OK This has been 'getting my goat' for ages and just in case anyone
else feels the same, here's a thread to vent your feelings & views!!

So then...House prices currently...
1. Are they truly realistic?
2. Do you see a crash and burn possible in the next 12 months?
3. Is it lulling people into a false sense of wealth that really
is just an illusion?

My thoughts are they are not realistic and as controversial as this
may be, I hope some type of re-dress does occur sooner rather than
later - although a crash and burn scenario seems a little harsh!

This can't go on surely?? The last two booms didn't, is it different this time?
I can't see it, sooner or later be it through interest rates or
economic factors (unemployment) it has to change. The longer it goes
on the further people will have to fall financially.

It is causing an illusion of wealth?
Well when I speak to friends who are younger who don't remember
the last crash and haven't experienced
15% interest rates on mortgages (which I have) and they can't imagine
having to tone down their lifestyle to pay higher mortgages, or can't
imagine a time when thier homes wont just automatically go up every year...
YES IT'S CREATING AN ILLUSION!!!!!

Any typos please excuse - the bunny's not 100% today!!

I am Irish.I suggest you research what has happened there.Property prices
virtually always keep escalating in strong economies.Your economy is enjoying
the best boom since 1800 aapprox i.e.the past 200 years.
rgds aj

True and I have a couple of Irish friends who would nod their
heads in agreement with you ajren!

The British fascination with owning their own homes is peculiar if you compare the UK with the rest of Europe. Given that private investors will always, as a class, be able to muster more capital than private individuals it is quite possible that when there is a lot of investor capital available, private ownership will be squeezed out and UK individuals will become more accustomed to renting. Ownership is not a God-given right.

Stockbunny

Personally I believe that historically the house market has been fueled by first time buyers. For obvious reasons there have always been first time buyers and I must admit until recently I have expected the market to slow down at the least or to recess, considering that a large proportion of this group are unable to afford the escalating prices. Ironically the rising prices are allowing current house owners to release equity to become secondary house owners, (replacing the first timers), for the letting market. What really interests me is what will break this particular cycle and cause the whole edifice to collapse? My best guess is that this will not happen for some time, we are short of houses, people have to live somewhere and if they cannot afford to buy they will have to rent. I have also experienced 15% interest rates, (not happy times), but no, I don't see a change in the next twelve months or even five years. We no longer have Political parties that are poles aprt, they just play different tunes on the same fiddle and are equally capable of looking after the economy. Give or take education, NHS and Defence! The massive swings we have had in the past are hopefully not part of our future.

Rgds

PTH

Good point Kayak - what worries me most is
that to many home ownership is - in their minds - a god-given
right as is the continual rise in the value of their brick investment.
Given the concerns being voiced here and there over debt, this can't
be helpful surely?

Ptholden - you make several good points and as the control over
interest rates is no longer the 'plaything' of political parties
as it was before, the rates can't be manipulated as they often were
producing even bigger boom/bust potential. But where a government might
possibly step in, seeing an out of control housing market (the old
nanny state bit) an independent bank wont, which begs the question
will it sit back and leave people to the fate of their own doing?

Your answer lies in locking in long term interest rates and whether mortgage companies in the UK adopt the same model as the US. Generally speaking a property price rise maybe viewed as relative in the sense another property usually has to be purchased in the same market conditions therefore unless the vendor is coming out of the market or downsizing to release equity no meaningful gain is made. But this can also be said in reverse therefore limiting any real term loss. Stable long term mortgage rates remain the missing ingredient to maintaining a continued upward trend for housing market as UK demand and supply conditions are set in stone.

And the first-time buyer who's not on the ladder? If prices rise
and rise when does the whole thing grind to a halt? Seriously, yes
the long term fixed rate mortgages would help as long as the
figure required for a deposit to get you on the ladder didn't
require the chopping off of limbs to finance it.

Put it this way My little sis is 30 this year and still living at home.
She refuses to rent as she says you might as well chuck your money down the loo.


:((

Price rises equate to increased wealth all be it relative which will fund further rises as Mr Greenspan has confirmed. Many first time/2nd/3rd + buyers dnt require deposits these days 100 % deposits,developer deals etc..

The concept of not wanting to rent because one is "chucking money down the loo" has only arisen because steadily rising property prices during the war have made it so that renters miss out on the capital appreciation of their property and therefore lose money, down the loo or otherwise.

