How Far Will House Prices Fall? [Volume 6]

[vonuber]

So assuming say 10% deposit on a million pounds, you'd need to have an income of £180k to be able to afford a mortgage at 5x?
How on earth is that anywhere near affordable for the vast majority.

[kingston12]

vonuber said:

So assuming say 10% deposit on a million pounds, you'd need to have an income of £180k to be able to afford a mortgage at 5x?
How on earth is that anywhere near affordable for the vast majority.

It's not, but the minority that can afford it is large enough to support those prices.

I'd expect the average deposit would be much higher as well (either from equity from previous house, savings or BOMAD contribution), so income requirement wouldn't be quite as high.

[vonuber]

kingston12 said:

It's not, but the minority that can afford it is large enough to support those prices.

I'd expect the average deposit would be much higher as well (either from equity from previous house, savings or BOMAD contribution), so income requirement wouldn't be quite as high.

Sure, but that's dependent on already being on the ladder.

[BurtonLazars]

vonuber said:

So assuming say 10% deposit on a million pounds, you'd need to have an income of £180k to be able to afford a mortgage at 5x?

Those who can afford it will have built up equity in a previous house, and/or there will be two salaries.

[MX-6]

vonuber said:

So assuming say 10% deposit on a million pounds, you'd need to have an income of £180k to be able to afford a mortgage at 5x?
How on earth is that anywhere near affordable for the vast majority.

Well I think the answer is that it obviously isn't, though I wouldn't like to underestimate the joint income of a professional couple in London. But I think for a significant number of £1M house buyers, particularly those outside London, it will perhaps be the final step on the ladder, having made the large equity gains via house price inflation and simply just paying down the mortgage over a considerable number of years. Plus folks in say their 50's might be able to factor the inheritance into the equation.

[BurtonLazars]

Christ this thread moves fast. These high earners sure spend a lot of time sniping message board answers

[kingston12]

vonuber said:

kingston12 said:

It's not, but the minority that can afford it is large enough to support those prices.

I'd expect the average deposit would be much higher as well (either from equity from previous house, savings or BOMAD contribution), so income requirement wouldn't be quite as high.

Sure, but that's dependent on already being on the ladder.

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

[Shnozz]

MX-6 said:

Shnozz said:

Joey Deacon said:

Jasandjules said:

True but I "only" paid 140k for a 3 bed house when I was a FTB. Now a 3 bed around here is 380k...

People who bought their house ten years ago for what we just paid are now sitting in £1 million+ houses. That truly blows my mind. We could scrimp and save for the rest of our lives and still never be able to afford one.

It also shows just how much the London -v- non-London wealth gap has widened. There are properties I am looking at in a Northern city that are on the market for within a few percent of what they bought them for in 2006/2007. Until 2016/2017, most of them would have still been in negative territory.

I think there is going to be quite a lot of house price inflation in those non-hotspot locations like in the north, as you say, until fairly recently many areas have been flat since 06/07. Wages are up substantially in that time, since '06 minimum wage is up over 60% (from £5.35 to £8.72).

It's an interesting one and to an extent I agree with you. That said, for all the arguments why the forthcoming ststorm of Covid job losses in lesser paid industries won't upset the Southern house market (these aren't the people buying houses), the opposite could be said of the North. The effects could stifle the FTB market and with less BTL hawkers interested these days that might hamper things.

I am a Southerner by birth and I think if I was in the position I am right now back "home" I would be cautious of buying at this moment in time. As it is, up Norf, I am not really concerned. If there is a drop, I cannot seeing it being large simply as prices haven't really had a massive spike since the 2008 debacle (*some pockets have seen large growth but they are in isolation/gentrification etc).

[okgo]

kingston12 said:

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

It would have to be well into 6 figures to even make a blind bit of difference given 50k is gone on stamp straight away on £1m house.

The other answer, and one that I've long thought of is that there's a hell of a lot more jobs than people think paying decent money. We all know about finance, law, consultancy etc from this thread, but pretty much any enterprise sales job in fintech, martech, adtech, these days starts at 100+100 (base/comp), I used to have 26 year old morons on my team flogging ad space making 75-80k a year, this is just an area I know a bit of, there must be a LOT more about...

