Home—Blog—How to turn owner occupiers into tenants
Dec 19, 2011, 10:52
Posted byMerryn Somerset Webb
Comments (54)
I went on the Today Programme this morning to talk about the new Mortgage Market Review Proposals. Flick your eye down the list and you’ll be amazed at the idea that anyone has to tell banks this stuff. You would have thought it would be pretty obvious that it might not be a good idea to lend people hundreds of thousands of pounds without checking they have a repayment plan beyond waiting for house prices to rise and selling the house.
And you would have thought that all mortgage affordability checks would take into account the fact that interest rates might rise and house prices fall. Still ,the fact that these measures might be introduced now will make not the slightest bit of difference to today’s mortgage market. Why? Because lenders have – temporarily at least – learnt their lesson. Their huge shortage of capital and new understanding of the risks inherent in their business means that they do all this stuff already: they only lend to people who they are almost certain will pay back and they cover themselves by leaving a hefty margin for error in the form of low loan to values.
Over the last 100 years we have become what our politicians wanted us to become – a property owning democracy. In 1900, only 10% of homes were lived in by owner occupiers. The other 90% were privately rented. Social housing didn’t exist. Now 70% of houses are owner occupied and the private rental market makes up a mere 16-17% of the total.
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How has this happened? It is partly down to political encouragement – owning has been encouraged and renting discouraged by all sorts of policy fiddles. Things like the fact that you don’t pay capital gains tax on your main home – that has long made buying a very large house and hoping it goes up in price look like a better way to hang on to your financial purchasing power than to buy shares, hope they go up and then pay CGT on any gains (particularly when CGT was 40%). But all that aside, the main drivers have been a huge increase in the supply of homes (from 7m in 1900 to around 25m now); fast rising real incomes; and from the 1980s on the availability of seemingly endless credit to all.
This is where we come to the problem. Politicians don’t think 70% is enough. They want more people to own their own homes (hence the endless fiddling about with mortgage indemnities, shared ownership and the like). But the three pillars that have supported such growth for 100 years have been kicked away. Real incomes are falling not rising. Credit is hard to get (and not that cheap either) and of course we can’t be building many new houses either. So more people aren’t going to own their own homes. In fact the way we are going it might soon be that fewer people own their own homes. Why? Because one in five mortgage holders is in arrears – despite record low interest rates.
With a bit of luck, a good amount of them will hang on to their homes. But many won’t. Right now the banks are providing the most extraordinary level of forebearance to troubled borrowers but one day, everyone will have to face the truth. Make a bad loan and in the end you have to write it off. Make a bad loan in the housing market and in the end you have to turn an owner into a tenant.
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(19 December 2011, 12:11PM) Complain about this comment
This is becoming even more confusing. If you were staying put, irrespective of house prices, as long as renting is same cost as buying, it would make sense to have something that you own at the end of it all. Then you will be living rent free at the end of mortgage period, and you are not at the whim of a landlord .If buying property now, you must buy well below market value.Alan Moody BigAlMoody@twtter
(19 December 2011, 01:12PM) Complain about this comment
Merryn. I hope you don't overdo the bit about available credit to the detriment of wage rises. Keynes said that real incomes would increase sixfold between 1930 and 2030 and are well on the way to outoing even that. In the last 30 years wages have outgrown inflation by 50%. Also the rate of owner occupation accorning to the ONS has fallen since 2007 to 67%. 17 million out of 25.4million homes. Interestingly only 10 million of the owner occupied homes are on a mortgage. 42% are already owned outright.
(19 December 2011, 01:14PM) Complain about this comment
What affect will these new rules have on house prices? Surely if it limits mortgages then it will drag down house prices? Or am I missing something?
