The economic impact of Covid-19

[cheltenham_villa]

Just now, chrisp65 said:

 

It really really isn’t in everyone’s interests that house prices stay high. How is that in our kid’s interest?

It’s in your interest, currently, due to the way the system is currently contrived. But if the system changed once as you mention, why can’t it be changed again, to protect you against a change in loan to value?

  

 

But that ignores the impact on kids today if we see a return to 13% rates and half the country ends up in repossession.

The system does need to change to consider future generations. That change does not need to be limited to a house price crash though.

That's why we see part ownership, stamp duty cuts, first time buyer support, help to buy isas. All things designed to make housing affordable for the next generation.

 

[cheltenham_villa]

2 minutes ago, Genie said:

I think the best case is a stagnation of house prices so that wages catch up a bit because a collapse or reduction is not ideal for the majority either.

Large scale building of social housing could be a lever to achieve that as @chrisp65 mentioned.

I could see a rental scheme linked to compulsory purchase.

Is it harder now to get on the property ladder or just more expensive?

[chrisp65]

2 minutes ago, Genie said:

It sounds quite tricky and not “oven ready” to me.

I initially thought when you said a million homes it was a million social / council homes but it sounds like “normal” housing estates that the government will have an option to take a small percentage of at a discount if they wish? This could be the problem, the government is being drawn into the house builder shenanigans and things are stalled.

Do the government build any full on council estates any more? 

Central government don’t build social housing and they stopped local government using money from council house sales to build new replacement council houses. The system has been artificially buggered up to advantage private landlords.

Last year, councils around the UK managed to build about 12 to 14,000 council houses in total (I could be wrong, that’s off a quick google). Of course, the tenants will then have the right to remove them from the council stock list.

It’s currently a rigged system and has been for a very long time.

Hands up, this isn’t my field of expertise by a long way, it just strikes me as such an easy thing to fix, the aspiration that everyone that wants to, should be able to live somewhere decent. By decent, I don’t mean a driveway and countryside views. I mean not damp, not mouldy, not under threat of eviction if the landlord sees more profit doing something else and not costing you so much you are working to keep your head above water. Nobody has a right to a holiday or a car or even a tv. But I strongly believe they have a right to decent, healthy, secure, long term shelter. I don’t think that’s radical.

[jackbauer24]

4 hours ago, Genie said:

Where is the **** you economics?

A couple of low/minimum wage earners want to buy their first home. They save £8k for the deposit from whatever means (savings, family, gifts, onlyfans etc) now they can afford a 5% deposit on a £160,000 starter home which has a fixed price of £703 a month for the next 5 years.

I really can’t see the problem. 

I spend most of my time reading Off Topic and don't really feel the need to respond but this is fundamentally flawed.

Even assuming your maths is correct, currently the 'best' LTV mortgage available is 90%. Furthermore, some lenders want proof you saved the deposit yourself (think it's Nationwide) and it's not a gift.

So, 10% deposit is £16,000. You now need to save that from wages AFTER current rent and BASIC living costs. At best, after rent, utilities, transportation etc you're probably looking at £500 per month. That saves £6000 per year. But wait, house prices continue to rise by approximately 2.5% a year, on the house you mentioned that's £4000 more you now need.

And with a 'smaller' deposit you are offered much worse rates. Then add in location (very little house sized you can buy for £160k in South Birmingham) and the chances of a low income couple getting on the ladder is practically zero. Add in furlough or a kid or two and it's impossible.

Me and my partner are both quite successful teachers in S Birmingham and we don't find the process/cost easy so I can't imagine how those on lower than a £40/50k joint wage would even start.

The average age of a first time buyer was 23 in the 60s, it hit 33 this year and some reports say it could be 40 within the next decade. 

Without a massive windfall, a very cheap area, an extremely succesful career or a crash, housing will become increasingly difficult for more and more people. And remember, it's not just affordability too - that £160k might buy you a starter home (just!) now but it'll be a one bed studio in most places and housing continues to rise quicker than wages.

The housing market is broken so it will need to readjust or we need to make peace with most people renting all their lives while the rich are the only ones that own property.

[chrisp65]

8 minutes ago, cheltenham_villa said:

But that ignores the impact on kids today if we see a return to 13% rates and half the country ends up in repossession.

The system does need to change to consider future generations. That change does not need to be limited to a house price crash though.

That's why we see part ownership, stamp duty cuts, first time buyer support, help to buy isas. All things designed to make housing affordable for the next generation.

