Property crash, just maybe it really is different this time

[Castlevania]

13 hours ago, Hardhat said:

I love Hackney. It's a great place to live and so far (whilst renting) I've seen to reason to leave. Everything I want is on my doorstep. I used to live round the corner from the property above. Whilst not a super posh area, it is very far from being a shithole. Loads of great pubs, great local community. I personally haven't seen much evidence of the -18% fall and I watch the market round here pretty closely, but I would love a crash in local prices, even to 2010 levels. 

Still some good areas in N London - much of Crouch Hill, around Ally Pally, and even Barnet / Enfield. Also, in East the area around Blackhorse Road is smartening up quite quickly. As you say, pays ya money takes ya choice!

Edit: I do agree that a lot of the people who made it special are being priced out. Arguably they were already priced out 5 years ago and have been holding on for dear life ever since! But yes, it has changed very quickly and not for the better, just for the £££.

Is the Dolphin on Murder Mile still going?

Edited March 13, 2021 by Castlevania

[Hardhat]

2 minutes ago, Castlevania said:

Is the Dolphin on Murder Mile still going?

Ha yeah, I believe so.

Last time I went there personally I got kicked out at 3am by the bouncers for getting caught entering the toilets with a young lady. Very classy joint.

[Castlevania]

I had several messy nights in there.

[Lightscribe]

20 hours ago, Hardhat said:

I love Hackney. It's a great place to live and so far (whilst renting) I've seen to reason to leave. Everything I want is on my doorstep. I used to live round the corner from the property above. Whilst not a super posh area, it is very far from being a shithole. Loads of great pubs, great local community. I personally haven't seen much evidence of the -18% fall and I watch the market round here pretty closely, but I would love a crash in local prices, even to 2010 levels. 

Still some good areas in N London - much of Crouch Hill, around Ally Pally, and even Barnet / Enfield. Also, in East the area around Blackhorse Road is smartening up quite quickly. As you say, pays ya money takes ya choice!

Edit: I do agree that a lot of the people who made it special are being priced out. Arguably they were already priced out 5 years ago and have been holding on for dear life ever since! But yes, it has changed very quickly and not for the better, just for the £££.

I wish I had your enthusiasm for London. I grew up in south London and have lived and worked centrally here my entire life (save travelling abroad for a couple of years).

A couple of years back I used to have drive around the entirety of London doing work involving Cellular masts and networks. I still am required to be all over London on site. I can only say it has underlined my desire to leave. 

I find that those that can actually afford to live in zone 2-3 are mostly Hipsters and middle class wannabes who like to pretend that ex-council flats and small shitty terraced houses are worth a million. I remember when you couldn’t give them away in the 80/90’s in some areas. I have no connection to that demographic. 

Maybe Im just getting old, but even in my youth, nights out up London would invariably be shit, costs loads and a hassle getting a cab or night bus back. Some people (like one of my friends) couldn’t bare to be away especially rurally as they’re like fish out of water. They love the ‘vibe’ apparently. I don’t like to be around crowds and people in general really.

On the cusp of a semi-rural town bordering the M25 is about as close as I would want to get ideally these days, only to please the other half mind you, otherwise I would have been gone down the coast years ago.

Edited March 13, 2021 by Lightscribe

[AWW]

3 hours ago, Lightscribe said:

On the cusp of a semi-rural town bordering the M25 is about as close as I would want to get ideally these days, only to please the other half mind you, otherwise I would have been gone down the coast years ago.

Same here. Unfortunately, Mrs AWW is a proper Londoner, born and bred in Holloway. I know such people are rare beasts in London these days; as you say, Zones 2 to 4 seem to be populated almost entirely by the sort of people Jarvis Cocker sang about in Common People.

[Hancock]

I liked this simplistic article -

https://www.bournemouthecho.co.uk/news/19157139.much-need-earn-buy-house-bournemouth/

CAN YOU afford to buy a property in Bournemouth with the new five per-cent deposit scheme?