(19 December 2011, 01:30PM) Complain about this comment
Having heard Merryn discussing this issue with Kirstie Allsopp on BBC's 'Today', I checked out Kirstie Allsopp on Wikipedia and tried to edit the 'House Prices' section. What I added was promptly deleted by a one 'Cameron Scott', who, one assumes also has vested interests in propping up house prices. What I tried to add was: But despite this rather fatuous comparison, it would appear that The Hon Kirstie Mary Allsopp (daughter of Lord Hindlip, former chairman of Christie’s), with various properties in prime London locations, has enormous vested interests in talking up property prices. For the privileged elite, like Kirstie, born into enormous wealth, it's advantageous to have prices booming. But for the vast majority of house buyers, not born into such riches, a house price crash would be the safe most sensible situation in the current economic climate. Hardly takes a genius to work out what's going on here...
(19 December 2011, 01:35PM) Complain about this comment
Having heard Merryn discussing this with Kirstie Allsopp on BBC's 'Today', I checked out Kirstie Allsopp on Wikipedia and tried to edit the 'House Prices' section. What I added was promptly deleted by a one 'Cameron Scott', who, one assumes also has vested interests in propping up house prices. What I tried to add was: 'But despite this rather fatuous comparison, it would appear that The Hon Kirstie Mary Allsopp (daughter of Lord Hindlip, former chairman of Christie’s), with various properties in prime London locations, has enormous vested interests in talking up property prices. For the privileged elite, like Kirstie, born into enormous wealth, it's advantageous to have prices booming. But for the vast majority of house buyers, not born into such riches, a house price crash would be the safest and most sensible situation in the current economic climate.' It hardly takes a genius to realise what's going on here.
(19 December 2011, 02:17PM) Complain about this comment
1998 people could borrow 3 x main + 1 x 2nd income. Average salary was £17k. Using £17k for main £9k for 2nd = £60k. Average house WAS £60k (main x 3.5)Now it’s joint income mortgages. Taking the main as £25k & £15k for 2nd 4 times joint income = £160k. Average house IS £160k (main x 6.4)Some of the increase in prices is due to the wage inflation. Applying the old rule to the new salaries would be 3 x £25k plus 1 x £15k = £90k This is where house prices should be. The FSA have said nothing about lending multiples! Joint income mortgages should be banned. What it would mean is:Women wouldn't be forced to work = only one set of income tax for the government! Less debt = less mortgage interest for banks. At £60k the interest was £55k at 6% over 25 years. At £160k it’s £155k. An extra £92k for banks.People never discuss the debt they serviced when they sell their house. They only look at the difference between buy and sold price. They have been duped!
(19 December 2011, 02:54PM) Complain about this comment
People like 'it's a con' always leave out an important parts of the equation when using the 3.5 times mantra . Using their maths, the base rate averaged 7% in 1998 (source BOE). with the base rate currently at .25%, interest rates are 28 times lower. Using the figure of £60k the average UK house price today would be £1,680,000. It also ignores accumulated wealth and inheritance, difficult planning regulations, cost of building materials. Most importantly of all the Banks do not want a downturn here as it would wipe billions off of their balance sheets. They will get what they want which is very few defaulted loans and flat property prices for 10 years starting in 2007. The only way to force prices down in the UK would be to introduce 2nd and multiple homes taxes but that will never happen as the vested interest have too much political power.
(19 December 2011, 02:58PM) Complain about this comment
Great comments Whistle blower and It's a con. I have been tweeting to everyone for ages that average house prices should be around £75-90k based on average earnings. My Christmas wish would be to stop people RAMPING UP property prices. Every other commodity, food, energy, cars etc, when they increase in price their is an outcry! Not so with property. Mad Britain
(19 December 2011, 03:15PM) Complain about this comment
@robKeeping the base rates at the historically low .25% for so long, and average house prices clearly not £1,680,000, only goes to show how desperate the government is to prop up house prices. Base rates will definately go up at some point to offset inflation, then the whole house of cards will crash. It's the biggest Ponzi scheme in history.
