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Is it time to buy a UK property

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I have given much thought on UK housing and have come to the conclusion that the powers that be have been so successful in preventing a housing collapse in sterling that we are now unlikely to see one in nominla terms. A nationwide house price collapse will cause a total collapse in the UK banking system sending us back to the dark ages. It appears that you cannot beat the system. He who makes the rules controls the game.

 

My question to you is all in simple terms,as economics is not my bag. Can someone explain to me how the powers that be can influence a wage price spiral, as whilst my wages have not increased for 3 years and seem unlikey in the short to medium term, I have a feeling that this is the next plan the powers that be have up their sleeve. They have inflated everything else, so or that is left is wages.

 

If wages were to increase for everyone very shortly then would it be wise to get back into property now through leverage as the debt would be inflated away. In which case would you go for a tracker or a fixed rate mortgage.

 

I am of the opinion that the only way out of the current world problem is for the world to inflate and print. The FED BofEngland and every other Central Bank will continue this trend. To date the pound has lost 25% against the $ and with 5% inflation for the last two years, (government say so), then so far we have had a 35% crash in real terms. My opinion is that housing was just over 50% in need of a correction so only a 15% fall left to go. On this basis that leaves 2 more years through inflation up to 2013/14 just in time to reinflate the housing market before a new election. Does anybody see a similar play in their analysis.

 

My last question (and please forgive me for asking so many) is gold. If you were to leverage on a mortgage today as the cost of money is very cheap, would you off set any savings using gold as a hedge to play against the leverage?

 

Many thanks

 

PS Goldfinger if your reading may I impose on you and ask if you have any charts for London properties priced against gold. I am seeing the market play out as many have already prescibed in that London property values have fallen against gold significantly.

 

I quick tale:

 

Prime London properties worth over £2million in 2008 have risen 57% to date.

 

If you had put you £2million into gold in 2008 then you would be able to buy the same property today and have change in sterling left over.

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I have given much thought on UK housing and have come to the conclusion that the powers that be have been so successful in preventing a housing collapse in sterling that we are now unlikely to see one in nominla terms. A nationwide house price collapse will cause a total collapse in the UK banking system sending us back to the dark ages. It appears that you cannot beat the system. He who makes the rules controls the game.

 

My question to you is all in simple terms,as economics is not my bag. Can someone explain to me how the powers that be can influence a wage price spiral, as whilst my wages have not increased for 3 years and seem unlikey in the short to medium term, I have a feeling that this is the next plan the powers that be have up their sleeve. They have inflated everything else, so or that is left is wages.

 

If wages were to increase for everyone very shortly then would it be wise to get back into property now through leverage as the debt would be inflated away. In which case would you go for a tracker or a fixed rate mortgage.

 

I am of the opinion that the only way out of the current world problem is for the world to inflate and print. The FED BofEngland and every other Central Bank will continue this trend. To date the pound has lost 25% against the $ and with 5% inflation for the last two years, (government say so), then so far we have had a 35% crash in real terms. My opinion is that housing was just over 50% in need of a correction so only a 15% fall left to go. On this basis that leaves 2 more years through inflation up to 2013/14 just in time to reinflate the housing market before a new election. Does anybody see a similar play in their analysis.

 

My last question (and please forgive me for asking so many) is gold. If you were to leverage on a mortgage today as the cost of money is very cheap, would you off set any savings using gold as a hedge to play against the leverage?

 

Many thanks

 

PS Goldfinger if your reading may I impose on you and ask if you have any charts for London properties priced against gold. I am seeing the market play out as many have already prescibed in that London property values have fallen against gold significantly.

 

I quick tale:

 

Prime London properties worth over £2million in 2008 have risen 57% to date.

 

If you had put you £2million into gold in 2008 then you would be able to buy the same property today and have change in sterling left over.

 

Consider the UK economy in the context of the rest of the world - not just internal UK policies. The GBP is massively overvalued internationally - and as you have pointed out, it is falling. In my opinion, it will continue to fall in international purchasing power as the true picture of the UK's Potemkin economy is revealed. Holding GBP will see a loss in purchasing power - holding a UK house will also see a loss in international terms but possibly not much priced in GBP - which is not much use at all!

 

Regarding TPTB 'inflating' wages;

 

1. Falling value of GBP will cause imports prices to rise leading to-

 

2. Strikes by Public Sector workers especially but also generally leading to -

 

3. Printing/QE which will carry on in a vicious circle a la 1970s - but on steroids.

 

Attempts to rein-in inflation by raising interest rates would see the fantasy value of UK property collapse.

 

The good news is that astonishingly large amounts of gold can still be obtained for what is still a grossly overvalued currency (GBP). A few are taking advantage of this 'golden' opportunity - most are not but will finally understand when it is too late.

