London housing bubble solution?

a house that they actually live in can never really be an investment, so long as they still need to live it.

Still not sure what you mean by this. It MAY not be made liquid until you die, but it’s still something you own that has value.

that they may never pay off their mortgages,

Not completely, but they will pay of some or even most of it.

that they may never pay off their mortgages,

Although the numbers are smaller that you’d think:

Fewer than two in five UK households have property debt

The UK might have a reputation as a nation of mortgage slaves – interest rates are often reported as if that’s the case – but that’s not the reality. The ONS figures reveal 9.2 million UK households had property debt in 2008/10 – that’s 37.3% of the total.

This figure was actually a slight decrease from the 9.4 million households who had property debt two years earlier. Those households might be making those repayments for a while yet, though: between them, they have a total of £847,911,798,000 to pay off on their properties (median debt £75,000).

and

By 2015, more than 50 per cent of homeowners will be older ‘mortgage-free’ households with a home that they own outright.

Many of those will be people who took a mortgage out in Britian the 1960s, 70s and 80s and are now reaping huge financial rewards.

..

The report, from the housing information firm Hometrack, said: ‘If current trends continue, there will be more outright owners than those with a mortgage by 2014/15.’

Sources:

http://www.theguardian.com/news/datablog/2013/may/13/mortgages-property-debt-uk-trends

http://www.dailymail.co.uk/news/article-2206964/Majority-homeowners-UK-mortgage-free-THREE-years.html

Many of those will be people who took a mortgage out in Britian the 1960s, 70s and 80s and are now reaping huge financial rewards.

Yes and how were house prices in the 60’s, 70’s and 80’s? Low, but with high interest rates initially which got progressively a lot lower as these people paid off their mortgages. Today’s hose prices are High, but with low interest rates. What will interest rates be doing as soon as the general election is over?

What will interest rates be doing as soon as the general election is over?

Probably low as we’ll be having a mini-crash once the election is over and they remove the help to buy stimulus. Plus all the PPI payment nonsense will end, which is another unsustainable boost, feeding the economy.

Yes and how were house prices in the 60’s, 70’s and 80’s?

According to my mum they paid about the same proportion of a new teacher’s salary on their first house in 196whenever, which was something like £8,000.

I remember our house in 1980 was bought for £28,000 and sold for £230,000 in 2001.

Probably low as we’ll be having a mini-crash once the election is over and they remove the help to buy stimulus. Plus all the PPI payment nonsense will end, which is another unsustainable boost, feeding the economy.

I’m doubtfull about the rates, the BOE have already strongly hinted that rates could be at 3% in just a couple of years. Tougher affordability checks just introduced too and an upping of housebuilding. If interest rates go up that will make saving more attractive, BTL much less attractive. Possibly BTL’s selling up and plenty of repocessions. Guessing prices could go down, possibly a lot.

Molgrips – your key assumption appears to be that rents will always be more than the interest on a mortgage + other home ownership costs. They don’t need to be.

They are likely to be similar, because landlords will have to buy the houses in the first place and the tenants will have to pay their mortgages. Unless you want to limit that too, so that only the super rich (with lots of free capital) will be able to afford to be landlords, which is an even further regression towards mediaeval levels of wealth inequality!

Why are they likely to be similar. The cost of home ownership is depreciation of fixtures and fittings + cost of capital tied up – house price rises.

In a world with low house price rises in line with inflation a company or the state will have a lower cost of ownership than an individual (cheaper capital, economies of scale in maintenance and replacement). It’s more complex than just that but its not hard to imagine a way the renting can be significantly cheaper than buying.

You seem to be focused on the current state of affairs but in a system like Germany’s the maths are different. German people aren’t delaying buying a house because they are scared or stupid, its because the financial benefit is small vs the downside of inflexibility and up front cost.

You are also worried about the mega rich and BTL but if you remove the house price rises this goes away. Wealthy retirees don’t have a lumps of cash to invest, poperty isn’t a high yeild investment, the profits in housing don’t come from owning house but from offering a service to tennants. Housing is seen a low yeild but safe investment and the profit is in the margin between the cost of providing housing and the rent, not simply the act of owning the property in the first place. You make money by doing something, not having something.

This thread is ace. Apparently molgrips is an idiot for buying a house…

I don’t think people are saying Molgrips is an idoit for buying a house. In fact in the current system you’d have to be an idiot not to. What people are saying is that simply building more houses is not the answer and that our current ownership focused system of housing is nether good for us or good for the economy that there is a better way of doing things.

However the reality is that things will not change as people in this country are too obsessed with not “paying a landlords mortgage”, missing out on the housing ladder and being able to leave a shit load of their cash to their offspring.