Chancellor Rishi Sunak’s latest Budget includes a government guarantee for 95 per-cent mortgages which he claims will turn ‘generation rent’ into ‘generation buy’. 

Loanbird wanted to ascertain just how much you’d need to earn to buy a property, in each city in the UK.

To do this, they took the average property price in each city, took away a five per-cent deposit to leave the 95 per-cent owed.

They then worked out monthly mortgage repayments and salary needed, based on a mortgage over 25 years with an interest rate of 4.5 per-cent.  

Their research is based on one person buying a property on their own. 

The average property price in Bournemouth comes in at £294,800.

 

If you were to buy the average house in Bournemouth with a 95 per-cent mortgage this would you  with £280,000 outstanding. 

This would mean that monthly mortgage repayments would come in at a whopping £1,556.66. 

Loanbird multiplied the monthly repayments by three, ascertaining this would be the amount needed to live comfortably. 

This means that your monthly take-home pay as an individual would need to be £4,669,98.

Making the total salary needed for a single adult to buy an average-price property in Bournemouth £81,638.64. 

Bournemouth was named in the top five most expensive places to buy property in the study, behind only London, Cambridge and Oxford

What is a 95 per-cent mortgage?

A 95 per-cent mortgage enables you to borrow up to 95 per-cent of the purchase price of the property you want to buy, with the remaining 5 per-cent made up of your deposit.

Having a five per-cent deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.

However, the lowest mortgage interest rates are reserved for borrowers with large deposits of around 40 per-cent or more, but there are competitive deals for buyers with just 5 per-cent to put down.

Buyers should also be aware that a smaller deposit does mean that your choice of mortgages will be more limited.

Working out how much you need to save

If you're looking to future and hoping to buy a property then it's crucial that you work out early on how you will need to save and what you'll be able to afford.

Using a salary calculator can help you set your sights on how much you will need to earn whilst a mortgage calculator will show you how much you can borrow. 

[No One]

15 hours ago, Hancock said:

I liked this simplistic article -

https://www.bournemouthecho.co.uk/news/19157139.much-need-earn-buy-house-bournemouth/

CAN YOU afford to buy a property in Bournemouth with the new five per-cent deposit scheme?

Chancellor Rishi Sunak’s latest Budget includes a government guarantee for 95 per-cent mortgages which he claims will turn ‘generation rent’ into ‘generation buy’. 

Loanbird wanted to ascertain just how much you’d need to earn to buy a property, in each city in the UK.

To do this, they took the average property price in each city, took away a five per-cent deposit to leave the 95 per-cent owed.

They then worked out monthly mortgage repayments and salary needed, based on a mortgage over 25 years with an interest rate of 4.5 per-cent.  

Their research is based on one person buying a property on their own. 

The average property price in Bournemouth comes in at £294,800.

 

If you were to buy the average house in Bournemouth with a 95 per-cent mortgage this would you  with £280,000 outstanding. 

This would mean that monthly mortgage repayments would come in at a whopping £1,556.66. 

Loanbird multiplied the monthly repayments by three, ascertaining this would be the amount needed to live comfortably. 

This means that your monthly take-home pay as an individual would need to be £4,669,98.

Making the total salary needed for a single adult to buy an average-price property in Bournemouth £81,638.64. 

Bournemouth was named in the top five most expensive places to buy property in the study, behind only London, Cambridge and Oxford

What is a 95 per-cent mortgage?

A 95 per-cent mortgage enables you to borrow up to 95 per-cent of the purchase price of the property you want to buy, with the remaining 5 per-cent made up of your deposit.

Having a five per-cent deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.

However, the lowest mortgage interest rates are reserved for borrowers with large deposits of around 40 per-cent or more, but there are competitive deals for buyers with just 5 per-cent to put down.

Buyers should also be aware that a smaller deposit does mean that your choice of mortgages will be more limited.

Working out how much you need to save

If you're looking to future and hoping to buy a property then it's crucial that you work out early on how you will need to save and what you'll be able to afford.