If one considers an alternative scenario where property prices have reached equilibrium, whatever price level that may be, and don't rise much year on year (as indeed they didn't before the war), then the concept makes no sense whatsoever. One can assume that at the equilibrium the cost of renting and the cost of servicing a mortgage will be reasonably similar, and with ownership there will be much less likelihood of growth of one's capital and much risk in having one's capital stored in an illiquid asset.

In other words, in my view the property market since the war has been an aberration and low interest rates have brought and will bring a much more stable market.

Agree in the sense renting/buying have their advantage/disadvantages and both to a certain extent have influenced current/historic market conditions but continued demand and supply will dictate that an upward trend in price rises is firmly in place.

Golfclub12 - your sister is like many and I can't blame her,
at least if you're paying a mortgage you feel you will own something
in the end,if you have kids you think there will be something to pass on. Renting is a concept you either can accept or not, as the case may be.

i think maxim hit the nail square on the head.its all about supply and demand.people who bought a long time ago have massive amounts of equity in their properties . over the last few years many of them have bought 2nd and 3rd homes to let . as more properties came off the market demand outsrtipped supplyi and prices surged . like many others on this bb , i have been through a boom and bust and seen some of my friends having their homes repossed or declaring themselves bankrupt. painful times . when i sold 2 years ago my plan was to move into rented accomodation and wait for prices to drop , then snap up a bargain . i am so glad i didnt .with the rises over the last 2 years i would not be able to afford to buy the original house i sold .i believe prices will continue to rise over the next 2 years at least. so perhaps i too can be one of the smug smiling ones with lots and lots of equity convincing myself i have pots of money .......he he he

I help to arrange mortgages (amongst other things) so I hope I know what I am talking about. The first thing to say is that it has taken some time for the british public to come to the understanding that interst rates are low and are going to stay low. You guys have already mentioned 15% interest rates, but if you are not already aware, we are in a completely different environment now and for the forseable future we ain't going back there!!

We are in a deflationary or more accurately non-inflationary environment now. That obviously means that funding large mortgages, but not necessarily paying them, off is not expensive. For example I bought a more expensive London flat than the one I was renting.... and the mortgage payments were much less than the rent I had been paying. At that point it is a no-brainer to buy a property.

About inflation(or the lack of it), look at the evidence - Blair is desperate to join the Euro, but if he did, base rates would fall; to 2% not 4.5% that we have in the UK. And european rates are tipped to go down whilst UK rates will go up. But UK rates cannot go up far, since if they do they will choke off the consumer spending which the UK economy depends on.

On a separate point (already covered), I do believe there could be a buy-to-let conspiracy going on. In other words if buy-to let'ers take up all the available property (deliberately) and exclude the first time buyers, then those ftb's will have to rent (or like the Italians ... live with mum and dad). Also the immigrants which Labour are pushing into the UK.. they all need somewhere to stay (but Blair forgot to build houses)...and he also forgot the trend that we all want to live alone (well not me).

What could put a spanner in the works? Only higher interest rates, and the futures market is predicting @ 5% at the end of this year (not too scary). Or perhaps a vast expansion of house-building which Kate Barkers pre- budget report was encouraging....but in reality it won't take effect for 5 to 10 years.

To state the bleeding obvious, at the end of the day your property is only worth what someone will pay for it! Interestingly positive demand does not always mean rising prices. In Hong Kong prices fell over 40% despite there being a property shortage (people were just not prepared to pay what they considered to be ridiculous prices). If no one will buy, and you have to sell, then you have to drop your price!

Cheers to all

Regards
GK

Gk interesting stuff - did you too read the FT on Saturday with your
ref. to the Italians? (Article stating Italians were having less kids
due to expenses, one of which was housing)

Anyway, yes I can see a lot of where you are coming from and you have
prof. knowledge I for one don't have, so this is very much my humble opinion here....BUT.....

