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The UK Property Crash - Has it been avoided, or just delayed?

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Sorry tallim,

 

I just tried to read it again and now it won't let me?

 

Found the same info here though

 

http://www.independent.co.uk/money/spend-s...or-2114424.html

 

I think you get to see 2 full FT articles before they require you to sign up.

 

Thanks for that Independent link John, that 44% increase is a bit of a funny stat, I'd have thought that it was only proportionally related to increased real demand, i.e. 44% increase in interest results in 11% increase in real demand. The bulk of the article sounds like people bleating for taxpayer money, it's a shame that a lot of articles just seem to quote special interest groups on one side of the debate. I don't really care if a landlord goes bust, the houses don't disappear, so it doesn't really affect the supply side too much unless someone just sits on them and leaves them empty.

 

For me, the real crime that stuffed the supply side was allowing UK housebuilders to continue in a zombie state rather than liquidating them and new/better housebuilders getting the plots for proper market rates, building houses is not a secret and is not exportable, so no company should ever be worth saving, although I guess it's the creditors' choice whether to liquidate or not.

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... I don't really care if a landlord goes bust, the houses don't disappear, so it doesn't really affect the supply side too much unless someone just sits on them and leaves them empty.

True.

LL losses would be nothing more that a "regression to the mean" - with years of abnormally high returns, followed by some years of losses. It is the natural way of the world to correct excesses.

 

How foolish it would be to try to prevent the crash that is happening in: the US, Spain, Ireland, and many other countries.

 

And similar crashes occurred in Japan and Hong Kong years ago. Why should UK Landlords think that they deserve a pass?

 

What a laugh!:

 

Affordable housing schemes take time to materialise which will only add to the existing pressure on the rental market. Meanwhile, the current lack of mortgage finance means that the average age of the first time buyer has risen to 37, from 34 five years ago, as prospective buyers are unable to provide the high deposits demanded by lenders.

 

Countrywide Residential Lettings, the UK's largest letting agent, reported that in September more than 19,700 new tenants registered for rental accommodation, up 44 per cent* on the year to date, while the number of new rental properties coming to the market rose by only 1 per cent during the same period.

 

The landlord community has responded by calling for a change in government-thinking over welfare reforms.

 

David Salusbury, chairman of the National Landlords Association, has urged the Government to put in place a strategy to incentivise the growth of the private rented sector and support professional landlords.

. . .

The issue of financing is key. Buy-to-let lending is down 80 per cent on its peak and, as Melanie Bien, director of mortgage broker Private Finance, says, there is little sign of the situation improving significantly.

 

"Buy-to-let lenders are few and far between, even with the return of Paragon to the market recently. Criteria remain tight, sizable deposits are necessary and fees are high. More lending is essential to meet the likely increased demand.

 

"Already, rents are rising significantly. More pressure from an increased number of tenants will push them higher – good news for a few landlords perhaps, but hardly a sustainable situation in the longer term," she said.

 

What a stupid comment !

What could possibly be better for landlords, and incentivise them more than higher rents?

Even with tighter financing (a good thing IMHO!), there is no shortage of people eager to become BTL investors.

 

Falling property prices, and rising rents (if we indeed see that), would simply attract more to the sector.

 

LET THE MARKET WORK! Don't listen to foolish people with vested interests.

 

*a figure which is simply unbelievable. The methodology needs checking and analysis

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...*a figure which is simply unbelievable. The methodology needs checking and analysis

 

The 44% rise was those registering with Countrywide Lettings, I think this means joining the mailing list.

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The 44% rise was those registering with Countrywide Lettings, I think this means joining the mailing list.

I see.

Probably they went from 100 people on their email to 144 people.

And that may be because they promoted it more actively.

 

As far as I know, you do not need to "register" with anyone to Rent a flat. You can walk in off the street and do it in a shot. But if someone is actively promoting a website, you might sign up, just to stay informed, without wanting to rent.

 

Here's their website: http://www.crldirect.co.uk/

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CHANGED REALITY for BTL - The Easy Capital Gains are gone, and new loans require more equity

 

I found some real sense in that article too.

 

Social housing cuts set alarm bells ringing in rental sector

Government cuts to social housing will put even more pressure on the private rental market

 

Kensington returned to the buy-to-let market in May with a markedly different approach than before. It is now targeting only experienced landlords who already have at least two buy-to-let properties and are looking to expand their portfolio.

