Home—Blog—Here's why British house prices will fall
May 24, 2010, 12:26
Posted byMerryn Somerset Webb
Comments (56)
An email comes from a reader. She has read an unusually rude criticism of MoneyWeek's bearish stance on house prices and wants us to answer a few questions.
First, she asks why traditional income ratios matter when interest rates are so low. After all, if she can get a mortgage at 2.39%, as she says she can, what difference does it make if she borrows four times her income?
She has a point - but not a lasting one. Why? Because interest rates won't stay low forever. If you borrow money today, you need to be sure that you can meet your monthly payments, not just at 2.39%, but at 5%, at 7% and perhaps at 10%.
We don't see rates going up immediately, partly because we expect the global deflationary scare to run a bit longer, and partly because Mervyn King has made it very clear that he will support the new government as much as he can by keeping rates low as they slash spending. But the Bank of England can't ignore its targets for ever. That means rates will have to go up in the end – and then our reader's monthly mortgage payments will, too.
But it doesn't have to be interest rate rises that force the next fall in prices. Low interest rates have allowed the financially stressed to hang on to their homes. But the cuts in public spending, along with the trauma in most of our export markets, suggest that unemployment might soon see another rise. Can the over-leveraged hang on to their homes even when unemployed? We'll see.
And rising unemployment isn't the only thing likely to push up supply in the market. Consider the rise in capital gains tax (CGT) to the same levels as incomes. That means whopping great bills for second-home owners. A house bought for £100,000 in 1985 would now be worth £490,617, says the Nationwide. Sell it today and you'll pay CGT of £68,500. Sell it when the rate goes up to 40% and, assuming no allowances are made for inflation, you'll pay £152,200.
That suggests that you should get out now. Indeed, if you own a second home it also gives you a huge incentive to sell at below what would have been the market price. Sell the £490,617 house now for £450,000 and you'll still pay less tax than if you waited and sold after the tax rise.
But the tax rise also makes a big difference to the buy-to-let industry. Much of the benefit to being in buy-to-let has come not from net yields (which have all too often been negative) but from capital gains. Paying 40% on those capital gains, such as they might be, can only make the business less attractive. That will push up short-term supply in the market and push down long-term demand.
On the demand side, I'd also point to the fact that mortgages are still not that easy to come by. Mortgage approvals for house purchases came in at 48,901 in March. The long-run average is well over 90,000. At the same time, mortgage lenders are already warning about a looming £400bn funding gap as the Bank of England withdraws special support schemes introduced at the peak of the financial crisis. Our reader also makes the point that inflation should be great for those with whopping great mortgages. It means that the price of your house goes up and the real value of your debt goes down. I addressed this last week so I'll just let you read here why this isn't necessarily so.
Finally she suggests that the housing market won't fall because the government just won't let it. The Bank of England won't raise rates enough to crash the housing market because "that would be madness." And anyway a crash would mean another recession which would mean falling tax revenues and make our national debt even harder to service. "So the UK has to have rising house prices to keep paying the country's debts – and the government will make sure it happens."
This is touching stuff. So far, if there has been one big lesson from the financial crisis it has been this: no government can make sure of anything. The US couldn't stop the subprime crisis; Gordon Brown couldn't stop boom and bust; the Monetary Policy Committee can't stop inflation consistently rising above target; Greece can't make its people accept austerity; the Irish government couldn't stop house prices falling by 40% plus; Spain can't stop unemployment rising above 20%; and Germany can't stop the market slaying the euro.
So why on earth would anyone think that the UK government – even the new one – would be able to stop house prices falling? None of this suggests our reader shouldn't buy her dream house if she finds it and can easily afford it (even with rates at say 10%). Just that if she does, she should be prepared to find that doing so doesn't exactly make her fortune.
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(24 May 2010, 01:15PM) Complain about this comment
All well and good, but you completely forget that there is a fundemental housing crisis out there with nowhere near enough homes to go around. Chuck in a rising population, people living longer, dare I say immigration and you have what is commonly known as a serious problem with supply. Just look at oil prices... same market dynamics. There will always be a dip in value here and there, but I'm afraid to tell you its a fact that property prices will only go one way and thats up.