 

The purpose of Fiat currencies is to enable parasitical behaviour by the banks - and the State whereby a portion of a person's productive output is surreptitiously stolen from them - it works perfectly until the real productive output is dwarfed by the spending - such as the situation that now exists in the UK.

 

Regarding the higher prices of Mayfair houses, this should be taken in the context of the UK's new role (for some years actually) as a safe haven for all manner of wealthy criminals.

 

Here is one who had to sell his £200 million yacht in order to keep his rat hole in London.

 

http://www.telegraph.co.uk/news/uknews/law-and-order/7911061/Boris-Berezovsky-forced-to-sell-superyacht-by-cash-flow-problems.html

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Below from my posts from the UK House Prices - The Long, Long Wait Is HPI the problem- Or the attitude towards property? thread as to why wage inflation is unlikely to occur from the pressure of strike action. This leaves the generosity of the system, which I don't see happening. The powers that be have never inflated wages in the UK without the pressure of mass indefinate strike action placed upon them (in bad times that is. Workers have done ok when times have been deemed to be good, or when there are skills shortages). I fail to see why they would now do it out of the generosity of their hearts because of some supposedly inflationary plan. Comparison with the 1970's is totally false and leads up a blind alley. Put simply, workers today have no power compared to the 70's. You have had no pay rise for 3 years, that's the reality of what happens to ordinary people in austerity times when the power balance has been changed in favour of the employer and Government. Workers today have no power short of a revolution movement, and if that happened they wouldn't be fighting to retain capitalism and a free market that's for sure.

 

A few facts to consider;

 

- Public sector strikes today tend to be more of a protest one day affair, whereas in the past, especially in the 70's it would have been more often than not indefinate strikes. These hardly ever happen these days. It's the indefinate strikes that always hurt employers, not one off protests where the workers return the next day and have to catch up on the work they didn't do the day before.

 

- They are not striking about pay. It is unlikely they would strike any length of time over pay. There is little or no evidence for it.

 

- Most private sector workers are non-union. Many will probably have signed contracts of employment that forbid them to join a union or engage in strikes.

 

- In the 70's, those that went on strike were often allowed to claim welfare benefits while on strike. These were all removed in the 80's. Go on strike today and you survive as long as your savings, if you've got any, hold out.

 

- The collectivist spirit required for the type of strike action that often happened in the 70's no longer exists. There is certainly no politicised collectivist union spirit anymore. How do non-unionised private sector workers get such a spirit?

 

- Public sector is mostly made up of women these days. They don't really have a history of front line militancy, not to the same degree as men anyway.

 

I see little or no chance of indefinate mass strikes, general strikes, etc, etc any time soon and I see no chance of Government or private employers simply taking pity on workers and giving them above inflation pay increases.

 

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

 

We could separate the question into two parts. First, the likely action by unionised workers and second, what action if any can non-unionised workers take? Current union membership levels in the UK are on the decline, they stand at 26.6% right now, much of it and the most powerful is arguably in the public sector, but I believe their likely action is limited by many of the points I have raised above. If and when they start to talk about indefinate strikes I will think again, but for the moment the public sector strikes are little more than a protest, but they are the type of strikes that the anti-union media will jump on thus making it difficult for the strikers to get any sympathy. As to how much people will take I think probably quite a lot! Inflation would probably need to hit 15-20%, but even then they may end up being given 5-8% pay deals and be quite happy to settle. As for the private, non-unionised sector there will probably be hardly any strikes at all as there is little collective spirit amongst workers anymore and anyway they probably lose their job if deemed in breech of contract. Capitalism always tends to provide enough unemployed to fill the breech and private sector employers and politicians know this. In the 70's, no Government would ever have called for volunteers to go into schools to fill in for the striking teachers.

 

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

 

I think things are only likely to change quickly if you get indefinate strikes. The tendency in recent years by public sector unions are for one off "day of action" type strikes. Seriously, they don't work, a waste of time. The unions cannot win the propaganda battle when they do this as the media and politicians immediately go into devide and rule mode. Public sector v private taxpayer. The unions cannot win that one. Even the so-called socialist New NuLabour leader Eddie Milliband doesn't support the strikes! Didn't take long for him to realise where his middle class voters are.

 

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

 

I suppose the point about inflation that I was making is that I expect most workers will probably find their pay increase lagging behind price inflation for some time to come, regardless of what that price inflation level might be. I'm not convinced that workers will consistantly get inflation level rises or above, as UK politicians have been reluctant to repeat what they see as the wage-led type inflation that supposedly went on in the 70's (although it never really was as simple as that, wage-led price inflation or price-led wage inflation which comes first? Does it matter if you are printing or borrowing too much money in the first place). Obviously some will still get decent pay increases, but the majority may well lag with the occasional good year until things turn around, assuming it does. Such a situation could probably go on for a long time. A little bit like waiting for a property market crash!

