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|Will UK HousePrices Decrease?|
Just wondering about houses/flats
I live in a big city in the UK, Glasgow. I am looking at buying a small flat within 8 months - a year. Does anyone think house prices will go down any or just keep going up? I remember Brown saying he would tackle the house problem - is he?
Also wondering what people think about holding off and saving up a deposit of for example £15k or £20k?
Whilst there is instability in the housing market and prices or at least the rise in prices may decrease, there is also an ever-increasing demand for housing driven primarily by low occupancy of existing housing (e.g. a spare room is now the norm and not the exception and a single man in a flat alone is nothing to be surprised about).
If the alternative to saving for a deposit is to buy with a low-deposit mortgage provider or to borrow money to pay the deposit, then it is certainly advised that you save for the deposit as above all it gives a certain degree of evidence both to yourself and you lender that you are able to put aside money regularly and hence will be likely to meet mortgage payments.
Entirely my personal opinion of course.
Here are some stats about the housing market, all taken from the same article by the BBC [news.bbc.co.uk], which has the attention grabbing headline:
UK house prices see sharp tumble
|UK house prices saw their biggest fall in 12 years during November... |
|...data showed that the cost of an average home slid by 0.8% from a month earlier |
|The annual rate of house price inflation now stands at 6.9%, down from 9.7% reported in October. |
|...the cost of the average property in the UK is now £186,044, nearly £12,000 more than this time last year. |
|This week, the Land Registry reported that house prices in England and Wales were rising at a rate of only 8.1%. |
My emphasis added
As I say, these figures are from the same article. So, house price inflation has dropped around 30%, from 9.7 to 6.9%, whilst house prices are rising at a rate of 8.1%. Does that make sense?
At the same time property has increased in value by an average of £12,000 over a year, yet this figure represents a dramatic decline of some 0.8%. And apparently all this means that, to use the headline again, "UK house prices see sharp tumble".
Methinks the UK obsesses too much about such things! ;-)
Keep your eye on inflation. If it goes up well, stretch yourself now and you could gain, if it stays the same you could lose money and be locked into high payments.
Each city has good and bad post codes both now and in the future so take look at the regional development plans for the city/county before deciding exactly where in the city and what type of prop to buy.
IMHO you should look at a house as somewhere to live not an investment opportunity. Then it really doesn't matter if prices are going up or down. If you don't move the house value is irrelevant, if you do move then any increase or decrease in your home's value will be roughly proportional to the increase / decrease in the cost of your new place.
The advantage of saving for a bigger deposit versus jumping into a higher mortgage now depends on how much rent you will be paying during the extra saving period.
The BBC's article title has now changed to "UK property market 'turning down'", which is more on target.
rj87uk, in my opinion, it depends how long it will take you to save £15k - £20k.
The market seems to be settling down and I've heard that now is not a great time to invest. It's for you to decide if you agree.
I've seen a number of these cycles over the years, and I can only speak from personal experience.
When I was young, I couldn't afford the deposit, so didn't buy. It took me almost 10 years to save real hard to get anywhere near enough for a deposit. Of course, in that time, house prices had risen, making it more difficult to get a house.
I receieved a tax rebate, as i'd been paying too much tax over a number of years, and this topped up my deposit.
I bought a property in the mid eighties before the crazy price hikes later in that decade, and into the early ninties. During that time, the property went up in value, then took a slight drop, but was still ahead of the purchase price. It's now many years later and the property is almost paid off.
At that time of the early nineties, one of our neighbours had bought their house at the peak pricing, and were hit with negative equity when the prices fell. They were unable to move, although they still had a roof over their heads. That has since well passed by and the house has risen in value taking, them well out of the negative equity trap. They were then free to move as their family grew.
The key factor, as I see it, is that you want somewhere to live, and property will continue to rise in cost/value in the long term.
As long as you can pay the mortgage, it's going to be a good move to get on the property ladder as early as you can afford it.
Prices in some areas will rise more than others, mainly due to demand. Certain types of properties will have a price premium over others. For example, flats seem to be less attractive than houses in the same area. That's a broad generalisation, of course, as it does depend upon the area, demand, jobs, schools, etc.
Do your research, look at what you want from your house, and see it as a long term home, not an investment.