(24 May 2010, 02:12PM) Complain about this comment
Will, Is there really a housing crisis? Have you any evidence to back this up?The idea of a Housing Shortage comes froma report by Kate Barker for the government.The Barker report is a report that fails to assess population changes, analyse birth rates / death rates / immigration rates. The subject of BLT and its effects is effectively ignored and the rationale of the report is, to an extent, based upon the premise that we have a shortage as house prices are rising here faster than in europe and provides no hard evidence of a current shortage. Many of the recommendations of the Barker report, if inacted, would have the effect of reducing the likelihood of future housing market bubbles. It is still however a document which ignores several key aspects of the demand side of the equation; the most important being population growth.
(24 May 2010, 03:04PM) Complain about this comment
There is no supply shortage, there are an unbelievable number of new flat complexes which entered construction pre-crunch, and have only recently been completed (just look at all the concept art on RightMove). The developers of said new-build flats are currently trying (largely unsuccssfully) to palm them off onto unsuspecting first time buyers under shared ownership schemes to recoup costs while they still can... With sale volumes down at the current level, it would appear owners are sitting tight and waiting for prices to rise past their peak levels again. I believe once sentiment begins to turn we will see price falls accelerate quickly as the myth of ever rising house prices evaporates.
(24 May 2010, 03:37PM) Complain about this comment
Merryn, I do have much respect for your views. However. You don't always seem to get it right and it would be good if you recognised this and gave valid reasons behind them (to show that you are learning along the way).You have previously stated that house prices could not rise at current mortgage approval levels, circa 40-50k per month and that 3 months of upwards house prices didn't indicate a trend. As you have just quoted again, approvals are still at this level, and we now have about 12 months worth of upward prices and prices are now 10% up from the lows. I would say this is a trend.I agree that house prices will probably fall again but this is futile in a land that still thinks bricks and morter is a no brainer. Unless people get near what they think their house is worth they will not sell and I have plenty of evidence, having been trying to buy a bargain - not happening; and some family who have had a property on the market for 3 years!
(24 May 2010, 03:56PM) Complain about this comment
- lower interest rate does not always mean affordable loan. The low rates on offer are for short term loans and even they demand bigger deposit (and upfront fee which adds to the cost of buying)- I agree that traditional income ratio based analysis ignores the current low interest rate environment. However this can be easily addressed by taking ratio of Future Value of house using 10 year swap rate with Future value of earnings using average earning growth for 10 years. Effectively this means housing affordability is determined by Total Repayment in 10 years and Total Earnings in 10 years. I do not have exact data on these calculations by I feel that we will find even on this basis the housing market looks to be topping out.- And finally, sentiment is the biggest factor in housing. When there was easy money every T D and H went to buy to let. Now the same people are rushing out.
(24 May 2010, 04:00PM) Complain about this comment
Another downward pressure is the ending of those much derided HIPs. I suspect many sellers have resisted putting property on the market simply because of the cost. (Abolitionhas long been a Tory promise & they (Tories) had long been predicted to win the election) Now that HIPs have been suspended there well may be a rush of new property coming onto the market. A rush of new properties always make the existing stock seem stale & logically prices will drop.There is no one factor - but sentiment is DOWN
(24 May 2010, 04:01PM) Complain about this comment
"But the Bank of England can't ignore its targets for ever." - Why not? They pretty have done so far. As long as they state that they "predict a decrease" in inflation at some point sometime in the future they can justify the low rates and QE as much as they want. In doing so they stop house prices crashing. Their choice is either inflation which increases the value of the assets that the financial industry is based on or raising interests rates and protecting the savings of the middle classes. Being at the heart of the financial industry I'd take one guess at which one the MPC will choose.
(24 May 2010, 04:26PM) Complain about this comment
"Finally she suggests that the housing market won't fall because the government just won't let it."- Good luck to the state trying to support a market value of approx £4 trillion - they can support it temporarily, but that is all, and anyway, eventually the international bond markets would take the reins.