BTL in its self does not drive income inequality, it is simply a symptom of a system that in the past has generated a lot of wealth for a golden generation. Due to the perpetaution of that system it makes financial sense to invest in property hence BTL.

I’m doubtfull about the rates, the BOE have already strongly hinted that rates could be at 3% in just a couple of years.

Based on the assumption that the current recovery continues….

Their track record at predicting inflation is pretty poor, they also failed to predict the 2008 crash along with everyone else…

a house that they actually live in can never really be an investment, so long as they still need to live it.

Still not sure what you mean by this. It MAY not be made liquid until you die, but it’s still something you own that has value.

The purpose of an investment is to earn you money. Does owning a house earn you money, or is it mostly just a big drain on your finances?

Laughed as a friend bought an old Jaguar as an investment few years ago thinking it would only go up in value. The price did go up for sure, he hardly drove it to preserve the value yet when he added up the costs of ownership for 8 years it cost him more to service, insure and store than the £10k increase in price he sold it for? Plus he had his original money tied up for 8 years. Great investment eh?

I own 2 let properties in SW London & live abroad. I have to pay UK tax on UK sourced income & also will be liable for CGT on the gains when they get sold.

Just a couple of facts though:

c 50% of London property sales are for cash – ie, no debt needed.

Most investment properties get bequeathed not sold.

I bought my 2 as a pension as I think when I come to collect my UK state pension (of which I pay for voluntarily) I reckon it will be means tested & will be at the back of the queue.

FWIW I do feel good the investments have paid off, they were bought when rental yields were c 5% so I locked into those yields. Now with the capital increases they yield c 3.5%, not brilliant, but then again not bad.

The capital increases are paper money though unless you realise them, sadly, in the long term prices will rise they won’t get sold as I don’t want to be without a London base.

Hope it helps, I am a good Landlord, my tenants rarely change.

You seem to be focused on the current state of affairs but in a system like Germany’s the maths are different.

Their situation is quite different though, and I’m not sure you could mimic their system here.

Does owning a house earn you money

Generally yes, in the long run. It also saves a certain expenditure ie rent. There will always be a profit going to a landlord, otherwise they wouldn’t bother.

Don’t forget you get rental income as well as appreciation. Around here you’d be looking at £700 ish on a £200k lump sum which is about 4% before tax.

Does owning a house earn you money
Generally yes, in the long run.

Ermmm not in Japan / Detroit it doesn’t – the risk of deflation. Should the over-inflated housing market be allowed to continue (all thanks to regulation changes that took housing out of the inflation calculation).

The question is more ‘should’ a house earn you money?
Should housing be put back into the inflation calculation?
Should finance rules be changed back to the old restrictions of 3 times 1 income?
Should Financial services / business be encouraged away from the south e.g. why build more houses when there are lots of unused properties

Their situation is quite different though, and I’m not sure you could mimic their system here.

Not tomorrow but with careful and gradual policy change it is possible. But people have to buy into the solution, people don’t like change and the people with power, the people that vote are benefiting from the status quo even if it is a presure cooker waiting to pop.

Generally yes, in the long run. It also saves a certain expenditure ie rent. There will always be a profit going to a landlord, otherwise they wouldn’t bother.

Don’t forget you get rental income as well as appreciation. Around here you’d be looking at £700 ish on a £200k lump sum which is about 4% before tax.

Just because someone is making a profit doesn’t mean that you are losing out. You are assuming the costs of you owning a house are the same as someone else owning a house so owning will cost x and renting will cost x + 4%. That isn’t true, the landlords costs may be y and y+4% may be less than x.

So – is the German situation really better?

Define “better” 😉

I own 2 let properties in SW London & live abroad….

Meanwhile I’m contributing to the UK economy, paying UK taxes and can’t afford to buy in London because there’s a shortage of houses to buy – because so many people have bought more houses than they actually need to live in… 😯

In respect of sharing the wealth and allowing your average person to feel some stability, Buy To Let has been one of the worst things to happen in the UK – it concentrates ownership in the hands of few and creates an artificial shortage of houses to buy and therefore drives up prices to levels which are unaffordable without first time buyers getting themselves into excessive amounts of debt.

The 17 year old who sits next to me at work isn’t even bothering to hope he’ll ever own…

Why didn’t you just put your money into an index tracker (or tax-free pension) instead and let someone else buy the houses for themselves so they could have some security, raise a family etc – you know – normal stuff about living a nice life…

Lucky you. I can’t afford to buy the house I rent. Nor can many people under 30…

I couldnt when I was under 30 too. Instead of wasting time on the interweb trying to come up with more reasons why you deserve to buy a house try moving to a cheaper part of the country or earn more.

Why didn’t you just put your money into an index tracker (or tax-free pension) instead and let someone else buy the houses for themselves so they could have some security, raise a family etc – you know – normal stuff about living a nice life

Cos you have to put it into rent instead – most of it.