I don't know if prices will fall, however, there is likely to be less pressure on increases, and prices may remain relatively stable while the period of uncertainty remains.
Obviously, with anything like this you must consult the professionals and take legal and financial advice.
I am currently selling my house so have an interest in what is happening in the UK market.
The way I see it, the sub-prime and Northern Rock fiasco plus the fears for the economy means there are fewer buyers around. The market is now stagnant with many properties on the market which haven't sold during the summer. If you are selling the option is either to accept a low offer now or hang on until next spring and hope the market recovers. But that doesn't look as if it is likely to happen.
So a first time buyer with access to funds is in a good position to get a bargain over this winter. Come next year, who can tell?
In the UK purchasing is always better than renting over the long term. There are far too few houses and flats, little space left for building, and the poulation is increasing rapidly. Although there are always peaks and troughs, house prices will continue to rise for the foreseeable future and coupled with inflation, a mortgage taken out today will look like peanuts in ten years time. But rental costs will rise with inflation.
The main issue is to ensure that the mortgage is something that you can afford if there is an interest rate rise or your income takes a drop.
House prices can't continue to rise, I don't think.
Banks and building societies are not allowing first-time buyers to borrow as much as they need to, to make up the shortfall between their deposit and the asking price.
Some homeowners who want to step up the housing ladder are seeing the same problem (or so I read).
One of the biggest upward pressures on house prices over the last few years has been Buy-to-Letters purchasing properties (which would otherwise be purchased by first-time-buyers) using cheaper Interest Only Mortgages and then using the rental income from their existing estates (and the value of the estates themselves) as collateral to purchase more properties.
The fact that they've not been able to put up their tenants' rents by much has not been a problem for the Buy-to-Letters as long as house prices have been going up and increasing their worth on paper. (After all, they can always sell a property or two, right?)
But, let's face facts: the house prices have been going up at such a rate primarily because the Buy-to-Letters have been competing against each other.
Few first-time-buyers in the last few years have been in the right financial position to get a cheaper interest-only mortgage (though some have inadvisably done so, simply to be able to get a foot on the housing ladder) and as the situation stands now, a huge percentage of first-time-buyers have comprehensively been priced out of the market (interest-only mortgage or not).
At the same time, with interest rates at a five-year high and house price growth unlikely to climb as rapidly in the next few years as it has done in the last few, the buy-to-letters' model doesn't work anymore - so there won't be much pressure from them to keep buying and keep pushing up house prices either.
So who wants to buy / can buy?
So what happens next?
I've heard reports saying that the buy-to-let bubble is bursting, the prices have gone so high people can't even afford/won't pay the high rent - lets face it nobody wants to line somebody else's pocket if they can help it.
I also heard that the prices will start to drop, in a reverse ripple pattern, that is, the areas that increased in price last will be the first to start going down.
I'm no expert, I don't own a house but will be interested next year (I hope), so I'm keeping an eye on things. If they drop next year I may wait a while - don't want to buy a house that's going to go down in value after all.
This housing bubble has been a global pattern for many years now. It can't last forever, and there are signs that the whole edifice is starting to wobble.
|If they drop next year I may wait a while - don't want to buy a house that's going to go down in value after all. |
And that's precisely the mirror of the prevailing sentiment of the last few years: "Let's just go for it and buy a house, darling - they said that growth wouldn't continue two years ago and they have been proved utterly wrong. If we don't buy now, we could be priced out but if we buy we'll be onto a good thing."
After several years of house prices going up because they are going up... they are now going to go down because they are going down.
Hold onto your hats.
My 0.01c (subprime) is that the primary driver of house prices upwards in the UK is a shortage of houses (compared to demand), as more people want to live on their own or leave home earlier, or whatever. In other European countries people leave home far later in life for example.
All that I have seen suggests that building more houses where possible is the best way to reduce the upward price pressure, which is why the UK government is keen to encourage new build.
