but 'professional' BTLs aren't around in enough numbers to hold the market up. They have always been around but have never driven prices.

True enough we had legions of 'jump on the bandwagon' amateurs who boosted HPI over the last few years and in some cases propelled the market even further onwards as FTBs dropped out ... But these sorts of BTL LLs are about to go to the wall in numbers, accelerating the decline.

You need FTBs to come back in force to put a floor under prices. With cash tight and the outlook uncertain don't expect that to happen any time soon until prices have returned to a much more affordable level.

Neillgb

HammersFan wrote: »

The longer the slow / minimal drop occurs, the bigger the upswing will be because of the increasing pent up demand (as partly evidenced by the posters on this board intent on buying). Maybe even some of those on here are already seeing drops in their area that are tempting them. And maybe the banks will be lending out loadsa money again soon (because doing so generates big profits).

Some of those waiting for big falls might get their fingers burned when prices do shoot up again. There are plenty of investors / speculators ready to jump in when the time is right (mainly because they have built up large deposits courtesy of previous price rises), hence pushing prices on again.

Which may, or may not happen. which may or may not be a good thing. Best to be ready just in case though, eh?

Only problem is that too many people have NOT saved up nice deposits, they have spent their paper profit on Holidays, worthless improvements(to their taste) and possible a nice flash car.

Credit culture equals credit bubble if not properly managed and controlled by a competent government. Based on the present goverments abilities lots of people are gonna end up with sticky stuff all over their faces!!!!

Paul_N_4

mitchaa wrote: »

The average price of a home in the UK as of May 2008 is £176k

Does anyone really believe this figure is going to fall to £88k :rolleyes:

Some people are in the clouds.

Quite possibly, but it would mean the cost of day-to-day living (fuel,elec,food,mortgage rates,etc) have gone through the roof. Probably wouldn't mean housing would be any more affordable, unless you have large cash reserves (that haven't been eroded by inflation by then).

nelly_2

dopester wrote: »

Yes; but even now lending levels are down to 45% of what they were this time last year... as a result of banks not being able to borrow from money markets and LIBOR high (due to little confidence in other institutions).

And we're only a few months in to it. Expect banks tighten lending further when further price falls become apparent. They hate to lend in a falling market. Why lend £100,000 of cash, which already is limited to lend, when you fear it will only be worth £85,000 in attainable value in a few months time if lent out to fund a house purchase.

.

But they will get the interest on 100k rather than 85

merlinthehappypig

I don't believe that we will see 50% falls either, but I don't think that 25% is unlikely.

We had given up looking in our local area as the house prices were simply too high when we started looking last year. Even until fairly recently we couldn't find any houses with 4 bedrooms and a minimum of 1.5 acres for less than £525000.

We had a good search locally on Rightmove again yesterday, having not looked for about three months and found 12 houses meeting that criteria under £475000, 8 were under £450000.

It's fairly obvious that houses coming onto the market in the last couple of months or so have reduced their asking prices by 10-15% compared with the highs. Of course, asking prices were stupidly high so this might not be such a big reduction in the sold price, but I have no means of comparing that.

4 of these houses are empty and advertised as 'no chain' so we ought to be able to get at least another 5-10% off the asking price in the current climate from these. Certainly we should be able to get something for around 20% less than the asking prices we were seeing in the last few months of last year.

Whether to buy or not now is a tough decision. I wouldn't put it past Gordon Brown to do something insanely stupid to help prop up HPI and bring back short term confidence in order to boost his election prospects in 2010, especially after last night's poll showings.

He may not be able to do anything at all and we might get the 30-40% drops that some people predict - equally now might just be the best time to grab a bargain from a forced seller given the general doom and gloom and lack of proceedable buyers.

Public sentiment has driven prices sharply down, it could just as easily start things moving upwards again. Unlikely I know, but the British and house prices are a law unto themselves.

I'm just hoping that things might just get to the point where we can buy with little or no mortgage. One more shove might just do that. If that happens I couldn't care less what prices do in the future. People forget that even if prices increase by 100% making them rich on paper, they still have to pay back the mortgage they took out - that doesn't change.

Jonbvn

merlinthehappypig wrote: »

.....the British and house prices are a law unto themselves.

Ain't that the truth! I reckon a large part of the population may have OCD regarding property!

snoopy78

nelly wrote: »

But they will get the interest on 100k rather than 85

Yes but they also have to write the figure down to 85K in the Balance sheet at the end of the year and meaning the company is worth 15K less. Do this for all there houses.

That is the whole credit crunch problem, people will not lend money to each other baised on mortgages as security as they believe that they are overvalued. They are basically glorified !!!!!! brokers, would a !!!!!! broker give you £100 for a watch worth £50 even if he thought you'd come back?