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?

ParentOfOne the price of property does always go up, in the long term.

But you carry on renting if you don't believe this.

@NotSuchASmugMarriedNow1

ParentOfOne the price of property does always go up, in the long term.

But you carry on renting if you don't believe this.

Yes, but that doesn't mean you have to buy at the top of a credit bubble just as the economy is tanking and thousands of job cuts are being announced each day.

I'd wait till mid next year to see how this plays out.

and those that got them in 2017 havent made any money.

Good, that's how it should be. The sooner people treat property as a home rather than a money making scheme, the better.

Exactly - we are trying to buy on account of being fed up and wanting our own place. But the two-bed we'll get might not end up being the same place we'll still be living in five-ten years, but we will be saddled with the debt as of today even if tomorrow house prices might drop (or they might not).

also at some point, high house prices might actually mean that even with a high deposit you effectively end up paying you 'mortgage'/rent forever and in which case is there really much point in buying.

For example, in our case, we are looking at a 30-year mortgage (in order to have reasonable monthly outgoings while I have a small child). But we're 40 and realistically if we were any older then it might make sense to invest our 300k deposit on something else and see how much that'll give us in 30 years time......so for now maybe buying as a retirement package still just about makes sense in London - but that might not be the case forever.

Elsewhere e.g. Switzerland the high prices (plus tax disincentives) effectively mean that if you buy you will be paying off this mortgage forever i.e. beyond retirement and in which case you can see whether you can actually do something else with this cash.

@Smallgoon agreed but in practice we are talking about people not always making money on two-bed places i.e. three-bed places have still gone up and are effectively out of reach of both FTB and 2nd-time buyers which is less good

As a FTB on here I must say I'm even more confused!

I have a £60k deposit. In an area outside London, where a decent 3 bed goes for about £220k...

Just down the road in a less good area (though not terrible), a detached 4 bed goes for about £250k.

@Focusanddetermination

What are your plans, @Focus? In your situation, I would go for the better area and see if you can add value in other ways (nice garden, etc)

@newbie111
"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."

If your time horizon is only a couple of years, investing a significant part of your savings in the stock market is not wise. It may work out well for you or it may not - a couple of years is too short a period to be reasonably sure.
It's not just my opinion: no independent financial advisor worth their salt would ever recommend you invest a significant part of your savings in the stock market, if you are likely to need most of that in a couple of years for a deposit on a house. Why? Because the odds of a loss over that time period are too high, so the IFA would be sued - and rightly so.

Having said that, I feel we have nothing else to add to the discussion: I have made my point, you have made yours, all the other readers can make up their own minds. Goodbye.

@NotSuchASmugMarriedNow1
"the price of property does always go up, in the long term.
But you carry on renting if you don't believe this."

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Is putting words into people's mouth a new pastime? Please, please, pretty please, tell me where I would have recommended it is better to rent for very long periods of time! Otherwise have the decency to apologise.

@Bluntness100
"How do you not understand this. Maybe not in the short term but in the long term it does."

Sigh... The world is full of examples of properties which are worth less after long periods of time, or which have appreciated but less than inflation or less than other investments. For the billionth time, I am not saying that London property prices will plummet tomorrow, I am saying there is no universal law dictating that house prices always go up everywhere every time no matter what.

@Greenhats10
"also at some point, high house prices might actually mean that even with a high deposit you effectively end up paying you 'mortgage'/rent forever and in which case is there really much point in buying."

Yes, there is, or shall I say there typically is for long enough periods of time (not necessarily for shorter ones), because of the equity you will have repaid (to yourself) in the meanwhile. Eg you buy a house at 35, then at 55 you sell it to downsize even if you haven't repaid all the mortgage, chances are it will have still been better than renting.

" But we're 40 and realistically if we were any older then it might make sense to invest our 300k deposit on something else and see how much that'll give us in 30 years time......"

