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Proof the housing market has peaked


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Castlevania
3 hours ago, Wight Flight said:

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.

The capital gains tax liability gets wiped out on death. You pay Inheritance tax instead. So in your example the inheritee would pay inheritance tax on the £100k value at death.

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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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ste

Housing market won't crash

  1. They are printing like never before and will do so again - the last crash happened because they didn't do so quickly enough last time - won't be an issue now
  2. They have hundreds of thousands of people from Hong Kong on standby to ship in to the country to prop them up.

 

What you need to a tax on second homes and a tax on BTL combined with rent controls to stop the tax being passed on to tenants. That might over a few decades limit/reduce the detachment between income and house prices.

Will never happen as too many are invested in them running away the way they are...

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Wight Flight
47 minutes ago, Castlevania said:

The capital gains tax liability gets wiped out on death. You pay Inheritance tax instead. So in your example the inheritee would pay inheritance tax on the £100k value at death.

That's what I thought.

Therefore if approaching end of days it makes no sense to sell your BTL as you will have to pay CGT and the inheritee will pay IT on the net balance.

Even more so if your estate isn't that large.

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Popuplights
3 hours ago, Wight Flight said:

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.

Fucking crazy when you see it laid out like that!

It's gonna blow, but what will be the catalyst? 

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Wight Flight
7 minutes ago, Popuplights said:

Fucking crazy when you see it laid out like that!

It's gonna blow, but what will be the catalyst? 

Nothing. I don't think it can blow. 

If it does, it will make Covid look like a minor sniffle.

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JoeDavola
Posted (edited)

Chatting to the folks today about this.

They sale agreed their house in December, but are yet to find anywhere (as there's fuck all on that's any good), and it looks like the market has risen substantially since December. I think they're almost hoping that their buyer drops out so that they can put the house on the market again and sell it for even more.

Typically the busiest period for houses coming on are the spring summer months - so lets say May to September inclusive.

There should be more houses coming on in this time period with the lock-down easing, however I also predict it's gonna be silly season with the prices that they go on for taking the absolute piss more than ever with the covid-is-over-kind-of euphoria triggering yet another boom in prices (on top of the previous year's 'the-economy-is-in-lockdown boom'. We will see. Frankly another 5-10% on prices by the time September rolls around wouldn't surprise me at all.

Edited by JoeDavola
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sancho panza
13 hours ago, Wight Flight said:

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.

IHT allowance is circa £325k iirc.So if the Estate is worth more then it's 40%.

So it could cut both ways but with your average BTLer being 55,owning at least one property plus a BTL,most will have  IHT exposure.

With CGT,as I udnerstand it,resi property is either 18% or 28%.

So any CGT debt would get cancelled .

Having said that,if there's an increase in the valuation at death and the value at sale,CGT is liable on the difference.

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sancho panza
12 hours 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.

That's a key issue here.BTL has a clear demographic and given a lot are around the age where IHT planning/care home fees/illness/joblessness etc become an issue,it does appear that there are a lot of possible sellers stemming from only one trigger.

Whereas a more complex market would have BTLers of all ages and stages of life.

I've noticed over the years that a lot of well off areas have very few people with kids compared to when I was young.

One big issue that could casue a selling stampede would be the implosion of the 60/40 pension funds that these guys wil all be looking to access from hereonin.AS they collapse in value it would seem logical that other parts of their portfoliowould be liquidated to cover those income shortfalls.

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sancho panza
12 hours ago, spygirl said:

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.

 

 

A couple of excellent points there Spy.The chickens are certainly coming home to roost.You can see why a lot of under 50's would just think f*** it, and not bother even trying to save for a house.

 

 

12 hours ago, Wight Flight said:

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.

Ironic in the extreme that they've priced their saviours out of saving them.

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Lightscribe
Posted (edited)
1 hour ago, sancho panza said:

Ironic in the extreme that they've priced their saviours out of saving them.

Ultimately that is it, greed will inevitably sweep their own legs from beneath them, but they will carry on regardless.