I remember hearing "this time its' different" before and it wasn't...
Deflation could be a problem in time to come - Japan has shown that -

It just seems too neat, too easy and too simple and with big issues
involving large amount of people and equity that can set off warning
signals for me, along the lines of
heard that before and look what happened later on...
(Tech boom/bust, endowment policies, pension schemes etc)

The simple view is for 200 years + property prices have increased in relative and real terms through boom/bust, 15 % inflation etc... Ultimately the real reason for this is an ever increasing population and property having an intrinsic value ie whether it be viewed as an asset class or other wise people must have somewhere to live.So unless healthcare suddenly takes a nose dive, buying or renting, prices may dip at some point but the overall trend can only be up.

i can see why people are saying this time its different because,unlike the last property crash, unemployments low and interestrates are low. but suely people arnt earning enough to sustain the current rate of rise in property prices? so , what goes up must come down . the question is , by how much ? i dont think there will be a crash , as such , but a correction is inevevitable.
on another point ,, being italian and having family in italy , whats so wrong in continuing to live with mum and dad? all your food is cooked , washing done , free lodgings ,ironing done for you ..... i mean , it sounds a bit good to me . truth is , in italy more people own land and self build . so plots become family plots with three storey blocks , appartments on each floor and different members of the same family living in the building.this is my experience.

Absolutely I couldn't agree more bosley, there is nothing
wrong with family staying together living-wise for longer than
tended to happen here for some time...

However as a Mum of two lads that I love dearly, both in their teens,
the prospect of their never-ending laundry,ironing, appointment sorting,
their ever-increasing appetites and their ever-growing mounds of
'stuff' until they are in their mid-30's (before they
could afford to move out due to the cost of housing)
Well..I love them..but..someday a Mum's gotta have finished
the never-ending job of being Mum BEFORE
they ask her to start the never-ending job of being Granny, which these days
seems to include a whole load of stuff my Mum certainly never did for
us...like full-time unpaid childcare for grandchildren!!

No one trusts the financial markets anymore, and many would say for good reason, so a safe pile of bricks and mortar is seen as the ideal investment.

Went round a twenty home development this a.m. - The builders son was telling me that five of the twenty had been bought by people who were not selling their own homes but were moving into the newly built ones and renting out their own.

Anyway, the financial services/pensions industry has been either crooked or incompetent for too long and most of us are no longer interested in their products (nor in financing their expensive life styles).

Late as usual but for what it's worth:

Bear points:

1: Nominal interest rates are low. Real interest rates aren't. Low interest rates combined with low inflation simply changes the shape of repayments. (i.e. high rates / high inflation = high pain early on but rapidly reducing pain as your pay increases year on year. Currently people are borrowing to the hilt (like mum and dad in the 70s) but unlike mum and dad their pay is only going up a bit each year. Not a lot of people think about that. But they will eventually.

2: The 'greater fool' bubble is driven by investors who know that the market is overheated but think that their superior market timing skills will enable them to exit the market just ahead of everyone else. (Tulips anyone ?)

3: By many measures UK housing is now more expensive than at any point in recent history.

Bull Points:

4: However, the buy to let market makes up a tiny percentage of the UK property market and can't be held to blame for current rises. Must be 'normal' home owners pushing them up.

5: Residential Property into a SIPPs - has to be a big driver.

6: We are massively short stocked on housing.

General:

7: It was only Maggie that got us into mass home ownership. (If you have a mortage to pay you're more likely to head down the pit like a good lad and not go on strike.) She really got us to buy into the fabric of society. Who said you need to buy.

8: The Europeans buy over two or three generations, if at all.

Conclusions: DYOR. (A lazy answer, but I'm off to the pub)

Personally, I reckon we're in for a thump...

But who knows.

It certainly is a subject with a wide spread of views that's for sure!
Bank of England deputy was on again yesterday about debt levels,
a warning of another interest rate hike????
Me-thinks very possibly.....And in April - very possibly.

its mainly because the cost of borrowing is so low that people are risking all to borrow so bloody much. thats the bank of englands decision to set the base rate . and..... how can this government even contemplate advising the rest of us to borrow less when the chancellor is mortgaged to the hilt ?
ooo glad thats off me chest.
personally i give up . just borrow the money and buy , because "experts" have been predicting a house price crash for the last three years now . i nearly listened but am so glad i didnt and bought 15 months ago .if only my shares would do as well............

Quite right bosley and glad you are feeling better for
getting those thoughts off your chest! Does wonders you know!!