 

http://www.greenenergyinvestors.com/index.php?showtopic=14868&st=160

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Below from my posts from the UK House Prices - The Long, Long Wait Is HPI the problem- Or the attitude towards property? thread as to why wage inflation is unlikely to occur from the pressure of strike action. This leaves the generosity of the system, which I don't see happening. The powers that be have never inflated wages in the UK without the pressure of mass indefinate strike action placed upon them (in bad times that is. Workers have done ok when times have been deemed to be good, or when there are skills shortages). I fail to see why they would now do it out of the generosity of their hearts because of some supposedly inflationary plan. Comparison with the 1970's is totally false and leads up a blind alley. Put simply, workers today have no power compared to the 70's. You have had no pay rise for 3 years, that's the reality of what happens to ordinary people in austerity times when the power balance has been changed in favour of the employer and Government. Workers today have no power short of a revolution movement, and if that happened they wouldn't be fighting to retain capitalism and a free market that's for sure.

 

I agree that for the last 3 years, people have become poorer and have had to suck it up - as you have pointed out, they have no alternative. I imagine this can go on for some time but the effects of less disposable income due to higher prices are impacting discretionary spending (even with low mortgage rates) and there must come a time when salaries are simply inadequate to pay for necessities (this is already the case for some).

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A few quick points:

 

+ UK wide prices fell about 20% from late 2007 to early 2009, and then recovered about 10% from the early 2009 Low, before beginning to slide again in 2010. Now they are stagnant, with a downwards bias IMHO.

 

+ Take London out of the UK average, and you will see how weak prices have been in the rest of the country. (I may adjust these figures later):

 

GPC - DATA bank: / WHAT HAS HAPPENED since 2009:

Mo.: Rt'mov : London : Hometrack %/ Nt'wide H-oldSA Halif.SA Hal.NSA: HNindex : mom : DelusIdx

When?: 18th? - 18-20th : - 25 - 30th chg / -28th ? : Next mo.on 8th?

2009

J. : : 213,570 : 386,653 : 158,200 - 1.0% / 150,501 159,818 163,945 163,966 : £155,159 : = n / a : 137.6%

F : : 216,163 : 387,988 : 157,000 - 0.8% / 147,746 160,327 160,104 159,208 : £153,477 :- 1.08% :140.8% : LOW

M : : 218,081 : 398,867 : 156,100* -0.6% / 150,946 157,326 157,622 157,066 : £154,066 :+0.38% :141.6%

A : : 222,077 : 387,161 : 155,600* -0.3% / 151,861 154,716 154,663 157,156 : £154,508 :+0.29% :143.7%

M : : 227,441 : 397,646 : 155,600*+0.0% / 154,016 158,565 159,111 160,869 : £157,442 :+1.90% :144.5%

J. : : 226,436 : 397,140 : 155,650 +X.X% / 156,442 157,713 158,445 158,807 : £157,624 :+0.12% :143.7%

Jl : : 227,864 : 402,761 : 155,650 +X.X% / 158,871 159,623 159,749 160,686 : £159,778 :+1.37% :142.6%

A : : 222,762 : 387,265 : 155,806 +0.1% / 160,224 160,973 160,947 161,930 : £161,077 :+0.81% :138.3%

S : : 223,996 : 390,768 : 156,118 +0.2% / 161,816 163,533 163,487 164,854 : £163,335 :+1.40% :137.1%

O : : 230,184 : 416,157 : 156,430 +0.2% / 162,038 165,528 165,349 165,430 : £163,734 :+2.44% :140.6% : RM HIGH

N : : 226,440 : 403,069 : 156,743 +0.2% / 162,764 167,664 167,451 165,617 : £164,191 :+0.28% :137.9%

D : : 221,463 : 398,426 : 156,900*+0.1% / 162,103 169,042 168,763 167,260 : £164,681 :+0.30% :134.5%

 

Mo.: Rt'mov : London : Hometrack %/ Nt'wide H-oldSA Halif.SA Hal.NSA: HNindex : mom : DelusIdx

2010

J. : : 222,261 : 407,731 : 156,116 - 0.5% / 163,481 169,777 169,484 165,514 : £164,497 :- 0.11% :135.1% : HFsa HIGH

F : : 229,398 : 427,987 : 156,584 +0.3% / 161,320 166,857 166,703 165,997 : £163,659 :- 0.51% :140.2%

M : : 229,614 : 417,461 : 157,054 +0.3% / 164,519 168,521 168,433 167,808 : £166,164 :+1.53% :138.2%

A : : 235,512 : 421,822 : 157,368 +0.2% / 167,802 168,202 168,212 170,772 : £169,287 :+1.88% :139.1% : H&N HIGH

M : : 237,134 : 420,203 : 157,682 +0.2% / 169,162 167,570 167,287 169,204 : £169,183 :- 0.06% :140.2%

J. : : 237,767 : 429,597 : 158,700*+0.1% / 170,111 166,203 166,351 166,395 : £168,253 :- 0.55% :140.5%

Jl : : 236,332 : 422,248 : 158,500 - 0.1% / 169,347 167,425 167,536 168,331 : £168,839 :+0.35% :140.0%

A. : : 232,241 : 405,058 : 158,200 - 0.3% / 166,507 = n/a = 168,124 168,889 : £167,698 :- 0.68% :138.5%

S. : : 229,767 : 399,019 : 157,600*-0.4% / 166,757 = n/a = 161,974 163,639 : £165,198 :- 1.49% :139.1%

O : : 236,849 : 418,778 : 156,200* 0.9% / 164,279 = n/a = 164,949 165,275 : £164,777 :- 0.25% :143.7% : Hi Delus.

