How will the future property market work?

[confuseddotcom2]

Hello all

I've namechanged & aplogies in advance as this is London/SE centric.

So as a young inexperienced property novice can someone try to explain to me how the market will work in the future?

We are looking at flats priced at 500k & would plan to sell in 3-5 yrs to upsize. Where I'm confused is historically when its time to sell our budget would be determined through a combination of house price growth (say 200k), paying off some mortgage & wage increases so the next property we would buy would be in the region of 750-800k. This would ideally afford us a house if we moved out a bit.

However I don't see now see how our 500k flat is going to increase by much in the future, so how will we be able to afford a house? Plus there are very few areas where 750k will get you a decent house in a good catchment area.

yes I think for many people it is purely about wage/salary rises rather than equity. As for how do many people afford £1.3mn houses, yes that is a most interesting question. London/SE has a lot of very rich people who can be bank of mum and dad and their dc are likely to be buying in London/SE as well. Once you add people who are prepared to downsize to fund dc, that increases the 'non-wage' source of funds even more.

Lots of rich overseas buyers as well.

And a surprising number of dual income couples may well be earning over £250k together - again, many of them located in London/SE.

"I suspect either the magical 'market' will sort it out, all there will be some political intervention, we are at a point where many essential people can't afford to live and work in London (think emergency services, teachers etc), and with relatively high employment many may be tempted to leave, which would have social impacts on the whole city."

Yes, in a way it is surprising that more 'national salary scale' employees have not moved away to places with a lower income/prices ratio in order to buy rather than rent. I think the op may have it when she says that she and dp are not ready to move away yet - London has a lure which seems to defeat that hard headed economic analysis! then once you have dc you want to stay near family for the support network.

However. In some ways the exodus is already happening - anecdotally I hear that there is a little spoken of increased difficulty in recruiting teachers in London, and also anecdotally a number of teachers heading overseas for a couple of years, possibly to build up savings before returning?

The few people I know who have moved into £1+m houses have sold their previous places for around £750k so get a very competitive mortgage rate and are on a dual income of at least 150k. A loan of £500k over 30 years is only about £2000 per month.

House prices will be affected by supply and demand. This is why the London market is expensive and in other areas it’s stagnant and has been for years. There are always blips in London of course but unless supply is hugely above demand, prices won’t fall by a massive amount. Brexit may affect prices and that is an unknown as may interest rates if they take a sizeable hike but that’s unlikely.

I'm not convinced that the UK housing market is entirely driven by supply and demand. The bubble up to 1007 was caused by increased access to cheap debt. Remember the 110% mortgages...?!? Whilst you could say that was demand driven, the demand was driven by the lending policies not the amount of absolute demand in the market.

Can I ask if making the jump to the next property is largely about wage increase/saving as opposed to equity, how do so many people afford 1.3m+ plus houses. They can't all be earning 300k? Or do I need to retrain!

You are misunderstanding the point - yes people need equity to from their last house to buy, yes there have been massive increases, but the 1.3m houses haven't just sat there at 1.3m - they have also gone up massively.

I don't think I am explaining it to you very well, but yes if you trade up and benefit from equity rise you probably have quite low LTV because of the growth in all equity in London over the last [x] years - but equity growth alone doesn't get you up to a more expensive house as you still need something (more cash, more debt) to make the step, and equity is only really a benefit when you cash out.

Obviously there are some people who can afford to buy 1.3m without having been in the game for years - it is perfectly possible for a couple to be on 300k+ or more. Or to have massive amounts of family money.

Ifailed that's what I'm anxious about, most areas of London seem to have gentrified & the prices of flats are crazy. Are there enough FTB who can afford it? All our friends (doctors, analysts, technology stuff) are either having help or have had help. We have good jobs but are still getting helped with the deposit.

I did read that more & more young people are leaving London for other cities (which is something we might consider).

I almost wish one of our families didn't live in London as it would be nice to be near them when kids come along.

"the demand was driven by the lending policies not the amount of absolute demand in the market."