[vonuber]

kingston12 said:

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

Yes, but that's dependent on wealthy parents. The whole system in the SE is a just a wealth aggregator between families - if like me you've come down from the north there is no such things as a BOMD, and even if there was it would rely on them being dead.

[anonymous-user]

vonuber said:

kingston12 said:

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

Yes, but that's dependent on wealthy parents. The whole system in the SE is a just a wealth aggregator between families - if like me you've come down from the north there is no such things as a BOMD, and even if there was it would rely on them being dead.

Agreed, my mum used to work with a lot of very middle class girls straight out of Uni. Every single one of them lived in a pretty Victorian cottage paid for with family money. I assume they just got Grannies inheritance early and used it to buy a house.

A few years later they would meet he male equivalent of themselves and then buy a 1 million+ house. Obviously they would keep the original properties they both owned and rent them both out.

These are the sort of people who's parents are prominent MPs. Their usual conversations involved daddy completely forgetting about a house he owned or having to open yet another savings account as they had hit the 85K protection limit again.

It truly is a different world.

[Shnozz]

Joey Deacon said:

Agreed, my mum used to work with a lot of very middle class girls straight out of Uni. Every single one of them lived in a pretty Victorian cottage paid for with family money. I assume they just got Grannies inheritance early and used it to buy a house.

A few years later they would meet he male equivalent of themselves and then buy a 1 million+ house. Obviously they would keep the original properties they both owned and rent them both out.

These are the sort of people who's parents are prominent MPs. Their usual conversations involved daddy completely forgetting about a house he owned or having to open yet another savings account as they had hit the 85K protection limit again.

It truly is a different world.

I didn't grow up around friends who had wealthy families. I remember as a young lawyer integrating myself in the social scene for a bar I had begun to become a regular in. I could never understand how so many people in that bar in what I assumed would be relatively low/normal paying jobs would drink in their nightly, running up £1.5k tabs regularly on a monthly basis, yet I would be looking down the back of the sofa to get to the end of the month by the time I had paid all my bills and covered a decent wedge of socialising expenditure.

Few months later I came to realise just how many in that city centre bar had no home outgoings other than council tax, electric and a few other monthly costs. Many of them had an apartment bought for them outright by parents and for those of them with cars, usually that also gifted. Even a low wage goes a long way when you remove mortgage/rent and car purchases.

[Pit Pony]

Shnozz said:

Joey Deacon said:

Agreed, my mum used to work with a lot of very middle class girls straight out of Uni. Every single one of them lived in a pretty Victorian cottage paid for with family money. I assume they just got Grannies inheritance early and used it to buy a house.

A few years later they would meet he male equivalent of themselves and then buy a 1 million+ house. Obviously they would keep the original properties they both owned and rent them both out.

These are the sort of people who's parents are prominent MPs. Their usual conversations involved daddy completely forgetting about a house he owned or having to open yet another savings account as they had hit the 85K protection limit again.

It truly is a different world.

I didn't grow up around friends who had wealthy families. I remember as a young lawyer integrating myself in the social scene for a bar I had begun to become a regular in. I could never understand how so many people in that bar in what I assumed would be relatively low/normal paying jobs would drink in their nightly, running up £1.5k tabs regularly on a monthly basis, yet I would be looking down the back of the sofa to get to the end of the month by the time I had paid all my bills and covered a decent wedge of socialising expenditure.

Few months later I came to realise just how many in that city centre bar had no home outgoings other than council tax, electric and a few other monthly costs. Many of them had an apartment bought for them outright by parents and for those of them with cars, usually that also gifted. Even a low wage goes a long way when you remove mortgage/rent and car purchases.

My mate has given his daughter a house. Admittedly it's a bit st, and it's in Wolverhampton and was his first house which he got in his first (of 3) divorce settlement (along with the daughter) when he bought her mother out. He has been renting it out to his brother for 15 years and his brother has just bought a place of his own, so he's got tenants in and passed the ownership to his 18 year old daughter.
He's getting married again.

[kingston12]

vonuber said:

kingston12 said:

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

Yes, but that's dependent on wealthy parents. The whole system in the SE is a just a wealth aggregator between families - if like me you've come down from the north there is no such things as a BOMD, and even if there was it would rely on them being dead.