N : : 229,379 : 417,279 : 155,575 - 0.4% / 163,133 = n/a = 164,708 163,268 : £163,201 :- 0.96% :140.5% :

D : : 222,410 : 408,248 : 155,100 - 0.3% / 162,249 = n/a = 162,435 161,498 : £161,874 :- 0.81% :137.4% :

2011

J. : : 223,122 : 413,259 : 154,300 - 0.5% / 161,211 = n/a = 164,173 161,470 : £161,341 :- 0.33% :138.3% :

F. : : 230,030 : 430,680 : 154,000 - 0.2% / 161,183 = n/a = 162,657 161,680 : £161,432 :+ 0.06% :142.5% :

M : : 231,790 : 424,307 : 153,850 - 0.1% / 164,751 = n/a = 162,912 162,151 : £163,451 :+ 1.25% :141.8% :

A : : 235,822 : 431,013 : 153,850 +0.0% / 165,609 = n/a = 160,395 162,303 : £163,956 :+ 0.31% :143.8% :

M : : 238,874 : 430,936 : 153,850 +0.0% / 167,208 = n/a = 160,519 162,344 : £164,776 :+ 0.50% :145.0% :

J. : : 240,394 : 438,622 :

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

mom: +0.64% : +1.78% : Est.DI: 145.9% / +0.97% := n/a = :+0.08% :+0.03% : + 0.50%

 

HNindex2.jpg

/source: http://www.greenenergyinvestors.com/index.php?showtopic=10607

 

+ The recovery from 2009-2010 was driven by four main factors:

 

A ) Ultra-low interest rates, lowest in UK history, despite a pick-up in inflation (ie: "Savers are being robbed" to subsidise those with overly large mortgages. This has been UK policy. But is it right? Is it really popular? If those who are being harmed by it were better organised they might be able to change it. Wannabee homeowners are the most deeply hurt, since they have trouble saving a downpayment, and they are seeing much higher prices than they would otherwise.)

 

B ) Housing benefits have been very generous, well beyond what other countries pay. (Can the UK afford any longer to have those who need assistance get enough money to "match" market rents. Since they are not paying, they have no incentive to negotiate, and so this practice just pushes rents higher, and subisidises BTL.)

 

C ) Banks have been discouraged from foreclosing on property

 

D ) Estate agents and sections of the media have been talking up house prices, and promoting new properties aggressively to naive buyers in places like Hong Kong and Singapore

 

I do not think that the prices rises we have seen are sustainable. Not even in London where some special factors have helped prices. Wealthy folk have seen London as a low-tax "safe haven", but taxes on foreigners not stay low. And other factors, lke aggressive promotion of newly built properties may "lose traction" when foreigners realise they are overpaying, and their rental yield expectations are unlikely to be met.

 

Two things to watch closely are; interest rates, and rents (especially in London)

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I have given much thought on UK housing and have come to the conclusion that the powers that be have been so successful in preventing a housing collapse in sterling that we are now unlikely to see one in nominla terms. A nationwide house price collapse will cause a total collapse in the UK banking system sending us back to the dark ages. It appears that you cannot beat the system. He who makes the rules controls the game.

 

My question to you is all in simple terms,as economics is not my bag. Can someone explain to me how the powers that be can influence a wage price spiral, as whilst my wages have not increased for 3 years and seem unlikey in the short to medium term, I have a feeling that this is the next plan the powers that be have up their sleeve. They have inflated everything else, so or that is left is wages.

 

If wages were to increase for everyone very shortly then would it be wise to get back into property now through leverage as the debt would be inflated away. In which case would you go for a tracker or a fixed rate mortgage.

 

I am of the opinion that the only way out of the current world problem is for the world to inflate and print. The FED BofEngland and every other Central Bank will continue this trend. To date the pound has lost 25% against the $ and with 5% inflation for the last two years, (government say so), then so far we have had a 35% crash in real terms. My opinion is that housing was just over 50% in need of a correction so only a 15% fall left to go. On this basis that leaves 2 more years through inflation up to 2013/14 just in time to reinflate the housing market before a new election. Does anybody see a similar play in their analysis.

