Is the UK housing market heading for a 90s style crash?

Your home is owned by someone. They have a Buy to Let mortgage. They can't service the loan. The house you rent is repossessed by the bank and sold.

Therefore, you are kicked out of your accomodation.

Will that do?

Less disposable income as people service their negative equity position, stung and having to finance more debt. The economy slows. people buy less. Shops make less money. They close.

You have now lost your flat, and your job. Any more?

It could be argued that houses have been massively under-valued for the previous 40 (say) years and this is a "correction", but I'm not sure I believe that.

A desirable (not sure how likely) outcome is a change to mortgage products: given that house prices now far outstrip average earnings (and therefore the mortgage multiple), future mortgages may be based on different criteria. Like on a forecast of your future income.

Also, given the BoE's independence and their commitment to long-term stable inflation, there should be an increase in the number of mortgages which have longer-term fixed rates. This should come about if the Bank's strategy appears credible - which it has been so far (that is, no manipulation of interest rates for short-term political gain). This (more stable interest rates) should also encourage the different style of mortgage.

It can turn that the UK that you will see a reduction in tax revenue as a result of the decline, therefore to fund certain boosts you sell off the council houses.

A very unlikely one, but tried before. They may increase your rent anyway to supplement the increased demand for council housing (due to the problem of those having lost money) and to increase revenues.

A council house would probably be the safest place in this convoluted disaster scenario.

This is the problem...

I think, if you read back, you will see that bringing minority information in after the first (more wholesale point) kind of changes things.

If you haven't noticed though, the Halifax and Nationwide have both announced another recovery in the houseprice surge, and its back on for another 20% during 2004.

If I was a betting man I would have a fiver on interest rates going up 25bp on Thursday (half the economists reckon it will, but it is also a big move for the bank outside of being terribly dull). There was a good article by Larry Elliot in yesterdays Guardian on this.

The major issue for the UK is consumer credit - ie, not just the mortgages. All the unsecured lending on credit cards and stuff is at pretty much all-time highs.

You got to work on the assumptions of what might happen when all this leverages together, and rates move. The answer is that nobody knows, but everyone is concerned. Credit Cards and everything have only really become a big part in culture over the past twenty years, and have grown over the whole of that time. The debt on that, bank loans and everything is concerning.

There are other concerns - anyone who has withdrawn equity over the past year or so could be in for trouble. A lot of people have done this without even realising that this could, ultimately, put financial pressure on them. They see it as free money. It isn't in truth - it is realised against a bank loan and secured against your property.

Will there be a crash? I am not so sure. The Bank of England are going to try their very best to calm the situation as much as they can, because they are clearly shitting it (if you review the minutes to the last ten committee meetings, just the decision bit, you will see that virtually every month the topic of house prices is on the "increase rates" argument.

There is a lot they can't control though - if oil continues to rise, they have the inflationary pressure they need to rack up rates, and it will put a huge pressure on households. How much will the banks tolerate? If the banks are hard on things, it can be a lot worse.

The position I see is a long stagnation, possibly some falls. Some people are over-leveraged, and they will hurt. The one concern I have is that people seem to be using housing as a tangible equivalent to shares post-2000 crash of the Nasdaq and the FTSE. The move to buy-to-let and everything from the people who withdrew money very quick when it started to look bad. If that were to be repeated in the housing market, you have got your scenario.

Err...wrote a bit more than intended there, and can't be bothered proof reading. I'll do something more considered...

-- ___ (tripleunderscore__...), June 3rd, 2004.

Why would falling house prices hinder them paying the loan? (Or are you saying inflation would hinder them paying the loan?)
Surely, if house prices fall there is less demand for rented housing and a tenant is likely to get lower rent.

Even if you are correct, the bank re-posessing the house is good for someone else, on the lookut for a cheap house.

Will that do?

Less disposable income as people service their negative equity position, stung and having to finance more debt. The economy slows. people buy less. Shops make less money. They close.

You have now lost your flat, and your job. Any more?

