I’m thinking of buying at the moment, and purely from a selfish point of view, can’t help wondering what the effect of cutting the housing benefit is going to be in the near future.

Prices at the moment seem a bit bonkers, and despite a decent salary and healthy deposit, i can still only *just* afford a tiny place. Which means a large section of people are priced out of the market, yet prices aren’t dropping?

And if housing benefit is propping up the market, whats everyones reaction going to be when their house prices start dropping? Is it actually benefiting the landlords and homeowners?

I don’t know but I have a suspicion that housing benefit has helped house prices reach the stupid levels they did. Cheap borrowing and high rents make buy to let very attractive and a cycle of increasing house prices and rents follows. Until the bubble bursts.

I’d say probably not. House prices are an auction. As long as there is more than one person looking to buy a given property then they have to bid against each other.

The seller will sell to the highest bidder who ever they are so there only needs to be one person prepared to pay more than you for you not to be able to afford it. It doesn’t matter if there are hundreds who can’t afford each house – only one needs to buy it to set the price.

There might be areas with a large letting population where house prices can be inflated but even then housing benefit claimants are the only people renting. An landlord still wants the best price they can get, and again they only need one tenant.

Housing benefit is going to be cut, room allowances reduced, council tax allowance for benefit claimants being removed, private rents going up etc etc

If you are thingking of buying to let, then seriously consider if your tenants will be able to pay the rent, ie will they be eligible for enough benefit to cover your mortgage costs.

The governement want to reduce benefits, but this will have a massive impact on how much money property owners will be able to charge their tenants. Its not a pretty picture

As for the effect of capping (I don’t think it’s being cut as such is it?) housing benefit, I see a lot of houses being built along the south coast, maybe ready to take the refugees from London. There will be winners and losers for sure.

Prices aren’t dropping because people still think that houses should automatically increase in value, year on year, regardless of the economic situation. I’ve been to look at lots of houses in the last couple of years, and they’re all still for sale, largely because they are over-priced (and mortgages are harder to get).

It’s going to be carnage in the buy to let market in Brighton if housing benefit is stopped for the under 25’s

Private profit, public subsidy , has been the defacto policy for many years, you now have a situation where a worker cannot afford to rent a modest property in london on the average wage– the private rental sector would collapse without ‘housing benefit’ subsidy, once rental controls are removed this is the resul, so what do the govt say–council housing is too cheap- lets get rid !

Prices aren’t dropping because people still think that houses should automatically increase in value, year on year,

Which leads to a self fulfilling rise in prices does it not?

People won’t sell for less then they paid, ergo prices will continue to rise. Even if this is slowly as the volume of sales drops due to affordability of mortgages.

Too many people have too much invested for house prices to drop long term.

If it helps I rent two houses out in Bradford and one is to a girl who gets the maximum housing benefit which is £392.00 every 4 weeks.

This figure was £414 last year but has been reduced twice.

Which is self fulfilling is it not?

People won’t sell for less then they paid, ergo prices will continue to rise. Even if this is slowly as the volume of sales drops due to affordability of mortgages.

Too many people have too much invested for house prices to drop long term.
Absolutely. The idea that the housing market is inflated and will drop to early 90’s levels is a false one.
Anyone who’s bought a house in the last 15 odd years with a mortgage would be unable to service their debt (as prices drop, the interest will rise). There would be loads of repossessions, bankruptcy’s
and the stock not worth what the banks lent against them, the banks would lose out too. It would be instant recession.
Never happen.

And to add to that…

i)As house ownership becomes less obtainable more people will be forced to rent.

ii)Rental incomes need to be at a certain level to make the owners mortgage payments.

iii)The country is over populated.

So rent won’t drop either.

lots of hopers on here– it will never happen– but it can and does, you play with markets, then you are also beholden to them- look across the pond in the good ole US of A — happened there on a massive scale– check out detroit-or whats left of it !

Suppose it also depends how long you are staying put – if long term not an issue.

I rent as cheaper than buying having done the maths and my contract expires in 2014 and could end up anywhere.

Suppose answer is it’s what suits you. Have a chat with an IFA?

what phil.w says – spot on.

I’ve been to look at lots of houses in the last couple of years, and they’re all still for sale, largely because they are over-priced (and mortgages are harder to get).

