The government shouldn't be propping up these mad house prices

[flashbac]

Forecast before the budget was that property prices would be more or less static this year. Then came flipping Rishi extending stamp duty and introducing a mortgage guarantee for 95% mortgages. Since then demand has hit the roof.
I spoke to an estate agent yesterday who said we were in a "red hot" phase and she last encountered such madness in the 70s (similar bubble caused by too much flowing and easily available credit, burst by the oil crisis).
I fear for younger generations that will be left behind.

@ThroughThickAndThin01 I think the issue is that at the moment, because of the insane amount of government borrowing, even a 1% rise in interest rates would likely bankrupt the country so there isn’t a lot of wriggle room to deal with inflationary pressures. I read an article about the risk of hyperinflation in the US which will affect us. Maybe we’ll be like Zimbabwe with a wheelbarrow of cash for a loaf of bread....

@Aussiebird99

What’s worse too is that public money could be used to improve society in multiple ways but instead it’s being used to make the rich richer. I hope that penny drops soon in the general population as it’s a scandal

'Tis always the Tory way ...

Also, I don’t think there is any guarantee of low interest rates for years- it might end up being out of their hands in the end. Look at black weds as an example....

If your somewhere like London with really expensive houses - I don’t see how 95% mortgages is helpful tbh - we were gonna out down 10% deposit on a flat and the repayments were 1600 a month (we can’t afford that) if we had only 5% deposit the repayments would be insane!! So not sure it’s helpful To all

To those who are desperate to see house prices fall. What would happen to people like us who have scraped and saved and crammed ourselves in a tiny rubbish home for years to afford to save and buy somewhere.

We just get plunged into negative equity and loose 5-10 years worth of hard work, sacrifice and savings? Great

@ThroughThickAndThin01

What causes big inflation? I’m a bit hazy about that side of economics.

Demand rising in relation to supply (demand pull inflation) and currency values falling (leading to cost push inflation) are the two main causes.

House price inflation is "demand pull" inflation. Lots of people want to buy and there's a shortage, so prices go up. House price crashes happen when people can't afford to buy, eg because of high interest rates.

I think a fair bit of that is because rents are so high in many parts of the country that people who can buy can reduce their outgoings by doing so. If we had fair rents and secure tenancies, I'm sure that housing demand, and therefore prices, would fall.

Which is why no government is ever likely to do it imo. Home owners would never vote for a party that had caused the value of their biggest asset to crash through the floor.

@LakieLady I agree that no government would ever choose to do it- it’s more likely to happen because of circumstances they can’t control (like a once in a generation pandemic/inflationary pressures from the etc)

*inflationary pressures from the US

@Leonberger people don’t seem to care about people in their late 20s/early 30s who would lose years of savings and sacrifices they made in order to buy a house. Older people who bought at cheaper prices will be fine but again the young will be worse off

@Aussiebird99

There is a BIG inflation issue coming soon though- probably by the summer - then the shit will hit the fan

A general inflation issue or a house price inflation issue @Aussiebird99?

I'm intrigued and would like to hear what the likely causes are.

I'm concerned that we may be heading for a recession (a general one, not just a contraction in the housing market), albeit not immediately. My gut feeling is that once the pent-up demand caused by the pandemic has gone, there may be a recession. And wtf we do about a recession when interest rates are at an all-time low beats me.

However, I'm no economist and I haven't really applied any significant analytical thought to the question, it really is just a feeling.

I suppose negative interest rates are a possibility. Maybe I'll look into putting my (not very significant) savings into gold.

If you really want to give yourself a scare, @NoIDontWatchLoveIsland, work out what your mortgage repayments would be if interest rates were at 15%!

In 2013, we had to borrow £60k to buy out my ex. The repayments on that were less than I was paying on the £24k mortgage I had in 1982.

[quote Aussiebird99]This is an interesting read: www.telegraph.co.uk/news/2021/03/10/inflation-back-tories-should-terrified/amp/[/quote]
Damn, paywalled.

I'll have to read it in the supermarket later!

I think it does help peolle trying to buy, with lower deposit amount and no stamp duty up to £x. Combined with lowest interest rates in a long time, now is the time to buy when will yo u ever get the opportunity again to not have to save £x more for stamp duty. Thise who can should be looking in these low interest rates for aa long as possible to protect against any future rises

[quote Aussiebird99]@ThroughThickAndThin01 I think the issue is that at the moment, because of the insane amount of government borrowing, even a 1% rise in interest rates would likely bankrupt the country so there isn’t a lot of wriggle room to deal with inflationary pressures. I read an article about the risk of hyperinflation in the US which will affect us. Maybe we’ll be like Zimbabwe with a wheelbarrow of cash for a loaf of bread....[/quote]
It is no wonder that there are so many preppers in the US.

You can't say both that those in negative equity can just stay put, and first time buyers will be helped by a crash. What are the FTB going to buy if fewer people can afford to move? They'll end up fighting over new builds and the houses of those who have died/are divorcing/gone bankrupt.

I'm not calling for a crash btw (as some posters seen to have misunderstood). Prices should be able to stabilise not be blown up further by printing money and pumping it into the market further creating likelihood of problems later. Forecasts predicted flat growth which would have been healthy but no, the Tories decided to mess with it.

For what it's worth, I don't think prices will ever come down now given brexit (see recent exports data) and a bloody global pandemic didn't do it. Governments will just keep printing money to shore it up. Most if not all MPs are landlords I seem to recall. It's a never ending Ponzi scheme like posters have mentioned already. Property will become more and more out of reach and the gap between haves and have nots will forever widen.