-- ___ (tripleunderscore__...), June 3rd, 2004.

Their 'negative equity position' is a figure on paper, it means nothing until the property is sold for less than was paid. They're not paying any more in mortgage surely? If the housing market slumps, wouldn't mortgage lenders be forced to offer better rates, actually helping the person in negative equity?

Also, the main reason people would want to realise their 'negative equity' is to move house. People generally want to move to a larger and hence more expensive house. Say they intend to move from a £50,000 house to a £100,000 house, so it'll cost them £50,000 to upgrade. Suppose there's then a housing price slump of 10%, their current house is now valued at £45,000 and the new one at £90,000. The cost of the upgrade is now only £45,000!

Now many of my friends have flats and I the prospect of a housing crash brings out extreme selfishness and schadenfreude in me. Unforturnately (for me) things seem to be plateauing nicely, and the prospect of those predictions of the UK housing market's long-term upward march seem more and more likely, and with them, the prospect of being permanently priced out of it all unless I make a career move into serious money.

Prices are still going up in Glasgow, yeah. We're at the edge of the ripple, I guess. 10 years ago I visited my sister and comforted myself for several years at the thought of the seriously cheap, gorgeous flats one could always buy here. 30 grand for a huge fuck off tenement flat in the West End. Well I missed that chance too.

Part of me clings to the freedom of rented accommodation, and a belief that the British obsession with owning one's own home is wrong. But it would be a lot easier if the rest of you fuckers would 'go Paris-New York' with me.

But yeah, my fear is that the market won't crash, I'll never be able to pick up a cheap repossessed flat in an auction, and in 20 years time, property (certainly in London) will be the preserve of the extreme wealth or inheritance.

Roll on global catastrophe.

Even if you are correct, the bank re-posessing the house is good for someone else, on the lookut for a cheap house.'

Lower house prices lead to lower rents as people entering the housing market as landlord or owners pay less dragging the market down. It means that people who bought at the top of the market are in danger of not covering the mortgage through rental yields (It's all ready happeing in some areas, in London Rents have not kept pace with house prices mainly becuse there was a large rental housing stock pre-existing with very little outstanding debt connected to it.

'Also, the main reason people would want to realise their 'negative equity' is to move house. People generally want to move to a larger and hence more expensive house. Say they intend to move from a £50,000 house to a £100,000 house, so it'll cost them £50,000 to upgrade. Suppose there's then a housing price slump of 10%, their current house is now valued at £45,000 and the new one at £90,000. The cost of the upgrade is now only £45,000!'

But if their outstanding mortgage is £49,000 then they have to find £4,000 in cash just to be able to afford to put no deposit into the new house.

Rates go up - you lose disposable income. You are already allowed to borrow at 4x income, itself a paridigm shift in the mortgage market. Banks see rates go up and see arrears appearing in credit cards and overdrafts. As these are unsecured, they chase the person, which hits on their income. They now have less to pay off secured borrowings (car, house etc.)

Eventually, it means you just can't afford your house. Interest rates are transitary, but a sustained period of rates at 6% would cause serious discomfort for many.

If you are forced to downgrade, you have to sell (otherwise it will be reposession, which is a lot worse). But there are others in the same position. Prices start to fall. People who have investment properties see this, and join in the auction. It continues.

mei - I think you misunderstand the position on negative equity or a market fall. Yes, it realises cheaper housing. But the problem is one of herd behaviour. I could tell you there are 50 decent stocks that have been worth investing in the past three years and are bargains. But people see a market falling, they don't want to jump on something that looks like it will lose money. It has to bottom out. At the point of bottoming out, the banks will be in the mood to make money back - credit controls will be tighter, rates will be more punishing on the margin side.

Take alongside that that the withdrawal of money from a housing price collapse will hurt industry and everything - it is hugely bad for the economy. There are a small minority who can benefit from a housing market collapse.

And - the mortgage example used above. The situation of someone moving from a £50k property to a £100k property has probably not bought the first outright, so probably has a £75k mortgage (maybe more if they withdrew equity).

