[Finance] Housing Market

[usernamed]

In the past rising interest rates would have caused a mass exodus from the market as people failed to find their mortgage payments affordable, but owner occupiers who lived through the 80s have quite sensibly fixed their rates, making them immune to short-term rises, but still potentially vulnerable in the longer term if high rates persist beyond the end of their fix.

Also, a far greater proportion of the market is in the hands of professional landlords (coz once you own 6 houses, the income enables you to quite easily add a 7th) - to many, houses are just another asset class. There are many different funding methods for buy to let, but those who are interest only also get to play the game of musical chairs that is “will rates be high when my current fix ends”. We may see an increase in properties on the market if we get prolonged high rates, as landlords reduce their portfolio and use the money to repay more of the capital on the properties they choose to keep.

The “independent” Bank of England will be under enormous political pressure not to raise rates too far or too fast, but can’t ignore the current levels of inflation for too long either. Rock and a hard place, I don’t see how we avoid casualties somewhere.

Landlords can’t keep raising the rents on their property to cover increased interest payments, unless wages are rising rapidly. Higher interest rates are necessary to combat inflation, but in a credit driven economy, where everyone has debt, raising interest rates in itself becomes inflationary.

I suspect the magic money tree will once again prove fruitful for those with the ear of the government. The rest of us will be allowed to fail as a lesson to not live beyond our means. I don’t think it’s ever been any different, but it still makes me angry.


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[Machiavelli]

Partner and I were hoping to buy our first property this year, I really don't want to get mugged off though with the prices going up. A bit selfish but I'm still hoping the crash will come once people can't afford all the other increases, depressing sigh

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I feel for you, and understand your position, although I think the crash will only come when interest rates rise from where it is to somewhere between 2 and 5%. They've been at or below 1% since 2008, but historically were much higher.
Interest rates will rise, but I doubt they'll rise by too much. The one caveat there is that if inflation sticks around for longer than most suspect (I don't think it will for the simple reason that, with a few exceptions, 'real' wage rises remain low or in negative territory).

 

[Half Time Pies]

At local authority level I see The Planning Inspectorate set mandatory targets for new housing, specified by year of delivery.

Some councils play ball.

Others, pandering to the votes of nimbies, make life incredibly hard for all developers and I’ve seen that include not for profit social housing providers wanting to build modestly on brown field sites. Some of the tactics/incompetence defies belief.

Shelter carried out analysis of objectors. Tending to be middle or old age, in a private home, on above average income.

Not a care in the world for the homeless, sofa surfers or folk in their 30’s having to live with parents.

But developers are also holding on to a load of land with planning and not developing. Shelter also did a report that showed that 40% of planning permissions granted ended up not being built: https://england.shelter.org.uk/medi..._homes_granted_planning_permission_go_unbuilt

Developers have been playing that game of building just enough to keep prices at an optimum level to maximise profit whilst at the same time raking in all of the additional profits earned through the help to buy scheme! Our house builders have basically been receiving billions in government subsidies and I cant see that we are getting much back!

 

[dazzer6666]

Imho Gatwick will be rapidly get back to being a busy airport. Albeit with Virgin only at Heathrow. Freeing up the hogging of slots will help.

Consumers have paid back personal debt and repaid chunks off their mortgages, with luxuries curtailed. Omicron ended up have similar metrics to the flu (DT science article this week). Pent up demand, people want to travel and holiday again.

Possibly, but the effect of business travel dynamic will be interesting - talking to people in my old shop, there's going to be no return to (often ridiculous) pre-pandemic levels (and the contribution to certain airline revenue streams from chubby executives pissing off aroud the world every month in business class is enormous)

 

[beorhthelm]

Actually its much more complicated than population growth outstripping supply. That model completely ignores the role of finance and particularly the availability of cheap credit, its also ignores the determination of successive UK governments to keep prices inflated (for example banking bailouts, quantitive easing, stamp duty holidays, help buy scheme) and prevent the housing market from tanking.

those are additional factors, the underlying cause of prices is lack of supply. theres a good market signal for this, the price of land. last time i checked planning increased value 60x. that tells us there is massive shortfall of land for development, before we get into all those other factors.

 

[mikeyjh]

Possibly, but the effect of business travel dynamic will be interesting - talking to people in my old shop, there's going to be no return to (often ridiculous) pre-pandemic levels (and the contribution to certain airline revenue streams from chubby executives pissing off aroud the world every month in business class is enormous)

100% - Business travel as we knew it is history and therefore flying will become more expensive. No bad thing IMO.

 

[Berty23]

In the past rising interest rates would have caused a mass exodus from the market as people failed to find their mortgage payments affordable, but owner occupiers who lived through the 80s have quite sensibly fixed their rates, making them immune to short-term rises, but still potentially vulnerable in the longer term if high rates persist beyond the end of their fix.