Using a salary calculator can help you set your sights on how much you will need to earn whilst a mortgage calculator will show you how much you can borrow. 

yeah, it's going to pop one day, bigly

[Frank Hovis]

17 hours ago, Hancock said:

I liked this simplistic article -

https://www.bournemouthecho.co.uk/news/19157139.much-need-earn-buy-house-bournemouth/

CAN YOU afford to buy a property in Bournemouth with the new five per-cent deposit scheme?

Chancellor Rishi Sunak’s latest Budget includes a government guarantee for 95 per-cent mortgages which he claims will turn ‘generation rent’ into ‘generation buy’. 

Loanbird wanted to ascertain just how much you’d need to earn to buy a property, in each city in the UK.

To do this, they took the average property price in each city, took away a five per-cent deposit to leave the 95 per-cent owed.

They then worked out monthly mortgage repayments and salary needed, based on a mortgage over 25 years with an interest rate of 4.5 per-cent.  

Their research is based on one person buying a property on their own. 

The average property price in Bournemouth comes in at £294,800.

 

If you were to buy the average house in Bournemouth with a 95 per-cent mortgage this would you  with £280,000 outstanding. 

This would mean that monthly mortgage repayments would come in at a whopping £1,556.66. 

Loanbird multiplied the monthly repayments by three, ascertaining this would be the amount needed to live comfortably. 

This means that your monthly take-home pay as an individual would need to be £4,669,98.

Making the total salary needed for a single adult to buy an average-price property in Bournemouth £81,638.64. 

Bournemouth was named in the top five most expensive places to buy property in the study, behind only London, Cambridge and Oxford

What is a 95 per-cent mortgage?

A 95 per-cent mortgage enables you to borrow up to 95 per-cent of the purchase price of the property you want to buy, with the remaining 5 per-cent made up of your deposit.

Having a five per-cent deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.

However, the lowest mortgage interest rates are reserved for borrowers with large deposits of around 40 per-cent or more, but there are competitive deals for buyers with just 5 per-cent to put down.

Buyers should also be aware that a smaller deposit does mean that your choice of mortgages will be more limited.

Working out how much you need to save

If you're looking to future and hoping to buy a property then it's crucial that you work out early on how you will need to save and what you'll be able to afford.

Using a salary calculator can help you set your sights on how much you will need to earn whilst a mortgage calculator will show you how much you can borrow. 

 

£82k.  Crikey.

 

Trying to simplify my previous posts I view there as being two housing markets.

 

The Upper Market - swapping large amounts of unearned equity from previous HPI

One is of the two generations that acquired huge amounts of equity from HPI and they continue to swap that equity between others of those generations.  Those generations are however ageing with the youngest holders of big equity being around fifty and as they age the number of equivalnets able to play swapsies - or potential buyers as they are more commonly known - dwindles.

This market is not however subject to outwtard economic forces such as interest rates or job losses.  It exists in a bubble albeit a shrinking bubble.

 

The Lower Market - people buying houses from their salaries

The other is the traditional market of first time / second time buyers.  With no substantial equity built up or being earned it is a simple case of transferring their net salary into property via a mortgage contract.  This market will have been severely impacted by Covid job losses and will also have more sellers than buyers.

 

Ultimately the two will merge as the Upper Market naturally evaporates as its participants move into care homes or expire.

In the meantime I expect a mini-crash of the Lower Market which won't impact the Upper Market.

When the two have merged then you can see a proper crash.

 

Taking Falmouth as an example as it popped up first in my search for Cornwall.  For those who don't know it Falmouth is a perfectly nice seaside town which has been worsened by being swamped with students over the last two decades.

 

Lower market:

Three bed terrace with sea views £175k

 

Upper market:

Four bed detached house close to the beach £795k

https://www.rightmove.co.uk/properties/78527871#/

 

The latter is clearly a nicer house but is four and a half times the price of the first.  A working person might be able to buy the first house as a second time buyer but there is no way that they could then make the £620k step up from that to the upper market house.

