Property crash, just maybe it really is different this time

[Lightscribe]

18 hours ago, wherebee said:

I came here from TOS, and joined many years ago on there because I could not see how a crash could not happen.  Well, more fool me.

I think the government of the UK (and by that I mean the people who rule, not the elected ones) will do anything but see a nominal fall in house prices.  My prediction is for no crash in GBP terms, but a slow crash in real money terms as GBP declines against other currencies and inflation eats away at the debts.

So a house in the SE will cost 2 million quid in 10 years, but you'll be earning 250k a year as a store manager.

I agree that the government will do anything unless of course it starts imploding out of their control. That’s why I expect come March, they’ll announce the end of the stamp duty holiday, but then remove stamp duty completely until the property levy comes in. This will give another year of house shuffling at the top end of the market, which will skew house prices to the moon to save any negative annual statistics, whilst the economy lies in tatters.

They’ve no other choice, our economy *is* based on house prices (construction, surveyors, legal, estate agents, banks etc) we have nothing else. 

I don’t think we’ll see wages increase in comparison to £2million houses however. Just further and further divide, with an ever growing majority of the masses relying on government money leading to UBI. Ultimately I think we may see government mortgages and essentially they will eventually own all land, assets and infrastructure (transport, medical, agriculture etc)

[Hancock]

5 hours ago, Lightscribe said:

I agree that the government will do anything unless of course it starts imploding out of their control. That’s why I expect come March, they’ll announce the end of the stamp duty holiday, but then remove stamp duty completely until the property levy comes in. This will give another year of house shuffling at the top end of the market, which will skew house prices to the moon to save any negative annual statistics, whilst the economy lies in tatters.

They’ve no other choice, our economy *is* based on house prices (construction, surveyors, legal, estate agents, banks etc) we have nothing else. 

I don’t think we’ll see wages increase in comparison to £2million houses however. Just further and further divide, with an ever growing majority of the masses relying on government money leading to UBI. Ultimately I think we may see government mortgages and essentially they will eventually own all land, assets and infrastructure (transport, medical, agriculture etc)

We'll see but but when i see houses like this for 14 times average salary, something has to give sooner or later.

IMHO the only reason house prices have shot up is because BTL and foreign money launderers got a tax break, and i am 100% certain this will end on March 31st. With them out of the game prices will come down.

And if prices dont come down, then there is no economy to create jobs for those you list.

[haroldshand]

On 06/02/2021 at 23:30, Hancock said:

We'll see but but when i see houses like this for 14 times average salary, something has to give sooner or later.

IMHO the only reason house prices have shot up is because BTL and foreign money launderers got a tax break, and i am 100% certain this will end on March 31st. With them out of the game prices will come down.

And if prices dont come down, then there is no economy to create jobs for those you list.

You look at something like this and in some ways you just have to piss yourself laughing, can nobody see the madness. For starters I look at that house and I just see hell without even the sacrifice of paying for it. But then you do the sums and just say even before interest charges and by some miracle a lender gave you a 100% mortgage, they would want £12,000 of your hard earned money per year for 30 years before all the interest on top.

I would sooner live in a trailer.

Bye, I have had enough and will get myself a beautiful rural smallholding in a lovely area in Portugal for a little over half of that amount in Portugal

[Hancock]

1 minute ago, haroldshand said:

You look at something like this and in some ways you just have to piss yourself laughing, can nobody see the madness. For starters I look at that house and I just see hell without even the sacrifice of paying for it. But then you do the sums and just say even before interest charges and by some miracle a lender gave you a 100% mortgage, they would want £12,000 of your hard earned money per year for 30 years before all the interest on top.

I would sooner live in a trailer.

Bye, I have had enough and will get myself a beautiful rural smallholding in a lovely area in Portugal for a little over half of that amount in Portugal

The estate is the most built on top of each other i have ever seen. Including a narrow road that if the cars didn't park on the path, drivers would struggle to get past it.

£360k for that means someone else is priced out of spending in the economy for 10/15 years even with high inflation.

[Bus Stop Boxer]

"Starter home".

Piss boiling.

Crash it all kids.

Burn the whole fucking thing down.

https://www.rightmove.co.uk/properties/102653246#/

[Hancock]

7 hours ago, Bus Stop Boxer said:

"Starter home".

Piss boiling.

