UK house prices about to fall over the cliff edge. Recession to follow ?

I disagree though I'm sure there's pick'n'mix evidence both to support and refute.......

Of course.

Reply to
curiosity
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"John Redman" wrote

How do the actual rates stack up for that period?

You've shown that growth averaged around 2.1%pa (rise from 85K to 105K in

10 years). Base rates averaged about 9%pa over that period, so mortgage interest around 10-11%pa.

So, even if you bought with a 100% mortgage, rental yields would have to be substantially below 8%pa to have lost "thousands and thousands". What *was* the rental yield on your flat?

"John Redman" wrote

Of course it is! [Compared to your position just before buying the first house, you are better off just after selling it.]

If you buy a painting for 100,000 and then sell it later for 400,000 - have you not made a gain of 300,000? In order to acces the gain, you need to sell the painting and hence you can no longer enjoy it on your wall...

"John Redman" wrote

If you started out with 30K before you bought the Lexus (costing 30K), and end up with a (common) bike and (say) 15K after selling it second-hand, then no-one could say that was a "gain".

Reply to
Tim

"M Holmes" wrote

Having near 100% of the population with access to computers was not "business as usual" anytime prior to 20 years ago. So does history show that, sooner or later, this will be reversed?

Having near 100% of the population using electricity was not "business as usual" anytime prior to 100 years ago. So does history show that, sooner or later, people will stop having access to electricity?

Times change. Sometimes, past experience is *not* a very good guide to the future...

Reply to
Tim

Nope.

Nope.

What doesn't change is human nature. When people get credit, which is in effect other people's money, they eventually go nuts with it. Sooner or later the people who own the money panic about getting it back. Then they quit loaning more and try to recover what they can. A lesson is learned by all and the cycle repeats.

I'd say the jury is in on whether this cycle has repeated again, or whether this time people decided to be sensible with other people's money. Your mileage may vary, but I'd note that my view might be the more crucial inasmuch as I've only ever loaned money, and never borrowed it. I'm one of the folks that will get to decide when the plug gets pulled and trust me, I have a very beady eye on things just now...

FoFP

Reply to
M Holmes

In message , curiosity writes

Hope so!

BTL is not a new phenomenon, and BTLers have existed since the 1st property was built - They just havent been called BTLers.

The Rachmanns and Hoogstraatens were BTLers in the 50's & 60's, and there were lots more - both good and bad landlords, with mega portfolios. These guys grew them at every opportunity, and with impunity.

A friend of mine called me in 1992 or so, and said that he had been charged with selling his families residential property investments, in order to reinvest in commercial property. How many did they have - he was not sure, but it was hundreds.

I know you will say that it has been made easier for the ordinary Joe to BTL but, in terms of BTL volume, the ordinary Joes will be chicken feed.

See above - the scenario is not new, and the small guys, who buy 2 or 3 properties, are not the movers and shakers in the market. The movers and shakers have always existed, and always will, through thick and thin.

Sure - but with reasonable gearing, or no need to sell or buy..... No Problem.

It wasnt a complaint, it was a comment based on the fact that, historically, people bought what they could afford, where they could afford it, in the condition they could afford it, ( I am harping back to the 50's and 60's again ). These days, people complain because they cant buy close to their parents, or where they have been living and renting, and so on. It even features in the press as not being fair. Where was it written that there was a right to this?

Dont know what you mean - how can being a landlord be causing the problem.

Apart from commenting, I am not active in the market, (not buying or selling anyway.

Reply to
Richard Faulkner

Almost certainly - and a quite a few very unpopular years whilst they put right the problems which are just coming home to roost.

Reply to
Richard Faulkner

"Tim" wrote

No, it averaged 0% for 10 years from late '88 to mid-'98. It went up from

85k to 105 for all of about 3 months before the bubble popped.

I was living in it, not renting, so I don't know; I do know though that by

1994 it was worth 59k, because that's what a basically identical one went for next door. Over that 6-year period, it cost probably 12 to 13% a year in mortgage interest while shedding 35% of what I paid. That's a cost of 61,000 in interest payments and a capital loss of another 26,000, if you start from 85,000. If you start from 105,000, which but for luck I would have, it's even worse.

So the cost of owning was somewhere between about 90,000 and 105,000 if you include maintenance, service charges, etc.

To have squandered that much in rent over that period, I would have had to be paying between 15,000 and 17,500 a year over six years on a value averaging ~72,000. I don't know what renting cost in that period, but I doubt it was as much as the 20-odd % implied by those numbers.

The situation started to improve from about 1995/6, but even so we're talking about probably 100,000 to own the property over 10 years, during which its average value was probably about 75k. If it had been rentable at a yield lower than 13% then renting it would have been cheaper. I suspect about 8 or 9 was more likely. So 13 - 9 x 100,000 x 10 years = 40,000 - that's how much worse buying was.