I'm sure that there are various irrational bubble/panic factors on top, but I think that significant *falls* in UK prices are unlikely except in great distress (which is what the US *is* facing now as great chunks of housing are repossessed and abandoned). I don't think that the UK has anything like the bad-mortgage problems of the US right now.
|I don't think that the UK has anything like the bad-mortgage problems of the US right now. |
I agree. The problem has come about because financial institutions have bundled sub-prime loans with prime loans and then sold them on. The buyers of these products have now become aware of this and realize they don't know what risks they are exposed to. It will probably take years to unscramble the mess. In the mean time the media is spreading doom and gloom and house buyers are naturally nervous.
But there is no real problem, at least in the UK. Sub-prime loans are always riskier, but the lenders charge a higher interest rate to protect themselves.
|I don't think that the UK has anything like the bad-mortgage problems of the US right now. |
You are joking?
The UK is apparently £1,000,000,000,000 in debt. Banks have been done for selling people mortgages they cannot afford - 110% over 50 years, interest rates have gone up constantly over the last 2 years and a lot of people now cannot afford their debts. IVA companies have sprung up out of the woodwork and credit companies are losing millions in bad debt.
I think if you take the average of all debt/assets in the UK, credit companies effectively own everything. People here live their lifestyles on borrowed money.
That's a rather general statement about how capitalism works, in effect, everywhere in the world, ie including the US and the UK.
(Note that in the case of (say) building societies, most of what they lend out is savings from their members: not doing this would apart from anything else get them into the same pickle as Northern Rock. Thus, that £1 trillion figure is really some people lending them money to other people via a third party. That's what banks are *for*.)
The OP was about *UK* prices. Whatever you may think about the end of the world (eg roughly every day with a "y" in it for the Daily Mail), the issue here is is there anything especially or *unusually* bad going on in the UK right now that might make house prices *fall*. The answer seems to be "no", though it might be tough for many people to sell quickly at the price they want to, at least for a while.
All IMHO: I am not an economist or trader or "quant" or whatever, though I do regularly sit on a trading floor and have lengthy discussions with some of the above over a pint or a coffee from time to time...
|The OP was about *UK* prices. |
True, but rising property prices have been a trend in many Western nations - not just the UK - for well over a decade. Understanding the UK market involves, in part, looking at the global market.
There are lots of 'just so' stories about why individual local property markets have been booming in various countries. For example, in Australia there are complaints that the government hasn't been releasing enough land for new housing. However the truth is that international finance is at least partly responsible for many of these booms.
So, here's the same question for the OP from another angle. Do you think property is currently overvalued or undervalued?
|Do you think property is currently overvalued or undervalued? |
Massively overvalued by at least 10-20 times. A 200k flat in London is worth no more than 10k, especially given the awful neighborhood, air quality and cost of living. Unfortunately, if prices were sensible, people would buy multiple houses 'for investment' or 'as a city pad'. Realistically you will only reach fair housing prices if house ownership is rationed in a way that makes it very hard to be a private landlord, be a single guy in a three-bedroom house or to have a second home.
I work in social housing in the UK, I am seeing an increasing number of people that have lost their homes due to non payment of the mortgage.
That cuts across all ages.
Requests for mortgage rescues started coming in again early last year at the time I received around 3 calls a week, now its a flood of calls and we are starting to reconsider doing them again.
House prices on one street in Colchester had dropped £100K from three years ago when sold new, this made the Daily Telegraph property section.
Other homes in Colchester, Balkern Heights etc were proving very slow to sell despite being near the town the center and having the Roman Balkern gate and city walls as a view.
The emphasis these days is for mixed tenure estates, i.e private and council, DO NOT buy on one of these estates, your property will prove hard to sell and will not increase ain value like for like.
So yes house prices are coming down, hold on to your hats for the crash
[edited by: Essex_boy at 12:47 am (utc) on Dec. 2, 2007]
I don't believe these doom and gloom scenarios. The UK housing market will adjust to the general financial situation as it always has. There are always people who are hard hit when the market turns down (It's happened to me! Twice!).
The fact is there is a shortage of housing in the UK, and so when the general financial situation is buoyant, houses get overpriced. When the situation worsens, house prices fall to more realistic levels.
This has been exacerbated in recent years with people thinking they can make easy money out of buy-to-let, and also all the irresponsible TV programs about amateur property development. People make alterations and slap in new bathrooms and kitchens thinking they are going to increase the value of their property, which works OK with all the gullible buyers who are around in times of optimism, but the value sinks back to bricks-and-mortar reality when optimism fades. After all new kitchens and bathrooms quickly date and have to be done all over again at some time.