Crash it all kids.

Burn the whole fucking thing down.

https://www.rightmove.co.uk/properties/102653246#/

Jesus they've even managed to make savings by only having 1 front window upstairs.

Wimborne is a weird little town, the natives are an odd lot.

[Boon]

Those prices seem a little mad.

But it is all a ponzi scheme. Most people wouldn't be able to afford them on a standard wage for sure - a new build like that in London may be asking for £700k.

Equity or BOMAD though comes to the game and suddenly things become affordable. Until 2016, lax lending requirements also helped. The mortgage rate collapsed in the years leading up to that; also mortgages themselves changed. It used to be 25 years or nothing, now 30 or 35 years is common.

Unsurprisingly mortgage rates and mortgage terms have not gone anywhere since 2016 so prices have remained still. My fear is some kind of shitty 40-50 year mortgage term which would increase prices further. Some people are so short-sighted that they won't care about signing up to these terms, all about the monthly cost.

[spunko]

On 06/02/2021 at 23:30, Hancock said:

We'll see but but when i see houses like this for 14 times average salary, something has to give sooner or later.

IMHO the only reason house prices have shot up is because BTL and foreign money launderers got a tax break, and i am 100% certain this will end on March 31st. With them out of the game prices will come down.

And if prices dont come down, then there is no economy to create jobs for those you list.

I'm eager for a mega crash, something like -80% in the SE would be ideal...

But out of interest why do you think this time it'll be any different? Rishi will just unveil some other extension or giveaway.

[Hancock]

3 minutes ago, spunko said:

I'm eager for a mega crash, something like -80% in the SE would be ideal...

But out of interest why do you think this time it'll be any different? Rishi will just unveil some other extension or giveaway.

Ive no idea what's going to happen i've been perpetually wrong, my views can change from one day to the next. Personally i'm looking for a 20% fall from here, which for an individual property looking for a quick sale is feasible.  My kid starts high school in September so will have to buy by then for her stability.

IMHO the people who have sent prices up higher in the last 9 months must predominantly be 2nd home buyers and BTL, take these out of the market by re-introducing SDLT and in theory prices fall. (even the DT has seemingly stopped its SDLT campaign)

I think its baked in Sunak and the free market Tories will come up with some kind of taxpayer backed long term mortgage for FTBer's, that could stop any epic falls

People like me wait for a budget in the hope the govt target BTL etc, and its just another let down; ending MIRAS for all BTL (not just high rate taxpayers) would be a big victory for the priced out this coming March.

As for a crash of say 30%+ anything is possible in the coming couple of years, especially if interest rates go up, which they will with inflation shooting up.

[moneyscam]

17 minutes ago, Hancock said:

Ive no idea what's going to happen i've been perpetually wrong, my views can change from one day to the next. Personally i'm looking for a 20% fall from here, which for an individual property looking for a quick sale is feasible.  My kid starts high school in September so will have to buy by then for her stability.

IMHO the people who have sent prices up higher in the last 9 months must predominantly be 2nd home buyers and BTL, take these out of the market by re-introducing SDLT and in theory prices fall. (even the DT has seemingly stopped its SDLT campaign)

I think its baked in Sunak and the free market Tories will come up with some kind of taxpayer backed long term mortgage for FTBer's, that could stop any epic falls

People like me wait for a budget in the hope the govt target BTL etc, and its just another let down; ending MIRAS for all BTL (not just high rate taxpayers) would be a big victory for the priced out this coming March.

As for a crash of say 30%+ anything is possible in the coming couple of years, especially if interest rates go up, which they will with inflation shooting up.

Purely anecdotal but I've had a sudden flurry of activity of interest in the property I'm trying to sell. It was a 5 bed HMO before I bought it to live in. A couple of the 4 viewers booked this weekend are BTL'ers. The asking is £300K, the potential rental income is £2.5K so a gross yield of 10%. Assuming bills are included monthly expenses (gas, elec, water, broadband and council tax) are £300 per month so monthly income before mortgage expenses of £2.2K.

Let's assume they have 25% deposit (£75K), the repayment mortgage @3% over 25 years would be £1.06K per month resulting in £1.14K per month gross income after mortgage expenses.

To calculate the net income and yield let's assume for simplicity they're a 20% income bracket and have no other income. Interest is £560 per month which of course declines over time but let's assume that is static.

