Trout

iTrader: (1)

I think you will find that has been a cross party theme since the gold standard was abolished and monetary inflation was not linked to value.

This was compounded by the global shift from the Bretton Woods standard in 1971 enabling most countries to inflate on paper rather maintain a fixed monetary policy.

Could be worse though - we could be the US!

106rallye

All well and good until you find inflation at 20%+

lozgti

How did interest rates get to 12% last time?

I love the financial people.The ones that are brilliant but miss things like a Black Monday Stock market crash.Oh,and this 'unexpected' rise as well.In fact,for all the economic analysis,a common sense approach would be far more sensible

Houses are too expensive in relation to wages.First time buyers earn £12k a year,not £35k

Bills have increased substantially

People are overstretched with debt because they think they never have to pay it off

Everyone and his dog has a BMW on the drive

Everyone is obsessed with mobile phones and happily waste £500 a year to take pictures and listen to songs with a phone.

The country is brainwashed

///\oo/\\\

LOL

Inflation has, in reality, been running at more than that for years.

I love it when people post on threads like these for political reasons. without a real understanding of the economics of the situation.

House prices are unlikely to "crash" unless the interest rates rise significantly. What we might see is a leveling off of the price increases.

People also should be aware that certain parts of the UK have much more volatile house pricing movements than others.

There's a post on this thread about a 24 year old and a 21 year old looking to buy a quarter of a million pound house as (presumaby?) a first home?

What ever happened to buying a cheap flat to begin with and working up?

Yes, the lenders are guilty of offering too much, but no one has to say "yes please, I'll borrow the lot"

Rates are low - therefore they need to lend more to maintain the level of profits.

What we need is for first time buyers to stop borrowing to the hilt, buy less expensive properties and force the builders to price more effectively.

Supply and demand.

Its not the lender's fault

Its not even the governments fault (well, some of it is)

It's the consumer's fault in a "want now, get now, borrow to have" culture.

And people say Thatcher's 80's was the decade of greed....don't make me laugh....

Petem95

Oh we have an expert on the forum

Things like housing market crashes are notoriously difficult to predict - few economists predicted the last one accurately.

If you agree inflation is far higher than the 'official' figure, then surely you agree interest rates are likely to rise? People seem to forget that rising house values is inflation - and all this debt being taken on due to low artificially low interest rates is also inflation... all adds up to the BOE having to tackle the problem at some point which will mean higher (possibly by a fair bit) interest rates.

///\oo/\\\

Give the rolleyes a miss, eh?

It's far from a simple case of ramping up interest rates to curb inflation. There are many, many other factors that need to be taken into account.

A large increase will do much, much more than simply curb inflation (inclusive of house prices and borrowing)

A "significant" increase will most likely result in massive numbers of defaulting borrowers, both corporate and personal.

That will give you a crash - and also a nice little recession thrown in for good measure.

Its about balance. Thank God its the BOE that's responsible though, and not some tosser politician.

davyboy

Any luck doing this yet?

Can you show evidence I have done this........I tease you as you always have something to say about the impending crash, withough fail.

Sure if it happens you can say I told you so, but thats like a Jehovas Witness saying the earth will end........at some point it will.

Petem95

Well I cant remember reading anywhere that you've MEW'd to buy an X5 or anything, so guessing your probably in a fairly confortable position in terms of being able to cope easily with higher interest rates regarding mortgage payments and so on! Many others arent seem to have just assumed interest rates will always stay low, so mortgaged themselves to the max..

Glad we agree on this now

davyboy

I wouldn't be that bold.

I don't think we will see anything like the 80's crash, but I'd not be suprised if there was a drop or things went stagnant for a few years, and it would be worth planning acordingly.

Dream Weaver

Prices may level off, go stagnant, or drop slightly (they haven't round here yet, still going up at silly money), but there will be no major crash like there was back in the 80's its all bollocks.

Matteeboy

So did all the "bright sparks" in the 80s foresee the crash then?

No, they thought just what you are thinking now.

Trout

iTrader: (1)

Here, here - like stupid comments on gold, who controls the economy and assuming that the Government have any sort of control. At best they can steer the economy but ultimately it is consumers who control the economy by definition. It is a relationship between supply and demand.

Demand is the consumer and the Government has very limited control over supply. Unless you go all protectionist like the US or Japan have tried to their cost.

Rannoch

Trout

iTrader: (1)

I don't think that is true. I think that market adjustments are like earthquakes.

Everyone knows that one day San Francisco will have a big one, but no-one really knows when it will be and in the interim it is still a beautiful place to live.

Rannoch

106rallye

IMHO that is a risky statement to make. I don't know anyones personal situation on here but IF everyone has contingency for a price reajustment, can absorb higher mortgage interest payments in the short term and ride out any situation of negative equity (in the unlikely event that it will end up like that) then in the medium term you should be a winner. This is not something that should only be considered now but always and IMHO all responsible lenders (and borrowers)should make sure it is the case.

However if I was one of the people that has borrowed more than they can afford to jump on the 'making money out of property' bandwagon (constructive self-cert mortgages, 120% etc.), taken loans to renevate it AND CC'd it to the max to furnish it then i would personally be a little worried at the moment.

I think Petem95 has made a lot of valid points there are a lot of people who are feeling 'rich' at the moment (NOT Davyboy by the looks of it) because they are told their house is worth double what they paid for it and are releasing the equity by re mortgaging and loans secured on the property. This in turn can drive over spending and irrisponsible lending and borrowing that has been supporting our economy. (the £1.25 trillion personal debt has got to have gone somewhere!!)