(19 December 2011, 04:14PM) Complain about this comment
What people like "rob" always leave out is that although interest rates are at an all time low of 0.5% today they are CERTAIN to go up. All this talk of the UK being a "safe haven" is absolute rubbish. Our gilt yields are low because the B of E is printing money to buy our own debt. This to deliberately drive the yields down. In time when other countries that have deleveraged start raising rates, our true position will be exposed and our interest rates will rocket up or sterling is toast. The UK has not deleveraged, we are still trying to blow up our credit bubble.As to wealth and inheritance via property what people like "rob" leave out is that the credit expansion that pushed house prices up results in inflation. People selling at the top of the non existent "ladder" get pounds that are worth a fraction of those they gave bankers when they paid their mortgages.
(19 December 2011, 05:04PM) Complain about this comment
It's a con is trying to con us all. In 1998 average HP was £82,000 and the typical mortgage £52,000 at 7.5%. The typical cost over 25 years was £134,000 or 6.3 times average income. That was 10% below the long term ratio. Today the price is £196,000, mortgage is £108,000 and the rate 3.9%. The 25 yr cost is £251,000 or 7.4 times income. That is 6% above the long term trend and suggests a modest fall of 5% to readjust properly.
(19 December 2011, 05:22PM) Complain about this comment
Of course the other way to look at it is 25 years ago in 1987 you;'d be looking at a total outlay of £90,000 in 25 yrs to buy the average house with income at £12,500. Now you are looking at £252,000 with income at £34,000. Income is up 172% and Housing cost is up 180%. Not a lot of difference after 25 long years.
(19 December 2011, 05:41PM) Complain about this comment
@Boris MacDonutHa! It's so amusing to see you try to justify over-valued house prices with statistics plucked from the air! Take some real examples of average saleries and house prices in the South-East, and you'll see that "a modest fall of 5% to readjust properly" is absurd! 20 years ago a primary school teacher started on about £17,000 and could buy a flat in greater London for about £50,000. Same flat today is about £200,000, but, oh dear Boris - here's the real maths, the teacher starts on about £25,000! Looks like the flat is over-valued by about £125,000.And you can hardly see any salary increases in our current recession. Some things need to be destroyed before something else better can replace it. Make way, greedy property developers, your time has come...
(19 December 2011, 05:54PM) Complain about this comment
It's official - Kirsty denies she every ramped house prices. If she was registered by the FSA, she be in jail and penniless by now.
(19 December 2011, 06:04PM) Complain about this comment
Whistleblower. HP's are not driven by teachers salaries which have relatively fallen for thirty years . They pertain to Income in all it's guises. Remember wages and salaries make up just 68% of UK income. My figures are from the DCLG, ONS and the simple fact that a GDP of £1,570billion pa divided by 47 million adults is £34,000. Remember only the richest 67% of people buy houses and they are paid more. Another way to look at it is the value of all houses in the UK is approx £5 trillion and with a GDP of £1.57 trillion that is a net 3.2 times annual income.
(19 December 2011, 06:39PM) Complain about this comment
Its a con: This is where house prices should beFozzie: I have been tweeting .. that average house prices should be around £75-90k based on average earnings. I think you mean "I'd prefer it if house prices were lower". There's no "should be" in house prices, they're sold for what people can afford.OK, so you liked the 3+1 salary formula. However, they're nothing intrinsically correct about that formula, it was just something a banker made up. I suspect with a deal of sexism on the "+1"...didn't want to be treating women as equal, did they.Moving back to that would put millions in negative equity, trashing their future and probably crashing the banksAs 'It's a con' remarks "Women wouldn't be forced to work = only one set of income tax for the government"However, a) they might want to work, b) less income for the government equals higher taxes for the rest of us (you want that ?).Governments don't need to mess with house prices, they sort themselves out.
(19 December 2011, 06:57PM) Complain about this comment
Boris MacDonut, 'Income in all it's guises' includes the super-rich city bankers, whose saleries have increased so much that the gap between rich and poor is creating an extremely risky and unstable economy and society. When pushed to such a point, you'll see riots in Chelsea and Mayfair next time-looting Harrods not Sports Diect. Our present system is creaking and as more and more people realise it, the change will come and a fairer economy will prevail, sending off the casino bankers to live in their off-shore isolation for ever.