Using the following calculator to get income after mortgage tax credit and rental income tax payable https://taxscouts.com/calculator/rental-income-tax/ the results are as follows:

After-tax rental income

£18,244

Hide calculations

You earned £30,000 from rent.

You also paid £6,720 in mortgage interest, and no longer can claim any of it.

Your taxable rental income will be: £26,400.

£12,500 will be taxed at 0%: £0 in rental income tax.

£13,900 will be taxed at 20%: £2,780 in rental income tax.

For the rest of your finance costs you can claim another £1,344 as a tax credit.
This will count against your tax bill. In your case you have £1,436 left to pay.

Expenses

£10,320

Rental income tax you have to pay

£1,436

 

Net income / net yield calculation:

Gross income £30000

less mortgage £12720

less expenses £3000

less tax          £1436

= £12844 net income on cash flow basis

For net yield however you have to add back the capital repayment element that is being paid off by someone else thus building up your equity over time. This is £540 per month assuming it's static (of course this rises through the term of the mortgage in reality) so £6.48K per year.

£12844+6480 = £19324 per year

The capital employed (the deposit) was £75K so the net yield on capital employed is 19324/75000 = 25.7%!!!

Of course the possible realities are they would have other income reducing this yield, they may not need a mortgage and purchase outright which also reduces this yield.

I posted this simply to illustrate that at the micro level even in the current environment BTL can still be attractive financially to certain purchasers in certain areas in certain circumstances.

Bear in mind though that 2nd home / BTL purchasers pay an additional 3% surcharge SDLT so that's another £9,000 upfront. When SDLT holiday ends add another £5,000 making a total of £14,000 in this example. But when confronted with the actual cashflows over the long term it's not an insurmountable barrier to entry given you can raise £75K deposit in the first place in this example.  In this example in net terms that £14,000 is 'earned' back in the first year.

So I would concur with you that recent price rises have been partly driven by this segment of purchaser but I am also seeing interest from Londoners (property is 1hr outside London in south east) looking for large properties with a decent garden. When you consider flats can go for £600K in London moving to a £300K 5 bed house especially if you believe the future entails much more working from home and less commuting you can also see why this segment is probably another of the strong drivers of recent price rises.

I expect as you do end of SDLT holiday to slow things down a bit but remain unconvinced we'll see large 20-30% falls in the short term everything else being equal. I'm also convinced that the government will find some other prop to keep things going unfortunately for those just wanting to purchase their first home.

Of course this example makes certain assumptions in favour of the would be BTL purchaser (no other income) and against (interest payable remains static and income remains static) but I though it would be useful to illustrate at least at the micro level why BTL can still be attractive to some and why partly we've seen rises during the biggest fall in GDP in centuries which I find a bit mad.

 

 

  

[Hancock]

1 hour ago, moneyscam said:

 

Of course this example makes certain assumptions in favour of the would be BTL purchaser (no other income) and against (interest payable remains static and income remains static) but I though it would be useful to illustrate at least at the micro level why BTL can still be attractive to some and why partly we've seen rises during the biggest fall in GDP in centuries which I find a bit mad.

 

Yes its possibly feasible for some, but imho the reason that property has gone up in the last 9 months is due to bounce back loans, handouts to Air BnB landlords and such like. ... and SDLT tax break.

[Frank Hovis]

11 hours ago, Bus Stop Boxer said:

"Starter home".

Piss boiling.

Crash it all kids.

Burn the whole fucking thing down.

https://www.rightmove.co.uk/properties/102653246#/

 

I think it's a nice looking house but yes it should be priced as a starter home at £160k and not £307k.

[Wight Flight]

2 hours ago, moneyscam said:

So I would concur with you that recent price rises have been partly driven by this segment of purchaser but I am also seeing interest from Londoners (property is 1hr outside London in south east) looking for large properties with a decent garden. When you consider flats can go for £600K in London moving to a £300K 5 bed house especially if you believe the future entails much more working from home and less commuting you can also see why this segment is probably another of the strong drivers of recent price rises.

Where the hell are you finding a 5 bedder with garden, in the SE, within 1 hour of London, for £300k?

[moneyscam]

25 minutes ago, Wight Flight said:

Where the hell are you finding a 5 bedder with garden, in the SE, within 1 hour of London, for £300k?

