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| The UK housing market: a bubble about to burst? |
The Mad Housing Market
by Mike Guest
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#1000220
of 3278
 08 Aug 2002
08:04 PM |
| Well as tenant, hoping to buy this side of the decade, I wait with baited breath and hope my savings will no longer appear meagre when (not if) the market bursts, I hope it happens in the next 12 months, as those greedy landlords find that the void periods gets longer and longer and are forced to offload their properties. |
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INTEREST RATES
by Paul Giest
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#1000219
of 3278
08 Aug 2002
07:03 PM |
The question of Interest Rates ? Are they likely to rise that much ? Unlikely. There has been a lot of talk in the press about low sustainable interest rates for prolonged periods of time [hence endowmnents, pensions etc, not being predicted to pay off as much].
The govt appear committed to take us into Europe - where interst rates are low. To increase them would [and most likely is now anyway]would make us non competitive. Mortgage companies are also offering fixed term interest rates at reasonably near todays rates. Therefore, the liklihood is that interest rates will remain low for the coming years, prices will merely stabilise as the affordabilty comes to a peak and a natural stabilisation will occur.
Furthermore, many people are taking up mortgage protection schems [some lenders even offer them "free" for a fixed period]
Can anyone explain how the "bubble will burst" in these circumstances so long as the economy remains as solid as it does, as unemployment seems now to be the only way that will falter the property growth ? |
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Twin-track economy
by Mark Bishop
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#1000218
of 3278
08 Aug 2002
06:42 PM |
Wat worries me about the current economic situation is that no-one out there appears to be saying what (imho) is obvious: that in a situation in which the real economy requires a drop in interest rates but consumer borrowing (primarily against property) needs to be reined in, a healthy economy can best be achieved by controlling consumer borrowing by a means other than interest rates.
While I would hate to return to the bad old days of mortage rationing in the early 1970s, I do think that it might be prudent to consider other ways of cooling the property market.
Stamp duty is a blunt tool. Apart from anything else, it restricts economic mobility, which is bad for the economy, and also encourages people to commute rather than relocate, which has some obvious downsides.
How about, for instance, MIRAS in reverse? Introduce a tax on mortage borrowing in excess of a certain level per individual, or on buy-to-lets. It could perhaps be phased in its introduction in order to slow the market rather than burst the bubble over night.
The revenue raised could perhaps (though glass-eyed Gordon hates hypothecation) be used to provide affordable housing for key workers or used to fund the abolition of the lunacy that is stamp duty. |
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House Prices
by David Jansenius
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#1000217
of 3278
08 Aug 2002
06:39 PM |
| The inevitable correction in house prices will come in the first instance, not through higher interest rates, but through higher unemployment as companies cut costs and merge in a bid to recover margins. As share prices, and retail prices, finally respond (say in 18 months' time), the BOE will raise rates and provide a secondary reason for property prices to adjust. I'd love to know what the ratio is now of the average house price divided by the average cost-of-build. I bet this would show a real bubble in the making. |
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House Price Rises
by John
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#1000216
of 3278
08 Aug 2002
05:55 PM |
| Broad agreement. Prices area factor of demand & affordability. Both are high, especially in the south east. A lot of landlords in hotspots are off-loading to move to the next area thereby moving that bubble. The real problem comes when the less fortunate can neither afford to buy or rent. The social issue of lack of key workers is already serious in many areas. Quality social housing stock has to be made available and Nimbi-ism quashed. |
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Deflationary bust/ Reflationary boom
by Arya
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#1000215
of 3278
08 Aug 2002
05:48 PM |
While prices all around us are falling - look in any supermarket, or even look at falling salaries in advertised positions in newspapers - it is obvious that the current house price boom is really a bubble.
The big question, though - if almost everyone in the UK is a house-owner, then can the BoE actually afford to deflate the bubble... or will it seek to allow re-flationary policies (further loose money) to bail it out? If it comes to this, then no wonder Gold has been moving lately! |
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Housing Market
by Michael Reid
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#1000214
of 3278
08 Aug 2002
05:19 PM |
The UK housing market has a dangerous imbalancing effect in the UK economy. When house prices rise ''Equity withdrawal'' stokes up a false level of demand for consumer goods which is by its nature ''one off'. Then, when interest rates rise, not only does the housing market seize up but a significant wider measure of demand stops abruptly too.
This does need some intervention.
Lenders are being rather careless in lending too much to folk who will be in serious trouble when interest rates return to average levels- and lenders are well aware of this.