(19 December 2011, 07:13PM) Complain about this comment
#17 Whistleblower. Yes, maybe. But that does not affect HP's. As Clive says Houses are worth what people will pay for them you cannot impose a Socialist ideal income multiple as the spare money migrates elsewhere causing inflation in other parts of the economy. You end up with some affordable houses but unaffordable second hand cars or holidays.
(19 December 2011, 08:49PM) Complain about this comment
Nr. 18 Boris MacDonut. In a capitalist environment, a house may well be worth what people will pay for it. I therefore assume that your judgement of where house prices should be is based on your judgement of people's desire to invest here. Now, lets see what desirability Britain actually has: A government in internal conflict and chaos, unemployment at levels not seen for many years, violent riots that the police were unable to stop for 3 days/nights, transport prices rising to unreasonable levels, money laundering through Knightsbridge flats, sub-prime mortgage misselling, income disparities not seen since Charles Dicken's times, greenbelt being rapidly concreted over by urban sprawl...Need I go on? You see capitalism won't really take care of you, just your money. When you need care in old age, capitalism will put you in a luxurious coffin and cackle as it licks its lips over your bank account.
(20 December 2011, 01:06AM) Complain about this comment
Dear BorisWhilst ripping us off the Banksters deliberately coaxed HPs to extortionate levels so as to increase our indebtedness to them. I feel sure you would agree that it is hard to believe that a lot of our present economic predicament is anything other than the consequence of conspiracy.To have thwarted the conspiracy (or whatever) would have involved not bailing-out the Banksters, as I doubt you would disagree. Whilst I consider you would have approved not bailing-out the Banksters, you seem to consider HPs to be more or less where they should be.I doubt you would disagree that had BoE IR not been reduced to next to zero HPs would have crashed and Banksters would have suffered.To be both rational and supportive of current HPs, you can't also be anti Bankster. Therein lies an apparent dilemma; or am I misunderstanding and/or wrongly presuming something?
(20 December 2011, 05:16PM) Complain about this comment
just two points to add. THe first is that job-security has decreased substantially over the periods being discussed, therefore people's risk-appetite should be lower and 'risk-weighted' salaries should be used (if you like, people should set aside an additional 10 - 20k+ to retrain and start a new career should that happen to them). Secondly, I'm not convinced that teacher's compensation has fallen over the last 30 years in relative terms; their salaries are not bad (many on £35 - 40k), but in particular, they still retain final-salary pensions which are very generous, something that most other careers no longer offer. I'd be very interested to know how much more a non-final salary worker would have to earn to be able to save enough to buy the equivlent. I suspect its £10 - 20k per annum (pre tax) or more.
(20 December 2011, 06:19PM) Complain about this comment
A=Penthouse suite overlooking Hyde Park-£120,000,000B=Small studio flat in Notting Hill Gate-£400,000C=Small studio flat in Catford-£80,000A+B+C=Revolution required
(20 December 2011, 08:51PM) Complain about this comment
"Governments don't need to mess with house prices, they sort themselves out."That's the funniest thing I've read in a long time. Interest rates at 0.5%, QE, Mortgage indemnity, council FTB schemes, shared equity, etc. I'm still laughing...If some women want to work then fine. If house prices were lower, mortgages would be lower and mortgage pyaments would lower. Therefore they could afford to spend the money they earn in the economy. That creates jobs and increases tax revenue for the government. Currently that second income is going straight to a banker's bonus because their mortgage is so high.
(20 December 2011, 10:23PM) Complain about this comment
#20 Critic Al. As so often,you make very good points. Do not misunderstand me, I only offer commentary on what I see. I do not favour Bankers and I agree hurting banking would hurt the housing market. But that is the very point that suggests sustainable prices. Banks have a huge vested interest in keeping the value of their balance sheets up and so will not let prices fall. As Banks now run the country we can comfortably expect some bouyancy in HP's , they have not collapsed since 2007 despite many predictions.
