London property prices are STILL going up!

[teapotl]

I live on the zone 2/3 border in what is now considered a desirable part of London (but didn’t used to be). I’ve been keeping an eye on the market over the past 4 years and property prices in my area have continued to rise and rise. I thought the London market was meant to be falling due to Brexit and now Covid, but it doesn’t seem to have had any effect at all. Will London prices ever plateau or are they just destined to go up and up forever?

@Youngatheart00

I am starting to think that covid might make the house prices in London stay up as more people might

a) lose their local job and know that the market will be suppressed for some time so leave areas where not much is happening

b)companies might centralise in London so more people feel they have to be at the heart of things to stay securely in their role

c) covid will have fixed more peoples minds on financial security and therefore they will tolerate a small property in zone 4 on the basis that long term london prices rise

Honestly I know some posters on here are detached from reality but...

Pandemics and global recession/depressions aside, what world do you think we live where the average person living in a London suburb will have a household income of £250k? I have a flat in zone 3, I look forward to my £200k pay rise soon.

@Lightscribe Ha ha, you’re very naive aren’t you. You’re probably one of those people who 10 years ago said there’s no way a two bed flat would ever be worth £700k because well, look at people’s salaries. Wrong!

Everything is run on such a tighter schedule, its suffocating and it never lets up. We grow up with much more aggression in our faces on a daily basis and in an ebevironment that is constantly challenging: physically, intellectually, emotionally. I just don't see that in teh people who come to London as adults.

@bilbotoy Yes. I often feel this but you articulated it better than I’ve ever done.

As a pp said, the price of propert always goes up,because the value of money goes down. Those who hang about waiting for a crash are almost always disappointed.

This is 100% correct.

The government are (have been) invoking 2005-2008 all over again.

As I said in a previous post, anyone who bought in London at the height of the market in 2008, pre-crash, would still have made a hefty profit on their property a few years later. In London 2008 was literally the tiniest blip in the otherwise relentless upwards curve.

Apologies, I think it was actually @serenada’s words!

@teapotl

As a pp said, the price of propert always goes up,because the value of money goes down. Those who hang about waiting for a crash are almost always disappointed.

I don't quite get that. You mean, over time what you can get for your money lessens? That is because it traditionally has been kept in balance but 2008 showed us that the scales of balance have been disregarded. The credit that was supposed to balance out, leaving an upward trajectory for assets against currency , didn't exist. It was actually debit masquerading as credit, wasn't it?

@teapotl I didn't say that so don't want to take credit.

just saw you corrected

The peak of prime London property was in 2014. Here’s a nice chart highlighting that fact.

www.rbs.com/rbs/news/2019/08/limited-supply-supports-prime-property-prices-in-london.html

Lol... sure. The peak was in 2014, which is why property prices in my area have increased massively since then. Next...

Your area is not everywhere though @teapotl, plenty of areas have stagnated. Cheaper areas will have likely seen growth.

@teapotl

Honestly I know some posters on here are detached from reality but...

Pandemics and global recession/depressions aside, what world do you think we live where the average person living in a London suburb will have a household income of £250k? I have a flat in zone 3, I look forward to my £200k pay rise soon.

@Lightscribe Ha ha, you’re very naive aren’t you. You’re probably one of those people who 10 years ago said there’s no way a two bed flat would ever be worth £700k because well, look at people’s salaries. Wrong!

@teapotl Several policy factors played a key role in inflating house prices to the current levels (Help to Buy, low interest rates etc.). The significant increase in cheap and easy credit is the reason house prices have increased to the levels they are at today. A 1% increase in interest rates will reduce house prices by 20% (Bank of England study).

If you factor in inflation and exclude the last 7 years due to the policy factors I mentioned above, UK house prices have grown in line with inflation and were actually a worse investment that equities!

If you include the growth over the last 7 years, then it is definitely a significant jump but that is when we measure it at this point in time. I'm fairly certain if you were to look at compounded growth rates of housing in 2023 over a 10 year window (2013 - 2023), you will see a very different picture given the economic correction event we're about to witness.

Also, Household income of £100k puts you in the top 4% of households nationally. £200k puts you in the top 1%.

"Three years worth of equity can still be a good few grand. You can rent it out. Seldom is it not worth it."

I beg to differ. Selling after just a few years can be very risky: buying involves upfront costs which you may not recover if you sell soon, even if your house has appreciated.

You need to run some numbers on what your situation is - you cannot just have an "ideological" approach!

Let's make an example. Let's say you buy an £800k property.
That means £30k stamp duty, You can easily spend at least £15k between solicitor costs, decorating, and buying some furniture. These are costs you don't recover because no one pays more for a house because it's been recently painted or it has one or two bespoke cabinets.

Let's say you are lucky enough to have a 15% deposit so the mortgage is £680k, 3-year fixed rate at 1.8%, 25 years.

After 3 years, if property prices remain flat, it will have cost you:
£30k deposit

• £15k other upfront costs
• ca. £35k of interest = ca. £ 80k Note that this ignores the opportunity cost of not investing the deposit in a saving account for 3 years, and also the agent's fees if you sell after 3 years. Also note that the principal you repay is NOT a cost because that's money you are repaying to yourself. It's an outgoing but not a cost.

