Property crash, just maybe it really is different this time

[Axeman123]

15 minutes ago, apples said:

Oh noes! People might be forced to sell their homes "for less than they are worth"

Great article.

I can see the future headline now "House prices set new record high", with something buried in the body about accelerating "sales for less than they are worth".

[Herby]

HeeHee, Neil McCoy-Ward uses ToS. at 15mins. 

Interesting analysis though, and he called it 14 months ago. 

 

[Noallegiance]

2 hours ago, Axeman123 said:

My late father actually liked to brag about his mortgage being inflated away relative to his wage, but that was a distinctly 1970s thing. I think wages lag inflation all the way through the next decade, unlike the 70s where they lead it.

The whole question of "against what?" is a good one IMO. My father valued his house against the imputed rent he was saving, with the perceived wisdom when he bought being "rents always rise with inflation, whereas the outstanding debt on a mortgage is fixed". (That little mantra of course totally ignoring the effect of inflation on interest rates, which were very relevant by the late 70s). Eroding the mortgage balance against wages enabled decades of rent and mortgage free living.

Rising house prices have historically effectively eroded the value of mortgage debt relative to house prices, which is the source of all appreciation equity. When those house prices were also running away from wages it resulted in huge equity windfalls for owners relative to wages or lifestyle costs. 

Flat house prices with rising inflation, combined with lagging but still rising wages and interest rates mean nominally stagnant equity which is itself being eroded in real purchasing power. Even those that stay the course will find themselves with a small real terms ammount of equity, but no way to access it without selling up due to tight credit and high interest rates. Best case in that scenario by the end of the mortgage they turn out to have paid off a sensible income multiple mortgage, but have no savings due to the crippling interest payments.

I don't see house prices holding up though. I think people with six and seven figure fantasy paper equity seeing it melt like an ice cube will panic sell. The financialisation of housing that drove speculation on the way up will IMO produce a cryptocurrency style capitulation. The utility of a house as accomodation is almost peripheral to the utility as a financial instrument for many newer owners, and that is something we haven't seen before.

Indeed there will surely be a split. 

Not one circumstance will play for all.

Someone who holds their job and has one place to live in will be fine.

The highly leveraged will not be fine if they lose earnings.

The renters that have savings and work may have a chance at owning.

The renters who don't will continue to rent via the state, most likely.

 

Plus a hundred more circumstances that will no doubt appear on the whinge-a-net.

[sancho panza]

4 hours ago, haroldshand said:

Property articles coming thick and fast again in the Daily Telegraph and with many of the comments now bragging about how their huge mortgages will be inflated away to nothing  which to be fair is more than a possibility 

The key thing for me is that as long as they keep up the mortgage poayments they'll be fine.More specifically if they can keep them through to year 13 of say 25 when the corssover occurs between the interest/repayment line.

People needing to remo after 2-5 years might have some problems.

Best soltuion there would be a 10/15 year fix if you can get one.

 

traditionally houses have beena great inflation hedge but I'm not sure we've ever started a recession with houses at 10 x earnings in leicester anda c redit deflation inbound.lot to be said for paying cash or levering at 60%/70% LTV

5 hours ago, JoeDavola said:

Yeah I've got over £200K sat here and if I thought I could get a reliable compounding 6% out of it I'd never worry at all about buying a house TBH.

At the rent I pay for this flat I could add £1000 a month to those investments as well.

Here's ten years compunding at 6% with the income on the left.add the state pension(muhahaha) and whatever you've got from work and that's a nice income to spend anywhere in the world.There are no guarantees but then there aren't with preoprty either.

Year   200000 12000 212000 12720 224720 13483.2 238203.2 14292.19 252495.4 15149.72 267645.1 16058.71 283703.8 17022.23 300726.1 18043.56 318769.6 19126.18 337895.8 20273.75

Edited July 20, 2022 by sancho panza

[sancho panza]

34 minutes ago, Noallegiance said:

Not one circumstance will play for all.

Someone who holds their job and has one place to live in will be fine.

The highly leveraged will not be fine if they lose earnings.

The renters that have savings and work may have a chance at owning.

The renters who don't will continue to rent via the state, most likely.

 

Plus a hundred more circumstances that will no doubt appear on the whinge-a-net.

