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Proof the housing market has peaked


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With a crooked smile

 

From today's Guardian  ''Andrew Wishart, property economist at the consultancy Capital Economics, said an acceleration in annual house price growth into double digits over the summer was now “all but guaranteed”.


He added: “With the economy set to recover quickly and interest rates very low, we don’t think that the current surge in house prices will be followed by a correction.”

Didn't Capital Economics call a crash every year during previous booms? 

If so I'm taking this a proof we are approaching a turning point. 

 

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No CGT to pay on death.  Death is a very effective tax avoidance measure for CGT purposes. If there is a gain between the time the inheritee gets it and the time they sell it then CGT is payable

A lot of 50 year old's don't have a decent enough pension to pay the bills even if they own a house until they get their state-pension at 67/68. We are entering the age of work till you drop but

Why should they? It is their turn to suck on the taxpayer's teat.

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Frank Hovis

Nah, can't see it.

As per my other posts there are two housing markets:

Upper equity-swapping market.  The only thing that will crash this down into the lower market will be when substantial amounts of the unearned HPI have been lost to equity release, split between multiple inheritors or just spent.  Or simply time.

Lower bought from salary market. This is the one subject to normal economic factors. As the government seems determined to keep propping this up by guaranteeing mortgages the only thing that will crash this will be interest rate rises which will, as is usually the case, be led by the US.

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spygirl

Yeah.

Typical idiot economists, who somehow things that HP exist in its own market.

Look at bank lending - amount and volume.

All thats happening is that stamp duty relief has brought/rejuvenated the more expensive market.

The gains of late 2020/first half of 21 will be more than lost 21H2+.

You can bet big money of tales of broken chains from ~August.

Any buying before furlough and lockdowns end is an idiot.

UK economy has had a massive structural change. Noone knows the shape of it til the props are removed.

 

 

 

 

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With a crooked smile
2 minutes ago, spygirl said:

Look at bank lending - amount and volume.

This was more of a joke post at CE's expense. 

But re lending. We're about to complete a commercial property purchase. I pulled the land reg details on several compairable businesses and nearly all had used the same lender (one that had already been recommended to us). 

When I approached that lender they wanted 50% ltv previously they offered up to 75% and the real kicker that they did not advertise was they wanted an additional 18 months payments that they would hold for the duration of the fixed mortgage rate. That's quite a lot of money and I was sure I could use it better elsewhere. 

I ended up approaching Handelsbanken who offered same terms without the additional 18 months payments being held for the duration. 

I got the impression the first bank wasn't interested in lending when I spoke to their rep. 

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With a crooked smile
1 hour ago, Frank Hovis said:

interest rate rises which will, as is usually the case, be led by the US.

What's your view on where the US are headed under Biden will his spending spree have an impact on interest rates? 

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Frank Hovis
4 minutes ago, With a crooked smile said:

What's your view on where the US are headed under Biden will his spending spree have an impact on interest rates? 

The key index for mortgages is the US thirty year bond yield and that looks to me to have hit its lows in 2020 and is now going to be on a steady, if slow, rise up away from a bit over 2% towards 3%.

I'm not expecting anything dramatic but every quarter point rise goes onto mortgages and, in a period when wage increases are likely to remain suppressed, this will nibble away at the amount of mortgage debt that FTB / STB can support.

If you then factor in the reducing number of eastern Europeans and the huge amount of housebuilding then it looks to me that what I am calling the "lower market" will stagnate and start gently dropping.

I don't see a crash coming in that market because of the pent up demand, heightened by the rentals crisis, but interest rises reducing the amount that people can borrow will hit that FTB level initially and then the STB.

This two tier market is why I view overall house price induces as meaningless.

In the SW the top end has boomed as people from the SE have relocated because of lockdown; I expect this to continue.

The lower end will however be hit by job losses and inching up interest rates but this will be masked in the overall stats.

https://www.marketwatch.com/investing/bond/tmubmusd30y?countrycode=bx

 

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spygirl
11 minutes ago, With a crooked smile said:

This was more of a joke post at CE's expense. 

But re lending. We're about to complete a commercial property purchase. I pulled the land reg details on several compairable businesses and nearly all had used the same lender (one that had already been recommended to us). 