(20 December 2011, 10:26PM) Complain about this comment
#21 Beta. In 1982 Teachers salary was 40% above average pay. In 2011 it is 10% above average. It's not teachers bweing paid less per se , just everyone else catching up or overtaking them as they have got richer more slowly.....i.e now different people (and indeed far more people) buy houses.
(21 December 2011, 12:12AM) Complain about this comment
@ 25. BorisThanks for your response; I better understand where you are coming from now but, to me, the anomally is still apparent and growing.Houses are still way over priced compared to wages, and net inflation (real minus wage) continues to undermine affordability; whilever this scenario prevails the proportion of tenants will increase.The Banksters whilst doing their utmost to offset deflationary forces are also inadvertently and/or unavoidably exacerbating them in other aspects; so I don't consider it to be a certainty, as you appear to, that they will prevent further significant falls in nominal HPs or, indeed, in other asset values.
(21 December 2011, 04:12PM) Complain about this comment
It's a con" If house prices were lower, mortgages would be lower and mortgage pyaments would lower. Therefore they could afford to spend the money they earn in the economy"Agreed that would happen if prices could be forced lower (2 x first salary and that's your lot). But, ignores cash buyers who wouldn't be affected.OK, so people might have lots of "spare" cash. They'd go for cars, holidays, big TVs, whatever in a big way. All you've achieved is massive inflation in those markets. Then we'll have someone saying "oh, cars/TVs used to be so much cheaper in 1960 before this wall of money hit the market"
(21 December 2011, 04:16PM) Complain about this comment
It's a con" If some women want to work then fine"Let me guess, you're a bloke ? Anyway, sounds like sexism to me with the implied "the little woman should be at home, not having to worry about making mortgage payments"If they DO work, I can't see they'll be much taken with mortgages that treat their salaries as worth less than their menfolk's (for their own good no doubt). Sexism hiding under the covers of "it's good for you / the economy"
(22 December 2011, 11:27AM) Complain about this comment
Clive,Why is it sexism?Do the maths. At long term average rates £60k the mortgage was £600 a month at £160k it's £1,600 a month. It's the same house! That extra £1,000 a month is going to bankers. All I'm suggesting is that women should have a choice whether they work or not. My daughter has two toddlers and just gone back to work after maternity leave. She would have loved to have not had to go back to work yet and spent more time with them. However now they have 2 toddlers they need a bigger house. Ten years ago they could have upsized without all the extra debt to service just on our son's wage. Now joint income mortgages are the norm how can they compete for a house on one wage? Net result her income goes to service the extra debt. It's a con.
(24 December 2011, 11:12AM) Complain about this comment
I have been searching for 3 years for houses under £100k in an area of 10 miles radius of Keynsham, so takes in Bath & Bristol. What has happened is that most properties have been bought by speculators / investors, renovated, then either let out or sold on but selling at a profit is not that easy. The rental market has boomed with 8% being easily obtainable, so prices paid for property have in most cases been above the asking or auction price. An example: 3 bed semi sold for £68k in July 2011, nothing done to it, back on market in November for £80k AND yet to be confirmed but an estate agent told me an offer of £92k has been made. I will wait for the result on this property in the new year but it is indicative of why property is still a favoured investment. The problem is a shortage of property; if 1+ million homes were built then property prices would fall. Homelessness is a big problem that is growing and needs to be addressed on a national basis.
(24 December 2011, 11:22AM) Complain about this comment
Inflation is a home owners friend !A key point overlooked thus far is that whilst the current economic outlook is pretty dire I take some comfort that inflation is considerably >than HMG would like !My logic is simple- >inflation increases the pressure on wage growth and in turn increases the scope for HP's to increase further.You may get some timing anomalies & it may take a while to feed through into salaries & HP's but for me its a key ingredient ! Bring it on-I'll endure 5%+ for the foreseeable-especially if my leveraged HP's ultimately benefit to the same tune!Also-lets not forget the economic fundamentals here-your basic supply and demand equation. We have a population that is rising at a faster rate than houses are being built.The combination of a good few years of higher inflation and a rising population should provide enough insurance for homeowners. Stick with it. There is only scope for modest falls and medium to long term you'll be quids in!