It's two markets.

And when they merge they crash.

[spygirl]

17 minutes ago, Frank Hovis said:

 

£82k.  Crikey.

 

Trying to simplify my previous posts I view there as being two housing markets.

 

The Upper Market - swapping large amounts of unearned equity from previous HPI

One is of the two generations that acquired huge amounts of equity from HPI and they continue to swap that equity between others of those generations.  Those generations are however ageing with the youngest holders of big equity being around fifty and as they age the number of equivalnets able to play swapsies - or potential buyers as they are more commonly known - dwindles.

This market is not however subject to outwtard economic forces such as interest rates or job losses.  It exists in a bubble albeit a shrinking bubble.

 

The Lower Market - people buying houses from their salaries

The other is the traditional market of first time / second time buyers.  With no substantial equity built up or being earned it is a simple case of transferring their net salary into property via a mortgage contract.  This market will have been severely impacted by Covid job losses and will also have more sellers than buyers.

 

Ultimately the two will merge as the Upper Market naturally evaporates as its participants move into care homes or expire.

In the meantime I expect a mini-crash of the Lower Market which won't impact the Upper Market.

When the two have merged then you can see a proper crash.

 

Taking Falmouth as an example as it popped up first in my search for Cornwall.  For those who don't know it Falmouth is a perfectly nice seaside town which has been worsened by being swamped with students over the last two decades.

 

Lower market:

Three bed terrace with sea views £175k

 

Upper market:

Four bed detached house close to the beach £795k

https://www.rightmove.co.uk/properties/78527871#/

 

The latter is clearly a nicer house but is four and a half times the price of the first.  A working person might be able to buy the first house as a second time buyer but there is no way that they could then make the £620k step up from that to the upper market house.

It's two markets.

And when they merge they crash.

Ultimately the equity swapping market will die out.

Death by probate.

 

 

[Frank Hovis]

7 minutes ago, spygirl said:

Ultimately the equity swapping market will die out.

Death by probate.

 

 

Yes it will but I think that it has considerable legs yet - fifteen, twenty years - and is not touched by the market forces that affect first time buyers.

All it will do is slowly bleed the less desirable homes into the Lower Market.

[eek]

33 minutes ago, spygirl said:

Ultimately the equity swapping market will die out.

Death by probate.

Not really - it may reduce things slightly but 2 children sharing £1m or so still gives each of them £500,000 to spend. 

[Hancock]

55 minutes ago, Frank Hovis said:

 

£82k.  Crikey.

 

Trying to simplify my previous posts I view there as being two housing markets.

 

The Upper Market - swapping large amounts of unearned equity from previous HPI

One is of the two generations that acquired huge amounts of equity from HPI and they continue to swap that equity between others of those generations.  Those generations are however ageing with the youngest holders of big equity being around fifty and as they age the number of equivalnets able to play swapsies - or potential buyers as they are more commonly known - dwindles.

This market is not however subject to outwtard economic forces such as interest rates or job losses.  It exists in a bubble albeit a shrinking bubble.

 

The Lower Market - people buying houses from their salaries

The other is the traditional market of first time / second time buyers.  With no substantial equity built up or being earned it is a simple case of transferring their net salary into property via a mortgage contract.  This market will have been severely impacted by Covid job losses and will also have more sellers than buyers.

 

Ultimately the two will merge as the Upper Market naturally evaporates as its participants move into care homes or expire.

In the meantime I expect a mini-crash of the Lower Market which won't impact the Upper Market.

When the two have merged then you can see a proper crash.

 

Taking Falmouth as an example as it popped up first in my search for Cornwall.  For those who don't know it Falmouth is a perfectly nice seaside town which has been worsened by being swamped with students over the last two decades.

 

Lower market:

Three bed terrace with sea views £175k

 

Upper market:

Four bed detached house close to the beach £795k

https://www.rightmove.co.uk/properties/78527871#/

 

The latter is clearly a nicer house but is four and a half times the price of the first.  A working person might be able to buy the first house as a second time buyer but there is no way that they could then make the £620k step up from that to the upper market house.