 

Kensington's spokesman Alex Hammond said: "The availability of funding is still well down from the peak and the dynamic of the market has changed. Buy-to-let has never been a recipe for overnight riches, but the glimmering attraction of a property investment that tempted so many first-time landlords was, in a booming market, capital gains.

 

"However, with house prices largely expected to remain stable in the medium term and tax on capital gains now higher, the traditional draw of buy-to-let is less likely to entice casual investors.

 

Instead the real opportunity lies in rental income which, due to the high level of demand, is providing landlords with increasing yields and, with capital gains still likely over the long term, an investment in rental property remains an attractive proposition for landlords who have the vision and resource to commit for a sustained period."

 

But with not enough finance to go around, the private rental sector is not going to be able to deal with the demands placed on it by the Government's cuts.

(If you read that carefully: Little prospect for capital gains, and tighter finance are both strong arguments for lower prices. The only reason left to buy would be: decent yields... (while they last.) Clearly, Kensington would like a source of cheap money, so they can relend to their clients. And if the government doesn't provide that, they will have to convince their would-be clients that rising rents are going to bail out an otherwise poor investment. So they are spinning hard. I reckon they are going after those who already have at least 2 BTL's, so they can lean on the equity which may already reside in those existing properties, and they have less exposure to void periods between tenants. And they also find that too many newbies are under-capitalised, since they missed out on the big easy gains prior to 2007.)

 

(HARD, COLD REALISM is settling in for some, like this reluctant BTL landlord):

 

Alan Cleary, managing director of new buy-to-let lender Precise Mortgages, says the Government should have considered this when it planned its cuts to social housing. He says: "It must provide incentives for lenders to lend and for professional landlords – who are in the market for the long term – to invest further in the sector. If the Government fails to provide some safety net for the private rental sector we could be heading for a housing disaster."

 

'The lesson is not to put all your eggs in one basket'

 

Phil Mellor sees himself as a professional property investor, in it for the long term; yet he has been hit as hard by the credit crunch as those who dipped their toes into buy-to-let during the boom years.

 

He has seen a 12-15 per cent fall in the value of his eight properties in south Manchester over the past two years, and has also had to try to deal with the repercussions of his mortgage lender insisting he moved from interest-only to capital repayment.

 

"The restructuring was going to put me out of business. I was basically told: 'The good times are over, we want our money back. We can see your earnings and so we'll take every last penny of your income. If you don't, you'll be in default and we'll take all your houses off you.'"

 

Mellor, 50, eventually went to a specialist broker, Mortgages for Business, who arranged a 10-year flexible deal with Aldermore. Otherwise he was in danger of losing one or more of his properties. "The lesson is not to put all your eggs in one basket – portfolio landlords need to spread the risk. But if you're offered a really good deal, why would you go for something less attractive?"

 

Mellor thinks that, if the private-rental sector is to cope with increased social-housing pressures, some regulations need to change in favour of the landlord rather than tenant.For example, the last government changed the rules so housing benefit is paid to the tenant, not to thelandlord.

 

"I've had to wait two months while the tenant has been in arrears before I can apply for benefits to be paid for me, so by then, three months in arrears. It's a real killer."

 

So after all the stress of the past two years, Mellor is understandably reticent about expanding his portfolio: "If there was a deal out there which could support me purchasing a house with a depressed price, now is the time to buy. But I know it's going to be worth less in six months, and even less in 12. Have you got the finance, the portfolio and the business plan to support it? What happens when the bank rate goes up?"

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Daily Mail 3 November

 

Millions caught in cheap home loans trap: Financial experts' warning over families under threat from interest rate rises

 

By Ruth Sunderland

Last updated at 1:12 AM on 3rd November 2010

 

* Comments (32)

* Add to My Stories

 

Up to three million households are on a financial precipice – and in danger of falling over it if interest rates rise.

 

Leading economist Danny Gabay warned that a full-scale recovery will not take place until banks tackle the problem of the families who took out loans far beyond their means.

 

The former Bank of England expert’s warning about the ‘zombie households’ which could be tipped into financial oblivion when interest rates rise were echoed by a series of finance experts last night. ...................

 

Sukdhev Johal, reader in business policy at Royal Holloway, University of London, said: ‘There are many people living in a fool’s paradise because of low interest rates.

 

‘Everything is against people who have over-borrowed, including the threat of negative equity and rising unemployment. The only lifeline is low interest rates and if you take that away you could have properties coming on to the market in a fire sale.’