(24 December 2011, 12:05PM) Complain about this comment
Clive.You suggest that if mortgages were lower, the 'spare' money would be spent on other things, which would inturn, inflate those prices.But surely it is much better this way round, as you have a choice whether to buy a TV, car, holidays, etc, whereas you have no choice but to live in a house.
(24 December 2011, 01:26PM) Complain about this comment
HPs, it's very simple, cheap money, reckless lending, reckless borrowing and the lowest interest rates in 300 years. The villains responsible for the mess, the BoE, Brown(the treasury) and the FSA, there's nothing else to add.
(24 December 2011, 04:01PM) Complain about this comment
I wish to point out that there is no property shortage, and that many houses are for sale at affordable prices. eg there are many perfectly acceptable 2 and 3 bedroom terraced houses in my city on sale at well below £100, 000.The problem is that houses are simply ' in the wrong place '.
(24 December 2011, 06:52PM) Complain about this comment
#30 Rob. I was laughed out of the estate agents in Bath in 1988 witha budget of £70,000, so your chances of finding a house there 24 years later for under £100k are very close to Nil.
(24 December 2011, 11:11PM) Complain about this comment
@ 31.Quote: 'Inflation is a home-owners friend!'In the longer term the only people inflation benefits is the Banksters and their cronies. It's all part of the corrupt financial system designed by Banksters and aided and abetted by Traiterous Politicians to enrich the few at the expense of many. It wouldn't surprise me if the non-active discouragement of immigrants was deliberate policy to distort the supply-demand equation of the housing market in order to augment the corruption.Any increase in wages over and above that of competitor countries is to the detriment of our export potential and to our country overall. Not that that would bother the Banksters unduly; when The 'Ever-so Lucrative' City has bled us dry it will move onto a new host. Just exactly who do you think is subsidising who?Bring on the defaults. Better late than never.
(25 December 2011, 10:24AM) Complain about this comment
@34There is a shortage and it will get worse! Yes - there are areas where you can get houses for under £70k; yes there are too many boarded up houses; yes affordability is an issue for many-however when looking at the macro position (rather than selected examples) the shortage is a real issue!QE will ultimately help to devalue sterling and provide scope for the necessary wage increases (that will come from the inflation that also comes with QE). Essentially salaries and inflation will balance out. The real point here is that it will also support current house price levels and likely provide scope for further increases. History has consitently proven HP investment potential-miss out on it at your peril !
(25 December 2011, 05:22PM) Complain about this comment
So-called economic Growth is dependent upon consumerism and consumerism is unsustainable; our whole way of life is unsustainable. This insanity has to end sometime; better that it end gradually rather than abruptly. There is a Great Correction in progress and to oppose it is further insanity. Just as easy credit was a stimulant to an artificial boom, QE is a stimulant to artificial Growth or, more precisely, a stimulant to artificially supporting consumerism, to prolonging unsustainability, to prolonging ... insanity.Just as very low interest rates are aiding the propping-up of an artificial housing market, so to would QE stimulated wage increases. Artificial stimulus is propping-up a ridiculous housing market, an unsustainable way of life, ... insanity.QE is insane, to fight the Great Correction is insane.Bring on the defaults. Bring on sanity. Let the Correction correct.HPs will fall. May the avaricious parasites leave. Good riddance.