How long do you plan on staying in the house? For long periods of time, buying is almost always better than renting, even if property prices go down

@ParentOfOne - I agree with you in general regarding renting v buying. However, it also depends on what you're buying etc...for example, we're only aiming at a two-bed - now, of course, we can always downsize when we retire but to what a one-bed?? But by then we might want our kid/adult child to be able to stay over.........

Now we are aiming to buy - my only point is that actually the simple equation of buying is always better may or may not be true in the current situation e.g. high prices - low interest......any increase over say 30years will stall or decrease prices....also when it comes to large sums of money over the long haul is property always the best way to invest??? Not sure.

But of course if we were say 30 with high paying jobs and likely to ever pay it off at 50/60 then am with you. But with average earnings in London and thinking about where to buy now.....it's not as simple. More to the point, if house prices keep rising but salaries stay the same e.g. am in public sector so we've already had ten years of pay freezes - people are effectively taking on longer and longer mortgages and this idea that you can easily pay it off by the time you're 50 is less and less realistic

@Greenhats10
"also when it comes to large sums of money over the long haul is property always the best way to invest??? Not sure."

If you already own a house and are considering whether to invest any extra money in a second house or elsewhere, then I agree that property isn't always the best way to invest.

But if you are deciding between buying and renting it's an entirely different story.

"people are effectively taking on longer and longer mortgages and this idea that you can easily pay it off by the time you're 50 is less and less realistic"
I have never had this idea :)

@ParentOfOne - I agree with you in general and we are definitely trying to buy

But I am conscious of the fact that for example when interest rates do go back up then essentially I will still owe a large sum when the asset may have depreciated in value as a result of increased interest rates. Equally savings etc will have increased in value.....

Will interest rates remain permanently at this historical low level (because thats what has enabled prices to rise), perhaps but if not then lots of people will see their property value decrease or at least stagnate as prices recalibrate vis-a-vis interest rates

Op whereabouts are you? Wondering if you are near to where I am (I’m SE London)

Has there ever been a time in history where property prices have dropped significantly and not climbed back up. But stayed there for ever more. The answer is clearly not. Any dip is always temporary before the get back to original levels.

true but when was the last time that interest rates have been this low....inflation does tend to take care of debts but prices will get squeezed if they go back up. Also vast swathes of jobs have not had a pay increase in a decade or so...and in London this has made a huge difference.

Again - obviously in the long run we should all be ok - but it's not as simple as all that

"Has there ever been a time in history where property prices have dropped significantly and not climbed back up. But stayed there for ever more."

First of all let's remember the difference between nominal prices and real (ie net of inflation).

Let's see, many parts of Italy, Spain and Greece come to mind.
In Detroit house prices are now at the same level as 15 years ago, which means they have not kept the pace with inflation
fred.stlouisfed.org/series/ATNHPIUS19804Q

I hear from friends who live in Italy that house prices in Milan are only slightly up since 15 years ago (which, again, means that in real terms, ie net of inflation, they have gone down massively) and that in other parts of Italy it's worse (Milan is the economic capital of the country).

Does it happen all the time, always? No.
Can it happen, has it happened and will it continue to happen? Yes

FWIW my two cents is that over the next 5-10 years house prices in London are likely to mostly stay flat or increase very slowly, much less than inflation; specific types of properties, like newbuilds, might if not plummet decrease more. Of course it's just a guess.

@teapotl
You must be an estate agent. Yes I’m naive for investing in equities with compounding dividend reinvestment over the last 20 years that has far outpaced property gains. I’ve owned property since the 90’s and I have no interest in the paper value as it is a home.

I gave a link to government statistics showing that London and SE average prices have been in decline the last year or so, but you completely ignore that facts and statistics. The Bank of England itself predicted a national 16% decline but obviously your mates on £200k pa buying £700k flats are the norm, Sound investment which will obviously only go up through the worst recession in 300 years.

The government props will now hold off the whole of UK annual negative statistics (as reported by Nationwide) until next year. Those with 300k-500k houses will be selling to each other for the rest of the year. Doesn’t change anything for first time buyers however and without them chains will stagnate. Banks have pulled most of 90-95% mortgages products so first time buyers will need a 20% deposit.