 

On Saturday, the Mail revealed how families are already facing the biggest squeeze on living standards in a generation.

 

Millions will be hit with huge rises in utility costs on top of hikes in other essential bills such as petrol. In a further blow, VAT is due to rise in January from 17.5 per cent to 20 per cent.

 

 

Read more: http://www.dailymail.co.uk/news/article-13...l#ixzz14BKpIe7H

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Danger lies in "Unintended consequences" - the road to hell is paved with them...

 

Up to three million households are on a financial precipice – and in danger of falling over it if interest rates rise.

 

Leading economist Danny Gabay warned that a full-scale recovery will not take place until banks tackle the problem of the families who took out loans far beyond their means.

 

The former Bank of England expert’s warning about the ‘zombie households’ which could be tipped into financial oblivion when interest rates rise were echoed by a series of finance experts last night. ...................

 

Sukdhev Johal, reader in business policy at Royal Holloway, University of London, said: ‘There are many people living in a fool’s paradise because of low interest rates.

== ==

 

From the article in the header:

The best thing would have been if the interest rate cut made in August 2005 had never happened. At that point, the UK property cycle looked set to roll over...

. . .

The painful corrective period has been stretched out by Brown/Darling's recklessness. Low rates have brought a nice 12-18 months Dead Cat bounce.

The real pain will come in liquidating the unnecessary property mal-investments that were encouraged by the low rates. As the article has stated, millions are lumbered with mortgages that they will struggle to repay when rates rise.

 

===

Here are some figures (from 2007)

 

Population of the UK -- : 59.2 million

No. of UK Households : 25.864 mn

No. persons / hsehld. : 2.29

Working population -- : 11.1 million

 

Value of UK...

Residential Bldgs.: Pds. 4,077 bn

Value ave.property: Pds. 157,634

Mortgage Loans-- : Pds. 1,193 bn (only 40% have mortgages! plus maybe 2/3 of 19% of investment properties)

Mortgaged Bldgs- : Pds. 2,161 bn (40% + 13% = 53% of above)

Notional ave. mtg : Pds. 87,016* x 10.35mn + 3.36mn = 13.71mn homes

Notional ave. LTV : 55.2%

 

*The average LTV that I have calculated of 55.2% could be high. It may be inflated by my assumptions. Actually, the average Mortgage home could be more highly valued than the average unmortgaged home. For instance, if it is 10% higher (Pds. 173,397), then the average LTV would be 50.2%.

 

Anyway, a 20-30% fall in property prices, will obviously put enormous pressure on many of those 13.7 million homes that are financed by mortgages, and finding then that there are 3-5 million homes with serious debt payment difficulties would not surprise me.

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From comments to following article in the Daily Flail

 

http://www.dailymail.co.uk/news/article-13...l-oblivion.html

 

 

Am not going to give DM the contact name, but suffice to say one of the banking groups has been given a directive months ago not to repo for 18 months if the client pays 1 pound a month or more. Yes, 1 pound ! Who is manipulating the market and falsely trying to stave off the inevitable price readjustment?

 

Also they have instructions on the underwriting side not to lend even one penny if a client is buying a property at 'less than market value'. So if someone is happy to sell their 400k home to you for 300k and you only need to borrow 20k..... you wont get it.

 

And more .......... say you buy a '400k' house for 250k, in cash, then remarket for 300k, nicely below market value, and good value for someone, the same applies. If your buyer wants just a 50k mortgage, he wont get it because the banks are denying purchases if the property changed hands less than 6 months before.

 

Check it out DM ........ theres a scandal to be unearthed..........

- john, Far from the madding crowd, 3/11/2010 0:50

 

 

 

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Barratts, Taylor Wimpey, Persimmon etc. all up sharply yesterday.

Why?

BDEV: 79.50 Change: +0.65 // Percent Change: +0.83%

Open: 78.00 High: 80.20 Low: 77.40 // Volume: 4,372,735

 

No big deal, is it?

 

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I think a two tier market is evolving. One tier is finance dependent and these houses and flats are under pressure. The other tier is the cash buyers market or those with little finance required.

 

I'm looking in the Oxfordshire area and decent houses in villages are going at or above asking. Friends have put their Oxfordshire village cottage on the market and have 6 cash buyers bidding each other up. Two bids over asking already. Another house I dismissed as rubbish and severely over valued sold above asking for cash.

