Housing market

[clivem2]

Our daughter is a first timer buyer, she’s just had an offer accepted. Prices here have only dropped a little, the bigger aspect is that even with fewer properties on the market there’s much less competition from other buyers. Even if prices dip further it’s somewhere to live rather than spending £1k to £2k pm in rent. Investors….that’s a different proposition, I’m pleased she’s not competing against people looking for BTLs.

 

[andyoz]

Hilarious flyer through the door from a local agent. Apparently, the market is ‘returning to normal’. ‘Don’t believe the doom and gloom……if you are a cash buyer, in rented or a first time buyer, now is the time, house prices are stable and with high inflation, the value of saved funds is falling.’

Well, I’ll take circa 4.5% on cash rather than stick it into a depreciating asset (IMHO) any day of the week, thank you very much!

Returning to which 'normal'

 

[Mike Reed]

Cash is always a depreciating asset.

Except when invested at a return above inflation. It has been known, y'know (in living memory too).

Inflation's a funny old thing and the general initial understanding is that it affects everybody. This is erroneous as inflation affects people differently, according to your lifestyle and requirements. There are even positive effects such as increases in pensions, offset, unfortunately by the travails of old age, where future prospects are definitely deflationary !

 

[Ponty]

Relativity doesn't alter the absolute! Cash is guaranteed to depreciate as long as there's inflation. A house will always be worth a house and any change in its capital value is nominal until crystallised.

Added to which, at the moment cash is depreciating faster than property.

I’d suggest if someone actually needs to sell a house now, it’ll be a way off 12 months ago and still falling. Cash would be up. All I’m seeing is sales falling out of bed and price reductions.

 

[clivem2]

I’d suggest if someone actually needs to sell a house now, it’ll be a way off 12 months ago and still falling. Cash would be up. All I’m seeing is sales falling out of bed and price reductions.

What I’m seeing in sought after areas around South Manchester/ Cheshire is small decrease in asking price, sales are going through a few percent below asking, whereas they had been going for 10% above so the drop is around 15%.

5-year mortgage fix is around 4% currently, that’s not too bad.

 

[Ponty]

What I’m seeing in sought after areas around South Manchester/ Cheshire is small decrease in asking price, sales are going through a few percent below asking, whereas they had been going for 10% above so the drop is around 15%.

That’s a chunk of change in 12 months. Even more so if highly leveraged. Long term however, history suggests it doesn’t really matter as long as you don’t become a forced seller.

 

[clivem2]

That’s a chunk of change in 12 months. Even more so if highly leveraged. Long term however, history suggests it doesn’t really matter as long as you don’t become a forced seller.

It is though our local market became somewhat distorted due to one particular fairly well-off nationality coming to the U.K. This cohort chose the area, probably due to the schools. House purchases were often for cash so they didn’t need valuations for mortgages. This influx seems to have ended now.

 

[kensalriser]

I’d suggest if someone actually needs to sell a house now, it’ll be a way off 12 months ago and still falling. Cash would be up. All I’m seeing is sales falling out of bed and price reductions.

Not where I'm looking (Ipswich). Interests rates have stabilised, the spectre of recession has faded, employment is high and housing is still in high demand. Sure, there are headwinds too, but where are the factors that are going to drive the market lower from here? I thought the covid bubble was going to unwind but we're nowhere near that.

How is cash up when inflation has been 10%?

 

[Ponty]

Not where I'm looking (Ipswich). Interests rates have stabilised, the spectre of recession has faded, employment is high and housing is still in high demand. Sure, there are headwinds too, but where are the factors that are going to drive the market lower from here? I thought the covid bubble was going to unwind but we're nowhere near that.

How is cash up when inflation has been 10%?

Well, let’s just say you had £500K in the bank 12 months ago with which to buy a house. Do you think that £500K buys you more of a house or less of a house today (assuming the seller actually wants to sell and is not just a kite flyer sat on the market for months on end and ignoring any interest you may have received on the principal)? The price of milk, or anything else which may have seen 10%+ inflation, is irrelevant because you’re not buying £500K’s worth of milk, you want to buy a house.

What’s going to drive the market lower is forced sales. Prices are set on the margin. People whose mortgage / remortgage payment has doubled or tripled (or more) and just can’t stay above water. Landlords who are too highly leveraged with little or no resilience. This will take some time to play out. If the govt comes along with another bail out, we just move the even bigger can, or dustbin, a bit further down the road until the next inflection point. All this does is encourage people to load up on even more debt if they don’t see any negative consequence of doing so. And so it continues.

 

[mandryka]

The FCA issued guidance last week telling lenders how to deal with private borrowers who can’t afford mortgage repayments - basically telling them to let their clients have a period of interest only repayments, or to just extend the term of the loan. That should reduce the forced sales from that sector dramatically, while enabling the lenders to make more profits, and help the fight against inflation by cutting disposable income too. BTL is quite a different matter, but I have no feel for the likely scale of forced scales - maybe not so much in countries where landlords are free to set rents and employment is high.

https://www.fca.org.uk/publication/finalised-guidance/fg23-2.pdf

 

[Darth Vader]

Not where I'm looking (Ipswich). Interests rates have stabilised, the spectre of recession has faded, employment is high and housing is still in high demand. Sure, there are headwinds too, but where are the factors that are going to drive the market lower from here? I thought the covid bubble was going to unwind but we're nowhere near that.