(24 May 2010, 04:48PM) Complain about this comment
Will @ 1. Funnily enough, Austalia try to use the same arguments for inflated house prices as we do in the UK. With a 16m population and land tens of times the area of the UK the argument of a lack of houses just doesn't hold up because they could easily build more (admittedly there is a fresh water issue in Oz, but I never hear that as an argument).Also, have you checked the statistics? I read somewhere that the number of houses in the UK has increased at a greater rate than the population since the 80s. If this is true, then your argument for over-inflated house prices is false.I hear this argument banded about so much I need to go and try to find the statistics. I suggest you do too.
(24 May 2010, 04:50PM) Complain about this comment
Russel G has hit the nail on the head. Now that the same people who control the debt, also control the printing presses and interest rates (yes they do), they'll just quietly inflate the problem away. About 2.5% has already been inflated away over the past 6 months while house price rose by 5-15%, I don't see savers rioting in the streets.
(24 May 2010, 04:56PM) Complain about this comment
If there were so few properties to go around we would see rents rise as people who couldn't afford to buy had to compete for rental properties. Rental yields are low and in many cases neagtive so one must conclude this fabled shortage of property is untrue.
(24 May 2010, 05:16PM) Complain about this comment
I've been in property investment, sales and management for over twenty years. Those that suggest we have a housing crisis are usually those with a vested interestTake a look here:http://www.emptyhomes.com/usefulresources/stats/statistics.htmlThe truth about our empty homes is shocking; 600,000 plus and counting!
(24 May 2010, 05:37PM) Complain about this comment
Prices haven't fallen because sellers appear not to need to sell. With very little forced selling, sellers can tell buyers to get lost if they don't like their offers. Recession, what recession? For most people the last couple of years has been like a boom. Quite extraordinary.
(24 May 2010, 06:34PM) Complain about this comment
I've been a housing bear for a long time now but am just about to become a first time buyer. Why? - Most importantly, I'm buying a home, not an investment. - We can just about afford it on 10% and one salary. It wouldn't be comfortable, but it is do-able. The fact the bank were trying to offer to lend me 50% more than I'm borrowing seemed to give some comfort. - Most relevant to this thread: My bearishness has been tested recently. Having seen the house crash that I'd been predicting for around four to five years, I was underprepared to see the lengths the BoE and HMG would go to to prevent house prices from falling. Literally printing money. This is why I'm no longer a bear: I think house prices are likely to fall in real terms, but the indebtedness of the UK means that the Government will always bail out debtors, so any nominal falls will be fairly short-lived.
(25 May 2010, 09:01AM) Complain about this comment
House prices will fall in real terms and nominally over the next few years.Governments, nations, and the world is going to get poorer as we all wake up from the spending hangover that has taken place during the last 10 years and pay back the debt. Anyone who thinks that house prices can go up during times of austerity is seriously deluded.
(25 May 2010, 10:02AM) Complain about this comment
I held off buying, like so many others here who saw the coming crash. my brother bought property as the boom took off. he is now looking at petitioning for bankruptcy. woe to him when the interest rates rise.but the housing market all depends on whom you listen to. HSBC phoned me up last week, trying to push one of their mortgages. they said now was the best time to buy as prices will rise, etc. i asked for the evidence and if they were aware of Professor Rodrigue and the overal trend as set out by the Land Reg.strange; she didnt seem to want to discuss house prices after that.But i do belive the vested interest in keeping house prices high; she me just one MP who is NOT a homeowner...
(25 May 2010, 10:12AM) Complain about this comment
Spot on. People continually fail to grasp that the price of property has very little to do with supply, but everything to do with reckless lending. If no one would have been lent more than 2.5 time their salaries then sellers would not have been able to inflate the price of the property, which would have then risen only in alignment to growth in earnings. Instead they perverted the market by lending whatever the seller demanded and so created a bubble that can only burst since earnings are massively out of alignment. There are only two ways out of this mess - either property prices collapse by up to 70% in some areas or salaries double. No prizes for guessing which it will be.
(25 May 2010, 10:38AM) Complain about this comment
War, huh, yeahWhat is it good forAbsolutely nothingUh-huhWar, huh, yeahWhat is it good forAbsolutely nothingSay it again, y'allI love it when someone from MW writes a piece on house prices, it sparks off all sorts of insance commentary.That itself is a bit of an indication. I'm sure that the German equivalent to MW (not as good even if it does exist, Im sure) wouldn't spark such a heated debate. That tells you how leveraged or tied to housing the UK population is: and that tells you that sooner or later a lot of people are going to be in trouble.