Personally I prefer the French method of pricing properties. The key points in a French house brochure are the area of the plot of land, the total area of the property, and the area of the living accomodation. Whereas in the UK people tend to purchase on impressions. Remove half the furniture, paint a room white, and everyone says "Isn't it spacious!" But the same room full of furniture with a dingy colour scheme is rejected as "Far too small!"
The most bearish comment I've yet heard is from the chartered financial planner Jonathan Davis who in a MoneyBox interview on Radio 4 (December 1st), said:
|We had a mania in buy-to-let and we know that those buy-to-letters are now flocking to offload their properties [...] We will see a fall in average prices over, say, 4 to 6 years by between thirty and forty percent. In other words a GBP 250,000 house, I forecast, will fall to GBP 150,000. [...] By the end of next year I see the national average falling between five and ten percent. |
Source: [bbc.co.uk ]
(Fast-forward to 6:00 minutes in)
|The fact is there is a shortage of housing in the UK |
I keep hearing this. But I have also read on the BBC, that: "According to The Empty Homes Agency (who?) there are an estimated 870,000 empty homes in the UK and enough empty commercial property to create 420,000 new homes."
So, even discounting the commercial property, is there really a shortage of housing? Or is it just convenient for property speculators to maintain that there is?
Primelocation (October 2007) reports that:
|The prime country market is awash with properties for sale, with stock levels up 40.0% on last year and up 5.5% on last month. |
Is there really a shortage of housing?
The 870,000 empty homes figure may be misleading. It might include houses for sale, those uninhabitable without major expenditure, and vacant rental property.
As to empty commercial property, where is it? On industrial estates? Or owned by supermarkets to stop competitors setting up in that neighbourhood? The usability as housing may not be as great as the figure of "420,000 new homes" suggests.
I think it's easy to demonstrate there is a shortage. If there was a surplus prices would be much lower and based on what buyers can afford, especially first-time buyers. But people are still finding it extremely difficult to get on the housing market.
|But people are still finding it extremely difficult to get on the housing market. |
That's not surprising when buy-to-let landlords have bought up so many properties on the basis of favourable mortgage agreements which otherwise would have been bought by first-time-buyers.
Now that interest rates are up (increasing monthly mortgage expenditure) and house price growth is level (or dropping) so it can't compensate in capital gains for the shortfall between what the tenant pays the landlord in rent and what the landlord pays the mortgage lender, buy-to-let is no longer a profitable business model.
So lots of buy-to-letters are looking to offload some or many of their properties which will now return to the first-time-buyer marketplace.
Then we'll see if there are too few houses for first-time-buyers or if the houses they normally would have bought have simply been selling to buy-to-letters instead.
In any given market where units are either bought and taken out of circulation (in this case empty properties) or bought and rented out but not resold (buy-to-let properties), you'd expect to see the supply of available units for purchase to shrink.
That doesn't mean there aren't enough units to go around - it just means that those couples or individuals who once would have bought are obliged to rent instead. When those BTL landlords renting out their units (and not selling them on) are continually in a position where they have the means from renting out those units to purchase more units (on more favourable terms!) and take them out of circulation too, of course the remaining units available for purchase become scarcer and their price goes up.
In this case the first-time-buyer property prices have gone up to the point (six to nine times average annual earnings!) where practically no first-time-buyer couple with a dual income can afford them.
That's why simultaneously, when first-time-buyers are finding it difficult to get on the housing ladder, sellers are also finding it difficult to persuade anyone to accept their asking price which they have been informed by estate agents is the going rate. (The going rate but nobody can afford it? How is that any sort of going rate?)
We cannot persist in a situation where some people own 4-6 (or 15!) properties and many other would-be home-owners have none. When the buy-to-letters decide to offload because the interest rates are hurting too much and realise they have no-one to sell to, reality is going to finally hit home: it's going to be a long drop.
And here for everyone's delight and amusement (yes, we're finally going to be able to buy our own homes!) is the headline from today's ThisIsLondon:
|House prices 'will plummet by 10pc over the next year', says banking chief economist |
The housing market is on the brink of a record slump, one of the country's leading experts warned.
