House prices

[Newbie1999]

Realistically, how much do you think house prices will fall over the next couple of years?

During the 89/90 house price crash, people I knew who HAD to move but were in negative equity chose to rent out their houses and rent elsewhere.

This solved the issue for those who had to move for a job, and also provided some relief for those who could feasibly downsize.

I don't see house prices falling by much or for long where I live. I do think this will be yet another North/South issue

I don’t think there will be a big fall. There will be repossessions and hurried sales where jobs are lost etc, but I don’t think there will be a huge amount of voluntary movement, which leads to reduced supply for potential buyers.

what if your fixed term mortgage ends and you need to remortgage

Technically you don’t need to do anything as you would just revert to the banks normal rate.

As I said if you can pay the mortgage and don’t need to move then negative equity shouldn’t affect you.

During the 90s when interest rates went astronomically high the people I know did something similar to the people bluebeck knew but they rented a very cheap place and rented their own place out in order to keep their home.

Others had lodgers to help pay the mortgage or took on 2nd and 3rd jobs.

But many also posted the keys through the letterbox and took a flight to Oz.

I think about 345k people had their homes repossessed between 1990 and 1995 so not everyone was renting them out.

But the circumstances and interest rates are not the same as 1990-1995.

Interest rates are at an all time low to start with.

During that time period it was about hanging on to your job and wondering when it will end.

As more and more people get Covid 19 and survive or we get an antibody test then things will get back to normal.
There is an end in sight (it might be a year/18 months away for a vaccine). In the meantime I think the government will introduce schemes to get people out working again through self employment or helping to prop up companies that have the ability to thrive and keep people working.
It would be in their best interest to do so.
Better for them to be taxing people’s income than them being solely in UC.

Even if a lot of people did start to WFH I doubt there will be a huge exodus from London.

London is home to people.
They have their children in schools, they have friends, family and the world on their doorstep

Whilst there might be areas around the country that might be beautiful to look at, nothing around you and have cheap housing for a lot of people that is their idea of Hell and they would rather be in a 2 bed flat with 2 children but with the noise and the bustle of the city on their doorstep and a support structure in place than in a quiet place that affords them a detached house but with no friends, family, shops or other work on their doorstep.

If they were ever to lose the job they were doing they would be stuck.

The next company might want them to be in an office in London F/T

Can’t do the renting thing anymore due to various tax changes. So many people on here still suggest it though... and with interest rates at an all time low, there doesn’t seem much advantage in doing so.

I don’t see why you can’t rent your home out?

Even after tax you would still have an income and if you go into a much cheaper property then you are still getting more money in.

You don’t have to go down the traditional 6 month rental route either

There are ways of getting tax relief from the mortgage interest payments.

But the circumstances and interest rates are not the same as 1990-1995

Where did I make the comparison?

I simply was pointing out that during the 90s not everyone avoided repossession by renting out their home.

But there again I probably have more experience than most economists when it comes to the housing market

So tell us about all your experience then?

@Oliversmumsarmy I do agree that many people are likely to stay in London. I am going to TTC in my 2 bed flat and stay there for the foreseeable future with 1 child. my husband grew up in london and his mum can't leave London as she is an orthodox jew and all the amenities she needs to leave a Jewish life are here. To a lesser extent, I also have my synagogue here (though I can commute but it does make things harder). Plus she bought her house for 100K in the 1990s (she had to sell her flat at a 30K loss in order to buy her house, but she had paid off that flat). So another story about the problem of negative equity, but she was lucky that she had built up equity and she has no regrets about the money lost because the upgrade in her living standards was huge and she also ended up having 4 children (1 bed flat to a 3.5 bed house). Also that money she lost is quite small compared to the property value today (even if covid smashes the property value by 40%). I hope that for me, covid could end up like that, but of course there would be a lot of collateral damage on the way, my MIL knew so many people who became bankrupt cos they lost their jobs, couldn't pay the mortgage and had negative equity. She bought the house from a family that looked like it was in serious financial trouble.

There is rent a room relief which allows you to receive up to a maximum of £7500 per year tax free when you rent furnished accommodation to someone in your own home. That might be an option for some people in a difficult spot income-wise in the coming months. There are less regulations to adhere to doing this than renting a flat or house you do not live in yourself, and ending the tenancy for both parties is easier too.