When I approached that lender they wanted 50% ltv previously they offered up to 75% and the real kicker that they did not advertise was they wanted an additional 18 months payments that they would hold for the duration of the fixed mortgage rate. That's quite a lot of money and I was sure I could use it better elsewhere. 

I ended up approaching Handelsbanken who offered same terms without the additional 18 months payments being held for the duration. 

I got the impression the first bank wasn't interested in lending when I spoke to their rep. 

Handelbanken.

Its amazing that, as soon as nuts resi mortgage lending and scams such as PPI and other fuckwittery of the last 30 odd, that UK banks are so shit.

Clueless about banking.

Banks are meant to do a mix of lending. All UK ones ended up doing was mortgages.

Handlesbanken only entered UK in 99  I checked.

Now must large towns have a regional bank.

The gormless BoE challenger bank thing just ended up with the same old mortgage based shit, without the balance sheet - see the collapse of MetroBank and the withdrawal of everyone else.

 

 

 

 

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spygirl
Posted (edited)
1 hour ago, Frank Hovis said:

Nah, can't see it.

As per my other posts there are two housing markets:

Upper equity-swapping market.  The only thing that will crash this down into the lower market will be when substantial amounts of the unearned HPI have been lost to equity release, split between multiple inheritors or just spent.  Or simply time.

Lower bought from salary market. This is the one subject to normal economic factors. As the government seems determined to keep propping this up by guaranteeing mortgages the only thing that will crash this will be interest rate rises which will, as is usually the case, be led by the US.

 

33 minutes ago, With a crooked smile said:

What's your view on where the US are headed under Biden will his spending spree have an impact on interest rates? 

The US i.e Fed - is now *more* important in setting the price of short to medium money.

Go back to the late 80.s Then you had Europes banks and Japan.

Fast forward, ECB as all of Europe is now and Japan have totally died away from the world trade.

China refuses to get involved- it cannot stand to lose control or open up, so it uses $ a proxy, which is nuts for everyone involved bar the CCP which is all that matters.

When you add up the US and China as a percentage of trade/world economy, combined they are much much bigger that, say, US alone was in 2000, when China entered WTO.

The US economy is very different to UK + Europe.

Its minimal welfare means that spare labour capacity is used up very quickly as people are forced to engaged ASAP with work.

Europe, with high welfare and more state control is a laggard.

The UK used to be inbetween. maybe slightly closer to the US.

However ... now the UK is probably worse than Europe. UK pop may have inxreases 15-20m in 20 years. However its just one great big leech rather than productive.

UK will burn through the very little spare labour then hit capacity contracts v quickly - if its not already there.

More so, as the economy now demand higher skills which are not present in native or migrant population - inwork subbed pizza delivery yes, software eng no.

So .. even if the Fed sits on its hands for a quarter  or two, inflation is coming at a rapid clip.

Once Fed raises, they all have to raise.

The wild card is the rise of US corp taxes. which is 99% sure.

Im not 100% how this will pan out.

Ireland for one is totally fucked.

I also guess that this will increase wages as companies can no longer hand out stock for compensation as they wont make as much i..e share price less buoyant.

 

 

Edited by spygirl
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janch

For a laugh I just looked on RM for property in Pimlico and of 52 properties added in the past week 26 are reductions (ie 50%!).  Property prices are not rising everywhere. 

I also look in Maidenhead as I have a relative looking to buy there and property prices there have been gently sinking for the past 2 years or more.  It has probably suffered partly because Crossrail is still not fully operational plus the town centre is a mess because it's being redeveloped.

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BurntBread
10 hours ago, Frank Hovis said:

Nah, can't see it.

As per my other posts there are two housing markets:

Upper equity-swapping market.  The only thing that will crash this down into the lower market will be when substantial amounts of the unearned HPI have been lost to equity release, split between multiple inheritors or just spent.  Or simply time.

Lower bought from salary market. This is the one subject to normal economic factors. As the government seems determined to keep propping this up by guaranteeing mortgages the only thing that will crash this will be interest rate rises which will, as is usually the case, be led by the US.

I like your two-markets model Frank, but but a family anecdotal is making me think something else is happening, too. The person in question has bought a large house a few more miles outside London than their current large house. They "bought" the new place last Summer, and I had quietly assumed the banks would say "no". Both he and his wife are on chunky salaries (to my mind), so no problem meeting interest rate payments, but it looks like a big financial risk, and I had assumed the banks would want to steer clear. Anyway, sale completed a month ago, and they have moved. Only they couldn't sell their old place, which they have managed to rent out now, with the usual one year rental contract.

