To wonder wtf is happening with the London property market?!

[MeAndMine21]

Unbelievable. It's never been this bad.

Will it just keep going up?

It is crazy. We thought when we bought in 2013 that we would not be like my parents who were 'lucky' as they bought their house in the 80's for 55000 and sold 30 years later for 465000. However we got in just before it went mad in the south east. After 2 years our house is worth £40k more than we paid for it (based on another house exactly the same as ours but in worse condition that sold in our road last month) and it is a semi detached bungalow in zone 6. We have now extended so it will be worth even more than that. Great for us as we need to extend again but awful for first time buyers. We only got on the ladder with a loan from my FIL. And we earn way more above the average.

Deogratias
It is all about supply and demand.
Yes but much of the demand is non residential.

I spent last weekend in Battersea.
All of those massive complexes of apartments (note the non use of the English word "flats" )
aimed at and marketed to
speculators who will buy with dodgy cash and keep them pristine to sell on later

No mortgage control in the world will deal with Russian Oligarchs and Chinese party chiefs and Greek ship owners wanting to stash wodges of cash in London Bricks and mortar.

Look at this brochure : 2,000 properties
www.batterseapowerstation.co.uk/#!/go/view/app/global-launch?view=roof-gardens

No worries about

• schools
• shops
• jobs

because their market are not interested in such ....

London is in a bubble. Prime London has been crashing since the end of last year. It is slowly rippling out. With all the new tax rules property is not as attractive to invest in and people are looking to get out. The very nature of a bubble is most people don't believe we are in one.

London is a massive off shore tax haven for people hiding their illgotten gains, its not built on solid fundamental s.

It is supply and demand in the sense that you could build thousands of little flats but a lot of us want a house with a garden, and those are not being built anymore.

I bought a house in zone 4 last year for £286k. Just an ordinary Victorian terrace. Prices are already up at least £30-50k here compared to last year for houses like this. I know I'm really lucky to have been able to buy but sometimes I feel sad that I'm living in such a grotty area with a long commute, having paid more than a much bigger house in a nicer area would have been a decade earlier. Gentrification has started very, very slowly here now but I don't know if it will ever be as nice here in outer London as it is in zone 2/3 where at least you can get the train/tube to central London in 10-20 minutes.

A lot of people on my street have lived here for decades and have or had very ordinary jobs (think nurses and plumbers and BT engineers...). I doubt they could afford to buy here now though.

God. Threads like these make me in my £190k 4 bed in rural Wales. I'm such a bumpkin. Had to stay in Surrey last night and out of interest, did a location search on Roghtmove - the properties that came up were well over the £1m mark!

Ex and I own a 4 bed detached house in SW London . .valued at £1.3 million. Ridiculous.
I am already looking at property in Yotkshire , openmouthed at what I can buy.

Goneand
It is supply and demand in the sense that you could build thousands of little flats but a lot of us want a house with a garden, and those are not being built anymore.
Nope.
Battersea park is the garden for all the tenants of the Albany mansions flats
and the Mayfair houses do not have gardens

the issue is that houses are not being occupied

Why is it when it comes to property everyone forgets whats happened in the past. Its a bubble and like all bubbles its going to burst.

You read all the same platitudes, there is not enough new builds, there is no end of employment, everyone wants to live in London...ect.

Its absolutely wrong to believe the market in London and the South east can continue as it is, lets look at some facts.

Firstly, interest rates are at all time lows, you Had international buyers buying as Sterling was rather weak meaning their dollars & Euros went much further then normal, you had the massive amounts of dodgy money,Buy to lets, the world is full of quantitative easing look for a home lastly you have the first time buyers. There are other factors too.

The market will correct.

whatforsupper

How can the UK market correct cash flows from Russia and China
as that is what is driving the rises

there are no mortgages involved, just money laundering

Wow. I'm an LBC listener now and again so hear things mentioned about London housing. It is truly shocking how things are changing so rapidly.

We're about an hour by train from London and are seeing areas around here just growing at a hugely rapid rate. Colchester for example, each time I'm around there in stunned by the building going on. I do think it's down to the cost of London living.

"Supply and demand" is too basic a concept to account for a complex market like the housing market, which is a macroeconomic market and is driven by macro factors like economic, monetary and fiscal policy, credit supply, interest rates and capital movements.

It isn't a simple market like an economics 101 idea of numerical supply and numerical demand; there is a lot more going on. And "demand" in economic terms doesn't really mean "desire": it means something like "ability and willingness to pay". (I might desire a nice house, but if I can't pay for one there is no demand as such.) Ever amused yourself on Rightmove looking at the super-prime central London property? There are hundreds and thousands of multi-million pound houses in central London that have been on the market stagnating for months and years. Ask yourself why there is apparently no demand for them, if there is such demand for 300k flats? Supply and demand is a much more complex thing than the simple equation posters are suggesting here.

