How Far Will House Prices Fall? [Volume 6]
Discussion
I was talking to an agent yesterday (socially - or as social as you can be these days) and he told me that on well placed and priced properties they are getting 3-4 offers before they even make it to the sites like Rightmove.
With the amount of "friction" in the market at the moment (e.g. lots of people won't be keen to buy somewhere unless they can do the more normal process of visiting at a couple of different times and talking to some neighbours; people starting new jobs don't need to move to be near work they way they would have done before we all got told to stay away from work) I am terrified of what is going to happen to the market in a few weeks time when those blocks unstick.
Lovely weather, able to actually look at the house before you make an offer, need to make a decision before you get stuck with a 3 hour commute to that new job you've been doing from home ...
I suspect we may look back in 2022 and say "blimey, wish I had bought a place before they doubled"
With the amount of "friction" in the market at the moment (e.g. lots of people won't be keen to buy somewhere unless they can do the more normal process of visiting at a couple of different times and talking to some neighbours; people starting new jobs don't need to move to be near work they way they would have done before we all got told to stay away from work) I am terrified of what is going to happen to the market in a few weeks time when those blocks unstick.
Lovely weather, able to actually look at the house before you make an offer, need to make a decision before you get stuck with a 3 hour commute to that new job you've been doing from home ...
I suspect we may look back in 2022 and say "blimey, wish I had bought a place before they doubled"
Jimmy No Hands said:
Thank you all - my instinct is to avoid, for the sake of simplicity in the long run. Good to hear some contrasting real world experiences however.
I’m having a similar dilemma with a leasehold flat. It hasn’t got cladding so no worries there but it does have an issue with wooden balconies that need replacement at the expense of leaseholders. Everything is telling me to avoid. For the same price I could buy a nice house in a nice area 30 mins train from the city. But I’ve lived in several of the penthouses in this development over the last decade and they make awesome places. Duplex with a big roof terrace, it’s like having a small house at the top of the block in central city. But leasehold, management charges and the impending issue of these fire safety tightening and this cost of rectification.
Financially it’s not a good move, but the idea of moving to the burbs just leaves me feeling a bit flat rather than excited. For context, I’ve got a decent size place in a quiet(ish) town in Spain where I spend half the year, so having the central city life for the other 50% was the perfect ying and yang. Financially though, buying one of these apartments just looks disastrous and if the market does see a fall, they will be the first and hardest to suffer.
Indeed, flats always get hit hard and I foresee many youngster skipping a rung (they have likely been living "at home" for a year so have chunky deposits which the government is also going to help them with.
However, the biggest concern for me would be the possibility of rampant inflation on your management/service charges if it isn't a resident-run company (which I guess it isn't?). All the Trillions being created out of thin air have to end up somewhere sometime - we have seen rampant property price inflation, crypto currency inflation, even equity inflation but the price of regular goods in the shops have sort of bobbled along by comparison (although I don't know about you but I am definitely seeing prices inching up here and there - e.g. Milk that was £1.50 is now £1.85, that sort of thing).
If you own your freehold, then your outgoings are utilities/insurance/tax and everybody pays them nationally so there are certain curbs on how high and how fast they can rise without another government intervention.
But your flat's management charges are unique to a handful of you in your block and even flat management charges in general are limited to a subset of the population.
It would be a real pickle to buy your flat with a service charge of £100 a month, quite doable on your salary of £2000 a month. Then next year the charge is £200 a month but (due globalisation/bad economy/whatever) your salary is still only £2000 a month, then the year after the service charge is £400. You get the idea (exaggerated for effect as it is).
And if the economy tanks badly despite Rishi's best efforts, leaseholders really have their hands tied. The management company can start inventing fees for "security", "fire safety" etc. and it'll be hard work to push back. In better times you'd likely just sell up but in a bad economy/falling sale prices you would be stuck with paying whatever fees the management company decided on.
However, the biggest concern for me would be the possibility of rampant inflation on your management/service charges if it isn't a resident-run company (which I guess it isn't?). All the Trillions being created out of thin air have to end up somewhere sometime - we have seen rampant property price inflation, crypto currency inflation, even equity inflation but the price of regular goods in the shops have sort of bobbled along by comparison (although I don't know about you but I am definitely seeing prices inching up here and there - e.g. Milk that was £1.50 is now £1.85, that sort of thing).