(25 May 2010, 12:24PM) Complain about this comment
"Housing Shortage" - what housing shortage? Why are the housebuilders not doing so well at the moment? Because there's not many people who want to buy new houses that's why - does anyone else not get it?It's all about supply and demand, and at the end of the day the demand is just not there at the moment compared to the level it was at a few years back. If the demand was high then you could bet your bottom dollar that the housebuilders would be back building again.
(25 May 2010, 12:46PM) Complain about this comment
@ WillThere is no housing shortage - there are plenty of empty homes, and there are very few people living on the streets- (those that are usuallly have an underlying mental health or substance abuse issue)Have a look at Japan's property boom and bust - that's a country even more grossly overpopulated than England
(25 May 2010, 01:35PM) Complain about this comment
"I'm afraid to tell you its a fact that property prices will only go one way and that's up"Will - from this comment I guess you must be a "buy to letter" trying to cling on to your investment?It's clear that most people are already struggling to get onto the market at current price levels, especially now that lending criteria are likely to remain strict for the foreseeable future. I presume you know something that the rest of us don't? If average house price continues to rise as you are predicting then please tell us who is going to have the money to buy all of these overpriced homes?
(25 May 2010, 03:46PM) Complain about this comment
I have to agree with the comment by Ben. I wouldn't fancy taking the risk of spending the next 20 years waiting for house prices to fall, thinking every year will be the tipping point then finding yourself 55 years old and still renting. Because one thing is for absolutely sure, if you rent for 20 years, the rent money will be worth precisely zero in your bank account. It's a guarenteed 100% loss.Even if house prices fall to 10% of their current values over the next 20 years, that's still far more than you'll ever end up with renting.
(25 May 2010, 05:41PM) Complain about this comment
Alex, why is it a risk to be waiting for house prices to fall?That's exactly the same sort of fear pedaled by the media that pushed people in to buying near the top of the recent boom. People were lead to believe that unless they bought 'now' then prices would escalate out of reach forever. The same thing is happening again now. It's fear on top of fear!Also to say that renting is dead money . . . well perhaps, but then again you could also consider the massive interest payments on any mortgage as dead money too. All I know for sure is that the people we know who have recently bought houses are all pretty skint and that's even with the interest rates as low as they are at the moment. Bills for new kitchens, insurance, leaks, plumbing, carpets - you name it on top of the regular mortgage payments. Renting on the other hand means that the landlord sorts out all of that stuff, for a fraction of the cost of a repayment mortgage.
(25 May 2010, 11:45PM) Complain about this comment
A few facts:- The longer term income-property ratio is not 100% applicable as more and more families have more than one earners.- With the gone of HIPs there will be more property on the market. No doubt.- "Owning a property is the most important thing in your life." Don't you find this is actually a brainwash by the bankers in the last decades?Bankers encourage buying (i.e. more mortgage lending). Bankers also encourage more affordable pricing (i.e. more people to borrow)- Rent return in most case is negative. There is no business case for buy-to-let. However, since the rental market is "demand-driven", landlords have limited power to set price. The only out come for them would be to sell. Increase CGT is a catalysts.- There are quite a lot of share ownership on the markets since the beginning of the year. The reason is due to an aftermath of increased gov't funding 2yrs before.
(26 May 2010, 08:56AM) Complain about this comment
Sam, if in 2000 you had decided to wait for properties to fall......you would still be waiting, except you would have spent 10 years paying rent and have nothing to show for it, meanwhile rising prices would have taken them even further out of your reach. That is why I call it a risk, all decisions carry risk, whether you choose to buy or choose to wait.If you buy there is a risk that prices will fall ( but at least you have a home and can get on with your life ), if you carry on renting they might rise leaving you stuck renting.