 

Do you believe stamp duty cuts and help to buy is as have made housing more affordable?

Surely if houses cost, as an example, 33% less, then wouldn’t an interest rate shock be less impactful? I’d rather my £50,000 mortgage go up to 13% than my £100,000 mortgage go up to 13%

I’m not absolutely sure what the connection is that you’re making with high interest.

[Genie]

7 minutes ago, jackbauer24 said:

I spend most of my time reading Off Topic and don't really feel the need to respond but this is fundamentally flawed.

Even assuming your maths is correct, currently the 'best' LTV mortgage available is 90%. Furthermore, some lenders want proof you saved the deposit yourself (think it's Nationwide) and it's not a gift.

So, 10% deposit is £16,000. You now need to save that from wages AFTER current rent and BASIC living costs. At best, after rent, utilities, transportation etc you're probably looking at £500 per month. That saves £6000 per year. But wait, house prices continue to rise by approximately 2.5% a year, on the house you mentioned that's £4000 more you now need.

And with a 'smaller' deposit you are offered much worse rates. Then add in location (very little house sized you can buy for £160k in South Birmingham) and the chances of a low income couple getting on the ladder is practically zero. Add in furlough or a kid or two and it's impossible.

Me and my partner are both quite successful teachers in S Birmingham and we don't find the process/cost easy so I can't imagine how those on lower than a £40/50k joint wage would even start.

The average age of a first time buyer was 23 in the 60s, it hit 33 this year and some reports say it could be 40 within the next decade. 

Without a massive windfall, a very cheap area, an extremely succesful career or a crash, housing will become increasingly difficult for more and more people. And remember, it's not just affordability too - that £160k might buy you a starter home (just!) now but it'll be a one bed studio in most places and housing continues to rise quicker than wages.

The housing market is broken so it will need to readjust or we need to make peace with most people renting all their lives while the rich are the only ones that own property.

I’m pretty sure the maths is fine. I’m not sure if this link will work, it was only a quick search but with the basic input of £8k (5%) deposit on a house worth £160k it generated lots of lenders, including the one I mentioned from Barclays at £709 a month fixed for 5 years. If the house price goes up 2.5% in a year then you’d only need another £200 on the deposit.
Obviously £160k gets different levels of quality in different areas. Where I live it’s gets a 2 bed semi in a reasonable part of town.

I apologise if I suggested it was easy to get on as a first time buyer, it’s harder than it was, it’s reasonably doable in my opinion with a bit of willing. If you’re in rented and saving a deposit it’ll be harder than if you were living with parents.

[Genie]

17 minutes ago, chrisp65 said:

Surely if houses cost, as an example, 33% less, then wouldn’t an interest rate shock be less impactful? I’d rather my £50,000 mortgage go up to 13% than my £100,000 mortgage go up to 13%

I’m not absolutely sure what the connection is that you’re making with high interest.

£180,000 mortgage over 25 years at 1.8% = £750 per month

£120,000 mortgage over 25 years at 10% = £1100 per month

Even at 6% £120,000 mortgage over 25 years is more than £180k at 1.8%.

[chrisp65]

17 minutes ago, Genie said:

£180,000 mortgage over 25 years at 1.8% = £750 per month

£120,000 mortgage over 25 years at 10% = £1100 per month

Even at 6% £120,000 mortgage over 25 years is more than £180k at 1.8%.

Why are we only getting high interest rates on lower price houses?

I’d have said £180k over 25 years at 10% will cost you more that £120k over 25 years at 10%

Why would only the low house price end up victim to high interest? I don’t see the link sorry? That’s the bit that I’m questioning.

Am I missing why expensive houses can’t have high interest rates?

[Genie]

7 minutes ago, chrisp65 said:

Why are we only getting high interest rates on lower price houses?

I’d have said £180k over 25 years at 10% will cost you more that £120k over 25 years at 10%

Why would only the low house price end up victim to high interest? I don’t see the link sorry? That’s the bit that I’m questioning.

Am I missing why expensive houses can’t have high interest rates?

I was joining the dots on where I think the other poster was going. 
We know that part of the reason for rising house prices is the low interest rates. If there was a big adjustment then that alone might not signal good news for first time buyers as the interest rate could swing the other way (it could actually drive the prices down) making paying the mortgage more expensive that it was with the higher purchase price/ lower interest combination.

If we knew what was going to happen we’d all be rich. 