 

My last question (and please forgive me for asking so many) is gold. If you were to leverage on a mortgage today as the cost of money is very cheap, would you off set any savings using gold as a hedge to play against the leverage?

 

Many thanks

 

PS Goldfinger if your reading may I impose on you and ask if you have any charts for London properties priced against gold. I am seeing the market play out as many have already prescibed in that London property values have fallen against gold significantly.

 

I quick tale:

 

Prime London properties worth over £2million in 2008 have risen 57% to date.

 

If you had put you £2million into gold in 2008 then you would be able to buy the same property today and have change in sterling left over.

I think that expecting a wage spiral in the UK is very unlikely. We are facing years of Stagflation, which is heavy inflation rate while we also suffer very low economic growth, this needs to happen as the west comes more in line with the east. So I expect there to be heavy inflation, cheap interest rates and zero wage growth, they need to keep things this way to stop a banking meltdown

 

I don't expect there to be massive falls in nominal house prices just minor ones, but when you also add on the inflation figures the prices are crashing quite heavily. I always like to look at the great charts that GF produces that show UK house prices in gold or silver. As you can see the crash actually started in 2004 and house prices have already crashed already crashed around 75% when valued in gold & around 90% when valued in silver.

 

I have renting since 2005 and have had most of my cash in metals, I am planning to buy somewhere next year but will probably do as you suggest and get a mortgage and also keep bullion. I think we will see some nominal falls over the next year but not very extreme.

 

Here are GF's charts for average UK house prices in gold and silver. You can find them here - http://gold.approxim...old_charts.html

 

UK_House_Prices_in_Gold_LOG.png

UK_House_Prices_in_Silver_LOG.png

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I think that expecting a wage spiral in the UK is very unlikely. We are facing years of Stagflation, which is heavy inflation rate while we also suffer very low economic growth, this needs to happen as the west comes more in line with the east. So I expect there to be heavy inflation, cheap interest rates and zero wage growth, they need to keep things this way to stop a banking meltdown

 

I don't expect there to be massive falls in nominal house prices just minor ones, but when you also add on the inflation figures the prices are crashing quite heavily. I always like to look at the great charts that GF produces that show UK house prices in gold or silver. As you can see the crash actually started in 2004 and house prices have already crashed already crashed around 75% when valued in gold & around 90% when valued in silver.

 

I have renting since 2005 and have had most of my cash in metals, I am planning to buy somewhere next year but will probably do as you suggest and get a mortgage and also keep bullion. I think we will see some nominal falls over the next year but not very extreme.

 

Here are GF's charts for average UK house prices in gold and silver. You can find them here - http://gold.approxim...old_charts.html

 

 

 

The plan maybe stagflation but we are at the point already where many are having to choose between paying the rent/mortgage or food/utilities - and as time goes on, that number will increase. Looks as if many in the USA are choosing not to pay their mortgage - perhaps that will start to play out here? If so, and the banks do not repossess (as seems to be happening already with deferred payments), it could be that the Zombie economy will stumble on.

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The plan maybe stagflation but we are at the point already where many are having to choose between paying the rent/mortgage or food/utilities - and as time goes on, that number will increase. Looks as if many in the USA are choosing not to pay their mortgage - perhaps that will start to play out here? If so, and the banks do not repossess (as seems to be happening already with deferred payments), it could be that the Zombie economy will stumble on.

 

In the UK, repossessions are on the rise.

 

Repossession hotspots revealed

 

Shelter report shows link between house repossessions and unemployment

 

Latest news: Repossessions jump by 17%

 

More than 60 areas have been dubbed "repossession hotspots" in a report by housing charity Shelter, with Corby in the east Midlands named the place with the highest proportion of homeowners at serious risk of losing the roof over their head.

 

The research shows the local authority areas in England with the highest proportion of homeowners issued with a possession order, and therefore at serious risk of repossession. Rising unemployment during the recession has led to a steep increase in repossession orders against homeowners this year.

 

Shelter said the blackspot for repossessions was in Corby, which had the highest rate of "at risk" homeowners – 7.56 per 1,000, nine times higher than the lowest rate in West Dorset of 0.83.

 

It was closely followed by Barking and Dagenham (6.62 per 1,000), Thurrock in Essex (6.16 per 1,000), Knowsley in Merseyside (5.68 per 1,000), and Newham in London (5.57 per 1,000).

 

Shelter warned that the figures reflected a need for homeowners across the country to prepare for higher mortgage repayments if interest rates rise as expected later this year.

 

Repossessions rocketed by 15% in the first quarter of the year, and the charity has found that unemployment rose by 3.3% on average in local authority areas with the highest levels of repossession orders. In comparison, unemployment rose by an average of 1.4% in areas with the lowest rates of repossession.