You made that by owning the painting, not selling it. If you want a 400,000 painting on your wall, you're worse off. You are now down one 400,000 painting, and up the wherewithal to buy a 400,000 painting.

Well, quite, and the principle's the same. You want to replace the Lexus, it's going to cost what it costs. Not doing so and keeping the money isn't a gain, whether we're talking about cars or houses. If the replacement cost exceeds the original purchase price, it's not a gain either. It's just inflation, which is not the same thing at all, and this fact is why IHT on houses is so thoroughly evil; it is a tax levied on a financial penalty you have suffered.

Reply to
John Redman

"Tim" wrote

Like now, for instance. I can think of 2 major changes to the economy that have made hosues look like a good deal over the last 25 years. One was right to buy, and the second was the climate of low interest rates made possible by the defeat of inflation. Both of those were one-off stimuli to the price of housing.

In more recent times we have seen some structural changes that may prove to be equally significant one-off depressants. First, ever more graduates now leave universities with degrees that are held in less regard than ever before, while also saddled with shitloads of personal debt. This delays their buying houses and reduces what they can afford to pay when they do, thus removing a large amount of buying power from the market - permanently.

Another is that we have a government which basically taxing the south-east in order to create a Soviet state in regions like Scotland and Ulster, where - respectively - something like 50%+ and 60%+ of economic "activity" is in fact unproductive public sector job creation funded by taxes on the productive sector. This has been done to buy votes, and it seems to have succeeded, so we have in effect a structurally poorer economy which is already looking shaky because Brown is running out of money despite his colossal tax hikes.

If you include one-offs to the downside, it's possible to conclude that we're in for a 25-year bear market in property just like we've had a 25-year bull market, and for similar reasons. This is why IMHO any argument that "buying = better than renting" based on the last 25, 50, or 75 years of data is specious. You only see strong growth in the recent years, and the further you go back, the greater the chances of finding as many busts and booms.

Reply to
John Redman

"John Redman" wrote

What it did from a time when you didn't buy, to a time when you didn't sell, is irrelevant to you. From the figures you gave before, you experienced a (real) growth of around

2.1%pa.

"John Redman" wrote

Rubbish. You didn't realise the loss and sell at 59K, so you cannot say that you lost out using that figure.

"John Redman" wrote

That would mean interest payments of 120K over the 10 years you owned it (you received 20K more than you paid when selling).

120K / 10yrs / 75K = 16%pa.

Are you really sure that your interest rate averaged 16% over the entire 10 years?

"John Redman" wrote

Only in the same way as you make a gain from a house by owning it, not by selling it.

"John Redman" wrote

How so?

"John Redman" wrote

That sounds even to me! [Compared to your position just before selling. However, compared to your position just before buying, you are 300K up!]

"John Redman" wrote

The principle is not the same (as a house going up in price) at all.

With the house, you have *more* money in your back-pocket after buying & then later selling (when the selling price exceeds the buying price]. That's a *gain*.

With the Lexus, you have *less* money in your back-pocket after buying & then later selling (as the selling price is lower than the buying price]. That's a *loss*.

"John Redman" wrote

You appear to be comparing the position just before selling with the position just after selling. This will (assuming the item is sold at market value) *always* keep you in the same position, whether you're talking about houses, cars or paintings. You "start" with an item worth X and "end" with cash worth X. No change - no loss or gain.

However, what we were talking about was comparing the position just before

*buying* against the position just after selling. That's how you see if you've made a loss or a gain from the transactions. Buying at 85K and selling at 105K most definitely makes a gain of 20K.
Reply to
Tim

Of course there have been landlords since there was time, space and human consciousness - but this has nothing whatsoever to do with the growing rash of BTL as we now know it. I'm old enough (sadly) to have been reading about Rachman when he was making newspaper headlines and Hoogstraten of course is relatively recent. Their combined antics would have had no impact on national house-prices. Yes, they were landlords and vile ones at that but I don't know why you bother to mention them at all in the context of BTL - their game was utterly different. Hoogstraten systematically purchased tenanted properties that no-one wanted and used violence to clear the tenants for huge revaluations. Rachman just invested in slums, tenanted them and allowed them to degenerate further. Most importantly, HPs were not influenced by them or by operators like them and Nationwide are not yet offering a tailored Slum-Makers Kit or Buy-to-Evict package.

Uh-huh - you had a very wealthy friend...and therefore what? My old mate the Duke of Westminster owns vast chunks of Mayfair and Belgravia. Citing the odd example here and there tells us nothing.

I don't accept this. Each Joe may indeed be a chicken scat but I believe they now abound in huge numbers. What we need is range of Xs and Ys for "X% of rented property is owned by Y% of landlords". Please point me to any data you have on the pattern of distribution of BTL ownership. Only that will tell us who is wielding the influence. I already have a hunch but as someone who claims to know you can help clear this up.