Edited August 23, 2020 by Genie

[rayk]

Low interest rates for the last 10 years have been down to quantitative easing, as that has been the seen as the safest method for central banks to push money into the economy.

Remember its central banks that set interest rates and they want very low interest rates if they are buying up bonds (quantitative easing).

[HanoiVillan]

I would recommend Ian Mulheirn's report 'Tackling the UK housing crisis: is supply the answer?' as a potential antidote to the idea that massive house-building programmes would make any substantial difference in prices. The report can be found here: https://housingevidence.ac.uk/wp-content/uploads/2019/08/20190820b-CaCHE-Housing-Supply-FINAL.pdf

His basic argument is that net additions to the housing stock has exceeded household formation since the 1990s, and that this is why the number of unoccupied properties is larger than ever (660,000 more dwellings than households in 1996, 1.1 million in 2019). He also argues that rents have actually risen more slowly than average incomes. Instead, his conclusion is that:

'Weak wage growth, particularly since the financial crisis, and housing benefit cuts have disproportionately affected young people, reducing rent affordability for many of them even as it improves on average. A further factor is the erosion of social housing as an option for young people, with almost 700,000 more of them now having to choose between paying market rents or living with their parents, compared to 1996. Tackling these distributional problems directly is likely to be a far more effective strategy to help young people than additional market supply.'

I found the arguments quite persuasive to be honest, though I also think social housing needs to be a larger part of the housing mix, whether that means building more of these properties, allowing councils and other providers to buy them, or (whisper it) restricting Right to Buy in some way.

[Sam-AVFC]

For what it's worth I know a lot of property valuers, a few doing mortgage valuations, and the vast majority seem to be of the opinion we are overdue an 'adjustment' on residential property. Maybe not everywhere in the country, but London seems particularly overpriced.

The problem is that yields are so low now that, unless you want to be a slum landlord packing 20 people into a house, the only way to make money on your property investment is to rely on the capital values continuously rising; there are a hell of a lot of vested interests wanting/needing this to be the case, I just don't know how long it can continue. Rents in London are already way too high for your average person to keep up unless their wages are constantly rising or they keep moving to cheaper areas. I have noticed in a lot of areas rents seem to have levelled out quite a bit over the last couple of years. As the capital values keep going up and rents stabilise the yields will keep decreasing making them an increasingly unattractive investment. This in itself is likely to cause house prices to drop or rise lower than wage inflation.

Another factor that makes it likely house prices will drop is the huge amount of empty commercial space at the moment. Retailers are going out of business left right and centre and, as in 2008, landlords are taking tenants at a peppercorn rent just to get rid of business rates liabilities. The problem is there simply aren't enough people willing to go into a bricks and mortar retail business at the moment to fill this space. Further compounding it is the amount of businesses that are realising people can actually be trusted to work from home and as a consequence and will be looking to reduce office space when their leases are up. The net effect is there will be a hell of a lot of empty commercial property and potentially available to be turned into housing stock. A big problem is most shop and office to resi conversions (outside of prime areas) are done on the cheap and result in low quality housing, which wont improve if it's happening en masse. Less commercial property and less people paying business rates also means vastly reduced income for local authorities so they will have even bigger financial holes to fill.

[Sam-AVFC]

11 minutes ago, HanoiVillan said:

restricting Right to Buy in some way.

There always seemed a relatively simple solution to me. Simply have the council retain some percentage of profit above what was paid to be collected in probate or when a house is sold.

I used to do some Right to Buy valuations. I remember having to explain to a guy I worked with (who was relatively smart) how it doesn't do much to reduce housing inequality as it not only takes away council stock at a price they'd struggle to replace it, but someone who can afford a £30k deposit isn't really someone most at need.

[cheltenham_villa]

8 hours ago, chrisp65 said:

Do you believe stamp duty cuts and help to buy is as have made housing more affordable?

Surely if houses cost, as an example, 33% less, then wouldn’t an interest rate shock be less impactful? I’d rather my £50,000 mortgage go up to 13% than my £100,000 mortgage go up to 13%

I’m not absolutely sure what the connection is that you’re making with high interest.

My point is that you're ignoring the millions in the UK that already have a mortgage. If my house is worth 33% less, my existing mortgage wont adjust so I'm paying 13% on what I owe today. My belief is that this would bankrupt the vast majority of UK how owners

[cheltenham_villa]

Enjoying this debate. Another interesting thread has been the debate around social housing, its clear the government need to prioritise this more, I for one would not want to see large scale social housing being developed in concentrated areas. I like the modern method of integrating social housing into other new developments. I grew up in social housing and hate the stigma that comes with it. 