If you own your freehold, then your outgoings are utilities/insurance/tax and everybody pays them nationally so there are certain curbs on how high and how fast they can rise without another government intervention.
But your flat's management charges are unique to a handful of you in your block and even flat management charges in general are limited to a subset of the population.
It would be a real pickle to buy your flat with a service charge of £100 a month, quite doable on your salary of £2000 a month. Then next year the charge is £200 a month but (due globalisation/bad economy/whatever) your salary is still only £2000 a month, then the year after the service charge is £400. You get the idea (exaggerated for effect as it is).
And if the economy tanks badly despite Rishi's best efforts, leaseholders really have their hands tied. The management company can start inventing fees for "security", "fire safety" etc. and it'll be hard work to push back. In better times you'd likely just sell up but in a bad economy/falling sale prices you would be stuck with paying whatever fees the management company decided on.
Flooble - I agree entirely.
Up until a few years back I owned a 4 bed house in a quieter spot that I rented to a family for about a decade in total. I used the rent on that to pay the rent on the penthouses I myself lived in - for all the reasons you say. Never had an appetite to buy one in particular for that beholden to management company.
There is temptation to just restore a similar scenario. I enjoy living in these places but just don’t think they make a lot of sense to buy.
Up until a few years back I owned a 4 bed house in a quieter spot that I rented to a family for about a decade in total. I used the rent on that to pay the rent on the penthouses I myself lived in - for all the reasons you say. Never had an appetite to buy one in particular for that beholden to management company.
There is temptation to just restore a similar scenario. I enjoy living in these places but just don’t think they make a lot of sense to buy.
Schnozz, have you run the numbers on buying the house to rent it out then rent one of the city centre flats?
Also, what type of place is going to suit you better as you get older? Maybe you still want to be city centre but do you need such a big place?
Other option may be to cost out all the worst case charges on the flat and reduce your offer by that much...in these odd times city centre flat vendor may accept.
Also, what type of place is going to suit you better as you get older? Maybe you still want to be city centre but do you need such a big place?
Other option may be to cost out all the worst case charges on the flat and reduce your offer by that much...in these odd times city centre flat vendor may accept.
Interesting story in the FT this morning (paywall, sorry)
https://www.ft.com/content/0f4f74dc-7e32-448d-9eb0...
https://www.ft.com/content/0f4f74dc-7e32-448d-9eb0...
FT said:
Lloyds Banking Group is planning to become a large private landlord as it searches for new sources of revenue in an era of low interest rates, according to documents seen by the Financial Times and people familiar with its plans.
The initiative, known internally as “Project Generation”, will involve buying and renting out new and existing housing stock across the UK, and aims to have its first tenants by the end of this year.
Can only see this driving prices one way if all the banks start doing this in scale.The initiative, known internally as “Project Generation”, will involve buying and renting out new and existing housing stock across the UK, and aims to have its first tenants by the end of this year.
Flooble said:
It would be a real pickle to buy your flat with a service charge of £100 a month, quite doable on your salary of £2000 a month. Then next year the charge is £200 a month but (due globalisation/bad economy/whatever) your salary is still only £2000 a month, then the year after the service charge is £400. You get the idea (exaggerated for effect as it is).
The service charge doubled in 3 years (fairly new build) on my last flat. The previous one before that, only seen a tiny increase for 10 years maybe. (1955s development, City Of Corporation London). On some of these leaseholds, -if they are not huge-, lease holders pushing the management out and control their own budget with their own ltd company. Some even managed to push freeholders out and bought back the lease as "shared of Freehold". I think shared of freehold might be a stable future for residential.NickCQ said:
Can only see this driving prices one way if all the banks start doing this in scale.
If they're not talking about BlackRock style purpose built BtR developments, then some things spring to mind:1. Are they planning to become a reluctant landlord when the repossessions start?
2. Surely massive conflicts of interest problems here?
3. If their strategy is based in yield rather than price growth, could it be a stabilising effect rather than boosting? You'd hope a mortgage bank with this much market visibility isn't going to be overpaying vs. rents?
NickCQ said:
Interesting story in the FT this morning (paywall, sorry)
https://www.ft.com/content/0f4f74dc-7e32-448d-9eb0...
Will likely drive prices down as they will be doing this with repo properties on their books rather than letting defaulters stay in their homes or switch to interest only.https://www.ft.com/content/0f4f74dc-7e32-448d-9eb0...