@ThroughThickAndThin01

I can’t read that article, it’s behind a paywall and I’ve used up my free trial 😀.

However I didn’t think high inflation was simultaneous with low interest rates, and we can be sure of low interest rates for the next few years?

High interest rates tend to happen when inflation is high because they generally slow down consumer demand. I think a significant rise in rates is unlikely at the moment or in the near future.

People can't afford to spend as much if borrowing is expensive, especially in an economy like the UK where consumer debt:GDP is a relatively high ratio. Our economy has contracted because of Covid and will probably contract further because of Brexit.

If inflation started to show a sustained rise*, I think they would have to raise interest rates or investors would move their money to more inflation-proof things.

But I'm not on the monetary policy committee, and who knows how they think?

*We could, of course, have the dreaded "stagflation" (rising prices in a stagnating economy) if import costs rise because of Brexit and/or a fall in sterling. I'd have to dig my first year economics textbooks out of the loft to see wtf is the usual way of dealing with that.

I'm a prospective FTB. I'd have been better off if the stamp duty holiday hadn't been introduced. This time last year we were working towards saving to buy a house this summer for circa £325k, the houses we could have bought last year for that price are now up for sale for circa £375k+. We have the equivalent of a 10% deposit for properties costing that but we won't be able to get a big enough mortgage. I've also been furloughed so the amount we will be able to borrow will also be reduced. Plus we'll have to pay at least 3% interest rate now which is galling when we have friends/family on

@cyclingmad

I'd like to see stats on how many FTB are benefitting from the stamp duty holiday (many were exempt in any case) as round here it's mostly investors enjoying the holiday.
Some business owners who haven't done too badly during this pandemic (think newsagents etc) have even used the covid business grants and loans towards their purchases. These people are more likely to make shit landlords as their desire is to make money not create nice homes for people to live in.

I can't help but see parallels with Rishi's 'Eat Out to Help Out' scheme. Looks appealing and gratifying in the short term but is a shit policy that only brings pain in the long term.

[quote Mirrorxx]@Leonberger people don’t seem to care about people in their late 20s/early 30s who would lose years of savings and sacrifices they made in order to buy a house. Older people who bought at cheaper prices will be fine but again the young will be worse off[/quote]
It happened to most of my friends, and to me. In less than 6 months, the value of my house fell by around 40%. Thankfully, that didn't take me into negative equity, but my equity was down to about £10k. At least I was able to move 5 years later and still had a 20% deposit

A friend bought at the very height of the boom and ended up in negative equity, but she stayed where she was for 10 years and sold that house for several times what she paid for it.

The people who really suffered were those who lost their homes because of the constant mortgage increases and were never able to buy again. I assume those debts have now been written off, but I know at least 4 people whose homes were repossessed and sold for less then the outstanding mortgage.

Negative equity only matters if you have a compelling need to move or can't afford to pay your mortgage. Everyone else can sit it out and wait for prices to recover. And the house price recovery after the global crash seemed far quicker than the recovery after 1988. Houses here shot up between the start of 2011 and the end of 2013.

The HTB scheme is ludicrous.

The market ie people's earnings should dictate what a property is 'worth'.

If a developer builds 10 houses and noneone in the local area can afford to buy them what will happen? They will reduce the price to a level that the market can afford but with HTB the market is artificial inflated because you can borrow 20% from the government

The thing is houses are worth what people are prepared to pay. And people are paying these high house prices so they are worth that. Yes there are people affected financially by the pandemic, but for every person who has lost a job or had a pay cut there is someone else who has saved money during the pandemic. I have three friends, and myself, who have all bought new houses in the last few months. We’ve all been able to save loads over the last year and have benefitted from the stamp duty holiday. I don’t think prices will crash because the government won’t let it, and there is a lot of money flying around, just in a different set of people to pre-pandemic.

@Ellpellwood

You can't say both that those in negative equity can just stay put, and first time buyers will be helped by a crash. What are the FTB going to buy if fewer people can afford to move? They'll end up fighting over new builds and the houses of those who have died/are divorcing/gone bankrupt.

Well, an awful lot of people have died in the last year! And new building is still happening, and only those who bought relatively recently will be in negative equity.

There may also be BTL landlords getting out of renting. A couple of multi-property LLs round my way are selling properties as they become vacant, because recent tax and other changes have made it less lucrative, and because it is getting so hard to evict people.

A price crash might dissuade developers from building though, and they may opt to hang on to their land banks, or just start enough building to stop planning consents from lapsing.

There are so many variables, it's hard to get my head round it really.

@Blankscreen

The HTB scheme is ludicrous.

The market ie people's earnings should dictate what a property is 'worth'.

If a developer builds 10 houses and noneone in the local area can afford to buy them what will happen? They will reduce the price to a level that the market can afford but with HTB the market is artificial inflated because you can borrow 20% from the government

HTB only helps people who don’t have a big enough deposit saved, not those whose earnings aren’t enough for the mortgage. You still have to earn enough to be able to pay the full amount, including the government 20%, and Enough to be able to pay the interest on the 20% on top too. So people’s earnings are enough to buy these houses. People underestimate how much borrowing power a lot of young couples have, there is plenty of money about for the supply of houses we have. The fact that some people can’t afford to buy doesn’t mean that everyone can’t.