If you took the current housing market situation and repaced houses for stocks and shares then I don't think everyone would be so bullish at the moment. Again IMHO A house should be for living in first and investment second and some people in this country have lost site of that.

Andy

106rallye

Completely agree. No way rates would have gone up yesterday if they still came from number 11. GB would not want this at the end of his time there and might want to pass the buck on who he gives the job to when he moves next door.

IMHO I think inflation is going to be over 3% and they are now going to have to formally explain themselves to the government when the figures are published. If they had left rates where they were then they might look like they are not acting quick enough.

john banks

Regarding a possible stagnation, I find this difficult to imagine because the property rental yields are so low that landlords are widely subsidising their tenants on the expectation of capital growth. If they all know the capital growth has significantly slowed they will all know they are losing money. I doubt that many will just sit there and will try to exit, flooding the market with property when credit is more difficult to buy it. Just my opinion.

Trout

iTrader: (1)

Exactly what is happening in swathes of the US right now. All the property investors I know (with up to 1000 rentals properties) have made almost all their money from flipping (reselling) over the past few years.

davegtt

Whilst I agree with what you are saying my point is to those who are thinking a house price crash is going to help the live at home with mummy and daddy population. It wont. Knock 30% of house prices and you still have high interest rates, high council tax and high utility bills to pay for.... Life wont be any easier for those buying at a reduced rate...

Maybe Im just talking to a brickwall :

Carry on.

TelBoy

The thing about the 80s crash was that there was a very well defined deadline, ie the abolition of joint mortgage tax relief in April (?) 1988, which meant that people rushed to buy property before the cut-off date, paying well above the odds to secure this tax break. Demand ran out of steam after this, and sellers began to panic, leading to the crash.

We don't have anything similar to this happening now, which should limit the extent and rate of any decline. But at the end of the day it's anyone's guess.

john banks

If I was a FTB I'd rather buy when interest rates are dropping and house prices are low - ie after a crash. Medium term affordability is likely to be much better.

Maybe I'm the brickwall you're talking to davegtt, but it's worked for me in this last 8 year cycle so far.

I'm hoping to do the same again, but as a second time buyer. A crash would be just what I need. Maybe this sounds terrible, but those who have MEW'd like kittens for their X5 deserve everything they get for not having any discipline.

Nice BMWs outside ****hole houses that cost a bomb summarises the situation well. Quite exciting times IMHO.

davegtt

You already have your first home though, you can afford to wait for the second house. what about FTB'ers? How long should they wait for? the housing market crash has been branded about for YEARS now and we are still no closer to seeing it. How long do they wait? a 25 year old took advice in 2002 saying they cant keep going up, hold out they will crash. Where is he now? got some savings in the bank (if hes not been out getting pi55ed every weekend) living with his parents, priced well and truely out of the market. I dont know how people do it, sitting, waiting, wishing for a drop which will never see them drop as low as they were in 2002 anyway...

MattW

Do a google search and the number of tales of imminent doom from analysts dating back to 2002/3/4/5 is amazing.

The change in the last few years is startling, in 1999 when we bought our current house the step up from our 3 bed was 20k, now it's more like 100k. no one would dream about selling up and making a move of 20k, doesn't seem worth it does it!!

On the continent it is much more acceptable to rent and I think British attitudes will shift more towards that outlook. Property is expensive so you rent until you inherit.

106rallye

Its all about real term affordability though. If they stagnated enough for peoples income to catch up then that would be enough - for me anyway.

grim reaper

For unworried home owners this thread has seemed to stretch for nearly 10 pages Dont worry im sure house prices will rise forever and ever and in 5 years your houses will be worth £3million, think how many x5's you can have then !

lozgti

That is such a short period of time though.Housing cycle (and it is a cycle) would need a ten year period.And we are round about that time.

Or as someone pointed out,every time the housing market has reached the point where people were borrowing multiples of 5/6 times salary,things go kaput.

Which is now.

Oh,and no one should ever bank on inheriting anything anymore.Your parents need to pay for their care in old age.So no nice future windfalls for anyone either

Matteeboy

How about if the parents and their parents are all very wealthy then?

///\oo/\\\

I'm sorry, didn't realise this was a "my parents are more weathly than yours" and I don't care because mummy and daddy will see spoiled little rich kid ok in the end" thread

john banks

davegtt, I don't have my first home, I sold it! I have no home, and for now with three rate rises I'm a smug renter for a while whilst everyone thinks ongoing explosive growth will pass me by.

With hindsight you can always say that someone was foolish to miss out on the end of an asset bubble, but I'd rather sell a year before the end than try to sell when it pops. However, I don't believe that prices were really that inflated in 2002 at all, the irrational to me seems to be the growth since the last rate cut.

I'll come back again and again to my notion of making purchase/sale/borrowing decisions on my opinion of the fundamentals rather than looking simply at the trend and using past performance as a guide to future returns. Follow the herd and you'll follow all the peaks and troughs of the market even when they are blowing it up like a bubble then jumping off the cliff like lemmings.

If I was keeping a property for a very long time, then timing probably wouldn't matter as much. My interest has developed in this because I'm trying to time the second time buy (not second house) rather than follow the herd. Otherwise I'd just be giving away 2 years of house price growth to someone if I bought now - that is 2 years net income which I'm not going to risk on a speculative frothy valuation.

If it is not obvious that houses cannot in the long term radically outperform growth in income, it should be obvious that if the average house in some areas is earning the same as the average income then it really has gone crazy. People have such short memories when they are inflamed by the bubble mentality and think that this time it is different, that the rules of the economic cycles have been rewritten etc. Some of us hope to profit from what we believe to be extreme naivety.