(26 May 2010, 09:13AM) Complain about this comment
The problem with most of this discussion is that, by defintion, the people who read this site and leave remarks are generally far better off than the average person in Britain. As a result many of the comments about supply and demand are out of touch with the actual situation facing millions in this country.One example of course is not statistically significant, but it can illustrate. My sister is married and just turned 50. She lives in Guidlford and both her and her husband work for Tesco on permanent nights. Between them they just have the income to rent a studio flat, and nothing left for savings. Even if they had a deposit and even at stupid income multiples they could never hope to get a mortgsge and buy even the pathetically small flat they currently rent.Demand is the other side of the coin of low wages and unemployment and inevitably, if the government gets away with it, which I sincerely hope they won't, is on the verge of falling of a cliff. As are house prices.
(26 May 2010, 09:38AM) Complain about this comment
Alex, I can understand your points but how about this for an alternative option:We're happy to carry on renting for the time being. Unlike some we do not feel that rushing to buy a house makes us a better person, gives us any more security or means that we are better able to 'carry on with our life'. Our life is certainly not 'on hold' - quite the opposite in fact!For us buying a house is not the 'be all and end all in' life. Enjoying our life is much more of a goal - and because we don't have a huge mortgage debt around our necks then we can certainly do that. Also whilst we're enjoying ourselves at our landlords expense/risk, and because our rent is much less than a repayment mortgage then we're also able to save a bigger and bigger deposit for when the time comes when we want to buy - whether house prices have gone up or down.
(26 May 2010, 09:40AM) Complain about this comment
You either rent the property or you rent the money.The bank owns your house until you have payed it off.With a repayment mortgage for the first 5-10 years you are almost renting your house anyway because you are hardly paying off any capital.I rent and it is my home. I am getting on with my life fantastically because I am renting. I know I am losing out on equity when property prices are rising. However. The cost of renting the money is more expensive than just renting a property -like for like (rental yields still very low).I am also saving a lot of money by not paying all that interest and am living a lavish lifestyle with no debts around my neck - true freedom - worth a lot.Spare money is being invested wisely and one day might be able to buy a property outright with cash, but only if its a good deal.UK grade for basic maths and financial aptitude = FailThink!
(26 May 2010, 10:24AM) Complain about this comment
I can only speak for my area, but in my experience rents are not cheaper than repayment mortgages. Infact rents are in the region of 8-10% above the repayment mortgage rate. Having said that, rental property forms an important component of a well balanced portfolio, and so it's important tthat there is a ready market of renters, there is a cost benefit here, renters get a perceived freedom in exchange for which they pay a price. No one should feel they have to own a property if they don't want to. You just need to plan very carefully to cover the costs of either renting into retirement or having to finally buy on retirement.
(26 May 2010, 10:55AM) Complain about this comment
I think the problem so far as I see it is that property represents such bad value at the moment. What has pushed the prices so high during the last boom? Speculation, greed and fear, pure and simple. It's not like these properties have doubled in size or have been completely re-fitted which in my eyes would justify a significant increase in values.Put it this way, around here you would pay in the region of £190k for a two bed flat with no garden, and still have to cough up an additional £60-£80 a month in management fees each and every month on top of a mortgage. Does anyone think that is good value for money for what is essentially just a pile of bricks and glass at the end of the day? I certainly don't.And that is the main reason why "I'm out" at the moment. Yes we have a big deposit already saved and yes we could easily get a mortgage but until I see that we're going to get good value for money by buying then I don't really see what the point is.
(27 May 2010, 09:16AM) Complain about this comment
House prices have to come down and the reason that they haven't yet is because the interest rates are so low (in fact the lowest they have ever been) and this is propping up the market and admittedly - keeping people in their homes. However -the average house price is still somewhere in excess of 4.5 x the average wage and history shows that until this comes back down to around 3 or 3.25 x average salary, the housing market will just trickle along with homes being 'for sale' for years as buyers try to get what they thought their property was worth back in the height of the market.Also, as for the argument about renting - a study was done a few years ago comparing a person buying a house with a mortgage over 20/25 years and a person renting BUT investing the deposit that was available for the house in an average investment vehicle. It transpired that the house buyer ended up owning a house worth around £260k and the investor had a portfolio worth around £400k??
