House Prices

[LGBirmingham]

House prices still seem to be rising? Does anyone else think this?

4% is easily enough to pop this mega bubble, I will happily take that, bond markets might demand higher though........

I don`t do predictions, except that if you borrow large at zero rates you are going to get caught out at some point (that point is around now for many people)

Lol, what? We’ve had rates above 4% for over a year. Market barely took a scratch and is now growing again

LOL, minor knock? Transactions are at their lowest on record and mortgage applications are down 40% and you call that a "minor knock"?

https://www.plumplot.co.uk/East-London-property-transactions.html

a landlord who bought years ago no mortgage, rent kept low and reasonable for years

Trouble is, those landlords don’t actually exist. Rents are set at market rate regardless of how highly geared the landlord is. And most rental costs are similar or higher than an 85% mortgage would be on the same property. Because in many cases, you are just paying off your landlord’s mortgage for them.

Now, people in HA properties are a different matter. But we don’t build enough of those for that to be a realistic option for the vast majority of people, at least not in the SE.

If you want to make the argument for rent controls, I’m all in favour. But in reality, we have an unregulated private rental market, and it is escaping that which makes property ownership so appealing in the UK.

You're more likely as a tenant to be evicted than you are to have your house repossessed as a home owner.

You repeatendly minimise how bad the private rental market is. It's expensive, often poor quality housing, unregulated landlords, and you can be evicted through no fault, out the blue.

Paying hundreds of pounds per month in rent for years and years, if you have the choice and can afford a mortgage, is just daft. Interest rates rising and all. Fixed terms ending and all.

Of course you are. People get evicted all the time often through no fault of their own. They then find another property and rent that instead.

Having your home repossessed is a bit more stressful and life changing.

but anyway what’s your point? Regardless of whether renting is or isn’t better than buying, that doesn’t stop prices from going down when people can’t or won’t pay the high property prices

I totally agree with @BadCider that renting in the UK is miserable. Yes, you may be repossessed as a home owner but you have much more control over your life and it's very unlikely.

And since where we live rents are higher than our mortgage costs (even at the new interest rates) we'd be homeless anyway if we couldn't afford the mortgage. So any sensible person would buy, if they can. And if we couldn't afford what we have now we would compromise a bit more on size or location. Until renting becomes much more secure and the rights of tenants trump the rights of landlords I wouldn't want to rent with family.

Interesting piece of research, with a few quotes pulled out here:

'Financial website Finder brought together academics, economists, mortgage and savings experts to ask them for their predictions on what will happen to the base rate for the rest of 2023, and the impact this will have on the UK economy'.

'Charles Read, fellow in economics at the University of Cambridge expects house prices to drop by five to 7.5 per cent. He explained that “sharp rises in interest rates since the end of 2021 has reduced affordability of mortgages and new house purchases, pushing down prices”.
David Mcmillan, professor in finance at the University of Stirling expects a more severe reduction of 7.5 to 10 per cent. McMillan explained that household incomes will be “squeezed in several ways” next year and “as much as these economic conditions will lead to price falls, they will also likely lead to a fall in the volume of transactions.”'

'The experts are confident that a housing market crash is not on the horizon, with 73 per cent predicting the UK will avoid a crash of this kind.
Luciano Rispoli, senior lecturer in economics at the University of Surrey commented: “Despite higher interest rates, housing demand is still strong and supply structurally low.”

https://www.landlordtoday.co.uk/breaking-news/2023/11/house-price-drop-of-up-to-10-next-year--but-no-market-crash

https://apple.news/AnyNpB-pUS1OI0rwk0opxcQ

https://apple.news/AUD--6eFCRI65JHhgEprD4w

Exactly, and it doesn`t stop people having to pay a lot more for their mortgage debt when interest rates go up either? Not sure how believing that someone is having a bad time renting (most are not IME) helps with that?

a landlord who bought years ago no mortgage, rent kept low and reasonable for years

Trouble is, those landlords don’t actually exist. Rents are set at market rate regardless of how highly geared the landlord is. And most rental costs are similar or higher than an 85% mortgage would be on the same property. Because in many cases, you are just paying off your landlord’s mortgage for them.

Oh. Apparently my landlord doesn't exist would be nice if he didn't; the landlady is far nicer!