Indeed. As okgo mentions above, there are a reasonable number of people who earn enough money to get in on the game, especially with ultra low interest rates reducing the monthly pain of having what would have been considered a huge mortgage a few years ago, but there is a lot of family money involved here.

[turbobloke]

kingston12 said:

vonuber said:

kingston12 said:

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

Yes, but that's dependent on wealthy parents. The whole system in the SE is a just a wealth aggregator between families - if like me you've come down from the north there is no such things as a BOMD, and even if there was it would rely on them being dead.

Indeed. As okgo mentions above, there are a reasonable number of people who earn enough money to get in on the game, especially with ultra low interest rates reducing the monthly pain of having what would have been considered a huge mortgage a few years ago, but there is a lot of family money involved here.

Was there not a time when lenders were a bit miffed with bomad beneficiaries - has it passed?

[kingston12]

turbobloke said:

kingston12 said:

vonuber said:

kingston12 said:

Only for the first one. I think it is the BOMAD contribution that is a much bigger factor than people think. They always talk about average numbers, but I think that there would be a lot of contributions well into six figures in London.

Yes, but that's dependent on wealthy parents. The whole system in the SE is a just a wealth aggregator between families - if like me you've come down from the north there is no such things as a BOMD, and even if there was it would rely on them being dead.

Indeed. As okgo mentions above, there are a reasonable number of people who earn enough money to get in on the game, especially with ultra low interest rates reducing the monthly pain of having what would have been considered a huge mortgage a few years ago, but there is a lot of family money involved here.

Was there not a time when lenders were a bit miffed with bomad beneficiaries - has it passed?

I'd heard that, but not sure if it is still much of a problem.

Some of the BOMAD cases that I've heard of involve the parents buying/giving their offspring a flat or small house outright. When they sell that to buy a bigger place with a mortgage, I guess it makes it easier for the lender just to mark source of funds as 'sale of previous house' if they want to lend.

There seems to be quite a lot of inheritance skipping generations as well. Quite a few houses around here that are occupied by very elderly people suddenly have a late 20/30s couple move in without it ever appearing to have gone anywhere near the open market.

[ooid]

vonuber said:

So assuming say 10% deposit on a million pounds, you'd need to have an income of £180k to be able to afford a mortgage at 5x?
How on earth is that anywhere near affordable for the vast majority.

It does not always work like that logic though. The effect of leverage is important as many would buy both for inhabitation and investment.

Another Scenario; Purchase Price : £1,000,000

Option 1 - If bought by Equity (Full-cash) and sold in 2 years for £1200,000, 20% Return, Profit : £200,000

Option 2 - If bought by debt(mortgage), £750.000 and put %25 deposit (equity) and sold in 2 years for £1200,000, 50% profit 125000. (-10% interest max.)

[vonuber]

ooid said:

It does not always work like that logic though. The effect of leverage is important as many would buy both for inhabitation and investment.

Another Scenario; Purchase Price : £1,000,000

Option 1 - If bought by Equity (Full-cash) and sold in 2 years for £1200,000, 20% Return, Profit : £200,000

Option 2 - If bought by debt(mortgage), £750.000 and put %25 deposit (equity) and sold in 2 years for £1200,000, 50% profit 125000. (-10% interest max.)

Yes, if you had the money in the first place. That's my point.

[ooid]

vonuber said:

Yes, if you had the money in the first place. That's my point.

Loads of different scenarios...London is huge, population is so diverse, so you can't really nail the typical buyer. Give it a few years ago, it was mostly "Chinese" investors, buying flats like buying sneakers from Selfridges...Same during Euro-crisis with greeks, italians and etc.. (ChrisZ4 would clarify better lol). Do not underestimate the local Londoners, who literally climbed the "ladder" incrementally and achieved a big equity at the end. Timing is important.

[Leicester Loyal]

Has nothing been said about Stamp Duty tax yet? I'm wondering whether we'll see loads of properties back on the market when people realise they'll have to fork out thousands extra due to SD. I've got a feeling the Government will extend it or let those people off it though if I'm honest.

Starting to look at houses myself again, just gonna take the plunge, been around 8 months that I've been looking now, if prices drop or whatever then so be it. Hopefully have a viewing organised for the weekend.