(29 May 2010, 10:49AM) Complain about this comment
HiI'm sick and tired of hearing the same old supply and demand bollox from desperate estate agents/amateur BTL's/property twerps etc. Get real!!!
(29 May 2010, 10:58AM) Complain about this comment
House prices will eventualy have to return to a more managable level. This is simply sound economics.Those who suggest the 'housing shortage' will sustain prices should consider the words of Roger Bootle (Capital Economics) who suggested some time ago that 'there is a shortage of Rolls Royces in the UK, but it's the price that stops every other car in the UK being a roller' (Or words to that effect, sorry Roger).
(29 May 2010, 11:20AM) Complain about this comment
The key word that will determine house prices is AFFORDABILITY.The major reason we havent seen a huge drop in house prices so far is the historically low base rate. When rates go up the housing market will fall - throw in rising utility costs, higher taxation, higher CGT and higher unemployment you will see a slow down in consumer spending and additional price corrections. too many people have been treating credit as a way of life rather than a life line. The gold ratio example is nonsense and cannot be applied in any way whatsover as the pricing of gold has long been contentious (look up GATA in Google). The UK has been living a dream and just woken up with a start! Look around you and ask yourself have you ever known so many people on the brink of unemployment and debt problems - if we are in this position on 0.5% base rate where are we going to be on 4% in 18 months time? If you think your house is going up while that is going on I think you should be reading Beano instead.
(29 May 2010, 12:46PM) Complain about this comment
I dont think I would borrow to buy at present. But if I had spare money, would I put it into shares/bonds or property or bank deposits? I speak of savings to support me in retirement. I would like a balance, but well chosen housing would definitely be part of the mix, and a very significant part. The reasons? Banks have too large a spread between depostit and loan rates. Shares have become a casino, with dividends a thing of the past and commercial morality at an all time low. And dividends seem to be a thing of the past. With the boomer population looking for savings income, housing, even at the low rates of return, is a consideration. And it is nice to know that your savings are keeping someone sheltered and comfortable as well as giving you a modest income. I dont see why this cant be a win-win situation for all. Renters get a comfortable flat at less than they would have to pay if buying. Retirees get a modest but reliable income on their savings.
(29 May 2010, 01:32PM) Complain about this comment
The price of residential property will fall over the next 5 years at least. Property prices are still overvalued against income ratios. If you take into account tax rises over the period of the current Parliament to sort out the MASSIVE DEBT the country has to finance and pay off, then we are looking at serious price falls in residential property in the short to medium term.
(29 May 2010, 01:51PM) Complain about this comment
I am an estate agent based in Surrey. Prices fell by approx 20% between Q4 07 and Q1 09. However, from Q2 09 they have bounced significantly and now are no more than 3% off peak. The majority of this bounce happened Q2 to Q4 09 whilst we were still in recession, unemployment was rising, mortgage approvals were down 60% etc, etc. Theoretically, this makes no sense other than to say that ultimately people want to own their own home. This desire subsided whilst the media reported prices were crashing but the moment the price slide ceased (around May 09) buyers sensed we had reached the bottom and the demand came rushing back in - hence prices bounced back.In spite of the doom and gloom prices have risen and are widely expected to show further modest increase over the next couple of years.
(29 May 2010, 02:36PM) Complain about this comment
About 18 months ago I read that the bottom of the market will not have been reached until people are so sick of the housing market that it is no longer a topic of conversation. As the 39 posts in response to this article illustrate, we are still a long way off that point!
(29 May 2010, 03:06PM) Complain about this comment
SA1"Theoretically, this makes no sense other than to say that ultimately people want to own their own home."Are you Estate Agents cloned to disgorge the same old rubbish?As you seem incapable of understanding it let me explain. Supply and demand. Some people have to buy property for their own personal reasons. As there are few houses available prices go up. This is just as easily reversed when supply is high.
(29 May 2010, 03:49PM) Complain about this comment
modern day (last 50 years) average (mean) boe base rate is around 7%, mean mortgage rate available to joe public is a little higher at about 8%I expect boe base rate to stay below 5% for a few years yet, but mortgage rates could easily end up at 10% much sooner. the two are no longer joined at the hip. I expect my house to fall in (paper) value by at least 50% from 2007 peak but aren't bothered as I have to live somewhere and renting an identical house would cost me triple what I pay on the remainder of my mortgage.