We're in exactly this situation. 9 years in the house, rent now way below market value (gone up £75 in that time, about 11%). To buy this with a 15% deposit would be more than renting at new rates. If I lower the term to 20 years (as long as we want due to age), it's far dearer.

@CrashyTime would you mind sharing the rough location you're renting? I'm really surprised by your comments there (I think you speak lots of sense on impending price falls) but renting is brutal
And horrendous round here. Worse if you've got kids there's lots of student stuff but massive defecit in family
Homes to rent I assumed it was the same everywhere.

Yorkshire large town commutable to Manchester and leeds

I really find the whole renting is dead money attitude in the UK bizarre. There are so many more factors at play than whether or not you end up with a house at the end of it. Many people will end up with much better careers and earning potential because they chose to move to a city with good job prospects and rent rather than stay at home and buy at the first opportunity. You can also move much more easily to pursue opportunities if you are renting.

You could also take the money you would put into a deposit and invest in another asset class or perhaps a business. And you can't forget to take into consideration the costs you incur as a homeowner that you wouldn't as a renter plus you have the advantage that someone else has to deal with all the maintenance. If rent goes up or you lose your job you can find something cheaper. This is much harder with mortgages, as many people are learning.

If you asked most people why they choose to lease a car rather than buy one I'm sure they wouldn't have any issue coming up with reasons. A home, like a car, is also a depreciating asset if you don't maintain it, especially in a stagnant or falling market.

As I said above, the idea that a home is the only sensible thing to invest your money in is not the best for innovation or a productive economy and I really hope the current market changes the conversation about this.

Lots of these threads don't seem to make a proper comparison. From a purely financial point of view discussions I read here on this topic are often so simplistic as to be meaningless.

Homeowner occupiers have to pay for maintenance, upgrades, repairs, buildings insurance and also when purchasing conveyancing and stamp duty, not to mention them only paying a mortgage on X% of the property value because they have put down a desposit, so it's not equivalent to somebody paying rent which of course will be higher because renters are paying for the use of 100% of the property. You can't simply compare a monthly rental fee to a monthly mortgage payment and believe it is a direct comparison when that is clearly not the case at all.

Landlords are taxed on revenue as though it were profit and still need to pay all maintenance, insurance, safety checks, letting agent fees, energy compliance certification, buildings insurance etc. Most BTL mortgages are also interest only therefore the "paying off someone else's mortgage" thing that always gets asserted is in most cases a fallacy.

That said, there should be very clear and robustly enforced laws to ensure all rental property is maintained to an acceptable standard which much of British rental stock is not (including quite a lot of social housing). Sadly this would raise rental costs further, though.

Tenants should have stronger rights in some areas but in others it's clear that landlords are exiting the market partly due to it being so difficult and expensive to evict nightmare, non-paying tenants who trash their properties. Perhaps there need to be much harsher penalties for that and swift eviction for non-payment, with court fees charge to the tenant not landlord, but better protections for long-term tenants who pay on time. Maybe separate rules for those whol wish to let their property on a short-term or annual contract basis and those who want long-term tenants with the contract terms being explicit on this, so both parties can make an informed choice (as some people do want shorter term rentals and some don't).

It’s totally different @BraveToaster cars always depreciate unless they are niche classic cars.

Properties have so far (over time) always appreciated. Not every year but look at the graph of house price values and it goes up every few years.

As I said above, the idea that a home is the only sensible thing to invest your money in is not the best for innovation or a productive economy and I really hope the current market changes the conversation about this.

It's also blatantly not the case in most circumstances! Over the last 15 years anybody would have been far better off putting their money into a pension (with tax relief as well) and investing it in a global tracker fund, than investing it in UK housing. Even people talking about "paying down their mortgages early" on the properties they live jn over the last decade or so was baffling. Why would anybody do that when mortgage rates were so low and returns on shares were so high? Even worse to be a landlord, with all of the legal risks and non-payment risks and penal tax regime now on renting property plus all the associated costs to comply with safety checks etc, I can't understand why anybody would have been prepared to do all of that to make lower returns, with higher risks, even before the recent rate rises. Except in rare situations where someone was an accidental landlord e.g. moving abroad for a period but didn't want to sell their UK home. It's hardly a profitable business these days and is a high risk one, so it's no surprise rental properties are in short supply. Rents are likely to continue to rise even when mortgage rates reduce.