The financial "experts" will have a lot to answer for when interest rates rise and people cannot pay their bills. It seems amazing that that banks are foolishly lending such high amounts with little foundation and at high multiples of salary. Salaries do not rise as fast as people hope and they will be locked into a long period of crippling debt. It is a pity that banks, estate agents, surveyors and brokers (none of who, after a number of years in property, I have much time for) are not made financially liable for foolish advice, the only advice that matters is how to increase their commissions. Before moving into property I worked in the Financial Services industry, prior to regulation, so I wouldn't trust many of those either, definitely not a bank.

We were previously well into the buy to let system and had been for years, owning a number of properties but as soon as the banks jumped on the band wagon with buy to let mortgages and they became popular we considered it time to get out. Sold the last one a couple of months back and are feeling financially a lot safer. Despite that the cost of operating was getting higher all the time, hence lower yields - I think a lot of buy to lets will become disenchanted with the market when repair costs and mortgage are higher then their income. I (minx's other half) do remember the property crash of previous and the 15% (think I actually paid 16% briefly on a large mortgage) I also recall the run up of high level mortgages and similar selling as we see now. I do not see it as very different, still foolish.

Despite all the criteria, mostly being misrepresented by estate agents to keep up their commissions, I cannot see how if people do not have the funds / earnings to fuel the lower level, that the upper levels can be maintained. I can also see our wonderful Chancellor rubbing his hands at all the extra revenue so don't expect any sense from the government. It doesn't take an economist, just a bit of common sense, if people cannot afford the houses then they ultimately won't be sold and prices will fall. The banks can increase their lending but ultimately interest rates go up, either as a natural turn of economy or by force to stop a raging market, will kill it.

Also fuly agree with 38, Maggie got us into housing to make sure we turned up at work and paid all taxes on time, or lose your house to the local magistrate.

Motto: If anything is becoming popular, and the government or banks are helping the popularity, (heaven forbid both) get out quick.

Quite an immotive subject for me so I'll stop before I bore everyone.

One thing that hasen't been mentioned is self certification mortgages. This is something that is currently offered by leading banks and enables people to borrow vast sums of money that they can't afford. Lenders can (and do!) at any time withdraw these kind of products - what happens to those people that are left with a huge mortgage and no product to refinance with?

Stockbunny - was this the case in the past when there were rates of 15%????

It amazes me how prices can continue to rise even in London and the South East!

Buy to Let is the way forward

woodym8

the withdrawal of finance was an issue last time but the banks were understanding in the majority of cases allowing re-finance and even reduced payments with neg equity, something was better than nothing. After all it was not as if they could sell the houses for a profit. Whether they would be so understanding this time round, esp with buy to let, is debatable

High employment and high immigration means rates would really have to rise far more than forecast to bring prices down dramatically. We need 200,000 new homes a year and nimbysm by local authorities means that they will not pass planning consent for anything like that.

Many re-possessions if I remember rightly going back to the last crash
happened because people paniced and just handed back the keys to whoever
their mortgage lender was. Sometimes this was done AFTER they had ripped
out the new kitchen etc they had put in recently or had removed as much
as possible that could be removed from the property.

The result was a bigger fall in prices on a local level - we were in
Buckinghamshire at the time - as the banks etc were forced to put up
for sale a lot of properties in a bad state at inevitably lower prices.

Why did they just hand back the keys?
Often because they were scared as to how much they were in arrears and how
long they would have to pay it back for. Many were not 'generational'
mortgage payers, by that I mean they were ex-council tennents who had
no family back-up or support on tackling a problem like that, many had
no-one to chat to. If you have come from a family where house purchase
is the norm. you can always find someone who can either sympathise or
had 'been there and done that' AND survived to tell the tale. These people
(many of them) didn't have that back up, so panic set in, fuelled in some
cases of talk of 'millstones' around peoples necks etc from those who hadn't
taken up right to buy and were still paying rent, from what I was told
at the time.

Could that happen again? Yes I think so, there are many more who could
easily panic if things went pear-shaped for them.The self-certified thing
is really new territory as before - I think - it was only the very successful
self-employed who could raise a mortgage, the rest were not able to.

People had nowhere near the level of personal debt then that they have now.
Plus all the buy-to-lets that could flood the market, as second and third
home owners and small-time landlords just sell & may depress prices as
depending on the type of tennents they have had and whether they bother to
tidy up the properties before selling it could automatically lead to
lower asking prices based on condition.