(29 May 2010, 03:56PM) Complain about this comment
Will's comment is just silly. How many times do people trot out this lame excuse. Housing shortage, immigration, etc. Pardon me, but where was the housing shortage from 1990 to 1996? Where was it last year and the year before? Did it suddenly disappear?If the banks wont lend, you cant buy. Have you seen the bank lending chart? It's crashed.I have been buying and selling property for 40 years. I can tell you that house prices will not rise significantly over the next 5 years+. I see a locked-up banking system, and people with 1% rises in income. That does not translate into a rise in prices no matter how many people want to buy. Want to buy, and can buy are worlds apart.Rose tinted specs are obviously still all the rage.
(29 May 2010, 04:47PM) Complain about this comment
I have owned flats and rented them, and the difference in quality of life is indistinguishable. You don't in any case 'own' a flat, you have the leasehold, which gives you very little power to do anything unless you litigate; and the mortgage lender owns the property and sets your mortgage rate without asking your permission.
(29 May 2010, 05:07PM) Complain about this comment
i think its a little naive to talk about house prices in such a general way. i work in property finance and from london and its clear properties are being sold near asking prices. go up to some of the northern cities and you'll be able to find property being marketed from sourcers 15-20% of RICS valuations.average first time buyers need 3.5 - 5 times income in London whislt in the north is less than that. if the first time buyers dont buy there are plenty of others who will snap up the property
(29 May 2010, 05:11PM) Complain about this comment
of course its lending criteria in the end. are all these renters honestly saying that if there were 100% mortgages available on an interest only basis that they would still elect to rent than buy?
(29 May 2010, 05:40PM) Complain about this comment
Their is a longstanding worrying trend in the UK to run higher inflation than in other major Western European countries.The BoE has practically never managed to meet its 2% target in years. I am not sure where all this deflationary scare is coming from. At some stage QE will translate into increased money supply and put further upward pressure on inflation as 'imported inflation' due to the weak pound is already doing.Interest rates will have to go up to contain this and a lot of people will suddenly find they are struggling with repaying their mortgages or taking them up in first place. Add reduced disposable incomes: higher income tax, capital gain tax, national insurance, ever rising council tax, inflation again (train fares...) and for most people below inflation pay rise I cannot see how house prices can rise further in a sustainable manner.
(30 May 2010, 07:15AM) Complain about this comment
Thank you Merryn. Objectivity is key, I live overseas and do not own an house in the UK, its too expensive even with sterling down. I think we have to take a deep breath and a few steps back. Prices bounced back because of the sheep theory. A correction in the order of 50% is not unrealistic. If you are struggling now on low interest rates, you will really suffer when they go up just a few per cent. That with a devaluation in sterling will remove confidence in the market. The wise money is out and parked in Asia, or Brazil or India. Wish you all luck because sterling is heading down with the Euro, don't take my word for it people because they are lining up as we speak, simply because of the sheep theory. The next time you are out and about watch what sheep do and take out your times tables with you too. You had better hope the Euro recovers if it don't there are going to be a lot more homeless people and they will not only be from substance abuse either.
(30 May 2010, 08:55AM) Complain about this comment
Merryn,Why didn't you mention that you have just bought a house?
(30 May 2010, 02:20PM) Complain about this comment
Merryn, I want to echo Cassandra's comment. Having seen you (about two and a half years ago?) on a pre-credit-crunch TV debate about property alongside a bullish director from Savills I felt vindicated in not having decided to rent in 2004 when I sold my house. I'm still waiting for the 'moment to buy' and have continued to follow your logic in Money Week since subscribing 3 months ago until - I saw your editorial column recently where you admitted to having bought a primary residence at last. It seems to me therefore that there must be other factors that you have considered but which you don't describe in any detail. You did mention your 'ownership timescale' of at least 10 years which you cite as the reason you're not too worried about which way the market goes in less time than this. However, your decision to buy suggests that you might have considered, but not articulated, other factors some of which are probably echoed from commentators above. Please explain yourself!