Totally agree with that - and has continued to be driven by btl mortgage lending as well. That is a lot of what is behind the massive price increases I think - massively more money available to spend on a limited supply. Add in increased population to pay rents, and then add in housing benefit to private landlords, and there you are!

OP, I think young people may well be doing the economically rational thing to move to other cities if it means they can buy rather than rent. But I can see it must be difficult to make the decision if you have friends and family in London!

ok silver I think I get it.

I think I have a skewed view from people I work with who are slightly older, & got on the ladder 5 yrs ago or so. One woman bought a house in Stoke Newington (2015) for 650k & spent 100k doing it up (beautifully) & sold it this year for 1.3m & has just bought some where for 1.1m. Another man bought in Tooting in 2014 for 600k & sold this year for 1.2m.

I can't see whatever we buy going up anything like the same %.

"the demand was driven by the lending policies not the amount of absolute demand in the market."

I agree with this & think that perhaps the market should of been allowed to correct itself in 2008. I guess will it ever be allowed to correct itself as so much of the UKs economic model is based on house price never ending growth.

I also think that in the future we are going to see higher taxes.

"I guess will it ever be allowed to correct itself"

I think the issue is that to bring housing in London/SE back to the same salary: price ratio as in the 1990s would mean very significant falls in 'real' house prices (ie prices as a multiple of salary). Unless you have high wage/salary inflation, that means a huge number of property owners losing substantial amounts of money - not popular with that section of the electorate, and with inevitable effects on the rest of the economy (less spending on consumer goods).

It would also mean a lot of people, mainly the more recent buyers, going into negative equity.

It is a really difficult problem to solve - which is why it was such a mistake to allow it to happen in the first place.

I can't see whatever we buy going up anything like the same %.

I agree with you, and with interest rates on the way back up I think at best it'll flatten out, or maybe even drop. The first flat we bought in London back in 1990 dropped by 25% in value, it wasn't until 1996 it got back to the price we paid, and we finally moved in 98, at the time there were us and two toddlers in a 1 bed flat! That's why I suggest you look to buy somewhere and expect to stay for 10 years or so. As others have pointed out, there are 3 beds in London for around £500k, and if look to places near to cross-rail etc, transport will be fine.

I think we are defo going to go back to the drawing board and look for somewhere that has room to expand if we are stuck there for a few years.

Yes I think that would be a better idea.

A falling market does help move up the ladder provided you have good equity and rising wages. It’s scary for FTBs to buy in a falling market with rising interest rates, they may overpay. It’s not great for people downsizing to relsease money for their kids either. But for most homeowners a market correction wouldn’t be a bad thing. We are in our final house and mortgage free and I’ll be leaving feet first from here so not personally affected. I used to develop properties and might again so keep a close eye on London.

UK homeowners think falling house prices are akin to the apocalypse though

The market now feels very much like that in early 1990s when I bought my first house (no in London) for £42,000 then sold it in 2000 for £43,000. IMO house prices will now stagnate for a while yet

Your colleagues who raked it in on their properties clearly had tons of luck - buying in the right place at the right time.

A lot of people who live in very expensive properties: A. are very high earners and B. got onto the ladder a few years ago and enjoyed the uplifts.

Crazy price rises are very unlikely in the foreseeable future. With normal price increases (in line with inflation or thereabouts), people need to rely on paying their mortgage down and their salaries going up to move up the ladder.

However, if your budget is 500k and you want a family house then that’s very much achievable in London. We’re is Sutton and on that budget you get a proper family house with a garden and offstreet parking. It’s a great family area with some of the best schools in the country and a much lower crime rate than anywhere in zones 2 or 3 as well. It’s also got fab commuter links into central London (direct trains into Victoria, Blackfriars, the city and London Bridge).

There's definitely something to say people have been lucky in the past as a combination of reducing interest rates (progressively cheaper mortgages) combined with prices rising in their area faster than in another area, and their wages increasing what they can borrow. Unfortunately as wages aren't drastically increasing at the moment, mortgage rates are on the increase again and house prices stalling a bit, I agreed with everyone who says don't plan for it! Unless you know you're buying a really sellable property (near a good school, employer, tube station etc) as can be seen by how quickly other properties on the street sell, and for how close to what they're asking, don't bank on a starter home concept.