At present all the risk falls on the borrowers.If mortgages were set at a fixed repayment rate for the term of the mortgage the lenders would be sharing the risk and they would lend much less. mreid@wfw.com |
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I hope it crashes....!
by John Mc
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#1000213
of 3278
08 Aug 2002
04:05 PM |
| I have owned a small house in West Sussex for 2+ years now and it's "value" has risen by 45%! I really hope that the market crashes as I will only be able to get what I paid for it, but it would be nice to see those greedy people losing upwards of £100k and have to be reposessed. Just like history, it will repeat itself sooner or later. The "Herd mentality" of novice market investors will never learn whilst they have the notion of greed and get rich quick in their minds. |
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Housing
by Paul Guest
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#1000212
of 3278
08 Aug 2002
04:02 PM |
| Steve guest on reply 201. Just a correction - an increase from 4% to 6% on a 25 year repayment mortgage will increase payments by approx 22 % and NOT 50% !! Remember - the interest element has gone up by 50 % bit the capital portion remains the same !! |
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PROPERTY HOUSES
by Patrick S - Herts
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#1000211
of 3278
08 Aug 2002
03:31 PM |
Prices have spiralled for several reasons - partly because interest rates have been kept "low" for several years now - thus for the same monthly outlay, the amount that can be borrowed has increased substantially compared to the late eighties / early to mid nineties. The economy too - has been generally good and low unemployment has sustained house buying confidence. Furthermore, another element that has contributed is what could be called "circular money" i.e. grandparents / parents who die then pass on from their estates [even before death as well - in order to avoid death duties]that are already highly priced, in order for youngsters to place large deposits down on property. Add the illegal immigrants entering the country nowadays, that one way or the other add to housing pressure, and it is not too difficult to see how prices keeping rising.
However, I am sure that the peak is approaching and prices will start to stabilise - but as far as a full scale bust is concerned, all the above factors will need to be reversed in order for that to happen. Price stabilty ? Yes.Large scale re-possessions ? No
From Patrick.Sawczyszyn@btinternet.com |
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Demand/Supply/Investors v End Users
by Jason
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#1000210
of 3278
08 Aug 2002
03:11 PM |
| House prices will always increase as long as there is enough demand. Gearing will remain high with the higher prices and, even with interest rate rises, house price surges which will be attributable to investors (what is proportion of these buying vs end users?)rather than end users are inevitable in the current climate. The global economy will dampen this somewhat given the slowdown in the equity markets. |
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Lenders fuel the boom
by cg
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#1000209
of 3278
08 Aug 2002
02:47 PM |
| If lenders retained a stringent lending criteria using average rates over the last 10 years as an average indicator to affordability then the ability to buy overpriced properties by consumers would be limited and hence cap the continued growth. Banks will ultimately end up with the bad debts in the medium term due to short term greed. You have been warned! |
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Boom & Bust
by cynic
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#1000208
of 3278
08 Aug 2002
02:23 PM |
The Boom & Bust cycle is largely controlled by the Banks. When demand for mortgages begins to wane, they allow people to borrow far more than they should by providing 110% mortgages or 50 year terms. This in turn brings more people into the market, fuelling the price rises and increasing the bubble.
As soon as interest rates rise, a lot of people will get into financial difficulty because of the amount of debt they’ve taken on and the number of repossessions will escalate. The properties will be sold off cheaply to dispose of them quickly (any losses would be recovered through mortgage indemnities) which would force prices down and make property affordable to the next generation (who of course apply for a mortgage). |
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Brian
by john
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#1000207
of 3278
08 Aug 2002
01:53 PM |
Annual House prices are rising in excess of 20% year on year. that is unsustainable. The collapse in equity markets has taken the steam out of inflation to the point that the BOE says inflation will be below target of 2.5%. The expectation is that if the Fed reduces rates to keep corporate US happy as they go to war, then we will follow suit.
A reduction, or even the probability that rates will not rise for the foreseeable future, will cause the housing market to move from boom to bubble, and then it will "correct" there may be another year or so left, but the longer the current upsurge continues, the larger the burst will be when it comes. |
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tree-house, freehold, 3 nest-rooms, birdbath, fully-furnished, South London, £350,000
by tree
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#1000206
of 3278
08 Aug 2002
01:26 PM |
"The whole episode is engineered by the government to take the bump out of the current global slowdown - who will pay? "
Some people wont take responsibility for anything! "I borrowed too much money because I wanted to live in a bigger house, in a more fashionable area than I really could afford. Now my house is repossessed or I'm stuck in negative equity - its all the governments fault!!"
stefan - in case you hadnt noticed, the government doesnt set interest rates - the Bank of England does.
Noone forces anyone to buy a house, you can usually rent. And most of the people I hear moaning they cant afford a house refuse to look at cheaper areas.
If you are greedy (ie want to get on the price-appreciation gravy-train) or snobbish (ie I'm not living there, its for poor people) over housebuying, then you get what you deserve in the end. Only borrow what you can afford - its not hard to ask the bank to show you what you would be paying if interest rates rose to 8%!
Sometimes its our fault, not the governments! Not the banks (they are just trying to run a business, since when did businesses sell products on the basis of what is good for us?) not even the estate agents - caveat emptor as always! |
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