 

http://www.guardian.co.uk/money/2011/jun/21/repossession-hotspots-revealed-shelter

 

One UK property repossessed every 17 minutes

 

23/05/2011

 

Five properties are repossessed ever hour in the UK, with one reclaimed every 17 minutes according to figures from Credit Action.

 

Their monthly UK debt statistics released yesterday, indicate that homeowners are continuing to struggle to pay their debts, with the average household debt including mortgages now standing at £55,870.

 

http://www.gateway-homes.co.uk/property-news/one-uk-property-repossessed-every-17-minutes/

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Personally I don't think there will be a wage price spiral in the UK, I think the system will fall apart well before the BOE has their way. IMO they will try and inflate their way out of this, but it's all going to get out of hand very quickly and at some point the investment banks and people who bought houses at the peak on liar loans will have to take it on the chin, this just seems inevitable to me. Credit default swaps will guarantee the west has the worst depression in history and with that, I am expecting massive nominal falls in housing and I expect them to fall well beyond fair value because of a lack of credit.

 

Yes lending is still relatively easy to come by and IR's will never be this low again, possibly for the rest of your life, but you have to offset this against paying too much for something. Your question about mitigating the risk of property with gold sounds like it might work, but is it the best way forward? IMO there seems to be too many variables in your equation to produce a near guaranteed outcome. Personally I think we should look to the East for a hint of the future, they're buying commodities like the Earth is running out of them... perhaps they're on to something?

 

 

 

 

I have given much thought on UK housing and have come to the conclusion that the powers that be have been so successful in preventing a housing collapse in sterling that we are now unlikely to see one in nominla terms. A nationwide house price collapse will cause a total collapse in the UK banking system sending us back to the dark ages. It appears that you cannot beat the system. He who makes the rules controls the game.

 

My question to you is all in simple terms,as economics is not my bag. Can someone explain to me how the powers that be can influence a wage price spiral, as whilst my wages have not increased for 3 years and seem unlikey in the short to medium term, I have a feeling that this is the next plan the powers that be have up their sleeve. They have inflated everything else, so or that is left is wages.

 

If wages were to increase for everyone very shortly then would it be wise to get back into property now through leverage as the debt would be inflated away. In which case would you go for a tracker or a fixed rate mortgage.

 

I am of the opinion that the only way out of the current world problem is for the world to inflate and print. The FED BofEngland and every other Central Bank will continue this trend. To date the pound has lost 25% against the $ and with 5% inflation for the last two years, (government say so), then so far we have had a 35% crash in real terms. My opinion is that housing was just over 50% in need of a correction so only a 15% fall left to go. On this basis that leaves 2 more years through inflation up to 2013/14 just in time to reinflate the housing market before a new election. Does anybody see a similar play in their analysis.

 

My last question (and please forgive me for asking so many) is gold. If you were to leverage on a mortgage today as the cost of money is very cheap, would you off set any savings using gold as a hedge to play against the leverage?

 

Many thanks

 

PS Goldfinger if your reading may I impose on you and ask if you have any charts for London properties priced against gold. I am seeing the market play out as many have already prescibed in that London property values have fallen against gold significantly.

 

I quick tale:

 

Prime London properties worth over £2million in 2008 have risen 57% to date.

 

If you had put you £2million into gold in 2008 then you would be able to buy the same property today and have change in sterling left over.

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The plan maybe stagflation but we are at the point already where many are having to choose between paying the rent/mortgage or food/utilities - and as time goes on, that number will increase. Looks as if many in the USA are choosing not to pay their mortgage - perhaps that will start to play out here? If so, and the banks do not repossess (as seems to be happening already with deferred payments), it could be that the Zombie economy will stumble on.

The big difference between here and the US is that if we default on our mortgages we still owe the money, but in the States it is the banks problem. The housing market in the US has fallen a lot further than here, this gives US banks a lot better reason to agree to deferred payments. Where as in the UK the nominal falls have been a lot lower and there is still some demand in the market, hence there is more reason to repossess.

 

 

 

 

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Personally I don't think there will be a wage price spiral in the UK, I think the system will fall apart well before the BOE has their way. IMO they will try and inflate their way out of this, but it's all going to get out of hand very quickly and at some point the investment banks and people who bought houses at the peak on liar loans will have to take it on the chin, this just seems inevitable to me. Credit default swaps will guarantee the west has the worst depression in history and with that, I am expecting massive nominal falls in housing and I expect them to fall well beyond fair value because of a lack of credit.

IMO for this to start to reach resolution the BTL crowd will need to bend over and take it. Currently I know 3 guys who have over ten BTL properties with no equity in them and are on mortgage deals of around 0.5% over base rate, they are currently laughing there heads off making a fortune but can't get out of the game due to negative equity.

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IMO for this to start to reach resolution the BTL crowd will need to bend over and take it. Currently I know 3 guys who have over ten BTL properties with no equity in them and are on mortgage deals of around 0.5% over base rate, they are currently laughing there heads off making a fortune but can't get out of the game due to negative equity.