I don't see what tax changes there are which make it prohibitive to rent your own home out if you chose to rent a cheaper place yourself? If you rent your own home there are a lot more regulations to follow however and you may have to be registered (in Scotland all landlords are registered, I am not sure the situation in the rest of the UK)

There are certainly additional taxes to be paid for anyone purchasing more than one home with no intention of selling their primary residence, but that wouldn't be the case in this scenario.

On London - obviously, London won’t empty. But the increased WFH means young pre-family or very young families can decide to move back to be closer to out-of-town family help in other regions.

Should have also said, income gained from renting your own home if you do not live in it yourself would be taxable - ie it would just be added to your other income from employment etc and taxed at the right rate depending on the taxs bands it falls into.

If DH can wfh more than once a week we will likely move out of London. I love our area of London but would like more space, we have got used to a tiny mortgage though. Our childcare costs reduce considerably in Sept, currently 1k a month so we were looking at moving up using that saving but not so sure now.

@tontie would you sell at a lower price if you could get your ideal house in your dream location for the same corresponding low price?

Of course, plus we have a load of equity at least 600k & it would mean less stamp duty.

I said upthread Dh & I were very lucky to get on the London ladder young so have benefited from huge growth.

sorry on the x trainer hence why I can't type properly!

@PersonaNonGarter "No, that’s not it. Demand is essential..."

No, don't seem to understand the problem. It's obvious that for a base market to exist, there needs to be demand. It's pretty much a given. How much that raw "demand" for housing drives prices is what we're talking about. Turns out, most of the price rises from 2009 have had little to do with "demand".

Estate agents would like you to think that the heaving hordes rushing into London is what's driving property prices. In reality, it's credit. There have been several economic studies that have disproven this. The most recent one was by the Bank of England in 2019 where they found a 1% increase in interest rates would reduce house prices by 20%; a 2% increase would lead to a 33% reduction. You can read the study here: www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf?la=en&hash=7C12A901353CB615C3FC1A58557918D50775E470

If prices were driven purely by the "increasing number of people want to buy London property" argument, then why would interest rates play such a dominant role in house prices?

But isn't this more similar to the great depression than the 80s?

Plus we have automation replacing jobs quickly.

Only way they will stay this high is if they print loads of money for many years and jobs and the economy takes a very short term dip before returning to normal.

@Newbie111 The Bank of England report is partially right, but it doesn't fully explain the regional variation in house price growth since 2009. There are some local authorities were average transaction values are yet to return to their pre-2008 peak, yet London & parts of the SE are over 50% above the pre-crash peak. The difference is caused by wage growth or lack of it, demand levels, and lack of supply. The supply demand imbalance is shown clearly if you look at the difference in household size www.savills.co.uk/blog/article/224107/residential-property/what-can-household-size-tell-us-about-housing-need.aspx

I don’t think you can really say at this juncture. It depends on how many people die and how many go bankrupt/are forced to sell in order to avoid bankruptcy.

@witheringrowan This comment "The Bank of England report is partially right"... + your link to a real estate agent's blog post makes me believe you are either an estate agent or someone who's simply had enough of the "experts" and knows better. Which one is it?

obviously, London won’t empty. But the increased WFH means young pre-family or very young families can decide to move back to be closer to out-of-town family help in other regions

But would the majority actually leave.

I know enough people who live in London and have come from all over the country.

Apart from a couple of people the majority I know wouldn’t even consider moving back to be near their family or to cheaper areas in the country whether they could wfh and not need to go into a London office at all.

There are several fears.

1. They might not fit in the new community.

London is a melting pot of different cultures and they feel comfortable walking down the street as they don’t stick out.

1. A few are worried that there wouldn’t be a mosque or synagogue in the vicinity.
2. This applies to them all. They are worried that if they did move out of London to wfh that if they were made redundant or lost their jobs they wouldn’t be able to pick up a job on the same rate of pay locally and they would have to move back to London where they wouldn’t be able to afford what they left.

And 4. A lot, although they love their parents and family they couldn’t think of anything worse than to go and live close by to them. It would cause huge family rifts if they had to live within close proximity. They live them in small doses

They escaped from that area and would never go back to live there

They love them in small doses