So, in this one (maybe unrepresentative) anecdotal, I am seeing someone who should be in the upper "equity-swapping market" now being in the category of the "bought from salary market", but having bought in the stratospheric price range. Maybe he is more wealthy than I thought (although I doubt it). Instead, it looks like the banks were still prepared to lend rather silly amounts of money, because of the equity the buyers had accumulated in their current home.

Now add in the possibility of rate rises, and that people might not be spending quite such a large amount of time working from home than they thought, and I can foresee certainly the recent froth in the market getting knocked off next year (maybe 10 to 20% falls?). Perhaps that's all that happens: a return to pre-COVID pricing. However, I'm not convinced that the transactions unwind in quite such a reversible way, and instead people could end up trapped and in danger of bankruptcy.

So, I'm happy with your prediction of a slow unwinding back to the mean over many years, but I do see a risk of something much nastier happening, more quickly.

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spygirl
6 minutes ago, BurntBread said:

I like your two-markets model Frank, but but a family anecdotal is making me think something else is happening, too. The person in question has bought a large house a few more miles outside London than their current large house. They "bought" the new place last Summer, and I had quietly assumed the banks would say "no". Both he and his wife are on chunky salaries (to my mind), so no problem meeting interest rate payments, but it looks like a big financial risk, and I had assumed the banks would want to steer clear. Anyway, sale completed a month ago, and they have moved. Only they couldn't sell their old place, which they have managed to rent out now, with the usual one year rental contract.

So, in this one (maybe unrepresentative) anecdotal, I am seeing someone who should be in the upper "equity-swapping market" now being in the category of the "bought from salary market", but having bought in the stratospheric price range. Maybe he is more wealthy than I thought (although I doubt it). Instead, it looks like the banks were still prepared to lend rather silly amounts of money, because of the equity the buyers had accumulated in their current home.

Now add in the possibility of rate rises, and that people might not be spending quite such a large amount of time working from home than they thought, and I can foresee certainly the recent froth in the market getting knocked off next year (maybe 10 to 20% falls?). Perhaps that's all that happens: a return to pre-COVID pricing. However, I'm not convinced that the transactions unwind in quite such a reversible way, and instead people could end up trapped and in danger of bankruptcy.

So, I'm happy with your prediction of a slow unwinding back to the mean over many years, but I do see a risk of something much nastier happening, more quickly.

Its not a chain if theyve moved without selling the old place.

This would usually result in the chain becoming stuck, waiting for their current house to sell.

There's something else going on.

Buy a new place without selling the old will have vastly increased their housing debt exposure.

And theyd need to get a  BTL mortgage for the old place, and theyll be taxed heavily.

Not sealing the old place and moving the current place to BTL would result in a notable change of circumstances. which would normally cause the mortgage to be rejected.

 

 

 

 

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Frank Hovis
7 minutes ago, BurntBread said:

I like your two-markets model Frank, but but a family anecdotal is making me think something else is happening, too. The person in question has bought a large house a few more miles outside London than their current large house. They "bought" the new place last Summer, and I had quietly assumed the banks would say "no". Both he and his wife are on chunky salaries (to my mind), so no problem meeting interest rate payments, but it looks like a big financial risk, and I had assumed the banks would want to steer clear. Anyway, sale completed a month ago, and they have moved. Only they couldn't sell their old place, which they have managed to rent out now, with the usual one year rental contract.

So, in this one (maybe unrepresentative) anecdotal, I am seeing someone who should be in the upper "equity-swapping market" now being in the category of the "bought from salary market", but having bought in the stratospheric price range. Maybe he is more wealthy than I thought (although I doubt it). Instead, it looks like the banks were still prepared to lend rather silly amounts of money, because of the equity the buyers had accumulated in their current home.

Now add in the possibility of rate rises, and that people might not be spending quite such a large amount of time working from home than they thought, and I can foresee certainly the recent froth in the market getting knocked off next year (maybe 10 to 20% falls?). Perhaps that's all that happens: a return to pre-COVID pricing. However, I'm not convinced that the transactions unwind in quite such a reversible way, and instead people could end up trapped and in danger of bankruptcy.