And as we all know, once that starts,it tends to spread like wildfire.

as has been posted before , the main contributary factors to the last crash were mass redundancies leading to high unemployment , which meant people just didnt have the money to pay the mortgage, and also very high interest rates , round about 15 or 16 %. this isnt the case now .i dont expect a crash , just a readjustment because many first time buyers cannot afford the prices being asked. without first time buyers , no one else can move on up.

I'm nervous about it. After the last crash the general wisdom was that property prices would never go back up and the 'advantage' of investing in B and M was over. How short memories are. I agree that it needs something like interest rates but it's like the rest of the financial markets now, it just needs some uncertainty or some worry somewhere and then panic will set in.

We're also doing very nicely (thankyou) on consumer credit fuelled by the back-up of the massive equity profit behind us. If interest rates do go up or we reach the limit of affordability (repayments or house prices) then things will flatten, I don't believe that they'll stay flat, I think they'll then fall.

Also I live in the frozen north (well, Yorkshire) and the small property development thing is now becoming endemic, in my office of 30 about 20% of people now own second houses!! If the market flattens that could be a catalyst for lots of these people selling and a downturn?

Sorry, I don't sound overly cheerful!

There's a split of views on this thread between cheerful optimism
and the un-cheerfully somewhat pessimistic, that's the point of being
able to have your say bignose so don't worry and I doubt tempting fate
is a real problem with this!!

Don't know about prices in Yorks. but I am a little familiar with Nth.Notts.
just down a tad on the map from you,as I did have some time living there.
(Bunnies tend to move about a bit!!!)
It has gone totally silly frankly in that area,in the last couple of years,
as wages are still awful compared with down here in the South or in
large cities like Leeds, yet a home that was 110,000 about 3 years
back is now pushing 185,000 and there is no end in sight.

big nose... you live in yorkshire and then apologise for not sounding overly cheerful. i thought that was considered a virtue in yorkshire????( only joking.)

I'm actually from Nottm so I still have to carry my passport in the peoples republic! They are normally fairly cheery, just all wear flat caps. Like they all wear pin stripe suits south of Watford.... ;)

I agree it has gone silly, we are still a hot spot. One I know of was ?160k ish 3 years ago and is now ?350k, why don't my stocks do that?

I agree with some of the sentiment that it was a corection but we are reaching ht elimits of affordability - even for people trading up - so it must slow??

Want to know where the crazeist place for house price inflation is at the moment.Where people are paying 10 20 30 40 50% above the asking price.Where people are camping out three or four days before a release of houses on new housing developements.Where houses are sold so quickly they have gone before you get the details.I am looking for a property there but i think i will give up.Its INVERNESS.

Wow, but possibly a really welcome boost for the city, as hasn't
it been on the quiet side for a few years after booming before that??
Mind you it is a pretty place - have driven through on the way to the
highlands and felt it looked a decent place to live - beautiful bridge!

Property prices are not going to fall drastically like the late eighties early nineties without a catalyst, ie high unemployment and high interest rates bith of which look unlikely at the moment.
Another factor that people have not mentioned is Europe, not saying we will join but if we do there is only one way house prices will go with sub 2% interest rates.
Major cities are being flooded by developers, hence yields are dropping on buy to let properties as there is too much supply, people geared to the max will struggle to rent and possibly sell.
I have been in property for 17 years and to buy 2nd, third properties 10 years ago you had to have chunky deposits at least 30/40% not now some BTL's are as little as 10% hence the increase in demand and increase in prices.
There are a lot of factors dictating that prices should keep on going up currently( shortage of properties, increasing amount of people living on their own etc) but balanced against this are FTB's not being able to get on the ladder and yields dropping on BTL's.
I live in the Midlands and prices are not rising as much as commentators make out.
Guru

Does anyone feel though there is a form of hidden agenda. While house prices have slowed or in some cases fallen in the south, prices continue to rise in the north,especially the north east.The north east is home to some very high profile companies take Sage,its new headquarter building at Newcastle is well out of this world,and stands very close to the airport.My point is that perhaps over time house prices will become uniform all over the country, to enable workers the benifit of moving anywhere in the country without the barriers of house price differentials becoming a major obsticle. Sage is going to need to recrute a lot of highly skilled people soon to fill its enormous new building if people come here knowing they can return more easily back to the south if things don t work out then people will feel more comfortable making a move north for a job.