Movers and shakers? Uh-huh. Please point me to any data you have on the pattern of BTL ownership.

Your question is either obtuse or naive though I accept that we still need hard data to gauge the magnitude of the problem BTL represents. My estimation of it is based only on inescapable media publicity, interested agency hype and the fact that plenty of half-witted spivs are up to it.

Reply to
curiosity

"With 408,300 loans outstanding, buy-to-let now makes up 4% of the mortgage market. ! Although the total number of rental properties has not increased significantly since 1998, the profile of landlords has changed and the quality of property in the private rental sector has improved. ! The ODPM?s Private Landlords Survey suggests that the number of small-scale landlords has increased, with the average number of properties per landlord falling from 9 in 1994 to

4 in 2001."

formatting link
a year old.

Phil

Reply to
Phil Thompson

"Tim" wrote

Not at all. I bought in mid-88 and other around me bought similar flats for prices up to 105k. Ten years later they were all worth....105k. That's 0 growth over a ten year period. The circumstances of individuals are what's irrelevant. the point I am making is that buying at or around that time was a demonstrably disastrous decision.

Of course I can. It's called 'marking the position to market'. With 26,000 of negative equity by 1994, I was not in a position to realise that loss. This does not make it any less of a loss.

Nope. The mortgage - plus opportunity cost of tied-up equity - was 85k. Over those 10 years, interest rates probably averaged 12%. 12% of 85k for 10 years = 102,000. The property's average actual value was probably about

75k, if it went from 100 to 59 and back again. Ergo, the cost of owning a 75k property over those 10 years was 10k a year plus maintenaance and service charges - which is something like 20% a year. You could certainly have rented it for less than that and deposited the savings in a bank at those rates, or possibly stuck them into the stock market.

Because you have a choice of a 400k painting on the wall or 400k in the bank. If you choose the latter you're not better off. You've just accepted that you can't have a 400k painting on the wall if you want the 400k. If you must have such a painting you'll have to spend the 400k. So you are not better off. Your cash gain is exactly cancelled by your asset loss, and since it's a purely inflationary gain which you can't spend without foregoing the painting, it's not real.

No you're not. If you want another painting it will cost you the whole 300k "gain". That's inflation, not capital growth. Growth would be if you sold your 100k painting for 400k then bought it back for 100k.

Tsk. Of course it's the same. You are simply confusing inflation with growth.

Only on a historical cost basis, not a replacement cost basis. The 20k is only yours if you can replace the 105k flat you sell with another one costing the original 85k. In pracice this can only be accomplished by settling for one that's worth less...which is my whole point. You have 'gained' nothing if that's how you realise the gain.

Reply to
John Redman

"John Redman" wrote

Ah, so you've *changed* what you are discussing. I was replying to your comment where you said :- "John Redman" wrote > I bought a London flat for 85k in '88, ..., > and sold it for 105k in 1998. I lost thousands > and thousands versus simply renting the place.

Note the: " *I* lost thousands and thousands... "

============================= "John Redman" wrote

If that were a real loss, then you subsequently made a real ** 46K GAIN ** . [105K - 59K.]

=============================

"John Redman" wrote

... *LESS* the 20K received back when selling, which you'd not have received if you rented.

"John Redman" wrote

Splutter! That would be c150K in total, so maintenance/service charges of 5Kpa (7Kpa if you correctly account for the 20K received on subsequent sale) on a 75K flat (7-9%!!). Did you have to re-build half the place??!

=============================

"John Redman" wrote

You're also not worse off. So why did you say you were?

"John Redman" wrote

Try telling that to all the people who *invested* 100K in paintings then sold them for 400K. They think the 300K gain is very much *real*! [When spending on Ferrari's or whatever ...]

"John Redman" wrote

No - that would be a *LOSS* (to the person who bought it from you for 400K then sold it back for 100K).

=============================

No, in the case of the house the price went *UP* - in the case of the Lexus the price went *DOWN*. How can that be the same?

=============================

"John Redman" wrote

Not at all. You could start to *rent* after selling, rather than buying again. That's up to you.

Reply to
Tim

thanks - very interesting. I'd read that 2004 as a whole saw 6% of mortgages going to BTL so I suppose that might reflect a growing BTL activity - hard to tell. And mindful that there has been ongoing business since these figures I wonder if there is now much of a change in total number since 1998.

The reducing average might suggest the 'movers and shakers' are selling to Joe!! Is there something Joe Shmoe should know?

I'll be interested to see these figures fleshed out in the future.

Cheers!

Reply to
curiosity

In message , John Redman writes

John,

The demonstrably disastrous decision was not the buying in 1988, the demonstrably disastrous decision would be to have sold in mid 1998 at £105K, (for those who paid £105K).