£80k over 3 years = £ 2,222 per month. With that kind of money you can easily rent a comparable property for that period.

If property prices go down, renting will have been cheaper.
If you have very little upfront costs (eg zero stamp duty), then buying will have been cheaper.

There is no universal, one-size-fits-all answer, it depends.

It continues to shock me how many people have ideological approaches (the world is collpasing! or, no, you never lose money on houses!) but don't actually take the time to run some numbers - it's not that complicated.

In London I have seen many cases of Victorian houses bought around 2015 and sold between 2018 and 2019 either at the same price or at a slight loss.
For newbuilds bought and resold during the same period, I have seen many sold at quite a loss.

Don't get me wrong, I don't expect the world to collapse and property prices to crash 50%, I am just saying that buying is risky if you need to sell again after a short time,

"the price of propert always goes up,because the value of money goes down. Those who hang about waiting for a crash are almost always disappointed."

??????????????? No, the price of property does not always go up. Does this even need to be spelt out? Come on...

en.wikipedia.org/wiki/Real_estate_bubble#Recent_real_estate_bubbles

Again, I am not predicting that civilisation will come to an end and that the UK property market will plummet 50%, no. But let's please remember that property is a risky investment and that nothing is guaranteed.

PS renting out a property is not banal, either. Apart from the risks that the tenant might not pay or might damage the property, in theory you need your lender's consent. The lender will often increase the interest rate. Moving to an interest-only mortgage is possible but not easy and not for all. Of course you have to pay taxes on your rental income, If you have enough income or enough savings to pay for the mortgage + to rent elsewhere (or even to buy elsewhere), by all means, consider it, but most people will not be able to do that.

Note that this ignores the opportunity cost of not investing the deposit in a saving account for 3 years

Some opportunity cost - most savings accounts pay less than 1%. Even an investment of £120k would yield peanuts.

@Alsohuman

Note that this ignores the opportunity cost of not investing the deposit in a saving account for 3 years

Some opportunity cost - most savings accounts pay less than 1%. Even an investment of £120k would yield peanuts.

I'm sure no one in their right mind would put all that money only into savings. A balanced portfolio in the last 3 years would have yielded an average of 6% annually, well in excess of the property market.

"Some opportunity cost - most savings accounts pay less than 1%. Even an investment of £120k would yield peanuts."

which is precisely why I ignored it. I mentioned it just for the sake of completeness.

"I'm sure no one in their right mind would put all that money only into savings. A balanced portfolio in the last 3 years would have yielded an average of 6% annually, well in excess of the property market."

It depends on what you need that money for, and when. If you think you might need most of that money to buy a house in the next couple of years, it wouldn't be wise to invest it in the stock market. If that is money you are saving but hopefully won't need before 10 years, by all means, do consider longer-term investments like the stock market.

@newbie111
"I'm sure no one in their right mind would put all that money only into savings. A balanced portfolio in the last 3 years would have yielded an average of 6% annually, well in excess of the property market."

I agree about diversifying assets in a balanced portfolio.

Are you including stocks and shares yields in that 6% figure? If so, then wouldn't that yield (or much of it) have been lost in the crash following coronavirus, no? For those who can ride it out it's fine - but that's not everyone.

Point is, yes, savings account pay very little - but it doesn't carry the same risk sometimes.

@ParentOfOne, @ChocoTrio

When you calculate opportunity cost, you don't calculate it as the cost of only putting the money in a savings account etc., you take it at the average return ratio across a balanced portfolio.

Are you including stocks and shares yields in that 6% figure? If so, then wouldn't that yield (or much of it) have been lost in the crash following coronavirus, no?

Yes, includes equities. And no - you wouldn't have lost it even during this crisis as it depends on how you've allocated your investments. For example, the S&P 500 is up 52% since 5 years ago. Some tech equities are up 500% in the since July 2015.

No, the price of property does not always go up. Does this even need to be spelt out? Come on

Of course it does. How do you not understand this. Maybe not in the short term but in the long term it does. Ask anyone who bought a house twenty years ago, as long as it’s maintained you’ll be hard pressed to find anyone whose house is now worth less than it was twenty, thirty or forty years ago. You’ll be hard priced to find any property that’s worth less now than it was decades ago.

It always goes up unless it’s been left to rack and ruin, and even then the value of the land can increase to cover it.

@Bluntness100 but a lot of people dont stay in the same house for twenty years....part of the culture of buying property is that you start of as a FTB in a flat, then try and get something bigger - then even bigger and/or downsize. So for some people that stay in the same house for twenty years it has clearly risen in value. But if you are a FTB or even a 2nd time buyer and are moving every four/five years which is not that unsual then it does matter whether you buy just before or after a housing crash, especially in view of the moving costs (which have been changed as a result of yesterday's announcement)

E.g. most of the properties that I've been looking at are being sold by people that bought them in 2017 or 2014......and those that got them in 2017 havent made any money. Granted some of them have tried to up the asking price by 100k this spring but without that they are effectively selling at a loss