(30 May 2010, 05:00PM) Complain about this comment
Why does everyone think that ever increasing house prices are a vote winner for the government ? All the baby boom generation seem to have forgotten that anyone under the age of thirty years old, on an average wage (usually with a huge university debt already ) hasn't a hope in hell of getting on the housing ladder in most areas of the country. This is an ever increasing section of the voting public that would love to see house prices come down! There are plenty of houses and flats out there, its just that they are all being bought up and rented back out at profit to those who struggle to get a mortgage ( in other words the young). There are plenty of us who would love to see the part time property tycoons , "bodge it" and "flog it" developers, and modern day slum lords sink in a sea of mortgage debt!!! And good bloody riddens!!!
(31 May 2010, 05:24AM) Complain about this comment
Alex, if you rent your house at this time rather than buy you have many advantages: you do not trap yourself into a possible falling and highly illiquid market; you do not have the same risk of inflation so that real prices fall even faster than nominal; you do not have depreciation costs; you do not have maintenance costs; nor are there rates or property taxes; also no huge realtor taxes when you sell; no insurance to pay; and no vulnerability to governmental whim as they increase CGT. If this is anything like Japan you could wait 20 years and still house prices will be down.
(31 May 2010, 05:32AM) Complain about this comment
Another absurd argument that needs to be addressed is that when you pay rent you are throwing money down a hole. Of course, if you pay interest, which is inevitably going to increase as rates rise, maybe to staggering heights eventually, you are also throwing money down a hole because almost nothing in the early stages of a mortgage is going to paying off the actual debt. But then you also have all the disadvantages listed above, as well as NOT realling 'owning' your home which is owned by the bank, but really just having an option to sell and stay in your home
(31 May 2010, 05:47AM) Complain about this comment
In a market like this owning a house is SELF-ENTRAPMENT. You have made yourself vulnerable to draconian government policies in the future, and reduced your mobility to escape. One thing is certain, not this government, nor any other governmnet is going to 'fix'the awful state Britain is in. Maybe quite soon, as millions of Britons have discovered, there are other better countries to live in that do not have such appalling taxes, are not so crowded, are a lot safer, and offer one a better chance to use one's abilities to succeed financially, without stripping you of a huge percentage of what you earn.
(02 June 2010, 09:38AM) Complain about this comment
Having rented an apartment for 10 years with my partner, and not being able to save a deposit for a mortgage due to monthly outgoings, I would argue we represent a large percentage of the UK population who want to buy but simply can't.This has cost us 72k over a 10 year period and this figure excludes council tax (the Norm) which contradicts Peter Dykes comment above "nor are there rates or property taxes" Furthermore, in terms of maintenance for the one bedroom apartment over a 10 year period, what maintenance? The apartment was a new build (no surprise there) and it is still is in the same as new condition as we hardly live there because we are always working! There have been no maintenance costs for the landlords! Everyone has their own opinion about whether prices will rise or fall and whether you will lose or gain. Personally, I take the view that if you know where you want to live and settle down (and you have the deposit to secure a mortgage), maybe to start a family...
(02 June 2010, 09:39AM) Complain about this comment
...Make a calculated investment and don't waste your life fuelling the landlords luxuries. Realistically, house prices will not drop enough to warrant waiting around in a buyer’s market. If you have the money to take the next step, find what you like and buy it. It is of course my personal opinion as a renter for 10 years.Swapping £600 a month rent for a mortgage, you can buy apartments all over the country and own a bit more of your home every month; it is more rewarding. I have made chronological mortgage calculations every year and we could have owned as much as £300 worth of our property each month after interest is paid, that is 36k. Over the 10 year period. Alternatively, for those who are in a flexible position of taking their work abroad, read post 53. I couldn't agree more, but it hardly represents the feasibility of the average Brit.
(02 June 2010, 09:50AM) Complain about this comment
One final comment regarding post 51 again: We have also paid contents insurance for the past 10 years, and whilst it will of course be cheaper than building insurance, we have a "no claims" reduced premium which would be reflected if we added building insurance as well. This further adds to the misconception from "Peter Dykes" that renters do not have overheads!
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