I’ve been to look at 10 houses in the last two weeks. All have sold pretty much instantly for very near or full asking price.

I’ve also sold my flat in Manchester for only 5% less than asking…it was on the market for less than 2 weeks.

Depends where you are in the country and whether people want to live there.

No one remember interest rates hitting double figures? Plenty couldn’t afford their mortgage repayments, houses were repossessed and sold at auction. Prices came down. I got my foot on the property ladder, until then a house was an impossible dream.

lots of hopers on here

There certainly are, but not the ones you’re looking at. The US market was and is massively different to ours. The housing market in the UK will never crash. It won’t be allowed to.
As rubber buccaneer states, it happen once. They learnt their lessons from that.
Why do you think the BOE have kept the interest rate so low?

Maybe i’m being thick here, but surely if there are less people around who can afford the rent then rent will either have to come down or landlords will have to get rid of their houses. Simple supply and demand is it not?

Maybe we need a housing crash before we get out of recession? Because the current plan doesnt appear to be working.

Maybe we need a housing crash before we get out of recession?

I’m beginning to think the same. The people who *can* afford the rents have less disposable income left to spend in the shops etc.. All our money has flooded property where its not really doing very much.

If you are thingking of buying to let, then seriously consider if your tenants will be able to pay the rent, ie will they be eligible for enough benefit to cover your mortgage costs.

That makes an assumption that everyone who rents is on housing benifit, plenty of people don’t see the point of borrowing money to ‘invest’, gaurenteeing the bank it’s return on £200k whilst taking the risk that it may/may not go up slightly or down horribly over the next few years. That and i like being able to move house without feeding bloodsucking estate agents and solicitors. £200 for a van and some diesel and I could move anywhere in the country in a months time.

That makes an assumption that everyone who rents is on housing benifit

No it doesnt. It simply states that there is a proportion of people who are on housing benefits. For housing benefit changes to have no effect, there would need to be a tenant for every property who could afford it without housing benefit – and that’s not going to happen unless prices drop dramatically.

The idea of buying a house certainly makes sense rather than a lifetime of renting but i fail to see why the housing market in this country is so expensive? for that reason I guess i’ll never have enough money to buy a house in this country.

For example : A friend has just bought a restored farmhouse with open plan massive kitchen and living area, stone flags on the floor and rustic looking walls etc (gorgeous) and outbuildings in the south of france, 4500 sq/ft or thereabouts with 6 acres of land and a woodland, large pond which is fed from a burn and the sort of views over the countryside that most folk dream off, all for the princely sum of £185,000, you’d be lucky to get a poky little shoebox of a house in this country for that amount.

I would estimate that in 99% of cases housing benefit would only sustain values of properties in the sub £100k range i.e. it is not profitable to buy a house for more than that and rent it out to a tenant on benefits and make a profit.

Therefore yes it does impact but only the bottom end of the market. Differentials for nicer areas / housing stock are already massive so the middle and upper end of the market is disconnected, if your after a nice house it will have no or very little impact.

The UK housing market is very mature where usual market forces apply, currently lack of finance and consumer confidence is restricting activity and has led to falls in value of up to 30%, regional and micro market factors apply such as the London prime market is booming as finance and confidence issues do not apply to cash rich buyers who have little other alternatives when looking to invest. Regional markets with a high reliance on benefits and high unemployment have taken some of the biggest falls.

Two factors are critical in restoring an active market, finance where the Banks are still dealing with massive issues and consumer confidence where job security remains a big issue for many. Until these issues are resolved (which will be years down the line) the market will just bobble along with low levels of activity and minimal levels of growth.

Maybe we need a housing crash before we get out of recession?

You think that the Banks losing more money will help? 😯

check out detroit-or whats left of it

Yeah, houses for sale for $0.99

😯

uwe-r – I used to live in a £250k house which was paid for by housing benefit. I know plenty who have done or do the same.

As an aside – I wonder what effect the tuition fee changes will have on house prices in cities with huge student numbers.

Wrecker – what got us out of recession the last time?

is the problem just not enough houses?

i really cant see that benefit caps will reduce demand by very much

living in london maybe my view is skewed

It simply states that there is a proportion of people who are on housing benefits.