 

I'm bidding on a house that needs £80k spending on it and have pulled out as we are now near asking - and also the agent has pissed me off with his stupid games. I'm against another offer that keeps outbidding me and we are both cash.

 

I'm now resigned to having to pay an over inflated price if I want to get somewhere half decent.

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I think a two tier market is evolving. One tier is finance dependent and these houses and flats are under pressure. The other tier is the cash buyers market or those with little finance required.

...

I'm now resigned to having to pay an over inflated price if I want to get somewhere half decent.

 

And anywhere worth living seems to of course be infested with the cash buyers. I rent a room for about a week a month for 300 quid in Shepherd's Bush from a girl who I reckon paid 1.5m for the place (it's a full terrace house).

 

Nothing has changed in London since 2007 save for a bit in 2008. I'll be a renter in London forever it looks like!

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I think a two tier market is evolving. One tier is finance dependent and these houses and flats are under pressure. The other tier is the cash buyers market or those with little finance required.

Just a brief phase IMHO.

The two tiers will collapse into one, both weak IMHO.

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From No6's Blog:

 

QE may well help the stock markets, but housing in the UK is still going to struggle because of restrictions, regulated or otherwise around mortgage financing. Builder Redrow reported this morning and despite good results they are clearly worried. They appear desperate for the Government to come up with something, a crazy scheme or two. Interesting, but all the regulators are doing is ensuring that people can afford to buy, something which they turned a blind eye to pre-2007, hence the popularity of self-cert mortgages. Does Redrow want a return to those days of easy money, no regulation lending. I reckon so.

"We cannot have a buoyant UK economy without a healthy housing market," he added (Redrow spokesman).

 

LOL.

That's a silly comment from Redrow.

I would say:

"The UK cannot have a buoyant UK economy until housing prices come down to an affordable level, so as to provide a healthy housing market."

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Prices up 1.8% mom, (Halifax)

 

But, still down 1.2% on the tri-monthly after the massive drop last month.

 

http://www.bbc.co.uk/news/business-11692255

 

 

Let get things into perspective; the Halifax has about a many data samples per year now, as it did previously per month.

The number of approvals have fallen by between 50% and 70% and their market share of new lending has fallen from about 30% to about 6%.

 

Looking at the raw numbers, the non-seasonally adjusted figures for this index have risen by +1.0%, after the previous fall of -3.3%.

The average of the Halifax and Nationwide indices fell 0.1% in October, bringing the average fall over the last three months to -0.7% per month.

The three monthly average is generally regarded as a less noisy measure. The above figures represents a 2.1 % drop in three months or 8.4% annually.

I think it highly likely that quarterly falls will reach 2.5% by end December. That represents a HPI of -10%.

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Let get things into perspective; the Halifax has about a many data samples per year now, as it did previously per month.

The number of approvals have fallen by between 50% and 70% and their market share of new lending has fallen from about 30% to about 6%.

 

Looking at the raw numbers, the non-seasonally adjusted figures for this index have risen by +1.0%, after the previous fall of -3.3%.

The average of the Halifax and Nationwide indices fell 0.1% in October, bringing the average fall over the last three months to -0.7% per month.

The three monthly average is generally regarded as a less noisy measure. The above figures represents a 2.1 % drop in three months or 8.4% annually.

I think it highly likely that quarterly falls will reach 2.5% by end December. That represents a HPI of -10%.

I use Non-seasonally adjusted, averaging H&N.

October is a slightly down month on that basis, as M. has said.

This keeps me from getting overly excited about those big moves up & down in a single index.

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From comments to following article in the Daily Flail

 

Am not going to give DM the contact name, but suffice to say one of the banking groups has been given a directive months ago not to repo for 18 months if the client pays 1 pound a month or more. Yes, 1 pound ! Who is manipulating the market and falsely trying to stave off the inevitable price readjustment?

 

Also they have instructions on the underwriting side not to lend even one penny if a client is buying a property at 'less than market value'. So if someone is happy to sell their 400k home to you for 300k and you only need to borrow 20k..... you wont get it.

 

And more .......... say you buy a '400k' house for 250k, in cash, then remarket for 300k, nicely below market value, and good value for someone, the same applies. If your buyer wants just a 50k mortgage, he wont get it because the banks are denying purchases if the property changed hands less than 6 months before.

 

Check it out DM ........ theres a scandal to be unearthed..........

- john, Far from the madding crowd, 3/11/2010 0:50

 

Interesting anecdotal.