I nearly made that mistake in 1997 when I would have sold for £105,000, something I bought in 1992 for £110,000. Fortunately, the "buyer" revised her offer to £93,000, and I told her to get stuffed - with hindsight, I should have thanked her. I sold for £170,000 in 1999.

So.....

It was not a disastrous decision for me to pay £110,000 in 1992, for something which was worth £93,000 in 1996, because I sold for more in

1999, and used the money to build my current portfolio.

If I hadnt bought it in 1992, and chosen to rent, I would have had nothing to sell in 1999, and no portfolio today. If I had chosen to sell in 1996, I would have had nothing to sell in 1999, and no portfolio today.

Presumably the same scenario applies to your flat, which would have increased in value after 1998.

I cant recall if you sold it and, if you did, did you buy something else?

Reply to
Richard Faulkner

Before I sold my IFA business, I specialised in mortgages. It was 1998 when BTL started to emerge, but there were still only around 6 or so lenders in this sector - with low LTVs and fairly inflexible products. This has increased dramatically with the Stock Market crash and lower interest rates.

Although there are many "seasoned campaigners" out there, most current BTL "investors" are jumping on the bandwagon - forgetting the old adage that "if you have spotted a bandwagon, it has probably long since rolled on." :)

Reply to
Doug Ramage

In message , curiosity writes

Again, my reply was general, to include all landlords, but you pick up on the two names which i happen to be able to remember - Which part of "good and bad landlords did you not understand?

Yes I did/do. I was merely trying to say that the current crop of BTLers are the tip of a massive iceberg and, even added together, have little effect on the market.

There was a thread a while ago which discussed the figures, and I believe they were relatively small.

It must be naive - I dont know how I am part of the problem?

Media Publicity - now there's a statistic which can be relied upon

Reply to
Richard Faulkner

In message , Phil Thompson writes

QED I think?

Reply to
Richard Faulkner

"Tim" wrote

I and many like me. Arguing that individuals here and there did or did not does not alter the weight of the argument. The fact remains that for many, perhaps most, prices did not rise over 10 years.

105k - 105k = 0.

If I'd rented I'd have received the difference between rental and buying costs at late 80s-90s interest rates compounded over 10 years. And anyone who bought 3 months later wouldn't get to add a gratuitous 20k into the economics.

You appear to be suggesting in general that buying at the top and selling near the bottom does not lead to a loss. I'd wish I shared your positive outlook on life if it weren't so patently sectionable.

No, you're getting confused. The cost of buying is a function of the original cost. The return on doing so is a function of later value. If you buy a 100k flat and it halves in value at the same time as you've paid 10% interest rates, you'd need a 20% rental yield to break even. Anywhre south of that and the renter is the one laughing.

Of course you are. You don't own a 400k painting any more. Look at this way. If you spent 400k on a painting, would you consider that a capital loss?

It's not a lot of use for buying paintings with though, is it? If I sell my house and buy and Ferrari, I now have no house and a Ferrari. Am I better off? No.

The price is irrelevant - the point is that, to realise the residual value of the Lexus / house, you have to give up the Lexus / house, and what the market pays you for doing so is the value of a Lexus / house. You are exactly no further ahead. If you sold your every possession, does that make you better off? Why have you not done so? I mean - my 4 year-old-PC is probably worth 50. I could realise that 50 and be 50 up. Of course, I would perceive this as leaving me down, to the tune of one elderly PC, but I guess you'd disagree? It doesn't matter whether the item rises in line with inflation or depreciates - if you have to part with it to realise its value, you're simply liquidating, not profiting.

Reply to
John Redman

"Richard Faulkner" wrote

But all this is 20:20 hindsight, Richard. The very simple observation I am making here is that, contrary to pub wisdom, there have been episodes in what ought to be recent memory where buying was an excruciatingly bad decision - and remained so even over what many would consider the 'long term'.

I've no idea what rental yields were in west London over the 10-year period, but I still have the mortgage statements etc that show I handed over

100,000 in mortgage interest and about 15,000 in service charges over a ten-year period. I do not see how renting that same flat, whose average price was about 75,000 over that period, could possibly have exceeded that. In fact, on a yield of say 10% of value, it would have cost about 75,000 to do so.

So it was worse by 30,000, on which sum I could have been earning interest. Add in the lost opportunity to buy at chain free prices as an ex-renter, and it is quite clear that renting can outperform buying - not just now and then, but over a quite sustained period. I believe we're at the start of such a period now.

I last saw it offered at 220 a week, so presumably about 200,000 (last year).

Yep, I flogged it to fund buying something else which is not my BTL. Had I never bought it in the first instance I'd have had about 30 to 40,000 more to spend.

Such is timing.

Now strikes me as a very bad time, and it could still look like a bad time in 10 years' time. Or even more.

Reply to
John Redman

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