So, in the reality the fall means that they have borrowed £10k of money that they now have to repay, with little view of it ever coming back. There are many other ways I can analyse this for you to make it show the true problems that you get from property markets.

So, in the reality the fall means that they have borrowed £10k of money that they now have to repay, with little view of it ever coming back.

But doesn't that mean that there's MORE THAN £10k they WON'T have to borrow when they move to the more expensive house (and of course, as they won't borrow it, they won't have to pay it back)?

But how is this new or different? People usually have to find deposits for houses. Okay, if they owned a home then before a crash they could use some of it's value as the deposit, which they can't do now, but theyy're getting a cheap new house to offset that.

There are a small minority who can benefit from a housing market collapse.

Okay, so the money is being withdrawn (from housing) but it must go somewhere mustn't it? It doesn't just vanish. So someone else benefits? So why is it bad for the economy? Isn't it only bad for a part of the economy?

My idea of a property ladder is that it is just that - a ladder - you have to get off one rung to move to the next. Meaning that when you vacate your starter flat for a family home, you sell it on to another starter. Now it seems like anyone with property has to have a family home *and* several starter flats, which they then *rent* to other people, taking that property off the market, and meaning there's less available property at the bottom. If you squeeze the organisms at one end of the food chain, you will feel the repercussions at every other stage of the food chain.

Does this make any sense or am I just being a resentful first time buyer priced out of the market?

If the house was worth 50,000 and they mortgaged for 50,000 and the house is now worth 45,000 and the outstanding mortgage is 49,000 selling the house won't pay back the mortgage there will be 4,000 outstanding debt, which will have to be cleared before buying a new house; either by paying it from savings (taking away potentiial deposit money) or with an unsecured loan, which would be more costly than a mortgage and count as a liability.

Most people when treading up in the housing market use equity built up to buy a smaller equity share in a more valuable property.

OK, here's a question. How much do you think the "buy to rent" phenomena is responsible for much of the current horribleness in the housing market?

It's not really a new phenomenon, in fact buy or build to let is much older than mass home ownership. There has been a boom in investment properties, certainly in London but in some ways it was catchup from a very stagnent nineties. The real pressures on the hosuing market come from incresed prosperity since the mid to late nineties, more people able to buy; increased demand, more people living alone, more people moving to certain areas, especially london whose population had been in decline until the mid nineties; short supply, not a lot of land to build on, not that many building to convert, difficult planning rules, housebuilders stock-piling land.

Housing is always going to be relatively tight in the UK as there is not a lot of space in the places people want to live coupled with the detatched house as an ultimate ideal, which seems crazy to a lot of europeans. (Take Turin where the big houses in the hills above the town, with multiple acres of land are more often than not split between 4 apartments or so.)

Dpened on exactly how the duke of bedford rent, which is probably through the leasehold system. This is basically taking a hundred years rent up front, plus an annual ground rent.

But I'm not talking about what Buy To Let does to the rental market, but what it does to the buying market.

Mortgages worked (until recently) that a 25% deposit got you such low rates it was untrue - with Cap gains available on property, and people keen to rent it from you, many have seen it as a non-brainer. The interest is to see how these folks withdraw from the market - they are clearly there for capital value, and a sign of stagnation will bring a move to elsewhere.

I am sure he googles his name regularly, kate. Little else to do when all you fools are paying for him to live in the lap of luxury.

Can someone answer the Richard Ingrams question - in everything else, prices going up is generally a bad thing except in housing, where the opposite pertains. Krazy? I don't know.

Getting back to N. though - I like the fact that if I wake up today and the boiler has gone tits, then it isn't my responsibility to find the cash for that. I like the European system lots - question though - who owns the European properties that are rented? Is someone at the top of a very big tree, or is apartment ownership a poisoned chalice that isn't tied up as it is here with status, achievement etc (part of which seems to be entireloy due to being an Island - land is finite as bounded, and no revolutionary upheavals to redo land ownership, so layer upon layer built ontop of a feudal system that remains pretty untouched).

