UK Property Prices

[freyasworld]

So thats a pro-gay housing policy then? (or at least bi?) No, the conservatives will never accept that even if the libs might go for it.

OK so we have to call them lodgers then!

 

[dandelion]

We are likely to see some sterling devaluation and some inflation. We may also see more overseas buyers.

Aside from foreigners living here on business, I think foreign investors were tempted to invest here because property was expensive, not because its cheap. Remember, all that property they bought can only be sold in pounds which are worth less all the time.

Plus the effect of the Olympics.

That albatross! I see the government was floating the idea of handing over responsibility to the London Mayor, who presumably will have to put the bill onto the rates. So the effect will be property taxes rising in the capital.

We also have money moving out of stocks and shares and into residential property, sometimes kept empty because letting is considered unrewarding.

Do we? All ive heard on the news is very few properties being bought. Surely one thing less rewarding than a let property is an unlet one?

Am I right in thinking all these factors will send prices higher?

well, no.

I dont know what is going to happen to property prices, but all the logical indicators say prices must drop. The main argument against this is that financial experts have said exactly that for the last 10 years and it hasnt happened. It will one day.The trick with any market is to get in while its still rising and get out just before it crashes. Its gambling.

 

[Jason]

... all the logical indicators say prices must drop. The main argument against this is that financial experts have said exactly that for the last 10 years and it hasnt happened. It will one day.

Does this mean we are using the wrong indicators? We've long had the idea that there is a link between average property prices and average wages. Typically there is a muliplier of 3x or 4x to get from gross annual salary to property prices. But this link only works when the majority of people buying are buying to live there. Now we have great chunks of the country where average property is 10x or more. Even 20x. And this has weathered the recession (part one anyway!) and even gone higher.

 

[dandelion]

the 3 or 4 is how much the mortgage company will theorteically lend. Reports say a number of people have lied about their income. I seem to remember the 3 or 4 being touted as how things used to be and maybe how they will be again now. people can afford more than this usually. It depends on how important it is to you, and indeed if you intend repaying the capital sum. Trouble comes if interest rates start to rise....If the mortgage company wont lend any more than that, theres always mum and dad, even if theyre 80. So I wouldnt underestimate the resourcefulness of people in finding the balance and wouldnt rule them out of the house buying race. Just so long as people still believe it is a long term good investment. Which is exactly the criterion for those with access to business loans. I would say, though, that typically buy to let relies on the rent paying the mortgage, which is another constraint.

 

[Jason]

Consider a 2 bed flat at £250,000 - London and the SE is full of them. Rental value is around £1,000 a month, which sounds as if it should mean £12,000 a year or not much short of 5%. But it doesn't. Subtract unoccupied periods and agents' fees and it is more like £10,000. Then go for more deductions - higher mortgage costs for buy to let, legitimate wear and tear, damage to the flat, possible legal costs - and you make a very big dent in that £10,000. And whatever you gross is taxable. Then you've got the problems of getting a tenant out if you decide to sell, and the sheer misery of dealing with problems the agent can't sort. It actually makes sense to leave a property empty.

If you have £250,000 sitting around then you have very boring saving returns (perhaps 1%) or the thrills of the stockmarket or high stakes gambling on the currency market - or stick it in a property for potential increase in property value. A modest 3% is way better than a savings account. 5% looks reasonable. Even 10% is credible. There are (small) patches in England which have seen upwards of 30% in the last 18 months, say 20% pa. And it is hard to see a slump of more than say 20% (which makes it a lot safer than the stock market).

Of course this leads to the scenario of empty flats - in effect the supply of homes is reduced.

 

[freyasworld]

Consider a 2 bed flat at £250,000 - London and the SE is full of them. Rental value is around £1,000 a month, which sounds as if it should mean £12,000 a year or not much short of 5%. But it doesn't. Subtract unoccupied periods and agents' fees and it is more like £10,000. Then go for more deductions - higher mortgage costs for buy to let, legitimate wear and tear, damage to the flat, possible legal costs - and you make a very big dent in that £10,000. And whatever you gross is taxable. Then you've got the problems of getting a tenant out if you decide to sell, and the sheer misery of dealing with problems the agent can't sort. It actually makes sense to leave a property empty.