So, I'm happy with your prediction of a slow unwinding back to the mean over many years, but I do see a risk of something much nastier happening, more quickly.

That's a window into a market I don't know.

I agree that it sounds precarious and big dips are possible.

I used to think purely in terms of average house prices / average salaries with variation by region but that's really not telling you what's happening.

My two tier market is very representative of what's happening in the SW but London and the SE is a very different market with more speculation, much of it foreign money, and the big salaries that, as in your example, means that there isn't the simple two tier market that I'm seeing locally.

Maybe London collapse will be the catalyst for a wider series of falls that will sweep across the country.

I certainly hope so.

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Wight Flight
1 hour ago, Frank Hovis said:

That's a window into a market I don't know.

I agree that it sounds precarious and big dips are possible.

I used to think purely in terms of average house prices / average salaries with variation by region but that's really not telling you what's happening.

My two tier market is very representative of what's happening in the SW but London and the SE is a very different market with more speculation, much of it foreign money, and the big salaries that, as in your example, means that there isn't the simple two tier market that I'm seeing locally.

Maybe London collapse will be the catalyst for a wider series of falls that will sweep across the country.

I certainly hope so.

I get the impression that a lot of our 'higher bidding' renters are moving here, looking for a house to buy whilst waiting to sell their London pad for the right price.

That might fail. Our agents say they have 20 buyers for every house for sale. I wonder if London is the reverse?

 

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sancho panza
5 hours ago, BurntBread said:

I like your two-markets model Frank, but but a family anecdotal is making me think something else is happening, too. The person in question has bought a large house a few more miles outside London than their current large house. They "bought" the new place last Summer, and I had quietly assumed the banks would say "no". Both he and his wife are on chunky salaries (to my mind), so no problem meeting interest rate payments, but it looks like a big financial risk, and I had assumed the banks would want to steer clear. Anyway, sale completed a month ago, and they have moved. Only they couldn't sell their old place, which they have managed to rent out now, with the usual one year rental contract.

So, in this one (maybe unrepresentative) anecdotal, I am seeing someone who should be in the upper "equity-swapping market" now being in the category of the "bought from salary market", but having bought in the stratospheric price range. Maybe he is more wealthy than I thought (although I doubt it). Instead, it looks like the banks were still prepared to lend rather silly amounts of money, because of the equity the buyers had accumulated in their current home.

Now add in the possibility of rate rises, and that people might not be spending quite such a large amount of time working from home than they thought, and I can foresee certainly the recent froth in the market getting knocked off next year (maybe 10 to 20% falls?). Perhaps that's all that happens: a return to pre-COVID pricing. However, I'm not convinced that the transactions unwind in quite such a reversible way, and instead people could end up trapped and in danger of bankruptcy.

So, I'm happy with your prediction of a slow unwinding back to the mean over many years, but I do see a risk of something much nastier happening, more quickly.

You hit on a point there BB that needs consdiering.I think @Frank Hovis is spot on with the equity swapping marekt comment,watching volumes all over the country,we're generally seeing the hgiher end being where the disporportionate part of the olume is.

As ever though,underneath the surface there are huge strutural problems,one of whihc @spygirlis all over re population growth.below assets publishing service of UK govt report on UK BTL from 2019

Long story long: there could be a huge block of keen sellers at any point,but maybeb not too.A lot of these LLs are in the same demogrpahic too 55+

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/775002/EPLS_main_report.pdf

3.4 millions private deposits,roughly 1.5 million landlords,94% of whom rent as individuals.This is key because it means the equity in their main home is uspporting the credit chain as per your anecdotal.ALl fair and well until tenant doesn't pay,lots of EE's head home,taxes go up etc etc.Lot of pontential .

then there's the follwoing

image.thumb.png.f742ba226c6a85bb74bf0259f6b7eaf4.png

image.thumb.png.4743f5683dc5080a20cddec3fac71b1f.png

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Don Coglione
5 hours ago, spygirl said:

Its not a chain if theyve moved without selling the old place.

This would usually result in the chain becoming stuck, waiting for their current house to sell.

There's something else going on.

Buy a new place without selling the old will have vastly increased their housing debt exposure.