Quite a lot at the top end, which is fuelled by bonuses and Russian billionaires. Not sure how it filters down

or in fact the UK economy as a whole. We make nothing any more we just shunt people's money around.

and racing cars. and guns.

Uh right on Mr Elton but actually I'd quite like the privacy and lack of outside intrusion that a detached house would afford. Fuck knows when I'd be able to buy one but that doesn't mean it's not a reasonable desire.

me too but i'm not expecting to do that in London.

There's always Bishops Stortford

oh lord -- i was there saturday.

saw some shit you wouldn't believe.

i am ready. continue.

Ed, there are a lot of things which really are ridiculous luxuries to covet in this life, but are you really suggesting wanting to live in your own detached house is one?

'intrusion' tends to come from having selfish fuckwits for neighbours, rather than the fact of living among others in itself.

Agreed, but as an example - we live in a block of 12 flats with a small communal garden overlooked by our block and the one behind it. I have never used this garden, because no matter how decent and considerate our neighbours are, we're still completely visible to 15 households and I'm never going to feel comfortable with that.

I'm just saying that the mindset is by no means universal. COveting or no, it is going to be more and more unsustainable, especially in cities.

Single family dwellings are much rarer in other European countries. Italy is a prime example. Sure the detached house ideal goes back further than thatcher but it is a mindset that is strikingly more prevalent in the UK than in the rest of Europe.

Were you just talking about urban areas here Ed? Surely yes!

I'd quite like a swimming pool and tennis courts in my back garden as well but it's not the end of the world if I don't get it.

I think Ed might be overstating the case a bit here, I think most British people who don't already own would be happy with a decent sized flat that isn't in a terrifying high-rise, certainly with a mid-terrace house with a garden. I'm not sure it's seared into the British consciousness as the same way as the mentality that gives us "oh noes people can't get on the property ladder" headlines.

go up north?

The morality of high density living

Your own detached house in the middle of some of the most expensive urban real estate on the planet - yes Mark C, that is somewhat absurd!

Maybe it's my New York perspective. In New York, if you want a detached house you move to Long Island or New Jersey or way out in Queens or the Bronx (at distances that would no longer be London, if it were in London). And plenty of people did just that, in the 40s, 50s and 60s -- immigrants who had made good sent their parents out there and moved in after them.

I actually know a couple of people who own their own places in New York. One of them even owns an entire brownstone. It's not detached though!! I mean, to me the thought is just bizarre. That's not what cities are.

very good thread that (xp)

London's detached properties in places like Highgate and Barnes have always been v expensive but they still exist and will always be sought after.

I'm just glad the Victorians built sturdy terraced houses tall and long enough to make living above a family plus one dude in the basement not a problem for me, and these are still pretty cheap - even to buy tho vast majority are bought to let obv.

I'll just mention the fact that the density of housing suggested by prescott for all this new development is about half that of the georgian and victorian terraces of Islington (and that's considering them as single dwellings not subdivided, as many of them are, into maisonettes and flats).

From that other thread. I was just going to say something similar. Three-storey Georgian terraces are some of the most expensive and desirable properties in the whole world, so density isn't a problem. It's what attracts people to an area in the first place and the quality of the housing (both in design and build).

Plus you just make it illegal to build anywhere without a cellar, and you increase the density right there (every two-bed is now a three, three a four etc.) Plus lots of teenage rock band rehearsal space.

london is not so lacking in space that you need to make people live in basements, seriously.

part of the equation is we still have pretty weak and very expensive transport.

but this is mostly a bunch of people in their twenties and thirties talking. i'm not sure if being able to reach london's fashionable east london is as much of a thing for most people. people seem okay with bishop's stortford.

Ha. I lived in a basement with NO WINDOWS on Archway Road for three years. Apart from the mental health issues, it was fine.

But nice cellars, with light wells and that, are cool.

People of all ages need local facilities, and the higher the density, the better they are. Something magic happens at a certain number where it becomes worthwhile for people to provide stuff (including transport links). Even people who want to live in detached houses in a rural idyll still want their local pubs/post offices &c.