I'd guess thats market forces rather than a hidden agenda. Maybe improvements in telecoms play a part - on the basis that it matters less where you live - or where your company is based - than it did say 20 years ago. Thats global too - I just a new pc and being deeply non technical spent about three hours on the phone to help lines. All the calls were taken in India.

A few points if I may.

There are classic bubble signs developing...I have had calls from people asking for mortgages on ludicruous multiples of income, presumably because their friends have told them that they must be mad to be renting, given how much they could have made if they owned property.

Nimbyism... could it be described as protectionism, not just because you don't want somebody building near your property, but also because more houses in the neighbourhood means the value of your own may decrease (as it's scarcity value decreases)!

Good point by brianboru about high employment rates, immigration and nimbyism keeping prices on the up. Another point that some may have missed is that the UK's massive divorce rate is a contributing factor to the requirement for a greater number of properties. As couples split up (in the case of about 40% of marriages), so the requirement for additional properties increases.

Good point by guru about EU interest rates being 2% (and maybe going down). How could the goverment agree to joining the Euro if they are so worried about house prices going through the roof. Rates of 2% in the UK are estimated to put another 25% on house prices.

The sting in the tail could be that we are now so used to low interest rates that if they increase we are in trouble. For example if interest rates go up from 4% to 5%, that is a 20% increase. To somebody borrowed up to the hilt (on a non-fixed rate mortgage),that is painful. There-again you could argue that the consumer now controls interest rates. The MPC may be too scared to raise interest rates too much because consumer spending (which in the UK means by and large the economy) would come to a grinding halt. In other words the MPC are trapped by the high indebtedness of society.

And closer to home it seems quite funny that when I scrutinise my share portfolio daily, and am delighted (or at least happy) when I see by portfolio has increased in value by ?100 in a day. My property over the last 3 months has increased at a rate of ?200 EVERY DAY, and that for simply parking my arse on the sofa!

Cheers to all
gk

For what its worth I think there will be a sharp correction in house prices; my problem is I cannot predict when.

Interest rates may rise to 4.75% by the end of the year, which will be a 36% increase from their low point last year. This will make lenders reluctant to offer high salary multiples, and dodgy self-certification mortgages, as well as reducing the disposable income of existing borrowers.

This is in addition to the record levels of unsecured debt. which will be more difficult to service at higher interest rates. It may tip some BTLs who mortgaged their first house to provide the deposit for their rental house, or existing highly mortgaged buyers into difficulty.

Council tax continues to increase at above inflation, this year at some 6%.

Council tax relief on second or empty homes is being reducing from 50% to 10% from April. Which may put some of the 750,000 empty houses in the UK back on the market.

As house prices have increased, more houses are affected by the higher bands of Stamp Duty, which must deter some transactions.

The government has a budget deficit of 37.5bn this year with amounts only slightly less for the next few years always assuming that GDP growth is as the chancellor forecasts. If growth is less and the economy is nearing capacity now, then the deficits will increase. These deficits need to be addressed with either higher taxes or spending cuts. Either of which would adversely affect the housing market.

Oil prices are rising steadily because of various factors notably economic growth in China and India and the fact that identified reserves are not increasing at the same rate as consumption. This will affect petrol, electricity and gas prices and general inflation sustaining the interest rate hikes.

Yet salaries are only increasing at some 3% which after tax and NI is very close to the inflation rate. Inflation is low and appears reasonably stable, this will mean that existing mortgage debt is not being eroded by inflation, as has been the case in previous decades.

This leads me to believe that despite the demographic influences the current rate of price inflation is unsustainable and that existing levels may even be unsustainable going forward.

House buyers are rather like the Taliban. You think they are firmly entrenched and can resist any set back, but if you keep bombing them with extra costs you will eventually reach a tipping point and suddenly one day they wont be there.

Once they disappear prices will dip, everyone will hold off waiting for further price decreases, chains will increase in length, negative gazumping or price renegotiations will appear and heavily mortgaged BTL operators with poor yields will scramble to get out.

Prices must then fall.


If you are mortgaged up to the eyeballs don?t worry, I?m probably completely wrong and in any event Brown/Blair will make certain there is no crash this side of an election.

This thread has produced some brilliant responses, thanks to all
who have contributed so far, the 'vote' seems still fairly spread
on whether the correction will or will not come.