[snowychap]

30 minutes ago, cheltenham_villa said:

I grew up in social housing and hate the stigma that comes with it.

That's a problem. The stigma that comes with it is largely imposed from the outside even when it's repeated by those who live in it.

Another problem is Housing Associations. So many of them are amalgamating that they're becoming huge landlords covering a wide geographical area with a huge portfolio of properties being run as though the HA is a super (private but not for their own profit) landlord rather than as a social good. This is by design and not by accident, I fear.

I agree with you that more integrated areas are better (just as a general idea - though they often just shove the 'stigma' in people's faces, for example see some of the places with two entrances and play areas fenced off) but the government's recent planning proposals will see that further eroded, surely? And this is on the back of their attacks on section 106 obligations that go back to the days of the coalition.

HV's point (from the report) is interesting about whether supply would sort out prices but one would assume it's the only way to address the demand.

I'm not sure, for many of the reasons already discussed (including some of the things that you've rightly pointed out), that a government, certainly of a blue hue but probably a red one as well, could afford to be the ones holding the parcel if/when any ill effects from addressing all of the issues relating to housing were to hit the wider economy. I think we're in a situation where policy can't address it and that the only way government(s) could be forced in to actually doing what they obviously don't want to go near is if a catastrophe such as an implosion in the housing market were to force them to do something. The pretty catastrophic situation for the rest of people, i.e. those in need of social housing/affordable housing and the vast majority of those seeking to 'get on the housing ladder', is obviously not enough to get them to do anything other than tinker or use the situation to try and benefit their own vested interests (for which read donors or faithful).

[Stevo985]

10 hours ago, jackbauer24 said:

So, 10% deposit is £16,000. You now need to save that from wages AFTER current rent and BASIC living costs. At best, after rent, utilities, transportation etc you're probably looking at £500 per month. That saves £6000 per year. But wait, house prices continue to rise by approximately 2.5% a year, on the house you mentioned that's £4000 more you now need.

 

And just to add to this, I think anyone on minimum wage, even as a couple, managing to save £500 a month would be doing INCREDIBLY well. You'd have to be very careful earning that money and having to pay rent to have £500 left at the end of the month.

[lapal_fan]

My first house (in 2012 I think) was a ex-council, 3 bed semi (no garage and no "offical drive").  It needed absolutely gutting (not changed since it was built in 1965) and it cost £90,000. 

We couldn't live in it for nearly 6 months whilst we were knocking through the kitchen (tiny, tiny thing) and dining room and re-doing absolutely everything.  Saving up an 9k deposit (whilst living at home) wasn't the easiest, but we did it (I was on about 25k, my wife slightly less).  We lived there for 4/5 years and sold it for £130,000.  Not sure why it went up that much, in that short space of time, but the issue was the houses which were deemed "better" were going up proportionally.  

My second house (one I live in now) is a tradtional 3 bed semi (with a drive woohoo) and that cost £175k and we're looking at moving in the next 4/5 years and those houses are currently around £400k.  

My house is the most expensive house out of my entire family, and it's the smallest.  I've never over-stretched for a mortgage because we wanted kids (that's £800 a month in nursery for the first 3 years, which meant I could borrow £35k LESS than if I didn't have kids), plus we work and need cars, so there's £350 a month for something we bought and will run until it dies (I'm not into forever renting cars, if I lose my job, I need a car).

Anyhow, my first house which I sold for £130k 4 years ago?  The last one to sell on that estate went for £150k and they are ex-council houses bought for about 10k - 15 years ago.  

Even ex-council houses are too expensive for the people in their early 20s now. 

 

[Sam-AVFC]

3 hours ago, cheltenham_villa said:

I like the modern method of integrating social housing into other new developments. 

It's nice in principle but doesn't really work in the way it's implemented. You'll have councils and housing associations buying way overpriced property that is considered 'affordable' because it's 20% below the average price in a development. 

[HanoiVillan]

4 minutes ago, Sam-AVFC said:

It's nice in principle but doesn't really work in the way it's implemented. You'll have councils and housing associations buying way overpriced property that is considered 'affordable' because it's 20% below the average price in a development. 

There definitely needs to be a better definition of 'affordable', as the current one allows developers to mark their own homework IMO.