It is a bubble - primarily caused by the huge credit expansion of the long boom of the 2000s, and only prevented from popping by desperate and historically unprecedented levels of government propping-up, as well as the overseas money laundering factors that a PP mentioned above. It's a market running in thin air, desperate to pretend there isn't a huge fall below.

Those who think the bubble isn't a bubble because of population increases - we currently have a demographic bulge of baby boomers and young pensioners who are currently under-occupying large houses which they bought at a time of rapid inflation and rapid salary increases. Younger people are struggling to buy and for the most part have much lower incomes. Most workers under 45 have pretty stagnant earnings in fact: salaries haven't been increasing in real terms for a long time and are still falling in real terms - the under-45s are actually earning less now than they were in about 2004. There doesn't look like much of a prospect of the kind of bumper 15% and 20% wage inflation rises that the boomers experienced in the 70s and early 80s. Rent for the under-35s, under-40s in London is easily 50% of household earning for many. That doesn't leave much left for saving or investing, so those people by and large are not building up many assets. They also tend to over-occupy housing - e.g. families in small flats sharing rooms, professionals sharing houses.

The pensioners and boomers are either retired or about to retire (in waves over the next 10-20 years). Then they will become ill, need health and social care, and in the end die. Their houses will be sold, either when they die or when they need to free up capital for living costs (downsizing, pension), healthcare costs (care and care homes).

But there are more baby boomers and young pensioners than there are younger people and workers in the generations underneath - a baby boom generation with smaller generations coming after. Who will buy all the houses? And, more importantly, do those future buyers' projected salaries look like they will pay for those houses at current values? What is going to happen when the population demographics shift and suddenly there are too many pensioners and too few workers; too many older people trying to sell their houses into a market where there are not enough buyers, and the buyers that there are can't afford current bubble prices? What will happen to house prices when auntie Susan needs to sell up but most of the under-40s have stagnant salaries of £28,000 and no money for a deposit? Are they going to be buying family houses that currently cost upwards of 600-800k?

Are overseas capital investors and economic migrants going to step in and prop up the bubble throughout the UK? More likely, when the UK's economic system collapses in a few years' time under the weight of pensioner entitlements, pensions and demands on healthcare, but there aren't enough workers earning decent salaries to support these in tax receipts, the resulting chaos will mean any overseas investors will be heading right off to far more lucrative markets. Keeping a house in London as a cash sink when the UK looks like a gold-plated first world economy - appealing. Not so much when the property market is tanking and the country's creaky infrastructure and tax take can't support a load of grumpy baby boomers who are suddenly finding that they can't cash in their housing piggybank when the younger generation who ought to be buying it has been systematically impoverished.

We just bought well 4 years ago.

Well bully for you.

Tod what an interesting post. All the people saying its impossible for London to crash should read it. They won't.

Awesome post toddler

whois maybe read my second post before being such a dick!

Sorry, just reread and realised how glib that sounds. We didn't just buy well. We're also lucky to have two decent jobs (though I'm now part time) and to have saved the deposit we needed before the boom got truly nuts. Luck and age are the biggest reasons some people own and others don't imo.

Toddler, interesting post, and I agree that it is more than supply and demand, but that is the very crux of the "bubble" anti bubble argument which should be better explained.

The population of London fell from 1940 to about 1988 where it was at about 6.8 million, the house prices were slightly more expensive due to the demand for housing being higher, but they were not too far away from the rest of the country.

Since 1988 we have seen the population start to rise again, to is current 8.5 million which is now back at the pre war high. So actually there is a huge basic supply and demand issue here, the increase in population creates more demand than there is supply of housing forcing prices up.

Secondly since 1939 we have seen a huge societal change in the way that households exist. We have more single people who are property owners, more split families, also (and this is important) the role of women has changed, women who are unmarried do not stay at home with Mum and Dad these days, they have their own households. All of this creates more demand, but again the supply is relitively inelastic so this drives prices up.

The money people are able to borrow has changed too, way back when my parents first got their mortgage it was 2.5 times by Dad's salary, my Mother's income was not taken into account. These days both incomes are taken into accout and the amount you can borrow reasonably seems to be about 4 x both. This drives prices up too! The credit controls of the last 5 years (no more 100% mortgages etc) have done little to stem the demand for London property.

This next bit is important, the pool of waiting entrants to the market keeps prices high. This thread is the very evidence of it. If prices were to fall ever so slightly, lots more consumers would be able to purchase housing, this acts on the market by the fact that if you drop the price for the flat a little, two or more people are bidding on it, they raise their bids slightly in order to get it, which then effects the way the next flat of its type on the market is priced.

There are also limits on the kind of property a first time buyer can get a mortgage on. Nothing above commercial units, and nothing over the 4th floor of a block will get a mortgage. This increases the demand for the houses/flats that they can buy, which again then inflates the rest of the market.

