The Great Property Crash Of 2016?

[NickD]

So there I was at the Barnard Marcus auction today, bidding on Lot 7.

My local friendly Estate Agent had told me it was worth around £275k, the person doing the viewings reckoned someone would be foolish enough to pay £300k and I felt comfortable going to £286k. This bearing in mind a £10k sum will become payable in 2016 when external works to the block are carried out.

Fancy hazarding a guess? No, wrong. Try £340k.

Yes, I know to my own cost that you lose money by keeping it in a bank these days and yes, I also know that London property prices may appear cheap when viewed from an international perspective.

But Lot 7 is a one bed flat in an average Shepherd's Bush location i.e. is just the sort of flat a London FTB would target. And yes, I know that if said FTB was able to secure a mortgage, they would be paying the lowest interest rate in history.

One day, in the not too distant future, this will change. The only hope the Conservatives have of winning the next election is to carry on propping up house prices with their artificially cheap lending.

Whoever wins the next election will then have to come clean. So called austerity has barely started but real cuts will become necessary. Interest rates will rise. Mortgage rates will return to their historic mean.

The FTSE100 drops nearly 15% because the Fed says they will reduce QE WHEN there are signs the economy is strong enough. Note they haven't actually done this yet. They only stated the obvious and the FTSE drops 800 points.

So what happens when the artificially cheap money supply dries up and people who bought 1 bed flats on a 3% yield face mortgage rates of 7.5%?

Me thinks that come 2016, I may just be glad I was outbid today.

[Nick]

I heard today that austerity, cuts, & low interest rates will last till 2018!

I've been meaning to blog about Rent Control, but Tom Entwistle of Landlordzone has beaten me to it:

The London Assembly’s housing and regeneration committee, a left-leaning sub-group, has recently called on Mayor Boris Johnson to adopt a London based pilot scheme for rent control.

This is not the first time and will no doubt not be the last time this is called for: Ken Livingstone and Jeremy Corbyn (MP for Islington North) have both been advocating the move for some time.

If rents keep on rising, pressure on politicians will increase as struggling tenants get more public support for the idea. There are far more voting tenants than there are investor landlords.

The move is very unlikely under the current administration, and perhaps in the next, but a Labour government in two years time could conceivably be a different matter. Ed Miliband has already been calling on local authorities to reduce the rents they pay to private landlords to emergency house social tenants, and there’s some that believe it could become Labour party policy if Ed Miliband were to become prime minister in 2015.

Full Article

I wouldn't buy in London right now - the downside is much more likely than the upside for many different reasons, including the risk of rent control, and blanket LL Licensing.

[Marcus]

I wouldn't buy in London right now - the downside is much more likely than the upside...

That has gotta be the clearest buy signal yet...serious

[Nick]

[joanna caroline]

Sounds as though there are massive opposing forces at work. Which means either inertia or an earthquake.


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[Nick]

economic output in Britain is still 3.9 per cent below the pre-crisis peak, rather than 2.6 per cent, making a full recovery an ever more distant prospect.
George Buckley, an economist at Deutsche Bank, said the consignment of the double dip to history was ‘just about the only good news’ in an otherwise ‘hideous’ set of revisions. Sterling fell sharply against the pound and the euro as analysts said the Bank of England could be persuaded to restart its printing presses following the arrival of Mark Carney.


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I'm not sure what the conclusion is - probably that interest rates stay low, but that rents drop.

[Billy]

I'm impressed sterling fell strongly agaainst the pound though!

[Nick]

I'm impressed sterling fell strongly agaainst the pound though!

I never saw that! It shows the power of the brain to overrule the eyes and impose what it thinks is correct.

[Nick]

Did anyone else notice that a predicted outcome of the US Government Debt settlement was that interest rates in the UK will rise?

[Jo King]

Interest rate rises will come in various forms.

How mortgage holders are affected will depend on their own product terms eg margins above base rate or if they are on fixed rates and when their promotional period end - bit of a mine field for those who haven't got a grip of this and planned for a BOE base rate rise.