It's two markets.

And when they merge they crash.

Yes at one time the nicer house was a year or 2s average salary more than the cheaper house, now its 20 times average salary more.

[Hancock]

6 minutes ago, eek said:

Not really - it may reduce things slightly but 2 children sharing £1m or so still gives each of them £500,000 to spend. 

A substantial rise in interest rates and those prices will be decimated. Its a question of when that happens.

[eek]

2 minutes ago, Hancock said:

A substantial rise in interest rates and those prices will be decimated. Its a question of when that happens.

That's not happened for 12 years and there is zero signs of it occurring in the near future.

also the high value properties are no no longer subject to reality as Frank Hovis point's out - the only people buying them are "cash" buyers not those getting mortgages. 

Edited March 15, 2021 by eek

[Frank Hovis]

6 minutes ago, eek said:

Not really - it may reduce things slightly but 2 children sharing £1m or so still gives each of them £500,000 to spend. 

It dilutes it and in these days of people carrying big debt burdens it is likely to be mostly falling into that black hole.

I don't know the detail of my siblings' finances but I estimate that £250k to each would be swallowed whole by their debts.

It is a rare family that carefully preserves wealth through the generations these days.  In my direct experience it is earned by one generation, inherited and conserved by the next, and squandered by the third.

Or riches to rags in three generations.

[Hancock]

3 minutes ago, eek said:

That's not happened for 12 years and there is zero signs of it occurring in the near future.

You really believe that the FED printing 1/3rd of dollars that have ever existed in 2020 is not a sign that inflation being on the horizon?

[AWW]

It's not clear to me that higher inflation will necessarily result in meaningfully higher IRs.

Even then, look who were the biggest winners the last time we had high inflation and high IRs - homeowners (assuming they were able to keep hold of their homes - which the vast majority did)

[Hancock]

8 minutes ago, AWW said:

It's not clear to me that higher inflation will necessarily result in meaningfully higher IRs.

Even then, look who were the biggest winners the last time we had high inflation and high IRs - homeowners (assuming they were able to keep hold of their homes - which the vast majority did)

If you mean in the late 80s then it was those looking to buy that were winners.

Early 80s saw big wage inflation, somewhat a difference scenario to the position we're in now.

[eek]

27 minutes ago, Hancock said:

You really believe that the FED printing 1/3rd of dollars that have ever existed in 2020 is not a sign that inflation being on the horizon?

Inflation doesn't equal high interest rates.

Especially when central banks have stated that they may ignore inflation when setting interest rates.

Heck for the last 20 years inflation has been at 2-3% a year.

Prior to 2008 interest rates where between 3.5 and 5.25% and since 2008 they've bounced around at about 0.5%

Edited March 15, 2021 by eek

[reformed nice guy]

1 hour ago, Frank Hovis said:

Trying to simplify my previous posts I view there as being two housing markets. ...

Upper market and lower market

 

It's two markets.

 

Very good, concise model for thinking about the UK housing market - well done!

 

To add some anecdotal thoughts, I know some people that are doctors. High wage, think 100k average.

The ones that come from money (usually parents are doctors too) are buying nice big houses in fancy areas.

The telling group are those with modest backgrounds. They are buying former council houses.

In the past being a doctor was the route to high status, fancy house from a working class background. Now these highly paid professionals are buying the houses that unskilled workers had one generation ago.

Edited March 15, 2021 by reformed nice guy

[spygirl]

Someone who was 50 in 2008 is now 63.

There was another mortgage prisoners feature on the radio ...... We bought our house in 2006, jus before the crash, we cannot afford to remortgage .... IO only.

The nice mortgages are being paid off.

The junk form ~2000 -> 2013ish (pre MMR) is still kicking around.

My local housing market is driven by probate. Sure, theres some holidays lets  around, but tax changes will kill those.

Then it falls back to local incomes.