 

It conflicts slightly with something I have heard about valuations though. I was led to believe that surveyors are currently undervaluing properties meaning that buyers get upset because they have to stump up extra deposit, or sales fall through because the buyer gets cold feet when he is told the house isn't worth as much as he thought.

 

Perhaps "john" only means if properties are more than 30% or so under "value" ? Anyone else have any direct experience?

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It conflicts slightly with something I have heard about valuations though. I was led to believe that surveyors are currently undervaluing properties meaning that buyers get upset because they have to stump up extra deposit, or sales fall through because the buyer gets cold feet when he is told the house isn't worth as much as he thought.

 

Perhaps "john" only means if properties are more than 30% or so under "value" ? Anyone else have any direct experience?

Today's "undervaluation" becomes tomorrow's market price ... in a falling market

 

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crash will be in real rather than nominal prices. Maybe another 10% nominal if even that

 

I'm interested to know just how you can be so categorical about that. Your statement implies that you think that it has been avoided (averted). As I mentioned we have already reached the equivalent of an HPI of -8%. If the current trend continues this will be visible in most of the major indices by Q1 of next year and by that time could easily be higher. Answer the question in the OP. Why and how has the crash been avoided (I mean averted) and not just delayed by 2 years.

 

 

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I CANNOT sign in to PT right now,

so I will post this here - a response to some questions on the PT thread:

 

Tim,

Thanks for your comments.

(1)

You suggest that lower property valuations are:

"only of relevance if you intend or have to sell your property in the next few years, ie crystallise the loss."

 

(I disagree with that somewhat. Reduced equity means reduced flexibility, and negative equity can mean no flexibility at all. You may even be forced by your bank to reach into your pocket and put in more equity, or - worse yet - be forced to sell at a bad time. And that may be the worst possible time. When the bank panics and forces you to sell, many others may be forced to sell too. Do you want to expose yourself to that risk.)

 

ukratio.jpg

(2)

"In the north of England lots of properties are in the 3 to 3.5X earning bracket, so does this mean they are unlikley to suffer large falls in the future?"

 

(A good question. The answer is: it depends... Property prices are established by supply and demand, and London has long enjoyed premium prices, because there are so many jobs there, and so many people - including wealthy foreigners - who want to live there. So long as these factors remain constant, I would expect London to enjoy a premium valuation. But no one can guarantee this will be the case. For example, if the UK were to start taxing foreign property owners more harshly, then there may be a rush to sell, and the London premium would narrow considerably. I think this is a really risk, though many would deny it. Also, a lower price to average income, in the North or wherever may suggest a higher yield. And a starting higher yield means you have a bigger "cushion" to absorb adverse market moves.)

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... their market share of new lending has fallen from about 30% to about 6%...

 

That's reminded me, I follow the data produced by the British Bankers Association on Mortgage lending, link below is to the page that has a Excel time series and summary PDF for September 2010;

 

http://www.bba.org.uk/statistics/article/s...h-street-banks2

 

They produce their figures using data from what they term the Major British Banking Groups (MBBG), this is made up of Santander UK (including Alliance & Leicester and Bradford & Bingley deposits), Barclays, HSBC Bank, Lloyds Banking Group, Northern Rock and Royal Bank of Scotland Group.

 

What they do not publish in the time series is the MBBG share of the market in each financial product they collect information for. I contacted them to request if this information is collated and if they would consider publishing it, but I've had no response.

 

My own estimate is that during 2005 to 2007 they probably had a smaller market share than they do now as there were an awful lot of other competitors that have now gone, this would make the contraction in mortgage lending as shown by their published data even more pronounced when scaled up to represent the whole market.

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..."We cannot have a buoyant UK economy without a healthy housing market," he added (Redrow spokesman).

 

LOL.

That's a silly comment from Redrow....

 

I read the comments from the chief of Redrow and I realised that the customer for housing sellers when a mortgage is required is not really starry-eyed couples buying their home, it's the banks and their bondholders.

 

It's the banks that determine value and the bondholders/depositors that actually have the money.

 

What's even worse for the developers is that the banks are buying a package; a claim on future earnings of the 'buyer' and the house as collateral, but it's only the 'buyer' who does the sales pitch to the bank when going through their mortgage application.

 

Now that the banks have woken up and started to get a better grip on value and risk, they're less willing to buy the 'product' on behalf of their bondholders or depositors and there is nothing Redrow can do about it without cutting prices or scaling back to lower volumes.

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