> But nice cellars, with light wells and that, are cool.

tell that to the people below me that just got flooded out for the second time in two years.

saw some shit you wouldn't believe.

so was this a joke or serious? fess

My main problem with high density living is that most of the Victorian/Edwardian terraces converted to flats have thin walls and you end up having to listen to yr upstairs neighbours' smoke alarm go off EVERY FUCKING NIGHT JESUS FUCKING CHRIST CAN'T THEY JUST TAKE THE BATTERY OUT IF THEY'RE GOING TO COOK THE FUCKING CUNTS.

xpost

yeah pretty much a joke. pretty much...

The risk has now been handily quanitfied at 10%:

http://news.bbc.co.uk/1/hi/business/7000598.stm

There is a one in 10 chance of a 1990s-style housing market crash in the UK, according the Royal Institution of Chartered Surveyors (Rics).
Rics has lowered its expectations for house prices over the next 12 to 15 months to no change from 3% growth. Its chief economist Simon Rubinsohn said that talk of a looming crash was legitimate and not irresponsible. In the last housing market crash, average prices fell by 35%, adjusted for inflation, from their peak in 1989. Mr Rubinsohn also said that there was a 20% chance of a 10% fall in London house prices over the next 12 months.

That's more like it.

Mind you even if that is more doomy than The Observer (that is The Observer's actual predictions, rather than the crazy headlines) it's still saying that a)they expect house prices to stay the same for the next year, and b)there's a 90% chance that there won't be a crash.

Thinking back to the crash/recession of 1989ish-1993ish inflation was around 8-10%, interest rates were around 10-15%, unemployment jumped from about 1.5M to 3M, house prices fell (it says above) by about 35%, the pound collapsed, we had negative 'growth' for a couple of years... This wasn't very long ago. The vast majority of Observer readers can remember this and were probably affected by it, so it seems ridiculous that they would stick headlines of the IT'S THE END OF THE WORLD type above an article saying that house price growth would slow to 3% a year.

http://www.guardian.co.uk/commentisfree/story/0,,2172246,00.html

Argh Simon Jenkins is a cockfarmer. His basic premise ("we are way too hung up on home ownership in this country") is correct, but the arguments by which he arrives at this are disingenuous or just plain facile.

"if you can't think of anything else to write, write about house prices"

-- robert cole of the times

i.e. "house prices UP"

"house prices DOWN"

"house prices FLAT"

i think simon jenkins is otm there. he is deeply capitalistic n'all, but can't fault what he says there.

he's agreeing with tracer, the obsession with house prices is silly. but also bad for the economy, tying up capital in an unproductive sector.

I've put me house back on the market with the expectation that it will NOT sell!

so - any top tips on how I can sell my house in this depression?

say there's a benevolent ghost who lives under the bathroom floor

Like Casper!?! why the bathroom? is he a fecal-thriver?

right before he died, he needed to pee

donate your old house to public radio

uk funky housing market

I'll donate it to the toilet

Is it on Rightmove? (want to post the link?) Are the pictures decent/ rooms not full of clutter? Our letting agent took some terrible pics, we provided our own. Have you noted all the genuinely good things about your property and made sure they're in the listing - don't rely on agents to do this. I was present when the agents showed prospective tenants around our place and they were so busy pointing out little quirks and nice things that were already obvious, they didn't play up stuff like brand new appliances, quiet neighbours, etc.

well, we do have a ghost in the bathroom.

I think the main problem is just the market is so bad for anything right now if its not at foreclosure price - I feel like I'm trapped here

well we had an open house and zero people showed up - great!
there has been allot of negative press lately taht's probably not helping our chances
I may have to end up becomeing a landlord if I can't sell it

i've worked in housing for five years, and i've had to run procedures i'm not proud of that didn't help vulnerable people (though not often, thank christ) but wow at panorama tonight.

Sure lookit when is the whole thing not like

sorted this did ever we get

Speaking from pov of results of our boom most of it got snorted