Bmouth wont be getting London  money. The markets turned. A most under 50s are renting in London; no equity.

Housing is going to fall back to max 5x - so, about 150k for Bmouth.

44 minutes ago, eek said:

Not really - it may reduce things slightly but 2 children sharing £1m or so still gives each of them £500,000 to spend. 

Not itll end at a far old rate.

Wihtout FTB + mid buyers the whole let dies a death.

[Hancock]

14 minutes ago, eek said:

Inflation doesn't equal high interest rates.

Especially when central banks have stated that they may ignore inflation when setting interest rates.

Heck for the last 20 years inflation has been at 2-3% a year.

Prior to 2008 interest rates where between 3.5 and 5.25% and since 2008 they've bounced around at about 0.5%

Yes i know where they've been and look at the outcome of rates being artificially low.

Your scenario involves printing money long into the future, that is how theyve kept rates low.

I think that roads coming to an end, you clearly think interest rates will remain at ZIRP levels ... neither of us can be certain ... but i dont have the inclination to pick stats out to attempt to change your view on this.

Edited March 15, 2021 by Hancock

[Frank Hovis]

3 minutes ago, reformed nice guy said:

Very good, concise model for thinking about the UK housing market - well done!

Cheers!

I have given the matter a fair amount of thought as I wish to buy a top end property in about ten years and I did a thought exercise about what would make the properties that I currently like - about the £1.5m mark at present - begin upon a prolonged period of significant real terms falls and came to the conclusion that it was simply a question of how long it would take for the proprty bull run of 1996 - 2007 to work its way out of the market.  With the really big gains / equity being amongst those who bought in 1996 or 25 years ago.

The aim being to buy the best property at the best time.  My conclusion was that when the Upper Market started to fall the only brake upon it would be when it fell back into touching distance of the lower market.

In my example above of the £175k three bed terrace and the £795k four bed detached I would say that the £795k would have to drop to £300k in order to reconnect, or by 62%.  There is however no reason for the three bed terrace to drop in price at all from the mechanism of unearned equity working its way out of the market.  

This thinking has therefore given me a target price for that £1.5m property being maybe 4 x the terrace or £700k - a drop of more than half in real terms.

Though I think that my estimate of ten years is optimstic and fifteen or twenty is more to the mark.

The change from my initial position is that I think I will be buying a house for much less than I was intending to pay but that the market reconnect will also take longer and be nearer to twenty years than ten.

[sancho panza]

10 hours ago, Frank Hovis said:

 

The Upper Market - swapping large amounts of unearned equity from previous HPI

One is of the two generations that acquired huge amounts of equity from HPI and they continue to swap that equity between others of those generations.  Those generations are however ageing with the youngest holders of big equity being around fifty and as they age the number of equivalnets able to play swapsies - or potential buyers as they are more commonly known - dwindles.

This market is not however subject to outwtard economic forces such as interest rates or job losses.  It exists in a bubble albeit a shrinking bubble.

 

The Lower Market - people buying houses from their salaries

The other is the traditional market of first time / second time buyers.  With no substantial equity built up or being earned it is a simple case of transferring their net salary into property via a mortgage contract.  This market will have been severely impacted by Covid job losses and will also have more sellers than buyers.

 

Ultimately the two will merge as the Upper Market naturally evaporates as its participants move into care homes or expire.

In the meantime I expect a mini-crash of the Lower Market which won't impact the Upper Market.

When the two have merged then you can see a proper crash.

 

 

SUper analysis there Frank.I think you've nailed the equity swapping market very well.

Here in the East Mids that's where the volume is.Here's LE2 ,loads of terraces  but very few swapping hands.

 

[RJT1979]

11 hours ago, spygirl said:

Ultimately the equity swapping market will die out.

Death by probate.

 

 

Or just passes on? I have a house worth 300k no mortgage and cannot afford house 450k with mortgage but dad has 2m pension and 1m house all paid for. This money will be passed on. Not sure how inheritance will effect the market