(26 December 2011, 06:21PM) Complain about this comment
@30 Rob,(from bbc news)"Rightmove, the estate agency website that claims to advertise 90% of all homes for sale in the UK, says current asking prices across the country average £236,597. Selling prices, however, are much lower. The average house price is currently £203,528 (DCLG), £168,205 (Nationwide) or £163,049 (Halifax). Depending on which survey you favour, this gap could be as much as a whopping 31%. So, will prices in London turn down, dragging the national average with it?Jonathan Davis certainly thinks this is likely, and Ed Stansfield reckons the national momentum is clearly downwards.There is still a huge extended over-valuation in the market - any change in the employment situation and consumer sentiment due to income changes will tend to push prices down," Mr Stansfield says.
(26 December 2011, 06:31PM) Complain about this comment
By the way, Foxtons, who have a reputation for over-valuing property up to 40%(!), were so aggressive in their strategies in New York a few years ago, that the other estate agents there clubbed together and sued them successfully. They no longer exist there. If you want to throw money away in Foxton's direction in London, buy property from them. On the other hand, you could boycott them...and find the same thing at half the price...
(27 December 2011, 02:01PM) Complain about this comment
Prices are in a bubble. The fact that today more women work does not change the historic link between average household income and prices, precisely ebcause it is HOUSEHOLD income not male earnings. The bubble has been blown up by money printing by successive Chancellors going back to Maudling. The conditions, which enabled it to continue have fundamentally changed as I've set out in my blog post - http://boffyblog.blogspot.com/2011/10/house-price-crash.html. The buffer built up after WWII of savings, the prospect of annual rises in wages, have disappeared, so households need to delever. private debt is 450% of GDP as against only 70% for Government debt. As I set out, our growing retired population can sell its houses here, and by cheap property in Ireland, the US, or Spain. A luxury six bedroom house in Florida can now be had for £70,000. Prices here are unsustainable.
(27 December 2011, 06:18PM) Complain about this comment
Price in the UK are unsustainable, however I suspect that we're already in a highly inflationary period, it's just not fully showing yet. (I'm referring specifically to the UK).Houses have already inflated. Fuel's not far behind.Some salaries already have inflated (public sector mainly but some private sector).Prices are sustainable if salaries are £80k on average.
(29 December 2011, 02:04PM) Complain about this comment
We are indeed set for higher inflation whatever the analysts say. Massive money printing is feeding through to lower western currencies, and into increased deposits in China etc - which is why M4 does not seem to be rising here. The addiitonal money tokens are facilitating rises in prices and wages in China, which in turn feeds into Europoean/US import prices. Lower economic activity will not reduce inflation. Witness Weimar and 1970's stagflation.But inflation is not a thing. There are several inflations/deflations. Consumer prices are inflating, but assets deflating. Allsops point on this was facile. It does not matter what consumer price inflation is, if you are saving to buy a house. If house prices fall, then your money will go further, so there is an incentive to save even at zero interest rates.
(31 December 2011, 11:17AM) Complain about this comment
@39-just reviewing the figures. I put a 31% gap, but looked at as a figure of over-valuing homes by estate agents, it's 45%.(from bbc news)"Rightmove, the estate agency website that claims to advertise 90% of all homes for sale in the UK, says current asking prices across the country average £236,597. Selling prices, however, are much lower. The average house price is currently £203,528 (DCLG), £168,205 (Nationwide) or £163,049 (Halifax). Depending on which survey you favour, this gap could be as much as a whopping 31%. So, will prices in London turn down, dragging the national average with it?Jonathan Davis certainly thinks this is likely, and Ed Stansfield reckons the national momentum is clearly downwards.There is still a huge extended over-valuation in the market - any change in the employment situation and consumer sentiment due to income changes will tend to push prices down," Mr Stansfield says.
(31 December 2011, 05:03PM) Complain about this comment
#44 Mr Boom to Bust. You make a mistake to compare Rightmove asking prices to various HP surveys. The gap you find is bogus. Nationwide and Halifax look at houses bought with mortgages (such houses are usually bought by poorer people).DCLG looks at all sold houses, thus including those bought for cash by richer people. Take a look at the Land Reg' figures on the BBC business pages. LR gives two figures, one for the average of sold houses (currently around £190k) and one(on the BBC) for the value of ALL houses ,i.e including those held onto long term, this is now £241K
(31 December 2011, 06:53PM) Complain about this comment
@45 Boris - surely, your figures reinforce my point. £190k is the actual price paid, whereas £241k is the asking price of all houses. That's £51k over the price paid (£190k), which is about 26% over valued. When prices correct themselves, they usually over-correct by about the same percentage. So, about a correction of 52%. Even better! Happy New Year!