Yeah that's the biggie,if you've a steady job then things will be easier than those with more unrelaible incomes

[Herby]

13 minutes ago, sancho panza said:

Yeah that's the biggie,if you've a steady job then things will be easier than those with more unrelaible incomes

Does that include gig economy jobs? Which seem to make up a fair proportion of employment statistics... 😳

[JoeDavola]

What's interesting is when you start to think about even 3.5% or 5% mortgage rates, and you think about the amount of interest you accrue each year on say a £200K mortgage at those rates, it gets kind of unnerving, if I'm doing the sums right.

[GTM]

7 hours ago, JoeDavola said:

Yeah I've got over £200K sat here and if I thought I could get a reliable compounding 6% out of it I'd never worry at all about buying a house TBH.

At the rent I pay for this flat I could add £1000 a month to those investments as well.

British American Tobacco and Imperial Brands are just about the safest divis around and they both pay more than 6%. Vodafone is another favourite around these parts and pays more. IG Group and Rio Tinto are a couple more paying over 6%. Thats just some mid to large caps that I own that I reckon the 6%+ dividend is safe. 

A high yield portfolio is the easiest, least fuss sort to put together. As long as the divis keep rolling in, do nothing. 

[Axeman123]

8 hours ago, JoeDavola said:

...if I'm doing the sums right.

It would be difficult to get them wrong! Those numbers work out to £7k/£10k pa, or £583/£833 month just in interest.

I can remember (way back when I used to waste my breath with normies on this topic) a "friend" gloating that his tracker mortgage interest was only £30 a month or something, and that "even if it doubled..." etc. That same friend was telling me another time his household has £300/month left after DDs. Put those three things together and (assuming his circumstances haven't changed) it will be massive forbearance of some sort or a forced sale sooner or later.

Edited July 21, 2022 by Axeman123
, to ) in last sentence

[JoeDavola]

46 minutes ago, Axeman123 said:

It would be difficult to get them wrong! Those numbers work out to £7k/£10k pa, or £583/£833 month just in interest.

That’s what I thought but that is mental - can some else confirm this?

Cause I know houses that are selling at 190k that rent for 800 a month - less when you take into account agents fees etc.

That is in no way worth it is it when you consider how much of that income is just servicing interest?

At even 3.5% mortgages these BTL folk would be paying the mortgage off at an absolute snails pace. Throw in a few big repair bills and your fucked.

Edited July 21, 2022 by JoeDavola

[Chewing Grass]

7 hours ago, GTM said:

British American Tobacco and Imperial Brands are just about the safest divis around and they both pay more than 6%. Vodafone is another favourite around these parts and pays more. IG Group and Rio Tinto are a couple more paying over 6%. Thats just some mid to large caps that I own that I reckon the 6%+ dividend is safe. 

A high yield portfolio is the easiest, least fuss sort to put together. As long as the divis keep rolling in, do nothing. 

You are Warren Buffet and ICMFP.

[Axeman123]

8 minutes ago, JoeDavola said:

can some else confirm this?

I would also like someone else to weigh in.

I know that working out actual monthly payments on mortgages is more involved, as the early payments are nearly all interest etc.

In terms of historical BTL the model was always trackers etc, so most would likely be on the SVR by now.

[Wight Flight]

38 minutes ago, JoeDavola said:

Cause I know houses that are selling at 190k that rent for 800 a month - less when you take into account agents fees etc.

Try £550k houses that rent for £1200 per month.

Suddenly they don't look like £550k houses.

[Heart's Ease]

10 hours ago, JoeDavola said:

What's interesting is when you start to think about even 3.5% or 5% mortgage rates, and you think about the amount of interest you accrue each year on say a £200K mortgage at those rates, it gets kind of unnerving, if I'm doing the sums right.

Or another way - first house I bought in 1999 I got a joint repayment mortgage of £60k. That first year we paid £432 a month. Got to the first year statement: had paid just £900 off the principal. Now try that with £200k!

[JoeDavola]

1 hour ago, Wight Flight said:

Try £550k houses that rent for £1200 per month.

Suddenly they don't look like £550k houses.

It's mental. Completely mental.