Sure it’ll efefct some but it won’t cause a crash in the market (sales or rental) If it was a significant portion of the rental market then the government wouldn’t make the benefit cuts.

Like I said before, too many people too much invested. (why do you think Northan Rock, RBS etc weren’t allowed to collapse)

The only thing that would bring rent/prices down would be to flood the market with new homes. Again, this isn’t going to happen.

not profitable to rent out houses worth more than 100k.. I service several properties with £1750 plus per month rents..

Housing benefit is propping up the market to an extent, at very least the rental market, which is propping up the rest of the market through buy to let and a huge number of private landlords. I believe that the plan is not to cap housing benefit at a particular value, but at 80% of market value, so the recipient always has to pay the remaining 20% if their rent is deemed to be “market value” for their property. Seeing as they won’t have the money to pay that 20%, particularly not if its 20% of a high rent, then I guess they will be looking for cheaper places. You’ll probably just end up with a two-tier rental market, landlords will either look after their properties a bit and rent them at 100% market value, or just let them deteriorate and rent them at 80-90% of market value, knowing that people are desperate enough to put up with almost anything for that little extra discount

It may well drop prices of larger houses and push up the prices of the smallest/cheapest properties, particularly in more depressed areas. I can’t see it making much difference in say, London, where the private market is so oversubscribed that people will pay almost anything asked.

The only thing that would be likely to drop housing prices would be home building, and it would have to be on a huge scale to counter owners views that prices should always keep increasing. Something like the council house building of the 50/60/70s would do it, and provide a much cheaper long term solution to housing benefit costs, providing they didn’t sell them all off again this time!

Don’t underestimate the significance of the 0.5% base rate in preventing a significant house price crash in this recession. Repo’s / defaults on mortgages would have been significantly higher without this.

I think a slow correction in prices is occurring, but for some of the aforementioned reasons stated on this thread, a catastrophic crash as the doom sayers predict is highly unlikely.

Comparing our market to France or America does not quite work, we have restricted house building for years and have had a massive population growth where as in the US and France they have masses of land that could be developed but not enough demand to do it.

The French think we are mad when we buy up there old barns and sink thousands in to doing them up when a new build in the village could be had for a fraction of the price. They have a different mentality though, we all dream of big country houses with nice views and lots of land they just want to be 5mins from the patisserie.

In the US they build houses out of wood and plastic and they have a short shelf life so they are not used to the concept of ever appreciating capital values.

Wrecker – what got us out of recession the last time?

The recession isn’t the same as last time though is it? How are we to have a lawson boom this time? Tax cuts? Can you imagine anyone proposing tax cuts? 😀

As above – are tuition fees going to impact – if you graduate with 30-50k debt you are not buying a house for a long time?

And surely banks asking for 40% deposits on best rates implies they don’t predict prices going up?

Tell me I am wrong – just asking!

I was thinking of the decrease in numbers going to university, but your point is probably going to have a greater impact than mine right enough.

you seem to be oblivious to world markets– they are very volatile– living in a uk bubble does not exempt you from winds from afar– there is huge problems in world capitalism– yet some think the Bank of England is immune to them !!!

House prices won’t level out until the baby boomers are all dead. Which will be so long away that no-one will remember a time when houses weren’t investments.

As an aside – I wonder what effect the tuition fee changes will have on house prices in cities with huge student numbers.

I suspect the cost of uni won’t affect those that go’s ability to pay rent, the impact will be from less students redueing demand. And the ex-polytechnics and collages will suffer more than the bigger universities with a lack of students.

We were seeing the start of it while I was in Sheffield, in my last 2 years the number of empty hosues went up noticeably, always the crap ones and the nice ones got nicer as they had to be good to attract students.

Round these parts there are no shortages in property for sale. In fact there are so many for sale (including loads of empty new builds) that the number of for sale signs are a real eyesore.

The only houses selling seem to be at the top end where money is still no barrier and at the sub £100k where people simply buy, then stick someone on benefits in there. It’s easy money at the moment and a lot of my friends have been into it for ages. In my opinion two things need to happen firstly the profit being made by the BuyToLet guys fleecing the benefit system need curtailing somehow and then priced NEED to fall.

As it stands, first time buyers are being constantly outbid by BuyToLet guys and no matter how many starter houses are built this will continue until the easy profits from houseing benefit rental dissapears.