 

Cheap mortgages are precisely the reason why, if you can get finance, then buying a house now is not such a bad idea. 2 yr discount/fixed mortgages are available for 3-4% with 15-25% deposit which is much cheaper than renting, and even in 2 years time I can see similar cheap mortgages still being available.

It is clear that the economy will continue on ZIRP for as long as necessary, and that the real losers will not be homeowners, but savers. Unfair, yes - extremely, but that is simply how it is.

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IMO for this to start to reach resolution the BTL crowd will need to bend over and take it. Currently I know 3 guys who have over ten BTL properties with no equity in them and are on mortgage deals of around 0.5% over base rate, they are currently laughing there heads off making a fortune but can't get out of the game due to negative equity.

 

Exactly this. I also know several people in this position and they have no concept of how marginal their position is. The current low rate environment will have to last for another decade if they're to avoid a complete wipe out. Chances of the next decade seeing no instability or rate rises - pretty close to zero IMO. Oh - and inflation WILL NOT SAVE THEM. It will only save those closest to the spigot (ie the banks), if you're downstream then you get the consequences (rapidly increasing rates) rather than the benefit.

 

Additionally I'm certain that landlords will become a political target at some point in this parliament. No one will cry for a BTL-baron losing some of his easy money, so the government can easily make a lot of revenue without losing votes. BTL is low hanging fruit for the austerity monkeys.

 

It'll take a while, but eventually they'll get screwed like everyone else. The free lunch will turn into a shit sandwich.

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Exactly this. I also know several people in this position and they have no concept of how marginal their position is. The current low rate environment will have to last for another decade if they're to avoid a complete wipe out. Chances of the next decade seeing no instability or rate rises - pretty close to zero IMO. Oh - and inflation WILL NOT SAVE THEM. It will only save those closest to the spigot (ie the banks), if you're downstream then you get the consequences (rapidly increasing rates) rather than the benefit.

 

Additionally I'm certain that landlords will become a political target at some point in this parliament. No one will cry for a BTL-baron losing some of his easy money, so the government can easily make a lot of revenue without losing votes. BTL is low hanging fruit for the austerity monkeys.

 

It'll take a while, but eventually they'll get screwed like everyone else. The free lunch will turn into a shit sandwich.

 

I also know many portfolio landlords in this position. Many of them are using the advantage of low rates to pay down mortgages or build a war chest for when rates rise. In addition many are upgrading their properties to maximise rents achievable. This is what the banks are counting on IMO. If landlords do improve their financial position enough, albeit due to the luck of low rates and not good planning, then this can save mass repossessions and bank losses. In addition you have lenders like MX who are now offering 7 year fixes for their portfolio landlords at 3.99%. This prolongued period of low rates should see most through the problems.

 

With all this going on I think you have to seriously question whether prices will continue to fall much in nominal terms. It seems that it is being "managed" to have a period of stagnant prices and allow time and inflation to take the place of nominal falls.

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Interesting discussion. I am seeing properties now starting to be priced more realistically up north. I am also seeing the leading edge of an influx of foreclosed properties coming to market. I think this will continue to depress prices.

 

I was considering buying, mostly because of the dearth of decent, good-sized properties to rent. If I could rent what I would like to live in, then I would have no incentive to buy.

 

I am still on the fence about buying. I see price falls ahead. I also see that I don't want to live anywhere crappy or too small, and buying may be about the only solution to my housing dilemma.

 

It all comes down to, "Do I want to exchange valuable metals for worthless pounds, so I can buy a depreciating asset?"

 

The answer is obvious, except it isn't, if you want to live in a nice neighbourhood and have some peace and quiet. Sadly, that is not an easy thing to achieve where I am currently residing, until you buy.

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Always difficult when considering a home rather than an investment. When there is no doubt that prices have bottomed you won't be able to negotiate such good deals so that also needs to be taken into account (buy when things look gloomy). I think the fact that you can currently buy, even on a repayment mortgage, for less than the cost to rent and you can have the certainty of tenure and choice to do what you want with the property is definitely an appeal to many. Having said that - If you can make sufficient money from your investments to outweigh the extra rent and don't mind the lack of choice and control then renting can be the better option.

 

Picking the bottom in any market is difficult. Sometimes being a little too early is good as everyone else see further downside so you can build it into your offer. I don't think there is a one answer for everyone and each needs to consider their own circumstances.

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I plan to build a house when the time is right and I hope to have it mortgage free... thanks to G&S. If you do choose this route, remember it's primarily land that looses it's value in a housing crash, so timing is crucial.

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It all comes down to, "Do I want to exchange valuable metals for worthless pounds, so I can buy a depreciating asset?"

 

 

No, it all comes down to: "Do I want to rent a house, or rent money to buy a house?" At the peak of the bubble renting a house made more sense; the way things are now then renting money to buy a house makes more sense.