One thing that does occur to me is this:
Considering the responses on this thread, I seriously wonder if,
had the 'man/woman in the street' been running the political/financial
show on interest rates, mortgage criteria, release of land for
building etc, would 'we' ordinary folk have allowed the whole house
price/debt/mortgage situation to get to where it is now?

"House prices rose strongly again in March and are now expected to gain 15 percent rather than nine percent in 2004, the Nationwide building society says, adding pressure on the Bank of England to raise interest rates"

I find it difficult to believe but one must keep an open mind.

On the "release of land for building etc" - councils are in a no win situation - it costs them more to service a new home and its occupants than they recieve in tax or government grants so they're not too keen to pass planning. I also get the feeling that when they do have to allow building they prefer big expensive homes to a larger number of smaller homes built in the same space.

What we need is a good house price crash. Not some little pullback like we had in the early 90's, but a good 80% collapse like Japan has had over the last decade. Once that happens it could be a good time to buy to let. Prolly won't happen this year, but once GeorgeW has had his election up go US interest rates to protect the dollar and then.......

What we need is a good house price crash

And all the people that get hurt? Doesn't bother you?

Zoltar

So what if the dollar strengthens ? Granted that may mean sterling falls (although the two currencies to a certain extent still move together). That would be great news for exporters. The MPC do not target sterlings value in setting interest rates, inflation is the main focus. They may take notice of it (like they do of house prices, wage increases, consumer spending etc) but it is only one factor of many. It does not necessarily mean that interest rates will rise in the UK.

Infact if higher interest rates in the US choke off economic recovery there, the world economy will slow and this could lead in turn to falls in world (and UK interest rates). I think your point is a bit of a red herring!!

brianbro,

If you were a first time buyer like me and my wife I think you'd be wishing for a crash.

My wife is a secondary school teacher and I'm a design engineer for a consultancy. We both earn average salaries. We are currently renting a semi house approx 12 miles outside York. The house we are in are selling for 155,000. They were 70,000 3 years ago. Say no more! If we paid that amount we'd be living to pay the mortgage.

It's got to the stage now where based on sensible multiples of salary you'd need to be a company director just to buy a terrace house. Amatuer buy to lets have fuelled much of the market at these prices. A friend of mine as huge debt 250,000 (he earns around 35,000) on rental property. If rates rise too much he's shagged. It's a precarious situation I feel.

Rate rise in April next...maybe if they raised it by 1% it might
bring a bit of sanity back, create a bit of a reverse in prices
but not enough to create a complete crash - it sounds horrible
I know but there's a lot of people out there who need shock
tactics before they will stop accruing more and more debt.

stockbunny,

Agree with your last sentence!


GALLICK,

If your stocks are making 100 per day, and your house 200 per day, not much point in working then?

Bingobingham, makes a valid point on affordable housing, and the fact that we do appear to be in a housing boom bubble. A 1% increase in general interest rates from here increases mortgage interest payments by 20-25%.

Is there agreement on this board that we are in fact in a price bubble, or is this a sustainable, inevitable rise?

Can it really be controlled by the blunt instrument of the Bank of England's monetary policy? Should fiscal policy be used to tax buy-to-let more heavily, or are stamp duty & income & capital gains taxes sufficient?

Is it a supply side issue or have investors attitudes changed wholesale from the "cult of the equity" to "bricks and mortar" investing, so making life difficult for ordinary working families/individuals to buy homes?

Are personal debt levels sustainable, given the uncertainties of the economic cycle? ie. (un)employment, interest rates, general taxation, world economy.

Answers on a postcard! Fascinating discussion!

TSQ.

Brianboru
It would bother me if people got hurt.....but I think it will happen!
Average wages are suppposed to be circa 30k, but look in the Evening Standard and there's lots of jobs that pay half that or less, and that's in London!!! People are borrowing huge multiples of their income that they really can't afford because the newspapers tell them to buy or they'll miss the titanic...so they lie about their wages. When rates head north as they will eventually, they will be forced to sell. Companies like Ocean Finance will realise how appropriate their company name is when they see how many people are drowning in debt!
Most buyers of bigger houses are greedy buy to let gannetts who are buying up the supply of houses making them so expensive....they'll all sell together when the top has passed creating the crash....and if they lose they'll get no sympathy from me! Those that want to buy a house to live in are being priced out by selfish people who want to own many houses, which creates the shortage which pushes up prices.
Interest rates must rise in the US as they can't let the dollar collapse completely. If they do, the 'value' of America compared to the rest of the world will dive and so will Americans' wealth....it's a prime function of a central bank to protect the country's currency!
If US rates rise ours will as well to protect the pound against the dollar. Rates usualy rise and fall together for currencies where the economic cycle is in harmony.....like the US and UK.
All my opinion, and probably wrong!