You have to live somewhere @IBlinkThereforeIAm and owning seems preferable to renting.
Agree with you about being a LL - never seen the appeal myself. Friends of ours rent out a property and say they don’t make much profit from it. Why do it then is the question I always wonder 🤔

Home Buying is almost a peculiarly British obsession

https://www.nytimes.com/2023/11/06/realestate/zurich-switzerland-renting-homes.html

I take that back!

https://tradingeconomics.com/country-list/home-ownership-rate

As for house prices, it depends obviously on the type of property, desireability and area but because if the fact that only approx 1/3 of households have mortgages now (the rest either own outright or rent) the effect of interest rate rises is a blunt tool to try to curb inflation, hence it being ineffective in doing so. Of those with mortgages, most have fixed rates so the effect is also a slow burn unlike in the 80s/90s when most people had variable rates. But because of it targeting only one small segment of the population who are predominantly people with high outgoings already (families with children) who spend most if their essential budget on children, food, utilities, housing, it has minimal effect. Most disposable income is held by those who own outright: wealthy pensioners, predominantly. And increasing interest rates, peversely, has actually given them more disposable income for their meals out and holidays etc, because they have huge savings also, so has kept inflation high. The BoE are only just seeming to realise this, but they have no other tools at their disposal: fiscal policy solutions were required. Hammering those already stretched was never going to help much. The Government of course were happy with this because their key voting cohort (aside from any turkeys so stupid they are still voting for Christmas even now!) is the one that benefits; the elderly. The BoE have overshot and there are likely to be stagnant salaries and growth and job cuts again. We'll be largely stuck because we canmt hugely reduce rates if the US doesn't otherwise the value of GBP collapses further making out essential imports of fuel, food etc even more expensive. To continue the poultry metaphor, it is a clear case of chickens coming home to roost. Once companies start laying off staff good luck even attempting to negotiate a near inflation payrise with your employer to maintain your salary at current levels in real-terms. It's starting already, with the employment market contracting.

House prices though, while they've fallen this year, may fall a little further next year depending on area etc, but not much. It's a slight correction to the over-enthusiastic growth during Covid. Rates by Christmas next year will probably be coming down to a more sensible 4-4.5% ish and current long-term view is stabilising around 3-3.5%.

People should be far, far more worried about UK productivity, international trade barriers (self-inflicted!) and lack of any kind of industrial policy and infrastructure policy, than about house prices.

Yes of course, the security of owning your own home I completely understand people wanting. I rented for 15 years and moved so many times. I was referring more to the comments in the thread about how landlords must be making a ton of money and think it is a great business, madness when you look at the basic maths! Or people who already owned but decided to pay off their mortgage early (on which they were paying say 2% interest) when they could have earned 8% interest (plus tax relief!) investing that into a tracker fund with no effort on their part required to buy/ sell shares etc. Then paid off the mortgage and kept the profit from the 6% (compounding!!) difference. When I read stuff like that (and such people thinking they've been really smart to do that) I am always a bit confused. 😆

@Twiglets1 This increase is usually alongside wage inflation. It's not really profit in the sense that so many people seem to think it is.

The one thing that really concerns me is people treating their home as an investment vehicle/pension/savings account. And you don't have to be a landlord for it to be an investment. If you are spending more than you would otherwise be comfortable with because you are banking on your home's value going up, you are speculating and treating your house as an investment.

I find it shocking the number of people who, now that prices aren't going up, are utterly confused as to how you "climb the ladder". As if it never occurred to them they are meant to be saving and growing their earnings while simultaneously paying down their mortgage.

I think there is a ticking time bomb with people who truly believe that once they pay their bills the rest of their income is disposable because they think their mortgage payment is their contribution to their savings pot. It's pretty evident when you look at how quickly the interest rate rises have affected people's lifestyles. Of course there are people that have very low earnings and inevitably their outgoings will take up a large percentage of that, (but they are probably not eligible for mortgages in that case) or people that have suffered a job loss, but I also think there are a lot of people with little to no buffer because they are spending more than they should because they thought they didn't have to save.

The main effect the interest rate rises will have is actually on highly leveraged companies (of which there are many post-Covid) and this will mean many redundancies, and the UK economy plunging further into a mess. Again the effect was delayed due to fixed term financing but it's starting to happen, with budget cuts and staff layoff being discussed.