Do you think London is in a housing bubble?

[cunningplan101]

The subject is it really ... do you think this is a bubble and prices are going to crash? Or do you think they'll carry on going up? Or flatten out?

more than one person has mentioned the late 80s/early 90s crash, when mortgage rates rocketed and many went into negative equity or repo.

it is going to happen again. But not to the mega-rich or the foreign investors.

I do find it staggering that the multi-million places are being bought and lying empty, though.

Is there much evidence to say that the majority of people currently buying in London have low deposits? I would have thought that many have significant deposits, as even with high salary multiples, you simply wouldn't be able to get a large enough mortgage to pay the current prices.

With the housing market round me in SE London, prices have rocketed in the last year. Totally anecdotally, it seems to be people moving here from other more expensive areas of London so they've got loads of equity, or the FTBs have large deposits.

We bought not very long ago as FTBs with a 40% deposit. Judging by what I've seen similar houses go up for sale (note not sure what they're actually selling for), we'd probably be told to put our house for sale at over £125-175k more than we paid. Thankfully our place is large enough for the foreseeable future but I've certainly kissed goodbye to the idea of ever affording to move to a larger house within our current area.

At some point, growth has got to tapper off / stagnant because it is insane.

I always find it surprising when people say 'prices can't fall in London - it's London, demand etc.'

People have short memories. The slump in London between 1989-1995 saw the average house price fall by 25%.

A much bigger fall than that seen in 2008/9 which at the end of the day was just correcting a very sharp spike from 2005-2007 (i.e. prices in 2009 were no lower than 2003/4).

I have zero doubt that London prices will fall sharply. I have no idea when though - most likely to be caused by a sharp rise in IRs triggered from outside the UK. Clearly the BoE and govt themselves have no desire to raise IRs by much or quickly.

It'd be interesting to know what people said about prices before the crash at the end of the 80s which didn't recover until the mid 90s? We're people also thinking supply/demand would keep things going up? Or were people expecting it more?

We are buying this time around with the intention to stay for a minimum of 8 years. Could be longer if the crash happens in that time. Hard to see how this will correct though with the supply issues outlined.

My anecdotal evidence of trying to buy this time around (also in SE London, Yellow) is that I am competing with a lot of cash buyers or people who are chain free.

OP-My memories of that period are fairly hazy but I don't think it was expected at all. There was a mad buying frenzy in 1989, I think it was, when the law changed. Someone will be along who knows, some sort of tax implication, but people buying were exchanging without set completion dates to avoid the tax. These were primarily first time buyers buying together, so fuelled the house market for a while as they enabled house chains to be complete at the bottom so everyone at every stage could move. And after a very busy few years in the housing market a way.

I think people are wrong here though, expecting interest rate rises to affect the market. They will go up so slowly I don't think it will affect it much at all. Unless there is some sort of outside influence such as another financial/banking crisis, war involving Russia/Ukraine situation, another country crashing like China, USA, or any number of unforeseen scenarios.

At the end of the 80s there was a surge in house prices, partially fuelled by a reduction in MIRAS. MIRAS gave an individual tax relief on 30k's worth of mortgage interest, but this was doubled to 60k for a couple. The couple's allowance was chopped in ~88 so people rushed to complete before then.

Everyone knows about IRs then. In May 1988 interest rates had fallen to what was very low (relative to recent preceding years) @~7%. in their 18 months to Dec 1989 they jumped to ~15%.

Unemployment also spiked about the time house prices started to fall.

And during the period before the crash, everyone was saying London would not crash due to supply/demand arguments. Unfortunately the housing market is far more complex than that.

I don't think prices have ever really dropped in zone one.

I think the future is that working class people will have to accept living as extended families. Our entitlement expectations is what will have to change - the wealthy are wealthy and the working class are working class ie they need to work to eat and have somewhere to live. Adult dc will have to live at home and save hard in order to move out and buy when they have a partner who has also stayed at home and saved hard.

"I don't think prices have ever really dropped in zone one."

Nonsense, things like the infamous Chelsea broom cupboard were underwater for a long time.

Stuff like this too:

www.telegraph.co.uk/property/propertynews/9561278/Crimewatch-Nick-Ross-presenter-sells-house-for-40-times-what-he-paid-for-it.html

This is super-prime stuff, and it definitely did fall in price in the early 90s.