FT said:
Lloyds Banking Group is planning to become a large private landlord as it searches for new sources of revenue in an era of low interest rates, according to documents seen by the Financial Times and people familiar with its plans.
The initiative, known internally as “Project Generation”, will involve buying and renting out new and existing housing stock across the UK, and aims to have its first tenants by the end of this year.
Can only see this driving prices one way if all the banks start doing this in scale.The initiative, known internally as “Project Generation”, will involve buying and renting out new and existing housing stock across the UK, and aims to have its first tenants by the end of this year.
Can't see it working on a large scale unless they partner with housing associations though if they do that then the problem tenants will make it less desirable for those who privately rent.
A lot of inner city business premises and small to mid shopping centres (intu etc) will likely never be occupied to a large capacity with retail again after the pandemic so it makes sense to convert to residential.
ft said:
Lloyds executives believe their plan could fit with its stated social objective of “helping Britain prosper” by offering better quality and more professional services to renters than many existing landlords.
However, employee representatives cautioned that the initiative would also expose the bank to reputational risks if tenants have problems with the bank or the outsourcers it hires to manage the properties.
However, employee representatives cautioned that the initiative would also expose the bank to reputational risks if tenants have problems with the bank or the outsourcers it hires to manage the properties.
711 said:
NickCQ said:
Can only see this driving prices one way if all the banks start doing this in scale.
If they're not talking about BlackRock style purpose built BtR developments, then some things spring to mind:1. Are they planning to become a reluctant landlord when the repossessions start?
2. Surely massive conflicts of interest problems here?
3. If their strategy is based in yield rather than price growth, could it be a stabilising effect rather than boosting? You'd hope a mortgage bank with this much market visibility isn't going to be overpaying vs. rents?
711 said:
Schnozz, have you run the numbers on buying the house to rent it out then rent one of the city centre flats?
Also, what type of place is going to suit you better as you get older? Maybe you still want to be city centre but do you need such a big place?
Other option may be to cost out all the worst case charges on the flat and reduce your offer by that much...in these odd times city centre flat vendor may accept.
I haven't to be honest. The manner in which it happened in the last decade was by accident insofar as I relocated, kept the house I had and rented it, renting the apartment to my mind as a short term thing as I would soon tire of city centre and want a house again...only I never did! The only additional recent factor is the Covid effect, whereby both of us WFH and a dead city has seen the house option as having some appeal. Up until last March, however, the apartment and foreign house were the perfect world for us. Also, what type of place is going to suit you better as you get older? Maybe you still want to be city centre but do you need such a big place?
Other option may be to cost out all the worst case charges on the flat and reduce your offer by that much...in these odd times city centre flat vendor may accept.
Broadly speaking, my house and the apartment were comparable value wise, and rental wise level pegged. In essence, I paid the mortgage and for that cost lived "rent free" in the apartment via the yield from my tenant. That diminished slightly though when tax on the whole rent was introduced. There is also now the second home stamp duty to take into account, albeit I will have to succumb to that whether it be the house purchase or apartment, whether either is my primary home.
As to looking to the future, well we are no where near that age quite yet but arguably the apartment would be better suited. That said, there are stairs in both places. Reality is would probably need to rethink all property as the house in Spain is over 4 floors and in a mountainous area. I am not minded to look beyond the next 10 - 15 years as to appropriability.
I really don't like these management charges and the lack f any real control over the liability as people have highlighted. Heart says penthouse, head is saying house in burbs. Meh.
untakenname said:
NickCQ said:
Can only see this driving prices one way if all the banks start doing this in scale.
Will likely drive prices down as they will be doing this with repo properties on their books rather than letting defaulters stay in their homes or switch to interest only.Given how much income support there has been in this crisis we haven't seen an uptick in repos as yet and I suspect there will be strong pressure on banks to explore all other options. Much more so than in the early 90s crisis.
Prices seem to be up quite strongly here still in Bedford. A neighbouring house (4 bed detached) in our cul-de-sac went up for sale and was listed for sale on Rightmove on Monday, and was sold by the time I checked Thursday morning, so didn't even make it to the weekend or to having a for sale board outside. The same happened with a another neighbouring house last year, got snapped up in a couple of days.
The price of this latest one was around 37% up on it's selling price 6 years ago (that's around £100k), decor was updated but no major changes. I think I would have been asking for more really, but perhaps they wanted a quick, hassle free sale. Even so it's smashed the previous highest price in the cul-de-sac by £50k.