And theyd need to get a  BTL mortgage for the old place, and theyll be taxed heavily.

Not sealing the old place and moving the current place to BTL would result in a notable change of circumstances. which would normally cause the mortgage to be rejected.

 

 

 

 

Assuming they had a mortgage on the old place.

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Chewing Grass

That last bit is interesting, average gross rental £15K (before tax) and 42% of their gross income.

Assuming married and retired with two full state pension at £17800 or so means the pwoperdee renting malarkey for the majority is their only other income besides the state pension.

Any sign of a turn in the market and at their age they will probably be forced to sell.

End up in a care-home and it will be sold for them.

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sancho panza
Posted (edited)
5 hours ago, spygirl said:

Its not a chain if theyve moved without selling the old place.

This would usually result in the chain becoming stuck, waiting for their current house to sell.

There's something else going on.

Buy a new place without selling the old will have vastly increased their housing debt exposure.

And theyd need to get a  BTL mortgage for the old place, and theyll be taxed heavily.

Not sealing the old place and moving the current place to BTL would result in a notable change of circumstances. which would normally cause the mortgage to be rejected.

 

 

 

 

I know number of BTL's and most have no idea their own hosue is on the line if they default.with S24,the amths changed from bad to really bad.

Edited by sancho panza
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Wight Flight

Quick tax question.

What happens to the capital gains tax liability if a landlord dies?

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spygirl
3 minutes ago, Wight Flight said:

Quick tax question.

What happens to the capital gains tax liability if a landlord dies?

Stays with the estate.

 

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Wight Flight
37 minutes ago, spygirl said:

Stays with the estate.

 

How would that work?

Say the house was bought for £10k, and was worth £100k at death, would the inheritee have to pay cgt on the £90k and then possibly IT on the net balance?

Doesn't make sense.

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Posted (edited)
11 hours ago, sancho panza said:

You hit on a point there BB that needs consdiering.I think @Frank Hovis is spot on with the equity swapping marekt comment,watching volumes all over the country,we're generally seeing the hgiher end being where the disporportionate part of the olume is.

As ever though,underneath the surface there are huge strutural problems,one of whihc @spygirlis all over re population growth.below assets publishing service of UK govt report on UK BTL from 2019

Long story long: there could be a huge block of keen sellers at any point,but maybeb not too.A lot of these LLs are in the same demogrpahic too 55+

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/775002/EPLS_main_report.pdf

3.4 millions private deposits,roughly 1.5 million landlords,94% of whom rent as individuals.This is key because it means the equity in their main home is uspporting the credit chain as per your anecdotal.ALl fair and well until tenant doesn't pay,lots of EE's head home,taxes go up etc etc.Lot of pontential .

then there's the follwoing

image.thumb.png.f742ba226c6a85bb74bf0259f6b7eaf4.png

image.thumb.png.4743f5683dc5080a20cddec3fac71b1f.png

Spot on there SP.

The demographic combined with post pandemic wider economic circumstances (i.e. renter job uncertainty, inflationary pressures, voids, S24, possible interest rate rises, furlough ending) will mean that a slow unwind would gain traction at a rapid clip. A good portion of landlords don’t even understand (or want to understand) the likes of s24 or that their home is on the line. After all it’s ‘It’s my pension innit?’. 
This has reached to an uneducated ‘investment’ critical mass thanks to over a decade of low interest rates, government props, media saturation and short memories. Once that narrative turns, increasingly more will head for the exit.

Even without the economic fallout from the pandemic, the landlord demographic itself would ultimately cause a sharp decline. More stock will come to the market as that generation die off and the population gradually declines. The younger generation are priced out of life, so are having fewer and fewer children (if any) and those that are having children aren’t the ones buying houses. They’ll be an overspill of 3-4 bedroom houses with no one to afford/fill them especially with any forthcoming property levy taxes which will realign house prices.

Edited by Lightscribe
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spygirl
12 hours ago, sancho panza said:

You hit on a point there BB that needs consdiering.I think @Frank Hovis is spot on with the equity swapping marekt comment,watching volumes all over the country,we're generally seeing the hgiher end being where the disporportionate part of the olume is.