>>

Andy my stocks are not making 100 per day, but on some days they do (like today), but on most they do not, and on some days it is very nasty indeed.

Property prices have rise by 2% over each of the last 3 months (apparently). If you have a property worth 300K that means that is has risen in value by 200/day. Do the maths.

Unfortunately I have things called mortgages, expenses and a wife!! One day though, before I die !!!

Regards
gk

Zoltar,

Thank you for pointing out that very important fact about wages in London and the South East - they are not fantastic for the ordinary working person. My partner and I are in the fortunate position of having 20k in the bank but as we only earn average wages this is not a big enough deposit to secure an affordable mortgage. Yes we could get a mortgage to buy the cheapest house available but would most certainly be repossesed if the interest rates went up by 2% - who wants to live with that thought hanging over their heads.

www.fool.co.uk are running a property section.
rgds aj

House prices seem to depend almost totally on job security, or a feelgood factor, and affordability - At the moment we 'seem' to have a booming economy with more jobs than people willing to do them (hence our new chums from the third world flooding over here) and no sign of onerous interest rates in the future (a small rise maybe but money, worldwide, is cheap) - So people feel they are secure and will be able to afford the repayments (which afterall are historically low compared to times of higher interest rates).

As for BTL's, where else should they invest their money? Financial markets? Under the bed? Piss it all away? Property is seen as the one solid investment and, even at these heady prices, yields of 4%+ still beat the yield on the FTSE.

However, having two children of my own who will shortly be on the property ladder or renting, I do appreciate the problem FTBers face. To rent or buy? I really couldn't say myself.

Ah.What's the chances you may have the kiddies home with you
for some time to come Brianboru? I'm certainly not expecting to
see my 18 year old leave home anywhere near as fast as I did
years ago.

We didn't have the 'calls' on our spare cash they
have/need today, there were no mobiles to keep topped up, no
PS2 games and consules to buy,plasma TV's to aspire to,designer
labels to buy,take-away fast food consisted of Wimpy or fish and chips
so was hardly appealing, the pub closed at 11pm and the clubs at 2am
AND we weren't bombarded with programmes
on the telly about how your dream home is supposed to look!!

All in all we could opt for freedom first, our own place and sitting
on boxes or tea chests for a while, as long as the portable TV
could go in the corner and we didn't worry about all the
other stuff until later on - these kids can't do without,
because they can't imagine life without!!

AND that's before you get to the price of property!!!

we have been told that this is a housing bubble for the last two years at least. as i said before i early listened. i nearly went inot rented accomodation and waited for the bubble to burst , ready to pounce. i am so glad i didnt and borrowed to our maximum and bought a property 15 months ago.all the reasons being given today are the same things that were said back then . there is so much logic to the arguements given that this is a bubble that it is almost impossible to argue against . i think what people should be doing instead of looking at their homes as an investment , is to look at them as a HOME, somewhere to live for the next 5 to 10 years or longer. then it really doesnt matter if it is a bubble .thats how i looked at it. its our home , not a pension , sipp, isa , money making , load of bollocks . yes we have what for us is a large mrtgage , but have done the sums and we are ok until interest rates hit about 8 %. (then we are f**ked,lol). i really dont see interest rates hitting the 15 % highs of the mid 80's early 90's. the other thing i have noticed amongst ftb's is that expectaions are different . my ftb was a bit of a shed that needed some work . i did the work and sold at a profit , thats how you get on the ladder . ftbs now are looking for the 3 bed semi in a nice area as a ftb. i dont know too many ftbs who managed to do that.

I can't see 8% certainly not in the short term, and I hope for
you that it doesn't get that far, but 6% I can foresee. It's not
people like yourself bosley, it's the ones who are financing off
the back of their properties that are the problem. Some have a string
of properties all financed from each other at high mortgage values
and those buying expensive consumer goods again financed by their
bricks and mortar. They are driving up debt and the housing market.
I agree with you first and foremost our houses should be our homes!