It's not just supply and demand. A lot of the inflation of house prices comes from active deregulation of the mortgage market in the 80s/90s.

I think one of the differences here is that of indebtedness. If you bought a 4 bed house in Stoke Newington in the 1990s for £150k, and it's now worth £1.5m then you're in a completely different relationship to debt compared to someone who is a FTB buying a smaller flat in Stoke Newington in the present for £600k, where most of that money is owed.

Debt is being used as a kind of disciplinary engine in society, and it's leading people to buy in (quite literally) to a mortgage system that is broken. We all know that housing prices are ridiculous and crippling, but as soon as someone is caught up in the debt cycle they have a kind of interest in perpetuating that ridiculousness because efforts to bring prices down will put them into negative equity.

I do think we probably need to move to a system where housing isn't seen as an asset to make profit, but as a practical place to live.

If you buy a (sound) wreck and can do it up yourself to a good standard you can add value. For example we split a huge bathroom 21feet long, and added an extra bedroom to the house. Look for ways ty or add value.

Interesting thread.

Wow London really is another world to me. When you talk of buying a 2/3 bed for half a million. Wow. Sorry this is really cheeky but how do you afford the half a million to begin? Is it just very good wages & therefore lots of saving & big mortgage? Or inheritance? Gift from parents? Or something else? (tell me to mind my own if you wish). I mean round my neck of the woods people can't even afford £200k. I am just genuinely intrigued how one can begin at those sort of figures.

Always fascinates me when Kirsty & Phil are in London, im sure this week the FTB had a budget of £750k. It just blows my mind.

I saw the £750k couple on Kirsty and Phil, they had been renting for 10 years?, - I just thought wow, if they had bought in 2007 prices would have been much much less and they could have saved themselves 10 years of rent and paid half the mortgage term off!

Sunisshining12 a reasonably paid couple in London would probably be earning at least £40-50k each, so a take home pay of between 29 and 39k each, say an average of 70k pa combined. Living frugally they should be able to save about up about 150k in 3-4 years, enough for a decent deposit for a FTB.
Of course a couple who only earn average wages or lower would struggle to get by and have very little savings, but there are 100,000s of people working in London earning over 40k pa.

Sun believe me I know these figures are ridiculous. We earn combined 80-90k & have a deposit of 175k which is s combination of inheritance (granny's flat sale) & savings. I don't want a massive mortgage & circumstances can change so trying to be sensible.

Wow. Sorry this is really cheeky but how do you afford the half a million to begin?

I've been working for 10 years and pay had rises. Over the past 5 years I saved £1k/month. Had a gift from parents (I don't know anyone who bought in London without a parental hand out). Plus a 5.5x mortgage gets you to just over half a mill.

I’m shocked by your assumption that equity in your current purchase will increase by £200k in 3-5 years.

Is this based on repayments and market growth? Seems pretty unlikely. I bought in a central area a few years ago just as prices were increasing by 10% per year etc and I didn’t get a £200k uplift even then.

The market looks very different to this now. PPs have made some very good points on other aspects of your post.

I have made a bit of money on London property.

I would say that you're buying towards the top of the FTB market, unless we are talking prime London (Clapham say). The problem is that you will also be selling to a similar FTB in 3-5 years and they're aren't many of those.

My biggest mistake was moving to a property with a 5 year horizon - we lasted two.. Broke even only after costs and fees but it was a rising market.

I'd say:

• don't rely on price growth
• buy a cheaper place that more FTBs could afford, not "top" of that market, if you want to buy for 3-5 years
• move out a bit and buy more in a cheaper area.

KyloRensLightsaber

I’m shocked by your assumption that equity in your current purchase will increase by £200k in 3-5 years

My point was that was how things seemed to happen in the past & I didn't think it could continue like that.