As ever though,underneath the surface there are huge strutural problems,one of whihc @spygirlis all over re population growth.below assets publishing service of UK govt report on UK BTL from 2019

Long story long: there could be a huge block of keen sellers at any point,but maybeb not too.A lot of these LLs are in the same demogrpahic too 55+

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/775002/EPLS_main_report.pdf

3.4 millions private deposits,roughly 1.5 million landlords,94% of whom rent as individuals.This is key because it means the equity in their main home is uspporting the credit chain as per your anecdotal.ALl fair and well until tenant doesn't pay,lots of EE's head home,taxes go up etc etc.Lot of pontential .

then there's the follwoing

image.thumb.png.f742ba226c6a85bb74bf0259f6b7eaf4.png

image.thumb.png.4743f5683dc5080a20cddec3fac71b1f.png

There was too relevant article in TE the other week.

When Britain’s Generation Rent retires

People who never buy houses will become an expensive problem

https://www.economist.com/britain/2021/04/24/when-britains-generation-rent-retires

As the prs has grown, so private renters have aged. In 2019 around a fifth of people aged 35-64 lived in the prs in England, up from closer to a tenth a decade before (see chart). Today’s mid-career renters are likely to become tomorrow’s retired ones.

The welfare state is not set up to cope with such a shift. Only around one in 20 over 65s are now in the prs. Most retirement-saving advice assumes that people own their homes. Workers are told that to maintain their current standard of living when they retire, they need a pension pot capable of providing around two-thirds of their old salary. But that assumes a sharp fall in housing costs as mortgages are paid off. Royal London, an asset manager, calculated in 2018 that the median worker required a pot of £260,000 ($363,000) to maintain their lifestyle if they owned as property but £445,000 if they were going to continue to rent. Most workers are on track to miss the first target, let alone the second.

20210424_BRC591.png

 

Look at the increase in PRS - 3x-4x.

Theres a only  holy fucking trinity of IO BTL-tax credit and high migration. all sustained by QE/ZIRP.

Remove one and the whole lot collapses.

The Treasury will be looking the charts like the above, then looking at who little tax BTL generated before S24 and thinking fuck it.

Equally, the BoE are going to have to pull the plug on letting regulated banks hold IO BTL on their balance.

The Boe wants it shifted into the no regulated sector and repaid.

 

And another -

 

First-time buyers’ problems won’t be solved by 95% mortgages

Regulators will limit their availability

https://www.economist.com/britain/2021/04/24/first-time-buyers-problems-wont-be-solved-by-95-mortgages

 

Prices have certainly been buoyant. Even the worst recession in at least a century failed to cool the market in 2020. According to the Office for National Statistics, house prices more than trebled in the two decades after 2000 while earnings, in cash terms, merely doubled. Buying a house for the first time has rarely been more difficult. In the mid-2000s, even after the 1990s house-price boom, the typical first-time buyer needed savings equal to around 30% of their annual income to make up the deposit required for a mortgage. Nowadays they need to scrape together a pot worth more like 70% of their income. The result has been falling homeownership rates among younger and now middle-aged Britons.

...

The government’s latest attempt at a solution, launched on April 19th, seeks to boost the supply of mortgages with a loan-to-value (ltv) ratio above 90%. In the heady days of 2007, this type of high-risk lending accounted for a sixth of the market. That it never regained those heights was seen as a good thing by regulators following a financial crisis for which it bears some of the blame. But after the pandemic prompted lenders to discontinue almost all their remaining high ltv products, the government started to worry that renters lacking large deposits would be locked out of the housing market for good. And so the Treasury is now offering to insure new mortgages with ltv ratios between 91% and 95% that are used to buy homes worth less than £600,000. It hopes that government backing will convince banks and building societies to extend more credit to first-time buyers who lack significant savings or a wealthy Bank of Mum and Dad.

Despite this, a flurry of 95% ltv mortgages backed by the Treasury is unlikely. For a start, there is no clamour for them from would-be borrowers. Richard Donnell, research director for Zoopla, a property website, notes that the Help to Buy scheme has allowed first-time buyers to put down 5% deposits since 2013. Yet nearly half have seemed wary of taking on excessive debt, opting to pay higher deposits instead. Meanwhile, some building societies that offer eligible mortgages are declining to take up the government’s offer, citing the restrictions on securitisation.