Why didn’t you just put your money into an index tracker (or tax-free pension) instead and let someone else buy the houses for themselves so they could have some security, raise a family etc – you know – normal stuff about living a nice life…

Thought it would be a good investment? Not a socialist perhaps?!

It wasn’t long ago that a lot of BTLers got their fingers burnt as too heavily geared and rental values dropped leaving them unable to cover their mortgages. It’s a big gamble in the short-term – would you get into BTLing in London now?

Indeed. Used to live in Bradley Stoke (aka Sadley Broke), which then was the negative equity capital of England. Shed load of BTLers (and 100%+ LTV home owners), and shed loads of rental stock all of which had no furnishings or white goods.

Sadly I was too skint to buy then, but I would have definitely purchased, and then let it out when I moved overseas, rather than sell on relocation.

anagallis_arvensis

I couldnt when I was under 30 too. Instead of wasting time on the interweb trying to come up with more reasons why you deserve to buy a house try moving to a cheaper part of the country or earn more.

This. With my gf (now my wife), we bought our first house when I was 29½, and we were only able to afford that by moving away from our home towns to a cheaper area.

I’m not sure I understand why people feel they should be entitled to live wherever they want, at a price that is specifically affordable to them. Can’t afford to live in London ? Don’t live in London…

I think anyone buying at these levels will get burnt, the rental yields are c 3.5% at best which is poor, the ftse avg yield is 3.6% so the housing mkt is looking expensive.

To put this in perspective though the last one I bought (2 years ago) has increased by 30%, a stupid unsustainable rise but sadly someone will pay this sort of money for one.

The price now for a 1 bed flat (42 m2) in a decent commuutable town nr SW London (31 mins to waterloo) is now 300k.

The Govt set the rules, don’t blame people speculating. You may vote for someone different next May.

It’s OK, when UKIP takes power in a year’s time and rounds up and shoots all the immigrants, house prices will return to normal levels, jobs will be aplenty and all ills will be cured….

Farridge is Mugabe?

Poolman, if you’re looking in Weybridge perhaps, but not here…

1 bed flat

Why didn’t you just put your money into an index tracker (or tax-free pension) instead and let someone else buy the houses for themselves so they could have some security, raise a family etc – you know – normal stuff about living a nice life…

Why do you feel that the only way to have a nice life is to own a house.

Maybe instead you could base your perception of security on money held in investments, a government safety net, job security but also flexibility in the labour market meaning you could always find another job, a well regulated rental market with protection for renters. You can be secure in your house without owning it and you can be secure financially without all of your money tied up in your house.

The route cause of house price inflation being an issue is that everyone feels they need to buy a house to keep up with house price inflation. But this huge demand to purchase property is what fuels house price inflation. BTL and foreign investment just take advantage of this vicoious circle, they are not the cause, they are a symptom.

Either we resign ourselves to the viscious cirle powering a bubble or we do things differently. Increasing supply may pop the bubble but it is reducing demand that will lead to a stable market.

Edit: I’m not suggesting you should take a different course of action now, that would be foolhardy in the current climate. However I am sugesting that your ire is misplaced. You should not be angry at BTLers inocently investing their money in the most lucrative way, they are not the source of your problem. You should be angry at sucessive goverments for failing to address the issue.

Farridge is Mugabe?

Well I didn’t want to mention it, but..

Nigel Farage is ‘just like Robert Mugabe’, says former UKIP MEP

http://www.birminghammail.co.uk/news/local-news/nigel-farage-just-like-robert-5933432

The route cause of house price inflation being an issue is that everyone feels they need to buy a house to keep up with house price inflation.

No it’s not. Because landlords are paying the same prices, so it’s clearly an attractive investment for them AND us. Why?

Supply and demand.

Two of the root causes are demographic changes (urbanisation) combined with a much lower people density in houses, meaning you need more houses in large cities even if the population is completely stable and you have no foreign buyers.

I still think some kind of pressure downward is needed although I say that from my cheaper northern home/asset/drain on my finances. The rise in prices in the late 90s/early 00s was clearly ridiculous and the latest rises in London look just the same to me. My issue is that I see no reason why we should all suffer higher interest rates to slow down a specific location ‘bubble’ but hey the answer always seems to be we all pay for these problems whilst a small minority laugh all the way to the bank. Obviously in the main this minority ‘have money’ in the first instance so the gap in wealth between the classes which increased under Thatcher keeps on growing.

Still crazy:

http://www.rightmove.co.uk/property-for-sale/property-43117747.html

£940k, small 3 bed terrace.

I used to live in the same sort of house on that road, moved 7 years ago – should have stayed!

There is no solution to market psychology.. Lending restrictions might help… but then who is going to jump off the gravy train??