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No, it all comes down to: "Do I want to rent a house, or rent money to buy a house?" At the peak of the bubble renting a house made more sense; the way things are now then renting money to buy a house makes more sense.

 

You are not including the fact that you need to come up with a 40% deposit to get the best mortgage deals currently, which then turns into dead money. Currently that deposit is much better placed in metals.

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You are not including the fact that you need to come up with a 40% deposit to get the best mortgage deals currently, which then turns into dead money. Currently that deposit is much better placed in metals.

 

 

Yes, - perfectly made point. 40% deposit probably represents the real value of the property - and then you have to keep paying for 25 years on top of that. Bugger that for a game of soldiers.

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You are not including the fact that you need to come up with a 40% deposit to get the best mortgage deals currently, which then turns into dead money. Currently that deposit is much better placed in metals.

 

 

You obviously are not looking hard enough, because I can see that:

 

 

- ING will give you a 2 year fixed 3.69% with 20% deposit.

- Norwich and Peterbrough will give you a 2 yr discount current at 2.85% with just 15% deposit.

 

Hard'y the "40% deposit" that you suggest.

and there are many other deals out there where it is much, much cheaper to buy.

 

 

Rental yields are typically 5-7%, so it is not inaccurate to say that it is almost twice as expensive to rent as it is to buy.

 

 

Any way you cut it buying works out cheaper than renting if you can access to these mortgages. I'm tired of the gold bug's argument that houses they have been a poor investment compared to precious metals. That may be true, but your normal Joe does not own precious metals to any large extent and never will, so it's an irrelevance. There are always better performing assets and worse performing assets. The central point is that it is now cheaper to buy than to rent.

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Any way you cut it buying works out cheaper than renting if you can access to these mortgages. I'm tired of the gold bug's argument that houses they have been a poor investment compared to precious metals. That may be true, but your normal Joe does not own precious metals to any large extent and never will, so it's an irrelevance. There are always better performing assets and worse performing assets. The central point is that it is now cheaper to buy than to rent.

Nor your normal John Doe for that matter (apart from a sov).

 

I think that the point that it is now cheaper to rent (in most of the UK) is key, and the point PAL makes is also very important.

 

When there is no doubt that prices have bottomed you won't be able to negotiate such good deals so that also needs to be taken into account (buy when things look gloomy).

 

I think we will see the nominal low this winter/early spring and in the depths of the winter a nice low offer put in whilst most people stop looking at housing and the vendors have given up hope, could grab a bargain.

 

To be honest, we are nearing the point where even I might consider getting one or two BTL's (around the Uni).

 

The banks want to lend to BTL'ers.

The government wants to increase BTL'ers

The yields are now at a point where they make sense especially with the ultra low fixed rates.

 

I hate to say it, but this will create a floor in areas with good yields such as the Uni towns etc.

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I also know many portfolio landlords in this position. Many of them are using the advantage of low rates to pay down mortgages or build a war chest for when rates rise. In addition many are upgrading their properties to maximise rents achievable. This is what the banks are counting on IMO. If landlords do improve their financial position enough, albeit due to the luck of low rates and not good planning, then this can save mass repossessions and bank losses. In addition you have lenders like MX who are now offering 7 year fixes for their portfolio landlords at 3.99%. This prolongued period of low rates should see most through the problems.

 

With all this going on I think you have to seriously question whether prices will continue to fall much in nominal terms. It seems that it is being "managed" to have a period of stagnant prices and allow time and inflation to take the place of nominal falls.

 

 

Agree that's the plan, but the chances of it being sustained long enough to bail most people out are near zero. The government's already bought them, at hideous expense, a couple of year's grace. It will no doubt try to do so again, but the event horizon grows ever nearer. I'm sure even the smart guys you refer to will end up in trouble, but they're not the ones I'm talking about. I'm looking at the majority, they're not well capitalised, they're over-leveraged, and they will need to wait far more than 7 years to climb out of the hole they're in.

 

Anyway, aside from who gets screwed, nominal values mean little to me. One way or another, real prices will continue to fall towards the historic mean. Only exponential credit expansion can stop the process and that game, having moved far beyond its safe limit, is well and truly over.

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I'm tired of the gold bug's argument that houses they have been a poor investment compared to precious metals. That may be true, but your normal Joe does not own precious metals to any large extent and never will, so it's an irrelevance.

 

 

This site does not exist for the benefit of the average Joe, it exists for our benefit. The questions that apply to most people here are:

 

If your money is in PMs, is now the right time to buy in the UK?

 

If you're money is in cash, are PMs or property a better option?

 

If you have no money and want to save, what's the best current vehicle to do so?

 

 

Average Joe has been, and always will be, an utter financial failure.

 

If you need somewhere to live, then do whatever is cheapest. But bear in mind that today's credit conditions are highly unlikely to remain so easy over the course of a standard mortgage.

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