Considering that prices are now up to around £3,000 per square foot for the best Z1 stuff (good-sized period houses), there is a lot of scope for multi-million pound price cuts now. Nick Ross' house then would have lost several hundred thousands off its peak late 80s value, but nowadays the potential cut is literally tens of millions of pounds.

I thought there are plans to build huge numbers of new homes (though mainly flats) in london, but also houses in various green belt/derelict areas near/commutable to london. It will take a few years but that would calm the situation a bit imo. For the modest income families/young people it will get easier, i.e. these new builds are not for the fussy but they still give a reasonable home. Better than ex-council mostly!

Whereas the prime areas and nice (non-modern estate) houses in london, surrey, anywhere in home counties, are NOT going to crash. Foreign investment, and the UK generation that inherited these and if they can't afford to run it, they just let it out, wisely. Or they houseshare and pay off mortgages that way (if parents helped in the first place or if inherited) - ridiculous number of professionals in london are now renting room/rooms out for sizeable amount to pay mortgage, rather than sell up.

when I say 'not going to crash', I mean foreseeable future, not 'ever'.

interest rates will have no effect on the upper end of the London housing market as overseas investment / speculative buyers do not have mortgages

to bring teh London market back into the real world there need to be restrictions on LLPs and offshore companies buying up freeholds to ANYTHING

there need to be mahoosive increases in council tax for high value properties (to bring it in line with the land taxes paid in countries like the USA

and the idiot Gideon has to STOP making easy cash available to inflate prices

London is much more than one industry and rich sheikhs grabbing it and it's no Tokyo, so hard to tell...

SE London is probably more risk? It doesn't exist as it is not included in tube map and overland/DLR just doesn't count as tube)) People buying it up are Brits with good salary taking on massive mortgages (I spoke to different estate agents, because I was wondering too if there are hordes of cashbuyers grabbing lands after losing sealed bid to one). We are in Zone 3 and the bubble on period houses is just insane and at some point average salaries and available deposits will just have to rein all in, as well as interest rates? Its prices is already getting too close to N London prices.

Yes I do. And I do think SE and E London are going to hurt the most, the prices there have risen so dramatically it's just crazy.

I just dont think there can be too many more people who can afford the prices. But I could be wrong...

Possum
the people pushing the prices up are not using UK earnings, they are using capital taking flight from other countries
they have no mortgages
the UK government takes no taxes from them

Foreign investors aren't buying ex-council houses in Brixton for £500k, they are buying the new-build flats (off-plan, without even entering the country), and the super-prime Chelsea, Holland Park, etc. stuff.

But the semis in Woodford or Weybridge that have gone up 50% in a few years have gone up because the British government is encouraging British residents to borrow with the support negative real interest rates and 'Help To Buy'.

Then you've got capital from the older generations who have earned hundreds of thousands in tax-free gains on their houses bought for next to nothing 20 years ago, and which they are using to buy second homes for buy-to-let, or for their children.

Debt is ridiculously cheap, that's the primary problem. In 2007 I was getting 6%+ on my savings. Now I get 1.5%.

Keep going up.

They could never build enough homes to keep up with supply.

DEMAND, i mean, obviously

And by could, I mean would

And it's also not in the majority of people's interests - i.e. the 60% plus in London who own (and who are more likely to vote, being settled), to have prices fall therefore HomeBuy and other schemes will continue. Can't have MP's houses going down in value, can we?

60% plus?

It's actually less than 50%.

Interesting that people think SE London is most vulnerable. I was thinking SE might be the one area that makes sense to rise so much, as they're the only zone 1 and zone 2 areas left in London that are affordable - they're just catching up a bit. Stoke Newington has no tube and it has one bedroom flats for £400k - in SE London you can still get a 2 bed flat for that. What kept SE London so cheap was the stigma of being South of the River, and although it's not completely gone, it's beginning to seem a bit middle-aged as the youngsters want to discover new areas and places like Brixton become trendy. And as London gets more crowded, the commute on the tube gets more torturous. I'd much rather commute on a train where I can get a seat than a tube where you have to wait for two trains to pass and can barely squeeze on and still breathe.

We own a small 2bed in SW London (crappy area starting to turn around in the last few years, zone 3) and eventually want to move to a bigger place in Brighton. Our flat has apparently doubled in value since we bought it in 2010 and seeing as I have no pension and DH's is minimal we're hoping to save hard to get a new deposit to eventually move out and keep the flat as an investment to cash out years down the line.

BUT we're going to have to be clever about not being reliant on the money from it so we can choose when to sell and therefore hopefully avoid selling during a crash