Most importantly, the Treasury’s guarantees do not remove the regulatory constraints placed on lenders to prevent a repeat of pre-financial-crisis excesses. Banks are allowed to allocate a maximum of 15% of their lending to mortgages worth more than 4.5 times the borrower’s income. Research by Neal Hudson of Residential Analysts, a consultancy, shows that the average first-time buyer in Britain spends 4.6 times their income on the purchase. In pricey London, the multiple is 5.4.

 

 

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Wight Flight
1 hour ago, Lightscribe said:

Spot on there SP.

The demographic combined with post pandemic wider economic circumstances (i.e. renter job uncertainty, inflationary pressures, voids, S24, possible interest rate rises, furlough ending) will mean that a slow unwind would gain traction at a rapid clip. A good portion of landlords don’t even understand (or want to understand) the likes of s24 or that their home is on the line. After all it’s ‘It’s my pension innit?’. 
This has reached to an uneducated ‘investment’ critical mass thanks to over a decade of low interest rates, government props, media saturation and short memories. Once that narrative turns, increasingly more will head for the exit.

Even without the economic fallout from the pandemic, the landlord demographic itself would ultimately cause a sharp decline. More stock will come to the market as that generation die off and the population gradually declines. The younger generation are priced out of life, so are having fewer and fewer children (if any) and those that are having children aren’t the ones buying houses. They’ll be an overspill of 3-4 bedroom houses with no one to afford/fill them especially with any forthcoming property levy taxes which will realign house prices.

Landlords have boxed themselves in to a corner by using their tenants' rents to bid up property prices.

A £400k house will rent for about £1k per month.

The tenant needs a provable income of £36k to qualify to rent that.

The same tenant would qualify for a mortgage of £180k at best, so add in a deposit and we get to about £200k.

House prices have a long way to fall if all landlords want to / need to exit the market.

The issue is 100% due to the fact that a LL can get an interest only mortgage, with that interest being paid by the tenant. To buy, the tenant needs a repayment mortgage, which in effect will double the amount he has to pay, or halve the amount he can bid for a house.

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spygirl
1 hour ago, Lightscribe said:

Spot on there SP.

The demographic combined with post pandemic wider economic circumstances (i.e. renter job uncertainty, inflationary pressures, voids, S24, possible interest rate rises, furlough ending) will mean that a slow unwind would gain traction at a rapid clip. A good portion of landlords don’t even understand (or want to understand) the likes of s24 or that their home is on the line. After all it’s ‘It’s my pension innit?’. 
This has reached to an uneducated ‘investment’ critical mass thanks to over a decade of low interest rates, government props, media saturation and short memories. Once that narrative turns, increasingly more will head for the exit.

Even without the economic fallout from the pandemic, the landlord demographic itself would ultimately cause a sharp decline. More stock will come to the market as that generation die off and the population gradually declines. The younger generation are priced out of life, so are having fewer and fewer children (if any) and those that are having children aren’t the ones buying houses. They’ll be an overspill of 3-4 bedroom houses with no one to afford/fill them especially with any forthcoming property levy taxes which will realign house prices.

Most houses/mortgages are bought by people under ~55.

Increase the average FTB to the mid 30s and people will only buy one house.

And the earnings from pre mortgage will be lost to the rental sector - no equity built up, so limit leverage for buying a house = much lower houses.

Every 10 years sess ~5% of people over 65 die. You cannot hold a position beyond death.

A 50yo in 2088 will be touch 64 soon, with a ~20% f being dead

A 60yo in 2008 - mid 70s, with a ~50% chance of being dead.

A 70yo - mid 80s with a 80% chance of being dead.

A 80yo in 2008 will more than likely be dead.

 

 

 

 

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Lightscribe
Posted (edited)
1 hour ago, Wight Flight said:

House prices have a long way to fall if all landlords want to / need to exit the market.

And they will, no doubt about it. As Spy says, once one of the props goes and it all goes. Problem is they may not recover to current ratios for generations.

If we are indeed at the end of the disinflation cycle going into a 70’s style inflation cycle, what’s the point of investing in the sinking ship of property when it’s underperforming against inflation and you can generate more interest in a bank account? Hence even the stock market underperformed in comparison in the 70’s.

That’s obviously ignoring the chaos in the wider global economy if interest rates even got to where they were pre-2008 first.

Edited by Lightscribe
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