How is cash up when inflation has been 10%?

First lets ignore inflation and do the maths. If you buy a house for £500k and a year later its value has dropped 10% then that house is now worth £450K if you were forced to sell it. However put that £500K into savings at 4% and after a year you have £520K. So thats £450K vs £520k. In this example cash won hands down. Even if you apply tax at 20%/40% on the interest thats still £516K/£512K vs £450k

What about inflation? Well as ever it depends as you'll only notice its affect when you spend the money. Not everything will go up by the calculated rate of inflation. Some things may actually go down in price. I keep a cash buffer to see us through but the majority is kept invested for future growth - thats another story.

Even if you rent that house out and after expenses/tax it returned £12K thats still £462k vs £512K plus.

DV

 

[andyoz]

The FCA issued guidance last week telling lenders how to deal with private borrowers who can’t afford mortgage repayments - basically telling them to let their clients have a period of interest only repayments, or to just extend the term of the loan. That should reduce the forced sales from that sector dramatically, while enabling the lenders to make more profits, and help the fight against inflation by cutting disposable income too. BTL is quite a different matter, but I have no feel for the likely scale of forced scales - maybe not so much in countries where landlords are free to set rents and employment is high.

https://www.fca.org.uk/publication/finalised-guidance/fg23-2.pdf

It's great we are in the safe hands of these high paid geniuses

 

[Ponty]

The FCA issued guidance last week telling lenders how to deal with private borrowers who can’t afford mortgage repayments - basically telling them to let their clients have a period of interest only repayments, or to just extend the term of the loan. That should reduce the forced sales from that sector dramatically, while enabling the lenders to make more profits, and help the fight against inflation by cutting disposable income too. BTL is quite a different matter, but I have no feel for the likely scale of forced scales - maybe not so much in countries where landlords are free to set rents and employment is high.

https://www.fca.org.uk/publication/finalised-guidance/fg23-2.pdf

If everything else (energy, food, council tax etc etc) was still cheap, I could see how people could make cuts elsewhere, move to IO, buy less stuff etc and keep the house. I suspect there are many who even if they worked 24 hours a day, simply couldn’t make ends meet versus pre-covid. The monthly delta is just too much when a mortgage doubles.

 

[stevec67]

If everything else (energy, food, council tax etc etc) was still cheap, I could see how people could make cuts elsewhere, move to IO, buy less stuff etc and keep the house. I suspect there are many who even if they worked 24 hours a day, simply couldn’t make ends meet versus pre-covid. The monthly delta is just too much when a mortgage doubles.

Food *is* still cheap. I just got back from Italy where everything other than alcohol is twice or 3x the price of the UK. I'm talking about bread, meat, milk, vegetables here, not added value stuff.
You are right though, housing costs are so high that everything else pales into insignificance. The cheapest, nastiest rented house here in Leeds or Bradford is £500 a month, and 7-800 for anywhere half decent. Even post recent price rises I can feed people for £40 pw each, so say £200 a month on food, so you simply can't save enough from this smaller figure to make a dent in dramatically increased housing costs.

 

[Kirk]

Rightmove claiming house prices went up £3K this month.

UK food is not cheap in historical terms but it is a lot cheaper than the continent.

 

[mandryka]

Ah yes @Kirk That is interesting news!

House Price Index | Property blog (rightmove.co.uk)

 

[clivem2]

Rightmove claiming house prices went up £3K this month.

UK food is not cheap in historical terms but it is a lot cheaper than the continent.

Yet my recent experience is that eating out in Spain and Madeira is much better value / less expensive than the U.K., their other costs presumably being lower.

 

[wacko]

Yet my recent experience is that eating out in Spain and Madeira is much better value / less expensive than the U.K., their other costs presumably being lower.

And that is my experience in Italy too.

 

[kensalriser]

First lets ignore inflation and do the maths. If you buy a house for £500k and a year later its value has dropped 10% then that house is now worth £450K if you were forced to sell it. However put that £500K into savings at 4% and after a year you have £520K. So thats £450K vs £520k. In this example cash won hands down. Even if you apply tax at 20%/40% on the interest thats still £516K/£512K vs £450k

What about inflation? Well as ever it depends as you'll only notice its affect when you spend the money. Not everything will go up by the calculated rate of inflation. Some things may actually go down in price. I keep a cash buffer to see us through but the majority is kept invested for future growth - thats another story.

Even if you rent that house out and after expenses/tax it returned £12K thats still £462k vs £512K plus.

DV

At 5% yield the 500k property is earning 25k pa. House prices aren't down the last 12 months so now you're at 525k property v 520k cash. But no one buys a house to let for a year and over the long term property is going to do better than cash unless you're exceptionally unfortunate with the timing. Otherwise who would ever buy property to let?

 

[clivem2]

One aspect we should not ignore when thinking that house prices will drop significantly…it’s that we don’t have enough housing. Supply and demand comes into how prices are derived. I’m not saying that costs aren’t strangling people..they clearly are.