Sorry, should have clarified it's a 4 bed end of terrace with 2 reception rooms, one can be used (and has been when previously an HMO) as a 5th bedroom which is what I would expect a BTLer to do to maximize their yield. Don't want to give my exact location away but it's in Kent.

Edited February 11, 2021 by moneyscam

[Wight Flight]

1 minute ago, moneyscam said:

Sorry, should have clarified It's a 4 bed end of terrace with 2 reception rooms, one can be used (and has been when previously an HMO) as a 5th bedroom which is what I would expect a BTLer to do to maximize their yield. Don't want to give my exact location away but it's in Kent.

Still very good rent v Value. What would it rent for as a single family house?

[moneyscam]

Just now, Wight Flight said:

Still very good rent v Value. What would it rent for as a single family house?

A lot less. Similar properties are around £1400 pcm. If you let it out as a house share when you do the sums as I did above you can see why it would be attractive to the BTL purchaser segment.

[goldbug9999]

28 minutes ago, moneyscam said:

Sorry, should have clarified it's a 4 bed end of terrace with 2 reception rooms, 

What really ? RECEPTION rooms ? is you house open to the public ? 

[Wight Flight]

35 minutes ago, moneyscam said:

A lot less. Similar properties are around £1400 pcm. If you let it out as a house share when you do the sums as I did above you can see why it would be attractive to the BTL purchaser segment.

That's still bloody steep. I would want a £600k+ place for that kind of rent.

More London madness I guess.

[Bus Stop Boxer]

34 minutes ago, goldbug9999 said:

What really ? RECEPTION rooms ? is you house open to the public ? 

Every house is open to the public. For viewings.

Its dangerous golf courses that are closed.

[Hancock]

2 hours ago, Frank Hovis said:

 

I think it's a nice looking house but yes it should be priced as a starter home at £160k and not £307k.

Even 160k is around 6 times average salary.

Id say closer to 80k is more realistic if you're going to have a functioning economy, and no need for QE.

[Calcutta]

On 08/02/2021 at 22:08, Hancock said:

The estate is the most built on top of each other i have ever seen. Including a narrow road that if the cars didn't park on the path, drivers would struggle to get past it.

£360k for that means someone else is priced out of spending in the economy for 10/15 years even with high inflation.

When we were teenagers we used to get wasted on Chiver's Field, now it's home to a housing estate so fucking stupid it's famous on Dosbods. 

 

[Hancock]

Just now, Calcutta said:

When we were teenagers we used to get wasted on Chiver's Field, now it's home to a housing estate so fucking stupid it's famous on Dosbods. 

 

A luxurious housing estate, where you need the wage of a doctor or legal professional to be able to buy.

[Democorruptcy]

4 hours ago, Hancock said:

Even 160k is around 6 times average salary.

Id say closer to 80k is more realistic if you're going to have a functioning economy, and no need for QE.

Average salary? As in single income? You have just committed thoughtcrime. They want household income multiples now. 

[Hancock]

3 minutes ago, Democorruptcy said:

Average salary? As in single income? You have just committed thoughtcrime. They want household income multiples now. 

Oh yes but its not 2 x both wages, and what happens when she knocks out a sprog or 3 and they have to raise them.

Didn't think of that did they, those clever mortgage people and cocksuckers at the Bank of England.

I'm sure when it was 3/4 times one salary; women worked and most people raising a family were skint even with that extra income.

[Democorruptcy]

11 hours ago, Hancock said:

Oh yes but its not 2 x both wages, and what happens when she knocks out a sprog or 3 and they have to raise them.

Didn't think of that did they, those clever mortgage people and cocksuckers at the Bank of England.

I'm sure when it was 3/4 times one salary; women worked and most people raising a family were skint even with that extra income.

Double thoughtcrime!

We aren't in the 1990's now you know! Then it used to be 3x Main + 1x Second incomes, now it's just a multiple of joint income.

Just run 2 x £25,000 salaries, to buy first home, no dependents, no outgoings, £10,000 deposit

We could lend you up to £222,500

Which is 4.45x joint income because the BoE are happy with no more than 15% of mortgage being over 4.5x joint income. Increase the deposit and it's a straight 5x joint income. Why did you think house prices are so high?

https://www.santander.co.uk/personal/mortgages/mortgage-calculators/how-much-could-i-borrow