My nan (spanish flu, war generation) was very salt of the earth. I often wonder if (some) of the baby boomers (sweeping generalisation of landlord age group) didn’t have the same realisation and grounding. After all there does seem to be a correlation within a certain demographic always falling for money scams or foreign lovers cleaning them out etc.

 

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

That's a key issue here.BTL has a clear demographic and given a lot are around the age where IHT planning/care home fees/illness/joblessness etc become an issue,it does appear that there are a lot of possible sellers stemming from only one trigger.

Whereas a more complex market would have BTLers of all ages and stages of life.

I've noticed over the years that a lot of well off areas have very few people with kids compared to when I was young.

One big issue that could casue a selling stampede would be the implosion of the 60/40 pension funds that these guys wil all be looking to access from hereonin.AS they collapse in value it would seem logical that other parts of their portfoliowould be liquidated to cover those income shortfalls.

Majority of BTL is IO BTL - loons who, depending on when they go in, put took out an IO loan at 90% LTV.

Insane.

Theres a smaller number who have a single rental with much higher deposit 50%.  A lot f these jumped in during Gidiots stamp duty thing - yu can see a blip in ~2015, where these idiots piled in.

Second group are not an issue - theyve low debt exposure and, ifthey are lucky, theyll get a cash like return - and a lot of hassle.

The IO BTL Leverage lot are a big problem.  Or were, S24 kills them dead.

Id assumed that not all IO BTL leverage were so stupid. I was expect a fair few to sell up and leg it. Theyve had 5 years notice.

Going by how we have filed a tax return then Im wrong - majority are idiots.

Leverage IO BTL has been dead since S24 was announced.

The interesting thing is how the lending banks are handling it.

The bigger banks have been cranking down the LTV. I know of a few BTL who, every 2 years when they need to remortgage have been putting an extra 20% in to 'get the best deal'

And the bigger banks have been slowly but surely reducing there IO BTL exposure - number of outstanding loans and LTV have been falling. Not hugely but noticeably.

The debt has been shifting onto the smaller banks, who are carrying more exposure. The challenger banks Metro TSB have balance sheet stuffed with BTL.

This is going to be fun, as the smaller banks have much higher operation and funding costs, meaning the BTL loans will cost a lot more. They are more likely to come unstuck, leading to much higher rates of BTL mortgages going bad = more risk = more capital needs to be held = higher mortgage costs, less lending.

Then covid, which has hammered London/SE - theres got to be mass of voids - see Death of London. The bad loans provision on London/Se has to be dire. The dual hit of cvoid hitting acitivty and EUers going home has to double hammer London/SE.

 

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JoeDavola

My parents sold a 4 bed semi for £170K about 6 years ago.

A 4 bed semi in the same street has just come on today for £270K.

#NorthernIrelandEconomicMiracle

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haroldshand
18 hours ago, sancho panza said:

A couple of excellent points there Spy.The chickens are certainly coming home to roost.You can see why a lot of under 50's would just think f*** it, and not bother even trying to save for a house.

I just wonder how many of those 50 year olds have decent enough pensions planned to pay for their rents come retirement, not many I bet

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Wight Flight
1 minute ago, haroldshand said:

I just wonder how many of those 50 year olds have decent enough pensions planned to pay for their rents come retirement, not many I bet

Why should they?

It is their turn to suck on the taxpayer's teat.

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Chewing Grass
2 minutes ago, haroldshand said:

I just wonder how many of those 50 year olds have decent enough pensions planned to pay for their rents come retirement, not many I bet

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 hey you can feel like king-of-the-hill with your Merc on PCH to make you feel better.

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haroldshand
33 minutes ago, Wight Flight said:

Why should they?

It is their turn to suck on the taxpayer's teat.

If not 10 or even 15 years before pension date, I agree with you.

If I was in that position at 50 I would play the system while getting housing benefit and hiding money away.

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Wight Flight
1 minute ago, haroldshand said:

If not 10 or even 15 years before pension date, I agree with you.