Also, a far greater proportion of the market is in the hands of professional landlords (coz once you own 6 houses, the income enables you to quite easily add a 7th) - to many, houses are just another asset class. There are many different funding methods for buy to let, but those who are interest only also get to play the game of musical chairs that is “will rates be high when my current fix ends”. We may see an increase in properties on the market if we get prolonged high rates, as landlords reduce their portfolio and use the money to repay more of the capital on the properties they choose to keep.

The “independent” Bank of England will be under enormous political pressure not to raise rates too far or too fast, but can’t ignore the current levels of inflation for too long either. Rock and a hard place, I don’t see how we avoid casualties somewhere.

Landlords can’t keep raising the rents on their property to cover increased interest payments, unless wages are rising rapidly. Higher interest rates are necessary to combat inflation, but in a credit driven economy, where everyone has debt, raising interest rates in itself becomes inflationary.

I suspect the magic money tree will once again prove fruitful for those with the ear of the government. The rest of us will be allowed to fail as a lesson to not live beyond our means. I don’t think it’s ever been any different, but it still makes me angry.


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I agree with this.

Take an example of someone with 300k mortgage. 25 years at 1.5% is monthly payments of £1200. If this becomes 5% then it is £1753.

As you say that £550 is also inflationary. If rates went up and lots of people got to the end of their fixed rate then it seems inevitable their would be a crash. If this happens then ltv will decrease making mortgages more expensive too.

Personally I am lucky. Mortgage only has 6/7 years left so even if rates went up loads it is not a huge amount left so even it hit hit 10% it is still affordable. Governments simply won’t let rates go up like that though. Another money tree will be found to keep pumping them. Especially over the next 2 years as an election approaches.

 

[Tim Over Whelmed]

We have, today, put our house on the market. In Arundel prices are booming due to a significant shortage of stock. I feel, and this is only my guess, this is the last boom before a significant market realignment. I think interest rates, inflation and wages are going to have an impact. Houses at the moment are selling at around 20% higher than what is felt to be the real market value, but I think this is a bubble, that will soon burst.

 

[Half Time Pies]

those are additional factors, the underlying cause of prices is lack of supply. theres a good market signal for this, the price of land. last time i checked planning increased value 60x. that tells us there is massive shortfall of land for development, before we get into all those other factors.

The data just doesn't support this, between the mid 90s and 2018 the English housing stock actually grew by 168,000 units per year on average, while growth in the number of households averaged 147,000 per year. At the same time as the amount of surplus housing stock actually increased, UK house prices increased from 4.5 times median household income in the mid 90's to 8 in 2018! There probably are some regional disparities with tightening supply but not enough to explain these huge price increases relative to income.

What does correlate more closely with the rise in house prices is the fall in mortgage rates (5 year fixed were around 8% then but are less than 2% now).

 

[Eric the meek]

Well obviously - I was just highlighting the disparity. It's awful for kids down here - in my daughters case her Borders salary would be exactly the same if she was in Brighton (in fact it might even be slightly lower).

It always amazes me how a even a small difference in demand can lead to extraordinary differences in the prices and rents that the marginal buyer or tenant pay.
I'm vaguely aware that it is something to do with the demand-supply curves in economics, but that's where my knowledge of it ends.

You quote the Scottish borders and here in the SE, but the same phenomenon applies at a local level.

Here's a pointer for any priced out kids on this forum.

A 3 bed Victorian terrace in Fiveways in Brighton - 650k.
Same house in Newhaven, 9 miles away - 300k.
Same house in Lancing, 10 miles away - 350k.
Same house in Bexhill, further away - 260k.

So why the differences? These are the result of long term differences in demand. We're talking decades. Generations.
And the root cause of the difference in demand is: distance from the main trainline (and therefore journey to work time) of commuters to London.

If you want to save 100,000s on your property purchase, simply sit down and google the train times to London, and confine your search to areas where very few people
are going to want to commute to London. Obviously there will be exceptions and anomalies, but the correlation is remarkable.

BTW, I'm not saying these disparities will last forever. The pandemic and trend for working from home has changed things, which may or may not last. Prices will take time to adjust.

 

[southstandandy]

The prices are truly mad at the moment. My mother moved to a nice detached house in Chichester just over 12 years ago and paid £350k. Sadly when she died last year my sister and I put it on the market for £800k (as advised by the estate agent) and it sold within 10 days for £1.1m to someone from London as a second home.

We were lucky at the time we put the house into our names when it was purchased to avoid one day the inevitable inheritance tax, but to me even though we are quids in, it seems ridiculous that a property can triple in price in just 12 years. Yes, its a lovely area but no wonder youngers can't get on the housing ladder today. It has though allowed us to give our children a decent deposit each on their first purchases in the property market, one of which has just bought a 3 bed semi near us in Shoreham for £400k and the other just outside of Newcastle - a 6 bedroom detached house for the same price. Talk abour regional disparities.