There is the usual dross and over-priced stuff sitting on Rightmove for months, but anything decent in a decent area that is priced at a level approaching vaguely realistic seems to be selling quickly.
The price of this latest one was around 37% up on it's selling price 6 years ago (that's around £100k), decor was updated but no major changes. I think I would have been asking for more really, but perhaps they wanted a quick, hassle free sale. Even so it's smashed the previous highest price in the cul-de-sac by £50k.
There is the usual dross and over-priced stuff sitting on Rightmove for months, but anything decent in a decent area that is priced at a level approaching vaguely realistic seems to be selling quickly.
ooid said:
Looks cheap for London to me, big enough for a family, seems in good shape. No upstairs bathroom is a bit annoying though but obviously the standard floorplan for these Victorian houses.MX-6 said:
ooid said:
Looks cheap for London to me, big enough for a family, seems in good shape. No upstairs bathroom is a bit annoying though but obviously the standard floorplan for these Victorian houses.MX-6 said:
ooid said:
Looks cheap for London to me, big enough for a family, seems in good shape. No upstairs bathroom is a bit annoying though but obviously the standard floorplan for these Victorian houses.Surprised the current owners didn't do the loft when they refurbed it.
Jimmy No Hands said:
Thank you all - my instinct is to avoid, for the sake of simplicity in the long run. Good to hear some contrasting real world experiences however.
Another shared ownership experience - I was a FTB in 2016, living in the south east my budget restricted me to a choice of either 1 bed flat purchased outright, or a 2-bed semi on 50% shared ownership.I took the shared ownership option, and in 2019 re-mortgaged to buy out the remainder of the property so now 100% ownership. Was £245k when I bought the initial 50% stake in 2016 (so cost me £122.5k), then valued at £280k in 2019 when I bought the remainder.
Pros:
-Got me a 2 bed semi in a great rural location with parking for 3 cars / garden etc.
-Cheap mortgage and rent meant I could overpay on the mortgage every month.
-Being a new build meant it was cheap to run in terms of utilities.
Cons:
-Being a new build means the quality is shocking. If I was not reasonably competent with DIY it would have been a nightmare. Even then I've still had contractors out for roofing works and serious plumbing issues. But that is a new build issue, rather than being exclusive to shared ownership.
-The managing agents are a nightmare to deal with. A hideous bloated organisation without a single redeeming feature. Just awful.
-A gazillion restrictive covenants on the property, to the extent that it still doesn't really feel like proper ownership.
-If buying out the remainder of the property, any increase in value before doing so works both for and against you.
We've had superb neighbours, young social housing couple on one side, and another (older) shared ownership tenant on the other. Both have become good friends. Generally speaking the close is fantastic and our house is in a great location within it. Far better than any of the properties (flats) I could have afforded to buy 'outright' in the first instance.
Overall my main gripes largely come down to the property being a new build, rather than the shared ownership experience itself. It's not been great to the point where I would say it's a no-brainer, but equally I would not rule it out without at least giving it some thought.
We are looking to move later this year but shared ownership has meant spending the last 5 years in a 2-bed semi with a nice garden in a great location, vs a 1 or 2 bed flat with poor parking if I had disregarded it. So it's been worth it for me, but definitely not without its downsides. If you can afford a decent property without needing shared ownership then do it- the hassles aren't worth the extra budget reach IMO. But if, like me, the extra budget is a gamechanger in terms of what you can get, then it can definitely be worth looking at.
As for buying another new build, either outright or on shared ownership, I would never touch another one with the longest of bargepoles unless I absolutely had to. I would hope things are better at higher values, but in the FTB price bracket the quality is disgraceful.
edited to add: another quick point on the social housing- in our close the social housing tenants are all great, no issues at all and very courteous/friendly. The only vaguely problematic tenants are a general busybody and a neighbourhood parking enforcer- both of which live in the most expensive properties in the close and look down their nose at pretty much everyone else. Probably PH members!
Edited by Squirrelofwoe on Friday 5th March 12:13
NickCQ said:
MX-6 said:
ooid said:
Looks cheap for London to me, big enough for a family, seems in good shape. No upstairs bathroom is a bit annoying though but obviously the standard floorplan for these Victorian houses.Surprised the current owners didn't do the loft when they refurbed it.
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