What comes next after all this government borrowing is inflation. People with properties in the 90’s may remember 10-15% interest rates and many just handed the keys back. If you don’t understand what happens when inflation ramps up I suggest you do some reading.

I will also add there is plenty of areas in the UK where property hasn’t gone up and their peak was pre-2008. Look at the likes of Durham and Liverpool in some areas. Houses can still be bought for £40k. That would have been a terrible investment. But I guess some of the luvvies on here forget that the rest of the country is actually attached to London.

Well just my 2 cents, given that we are mostly mums/potential mums here, property buying has to be in sync with family life so it's not a totally commercial decision either.

I am already 27, bought in 2019. I hope to be a mum by the time I am 32 and covid is probably going to delay my TTC by a year. I suspect house prices are going to take 2 years at least to hit a low so if I had chosen to wait till prices hit rock bottom, I would have been renting/staying with family for at least 3 years rather than overpaying the mortgage. So I wouldn't have had a lot of time to save up before TTC.

But in a way, I do think prices would fall so if it was a second stepper, I would take the stamp duty holiday with the knowledge that house prices would dip straight after buying it and weigh up whether it still makes sense to take the stamp duty holiday now.

What comes next after all this government borrowing is inflation. People with properties in the 90’s may remember 10-15% interest rates and many just handed the keys back. If you don’t understand what happens when inflation ramps up I suggest you do some reading.

Thank God I took on a 5yr fixed at 1.74% as of Feb this year...

Let's see, many parts of Italy, Spain and Greece come to mind.
In Detroit house prices are now at the same level as 15 years ago

So for the Uk that’s a no then?

Actually parts of the UK still havent recovered from the last financial crisis (2008-09) and I dont reckon they will be doing all that well out of this one....granted that's not London but still

@Bluntness100 Are you an estate agent? :)

This is an article from 2017 about some parts of the UK where the housing market didn't recover from the financial crisis: www.thisismoney.co.uk/money/mortgageshome/article-4877838/The-towns-house-prices-never-recovered.html

For the last time: it doesn't happen all the time, but it can happen, there is no universal "law" that prevents it from happening.

What will happen to those areas which are overly reliant on one of two large employers, which are likely not to do too well between Brexit and the virus (e.g. Derby for Rolls Royce, the towns near the car plants, etc) is anyone's guess. I do not have a crystal ball and cannot predict the future. What I can say is that the risk is not insignificant.

Also, when thinking of the price increases of the last decades, it is wrong and misleading to ignore inflation: in the last decades inflation was much much higher, so it makes sense that house prices would appreciate a lot in nominal terms - in real terms (ie net of inflation) they appreciated much less.

Goodbye.

@ParentOfOne All in all, i think the main reason why people buy in this country is because renting is not very nice here - rental contracts that can be terminated in 2 months, often poor maintenance.

As for whether something is a good investment or suitable i.e. 700k 2 bed flat. It seems to me that it means that those areas are highly sought after and people are willing to have less space to access those amenities/have a shorter commute.We often talk about future proofing here, but I would be terribly sad if I bought a 2000 sq feet house in a 'family area' and then find out that I was infertile- as they say man plans and g** laughs. At least I know my flat is worth as much as a house in further out parts and I can trade if I need to. Yes I would have to pay stamp but that is in many years time possibly.

@Desiringonlychild You actually make a very good point: the system is incredibly pro-landlord in England. Not having to deal with estate agents, being able to decorate and furnish to my liking, and having the certainty of not having to move (other than for unpredictable life events) were factors in my decision to buy. I have friends who had to move 3 times in 2 years because each time the landlord put the property on sale...

I specifically say England because Scotland has much more tenant-friendly laws now. I am not familiar with the Scottish market, but it would be interesting to understand if this caused the sky to fall like some landlords feared - my guess is not.