 

[juliant]

100% - Business travel as we knew it is history and therefore flying will become more expensive. No bad thing IMO.

Sorry disagree. Business Travel is my bread and butter.

Our transaction levels are almost up there with pre covid. Our customers want to fly and meet in person having been restricted for 2 years. We have just taken on a lot more staff to cope with the surge in travel bookings

 

[Commander]

I'm 39, wife and 2 kids, and run a successful company, and I would guess am in the top 2 or 3% of earners in the UK. I live in a 3-bed semi in Haywards Heath and would like to buy a 4-bed detached property with a decent garden, 2 or 3 bathrooms, couple of reception rooms and a driveway in Cuckfield / Lindfield / Hurstpierpoint or one of those villages at some point in the next 5 years.

I feel like with the job I do and position I'm in, that doesn't sound too extravagant or ambitious. Yet the numbers simply don't add up. It would require around a £700K mortgage, which I wouldn't get, and monthly mortgage payments that would make the whole thing pointless.

I'm not moaning about it, because I'm incredibly fortunate to be in such a position, but I just find the situation absolutely insane. There are hundreds, if not thousands of houses like this within a 10 mile radius of me, but they seem completely unobtainable to someone like me. Yet I don't think there are hundreds, if not thousands of millionaires in the area that have mountains of cash available to buy these properties. So who lives in these houses? Is it just the Boomer generation who bought them in the 70s for £60K and have 3 empty bedrooms? Are their descendants just waiting for them to die so they can sell them and make the move up themselves?

It feels like unless you have some serious inheritance, and are unfortunate enough to get it early, then you have no real hope of living in a really nice house unless you are literally earning £300 or £400K a year.

If I was doing what I do in my parents generation in the 80s I'd be living in a massive house with a swimming pool and a tennis court. Inheritance seems to completely skew the housing market, now more than ever before. Will it continue forever?

Sorry disagree. Business Travel is my bread and butter.

Our transaction levels are almost up there with pre covid. Our customers want to fly and meet in person having been restricted for 2 years. We have just taken on a lot more staff to cope with the surge in travel bookings

Also disagree. You can't take someone out for a couple of bottles of wine and a nice dinner over Teams and build and improve a relationship. It's not the same.

 

[Hamilton]

Also disagree. You can't take someone out for a couple of bottles of wine and a nice dinner over Teams and build and improve a relationship. It's not the same.

Blimey, the last thing I want to do is start taking bloody clients out again. I want to go home and see my family and friends, and I think clients want that too.

 

[Commander]

Blimey, the last thing I want to do is start taking bloody clients out again. I want to go home and see my family and friends, and I think clients want that too.

I don't particularly either. But it makes me money.

 

[beorhthelm]

The data just doesn't support this, between the mid 90s and 2018 the English housing stock actually grew by 168,000 units per year on average, while growth in the number of households averaged 147,000 per year. At the same time as the amount of surplus housing stock actually increased, UK house prices increased from 4.5 times median household income in the mid 90's to 8 in 2018! There probably are some regional disparities with tightening supply but not enough to explain these huge price increases relative to income.

What does correlate more closely with the rise in house prices is the fall in mortgage rates (5 year fixed were around 8% then but are less than 2% now).

thats interesting information, do you know the source?

the median price comparison a poor, not just regional difference, there's earnings and market segment differences. for example median income first time buyers are not buying at median house prices.

 

[Rowdey]

Good time to move out of south London I would have thought and put some distance between you and the gangs !

Only moving south by one mile from SE24 to SE27.. - My business is based here and and doing well enough to stay local, but never in my life did i think i'd be spending £750k on a house i've seen for 1.5 hours..

I know you think its a war-zone up here, but while i'm queuing for my toasted pannini in a 'chi-chi' Deli in West Dulwich (aka Gypsy Hill Borders) i dont see that (and yes, i'm lucky enough to not be in a demographic that is heavily affected)

On the whole house buying thing, this past year i've been in queues of c15 people, all with 15mins to commit to a purchase..

 

[Hamilton]

I don't particularly either. But it makes me money.

I know.

I always used to laugh at how myself and a client would be talking shop, drinking beer, and sometimes all the while wishing that neither of us was there.

 

[Mellor 3 Ward 4]

Quite - The squeeze on people, particularly in SE England for low and average earners is going to be really tough.....

Yes, private rents really are increasing at an alarming rate.

 

[Uncle Spielberg]

A couple of lenders can do 5.5 x joint incomes with a 25% deposit and a few will lend to age 75 if office type job, pm me if you want any figures and advice as this is generic