(31 December 2011, 08:58PM) Complain about this comment
#46 Mr Boom to Bust. You are correct to point this out. It really would be a help to all if there was one definitive index trusted by all. For many years I have preferred the DCLG index, especially for long term trends as it goes back to 1930. I just think it is too much of a stretch to believe houses (except at auction) go for 30% below asking price. Pre crunch houses reached 97% of asking price and even last year were making 91%. Now it's time for my old year night's sherry. Happy New Year.
(31 December 2011, 09:04PM) Complain about this comment
#46 Oh ,before I go to the Sherry. Boom and Bust the £241k is the actual average value of ALL houses whether for sale or not. You mean to quote the £236k Rightmove asking price. Small point ,but accuracy is everything. Speak to you next year.
(04 January 2012, 12:59PM) Complain about this comment
no18 BorisHouses are worth what people will pay for them.---------------------------If houses are worth what people will pay for them, why are they not selling? Volumes are down by over 50%.What people will pay = deposit plus available mortgage. When banks gave anyone with a pulse a big mortgage without checking salary, then people could bid higher and did so. Now that banks cannot do that, and those times ain't coming back for years - if ever (once the economy recovers, regulators are likely to regulate mortgage industry far more strongly), so prices will fall.
(04 January 2012, 01:06PM) Complain about this comment
continued: What people will pay is far less than it was (available deposit + available mortgage is what people can pay, and the latter has plummetted). But UK prices have not fallen further because of sellers: 1. they remember sky-high prices and want them, however irrational their belief that they can attain them; 2. emergency low interest rates have saved many from defaulting, so they "don't have to" sell; 3. Banks are so far refusing to call in bad loans, because it would lead to a massive drop in prices, as sellers would have to take the highest bid.If we forced the market to work - ie those who can't pay should be forced to sell: supply would rise because of the forced sellers, the prices would then collapse. But banks are terrified that that if they force the market to work, it will destroy them (massive crash in their balance sheets).
(04 January 2012, 03:50PM) Complain about this comment
#49&50 Roberto. You answer your own queries with the reference to interest rates. These are not "emergency" rates they are the new norm. Base interest rate will stay below 2% for the next 6 or 7 years, until we fulfil our lost decade.You make a fundamental mistake in assuming all houses are bought with a mortgage. There are over 17 million owner occupied houses in the UK but only 11 million mortgages. Over a third of homes (usually more expensive ones) are bought for cash. Rich parents, inheritance recipients and returning ex-pats need no mortgage.
(04 January 2012, 07:47PM) Complain about this comment
@ 51 BorisYou might look at today's Guardian Business section: http://www.guardian.co.uk/business/2012/jan/04/city-job-losses-bonuses-london-property-market?newsfeed=true
(04 January 2012, 08:08PM) Complain about this comment
@51 Boris...the gist of the report is that the super rich city workers are getting fired in the downturn and not buying the super expensive houses here: "Job losses appear the more significant factor, as there is a tighter correlation between London property prices and the growth or contraction of City employment, than there is with bonuses (see chart). City workers are among the highest earners, meaning they buy the most expensive properties that in turn skew the overall London figures."
(10 January 2012, 04:08PM) Complain about this comment
It's time to stop treating renters like lepers. It's the best tenure for most young people - much more flexible in terms of moving to find a better job, and you don't have to either buy a three bed house in case you have children 5 years or more down the road, or take a punt on a one bed place jumping in value so you can climb the mythical 'ladder'. Time to tax housing so it's used efficiently.
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