If I was in that position at 50 I would play the system while getting housing benefit and hiding money away.

I am still weighing up the options.

I can probably save about £40k per year, so by retirement would have enough to buy somewhere for cash.

Or I could enjoy life, hide £30k a year in gold / Bitcoin / whatever, and then let the state house me while spending my hidden loot through my latter years.

Option b doesn't sound right, but is probably a better choice in my position.

 

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haroldshand
39 minutes ago, Wight Flight said:

I am still weighing up the options.

I can probably save about £40k per year, so by retirement would have enough to buy somewhere for cash.

Or I could enjoy life, hide £30k a year in gold / Bitcoin / whatever, and then let the state house me while spending my hidden loot through my latter years.

Option b doesn't sound right, but is probably a better choice in my position.

 

I can totally understand if people snap and take the welfare option even though it makes me so angry. Working way into your 50's and paying your way in life and having to rent because no woman/man wants you which must happen to a of people and so you can never split the cost of life expenses.

Then people while working save for a pension and pay their NI contributions and rightly deserve their state pension as they watch people having everything they had do fuck work in their lives and probably handle older age better as they not worn out.

I hate the thought of people cheating the system, but there are circumstances where I totally understand

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JoeDavola
18 hours ago, Chewing Grass said:

We are entering the age of work till you drop but hey you can feel like king-of-the-hill with your Merc on PCH to make you feel better.

Yep but I don't think that's sunk in for many people yet.

The big difference I'm seeing in my peers (late 30's) compared to the previous generation is that in virtually all cases the first house they bought (in some cases 10 years ago when prices were much lower) ended up being the houe they're still in and they have no plans (or means) to 'move up the ladder'. There is no housing ladder any more it seems because HPI means you'd be taking on an extra 100K debt for that extra bedroom.

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Chewing Grass
19 minutes ago, JoeDavola said:

Yep but I don't think that's sunk in for many people yet.

The big difference I'm seeing in my peers (late 30's) compared to the previous generation is that in virtually all cases the first house they bought (in some cases 10 years ago when prices were much lower) ended up being the houe they're still in and they have no plans (or means) to 'move up the ladder'. There is no housing ladder any more it seems because HPI means you'd be taking on an extra 100K debt for that extra bedroom.

We could never afford that extra bedroom so we forced two of the kids to share, didn't do them any harm.

Round my way a 3-bed semi with an extra pukka bedroom is another 80K minimum.

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JoeDavola
1 minute ago, Chewing Grass said:

We could never afford that extra bedroom so we forced two of the kids to share, didn't do them any harm.

Round my way a 3-bed semi with an extra pukka bedroom is another 80K minimum.

Yeah pretty much the same around here - going from a 3 bed to a 4 bed semi is gonna cost a ridiculous amount compared to what it did a generation ago.

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Frank Hovis
21 hours ago, Wight Flight said:

I am still weighing up the options.

I can probably save about £40k per year, so by retirement would have enough to buy somewhere for cash.

Or I could enjoy life, hide £30k a year in gold / Bitcoin / whatever, and then let the state house me while spending my hidden loot through my latter years.

Option b doesn't sound right, but is probably a better choice in my position.

 

Or a combination of the two.

Like @stokiescum start building up an off the radar stash while you can.

In four years you will be qualifying for social housing anyway as a resident and I bet, as in Cornwall, that there are some excellent locations for this as well as the sink estates.

Shared ownership and then staircase (buy extra equity slices) to buy the lot when you can get the cash out of your business tax-efficiently.

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stokiescum
On 01/05/2021 at 16:38, 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.

I surpose the ultimate test of how daft things are or are not would be me applying for a morgage in principle for a laugh.however im not sure if it’s a good idea ie will it fuck me up when I go back to work and realy go after another house and morgage

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stokiescum
22 hours ago, Wight Flight said:

Why should they?

It is their turn to suck on the taxpayer's teat.

They won’t get fuck all if they have a semi decent pension 

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