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 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.