Morgan Stanley's chief UK economist David Miles warned that prices will drop 10 per cent next year.
That would be the biggest full-year decline since records began in 1969.
Source: thisislondon.co.uk [thisislondon.co.uk]
[edited by: encyclo at 11:06 am (utc) on Dec. 5, 2007]
[edit reason] fixed link [/edit]
As a would-be first time buyer I look forward to the drop with glee, if indeed it happens.
I do worry that there are a lot of people like me waiting for their opportunity though, so if prices do start to drop they could soon go up again. I do however also know a few people who got tired of waiting and bought anyway, taking the advice that property prices will always keep shooting up anyway.
We could have bought a year or two ago, taking on a mortgage which was about 70% of our combined incomes, and more than twice our rent. The bank were perfectly prepared to lend us that sort of money with very little deposit.
The properties we could have bought were small flats in bad areas, and nowhere near as nice as where we live now, but we decided that was a pretty risky strategy. Basically we would have been buying a hovel purely for the investment prospect, and not a decent home which we wanted to spend 20+ years in.
Helen, you are spot on about 'hovel'. I live in South Cornwall, and the situation is probably worse here than Exeter. Anything desirable in a nice area is priced for the buy-to-rent, second-home, or incomers from the South East. It leaves very poor quality housing for the remainder who can't pay those prices.
I have just sold my house (at a lower price than I would have got earlier in the year) and am looking to down size. There's a lot of property available, but nothing I really want to live in unless I pay the inflated prices. Prices are beginning to come down, but it's too early and sellers still have an inflated idea of what their property is worth. I'm thinking of going back to Wiltshire, which is far enough away from London not to be part of the overpriced South East, but not trendy enough to be targetted by incomers.
[added] Unfortuantely I'm too old, or I would just up sticks and head for France. :) [/added]
[edited by: HarryM at 5:53 pm (utc) on Dec. 4, 2007]
IMHO, the banks are 100% to blame for the rampant house price inflation the UK has seen in the last 7 years. Offering massive multiples, and even 50 year interest only 110% mortgages meant there was money in the hands of first time buyers to push up the price increases.
If the banks had stuck to their guns and would only lend 3.5 times income as it always used to be, there is no way that prices could have got out of control.
As has become obvious, they have now pushed it as far as it can go; and only 1 of 2 things will happen;
i) A crash - and if it does happen I think it will be short and sharp as a result of the way news and public opinion is influenced and disseminated these days. During the last "crash", you perhaps read a newspaper and watch the 6'o'clock news. Today, you have 24 hour news, forums such as housepricecrash.co.uk and online property search portals that RSS in scaremongering news headlines.
ii) A prolonged period of zero house price inflation. This will only happen if GB, AD and the other VI's can engineer this in the current environment (see i)
I'm with Helen, bring on the crash!
I want a house and not a hovel!
|3.5 times income as it always used to be |
Exhorbitant! To buy a house in the 1960's involved a personal visit to the bank manager or building society, and the max you could get was 2.25 times the husbands's income. Some would push that up to 2.5 times if the wife was also working. And if you weren't married, forget about it.
Also in those days getting a personal loan involved an interview with the bank manager, and it was like getting blood out of a stone. There was typically a patronizing little lecture about the dangers of becoming over-extended.
Personally I'm glad those days are gone, but I agree that lending has got really out of hand.
Well, some sources are now reporting price decreases, though I still suspect that's people selling 'in distress', ie because they have to, quickly, and accepting a lower price than they'd like.
I suspect that most people will sit tight until they get what they consider a sensible price, ie sales will slow rather than most sale prices actually dropping compared to the previous sale of the same property.
When I was a young man we still had trouble getting on the property ladder, it was just as hard. House prices were lower but salaries were also very low.
I had to take a second job working evenings and weekends for a couple of years before I could afford the deposit on my first "hovel" (we didn't have unrealistically high expectations in those days).
It has never been easy and I don't think it ever will be you just have to go for it. If your first house is not as nice as you would like it to be, regard it as a step on the way to your dream home. Improve it if you can then when you move you have added value not just allowed price inflation to do it for you. Eventually you will get what you want but you may have to compromise when you start off.
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