But when you start to really take into account some real amount of mortgage interest, I start to have a bit more sympathy for my parents generation who had much higher mortgage interest on loans that were half the size of the ones we're expected to take on, inflation adjusted. I see why what seemed like a small loan still took 25+ years to pay off.

But prices today? It just isn't sustaiable. You'd assume BTL is stiff stone dead, but I don't see how your average punter especially FTB already stretched can afford an extra 2 or 3 or more percent on their mortgage interest.

So many of them are taking out 35 year mortgages so you can't even stretch the mortgage term out really.

Edited July 21, 2022 by JoeDavola

[JoeDavola]

18 minutes ago, Heart's Ease said:

Or another way - first house I bought in 1999 I got a joint repayment mortgage of £60k. That first year we paid £432 a month. Got to the first year statement: had paid just £900 off the principal. Now try that with £200k!

Bloody hell. What interest rate was that?

[GTM]

1 hour ago, Chewing Grass said:

You are Warren Buffet and ICMFP.

If you hold on until the 20th of October I can pay that £5 out of my increased IG Group divi. 

[belfastchild]

21 minutes ago, Heart's Ease said:

Or another way - first house I bought in 1999 I got a joint repayment mortgage of £60k. That first year we paid £432 a month. Got to the first year statement: had paid just £900 off the principal. Now try that with £200k!

And that was back in the day when interest was calculated annually, not daily!
Remember when that changed it was massive as any overpayment came off straight away, not at the end of the year.

[Heart's Ease]

2 minutes ago, belfastchild said:

And that was back in the day when interest was calculated annually, not daily!
Remember when that changed it was massive as any overpayment came off straight away, not at the end of the year.

@JoeDavola- nowt special around 7-8%. Might have been a tab higher so £63ishk mortgage as we had a 95% mortgage. We also had a payment of about £1500 straight off 'to protect the bank'. Can't remember what that was called. 

@belfastchildthat first statement was an absolute shocker. Really woke me up. Had an offset on next two houses (definitely around 8% in 2006 and 07). If I found a £1 on the floor I'd go and pay it off the mortgage.  It became a game to get rid of it.

[Wight Flight]

29 minutes ago, JoeDavola said:

Bloody hell. What interest rate was that?

First flat I bought was £67k. £60k mortgage.

Endowment mortgage so £750 per month interest and £90 endowment,

This was 1988/9

[Bobthebuilder]

Bought a flat in 1997 for £33500, mortgage was around £380 per month.

[HousePriceMania]

This is slightly worrying....

 

[Boon]

Snice then Liz Truss has gone favourite so if was just that the price would have gone back down.

Housebuilders in the main also seemed to have bounced off a support level 10% lower than current,

My own interpretation of it is that whoever becomes PM is gonna face a shitstorm immediately and they will have no choice but to give the public more free money.

As always most people know its wrong and is a sticking plaster, but lack the moral fibre to say it. Thus it'll pass and be perceived as the government having done a good thing. 

 

[Axeman123]

Couldn't housebuilder share prices just be pricing in a Fed pivot? If the US 10 yr yield drops to nearer 2% (for example) it must loosen the UK mortgage market. A peak inflation narative would also imply lower materials costs going forward.

I don't think anyone ever expected Pishy to get past the membership, unless they had a nobody against him in the final two who then pulled out. I don't see Truss as that. The members are also petitioning for BJ to be on the final ballot, perhaps to pre-empt any such plotting for a Pishy coronation.

[HousePriceMania]

3 hours ago, Axeman123 said:

Couldn't housebuilder share prices just be pricing in a Fed pivot? If the US 10 yr yield drops to nearer 2% (for example) it must loosen the UK mortgage market. A peak inflation narative would also imply lower materials costs going forward.

I don't think anyone ever expected Pishy to get past the membership, unless they had a nobody against him in the final two who then pulled out. I don't see Truss as that. The members are also petitioning for BJ to be on the final ballot, perhaps to pre-empt any such plotting for a Pishy coronation.

Mortgage rates and bank rates are 2 different things

Unless 10 houses is going to bring back Term Funding, or some other sub-prime debt funding scam  then mortgage rates will go up as banks have to raise money on the open market

Im not saying they wont do it, but right now with inflation causing everyone a headache, it looks unlikely.

This means one thing for house prices and it aint up...

 

Edited July 21, 2022 by HousePriceMania