If you have £250,000 sitting around then you have very boring saving returns (perhaps 1%) or the thrills of the stockmarket or high stakes gambling on the currency market - or stick it in a property for potential increase in property value. A modest 3% is way better than a savings account. 5% looks reasonable. Even 10% is credible. There are (small) patches in England which have seen upwards of 30% in the last 18 months, say 20% pa. And it is hard to see a slump of more than say 20% (which makes it a lot safer than the stock market).

Of course this leads to the scenario of empty flats - in effect the supply of homes is reduced.

As a rule of thumb, rental yeilds must be 130% of the mortgage payments, factor in the 25%deposit, stamp duty, solicitors fee's furnishings, then letting agents costs in the 1st year.

I cannot speak for London and the SE, but rental values generally everywhere else are 450-550 for a 2 bed, 550-650 for a 3 bed, and 650-750 for a 4 bed property. (of course you can get higher rents)

Anyone investing in property if they keep to these figures will get a return of 100% within 7 years regardless of so called housing crashes, burst bubbles etc.

OK finding property where the sums add up, is proving very difficult but there are distressed sellers out there, always have been always will be, also people looking for a quick sale. If you can buy a property 10-15% below market value, that will cover the initial costs.

Even if you have to sell within a year, you will make back your initial investment.

A lot of people went into the property buy-to-let market through property clubs and were conned and hurt, the buy to let market has on the whole got rid of these, this increased values of all properties, but now the buy to let market is actually helping in reducing the values of all properties back to a managable and affordable level.

 

[Drifterwood]

A lot of people went into the property buy-to-let market through property clubs and were conned and hurt, the buy to let market has on the whole got rid of these, this increased values of all properties, but now the buy to let market is actually helping in reducing the values of all properties back to a managable and affordable level.

I can see a long term shift back to renting.

I was tempted to get into this market in the last few years, but the returns are poor compared to other types of investment.

 

[Sergeant_Torpedo]

Thatcher hoodwinked the Brits into thinking buying was best. Most middle class professional Europeans rent (at good rates) their homes. Brits remove on average every seven years so over a lifetime 40% of your home finances have gone to estate agents. No wonder they are despised. And the new builds around London? Bloody awful, badly built, smaller room sizes than European average (Thatcher and Blair abolished minimum room size - how does a 2 x 3 m room count as a bedroom: it's a f******** cupboard for Cameron's sake) and when I bought a new build in leafy Surrey the staircase so narrow couldn't get sofa to first floor drawing room. No wonder Brits never invite people to their homes.

 

[freyasworld]

I can see a long term shift back to renting.

I was tempted to get into this market in the last few years, but the returns are poor compared to other types of investment.

I got into it, out of necessity really, I lived in Germany for 10 years, had a home in the UK which I rented out. I was diagnosed with breast cancer and decided if this disease killed me, I wanted to leave my kids something. So I bought them a property each, did a lot of searching and of course looked at the sums, now it is not a short term thing, not a get rich quick scam, a lot of people bought property then lived on credit cards and loans for a year or two then remortgaged to pay off their debts and loans. We have our home, and we have one for our retirement (if I live that long) and the kids have a house each, now when they finish university they will have a property each.

it's not easy, it's damn hard work and a lot of stress and worry, but in 5 or so years time, my kids have their own place. I bought 5 years ago and each one cost me circa 20k each.

Of course I could put this money in stocks and shares and lost 50% or I could have it sat in the bank earning 1% interest. I could put it away to pay their education fee's, but what if they drop out?

So always look at 5-10 years, don't forget property is cyclic, they go up and down every 7 years on average.