This means that any short term slump in prices is counteracted (eventually) by the consumer themselves causing prices to rise.

The baby boom analogy you made is probably not quite correct either. It is unlikely that there would be a large enough glut of property onto the market at one time in order to force prices down, these properties are much more likely to be sold off across the next decade in a piecemeal kind of way, meaning that prices will remain relatively stable. I'd imagine many who have seen the value of their property escalate have already sold up, provided children with deposits ( thus causing rising prices) and downsized. Well there will be as many of this type of person as your theortical Aunty Doris who will be looking to sell her house in ten years time.

Back to the population point finally, the population is projected to increase to 10 million in the next decade, thats an extra 150,000 people a year coming into the city, again enhancing demand, and thus causing prices to either maintain or rise.

See the real problem is not rich oligarchs buying Chelsea property, or investment boxes in the sky, it is supply and demand, there are many deteriminants of that demand, but it really is that simple.

'Tis social cleansing.
They brag about how London is financial capital of the world, see extortionate prices as a good thing as is proves how sucessful it is on a global scale. The fact Londoners are being priced out of their own city is irrelevant, as long as their are foreign investors out there willing to pay

Longtime has it right. Baby boomers are not going to die en masse, it will take many years (during which time people in their 30s still waiting to buy will be in their 50s) Lots of baby boomers will pass on their houses to their children, in fact the mere fact that prices are so high makes BBs even more determined, as otherwise they couldn't afford a home.

There are many, many people waiting on the sidelines to buy, a small dip in prices will cause another feeding frenzy and then prices go up again. Even worse, asset rich older people will snap up more properties as BTLs if prices plunge, causing prices to rise again.

I agree longtime, the baby boomers won't cause a downturn, they're spread over 20 years or so, it'll be nothing more than a tiny drip effect.

However,mI think that we are due a big economic crash, it could be as early as next year but I think more likely in 3 or 4 years, and house prices will fall as a consequence of that but the property market won't be the instigator.

Toddler really good post

Longtime has got it very wrong.

The boomers were born en mass, they will die en mass, need healthcare en mass etc. All of which will affect the country significantly.

Of course people won't just pile in if there is a small fall, as they wouldn't be able to afford to buy even with a small fall if they loose their jobs or the credit tap is tightened. These will probably all happen at the same time as we are on the verge of an economic meltdown, 2007 just delayed the inevitable and built it up to be bigger. None of the fundamental problems have been fixed.

London has crashed before, people said then it would never crash, it did. This crash looks to be much bigger.

The problem is with Toddlers post is that the " it can't go on" crowd have been saying that for decades. I'm not quite sure I agree with the apocolyptic destruction of the UK economy point either.

The thing is, I don't see house prices going up as rapdily as they have in recent years. What I do see happening is minor falls and rises across a long time which will mean that if you buy a house in order to live in it, then yes the value of your house will probably increase in real terms, but won't present the windfalls that it has recently.

Finally, the real terms point is actually really good, using the BOE inflation calculator, a house costing £300,000 would cost £343, 576 in 2014, how many houses/flats have risen greatly beyond inflation?

Baby boomers are now between 50 and 69 years of age. They were born over 19 years. They won't all die in the same year, or even the same decade. They don't have the same life expectancy either. They wont all need to go into care homes. Longtime has a good grasp of population demographics. If anyone is waiting for two decades of people to drop dead all at the same time, they'll be waiting a long time. A small sustained uptick in available houses over 20 years will not override the mismatch between supply and demand unless the two are very evenly matched.

Both sides are right. We might well have a crash. I remember the 1970s property crash which wiped many people out (and 60% infliation after that over 3 years which was crippling for those with savings, and up to 99% income tax!); I remember the 1990s crash where we sold two flats for 50% less than we'd paid for them and the day interest rates got back up to 12%: obviously all of us remember the credit crunch too and plenty of houses are still not worth what they were in the UK before the credit crunch,.

However in all those crashes when house prices dropped they have always in London risen eventually even taking account of inflation. So yes the properties over £1m in London are not rushing off the shelves now that stamp duty is ridiculously high and people are moving further out to get more space as we had to do 30 years ago, but demand remains high. The baby boomers might die (eventually at aged 90) but they will pass their houses to their children before they die to avoid inheritance tax and if we are talking about London people want to live here from all over the world.

So never wait to buy until a crash as it is too hard to predict when the crash will come. Buy as sdoon as you can ideally before babies come and put off children until you can afford to buy - my grandfather had my father at 50 for the same reason. My parents were married 10 years before babies for the same reason. My daughters have bought before babies now. That has always been good advice. Then sit it out - if the price drops for 5 years, so what if you're going to own a propery for 40 more years?