Are UK House Prices about to peak?

[88V8]

What might increase supply is x3 or x4 times Council tax on second homes and holiday lets,...

Don't joke about such things. Some US cities have, or are considering, an "empty homes tax". $5,000 a year in extra tax if you own a property but do not live in it and do not rent it out.

Rather hypocritically, I would approve of that. So many places are 'hollowed out' by the preponderance of second homes.
The hypocrisy arises because our holidays are generally in rented cottages..... so in some cases only 'hollowed out' during the winter, but that still means no shop.

It's funny isn't it, that despite the 'unaffordability' of houses, over my lifetime we've gone from two thirds renting to two thirds owning.

The other funny thing is the lack of pre-built housing. Factory built. That surely would make big inroads into the original selling price.
If cars were still built the way houses are built, few people would be able to afford a car.
Although of course those buying new houses must know they're paying over the odds compared to equivalent accommodation in the 'used' market.

Anyway, as to the title of this thread, any peak will be transitory given the level of immigration, the key factor in house price inflation. And totally under govt control.

V8

[Lanark]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

It seems like a no brainer because the population keeps going up and the house prices keep going so one must cause the other, but correlation is not causation.
Immigration puts a brake on wage rises which puts a limit on what people can pay in mortgage or rent.
A large immigrant population in an area may make it less desirable to others so they are less willing to pay high prices to live there.

[Nimrod103]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

[Mike4]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

House prices appear to me to follow lending criteria. When criteria loosen prices go up, when they tighten, prices tread water or slip back.

[Nimrod103]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

House prices appear to me to follow lending criteria. When criteria loosen prices go up, when they tighten, prices tread water or slip back.

Yes I get that relationship, but my point was that affordability hasn't changed. So buyers attitudes shouldn't change either. Property is currently in high demand, so potential buyers who want a decent house are disappointed. In the next few years, property may decline inprice, but so will the buyers ability to pay. So they will still be disappointed.

[Mike4]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

House prices appear to me to follow lending criteria. When criteria loosen prices go up, when they tighten, prices tread water or slip back.

Yes I get that relationship, but my point was that affordability hasn't changed. So buyers attitudes shouldn't change either. Property is currently in high demand, so potential buyers who want a decent house are disappointed. In the next few years, property may decline inprice, but so will the buyers ability to pay. So they will still be disappointed.

Yes quite. Buyers at the limits will just borrow as much money as the slackest lender is prepared to dish out, which broadly defines what they can pay and therefore what any competing buyer has to pay too. So the banks' lending/affordability criteria roolz and I hold that it's the banks' periodic taking of fright and their corresponding contractions in lending criteria that lead to the occasional price reversals.

[vand]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

House prices appear to me to follow lending criteria. When criteria loosen prices go up, when they tighten, prices tread water or slip back.

Yes I get that relationship, but my point was that affordability hasn't changed. So buyers attitudes shouldn't change either. Property is currently in high demand, so potential buyers who want a decent house are disappointed. In the next few years, property may decline inprice, but so will the buyers ability to pay. So they will still be disappointed.

er, you sure about that?
https://www.moneysavingexpert.com/tips/2022/03/23/

[xeny]

Yes I get that relationship, but my point was that affordability hasn't changed.

Food prices have risen significantly. Energy prices ditto.

Unless the income pie gets larger, how can the size of the slice available to spend on housing not be under pressure to shrink?

[Nimrod103]

The link between immigration and house prices is rather weak and unproven. I think that other factors such as the availability of credit play a far bigger part.

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

House prices appear to me to follow lending criteria. When criteria loosen prices go up, when they tighten, prices tread water or slip back.

Yes I get that relationship, but my point was that affordability hasn't changed. So buyers attitudes shouldn't change either. Property is currently in high demand, so potential buyers who want a decent house are disappointed. In the next few years, property may decline inprice, but so will the buyers ability to pay. So they will still be disappointed.

er, you sure about that?
https://www.moneysavingexpert.com/tips/2022/03/23/

My son is currently looking to trade up in housing. He has had an offer on his house at the (IMHO very optimistic) asking price. He is now looking for a new house and has bid on one and lost - there were 7 other offers. The market seems very bouyant at present. Prospective buyers clearly are not put off by imminently rising mortgage rates (have they actually risen yet?), and salaries seem to be rising rapidly. Even so, my son and many other buyers are finding affordability a real problem at present.

Next year, mortgage rates will be higher and maybe there will be the spectre of rising unemployment as well. This may in time force buyers to bid lower, and maybe more housing will come onto the market through forced sellers. However, I do not see how housing will become more affordable, except for those with the cash already in the bank.

The fundamental affordability will not have changed.

[Tara]

Explain to me how it works then. Credit availability high, house prices high, credit availability low, prices low. Affordability (or lack of affordability), exactly the same.

House prices appear to me to follow lending criteria. When criteria loosen prices go up, when they tighten, prices tread water or slip back.

Yes I get that relationship, but my point was that affordability hasn't changed. So buyers attitudes shouldn't change either. Property is currently in high demand, so potential buyers who want a decent house are disappointed. In the next few years, property may decline inprice, but so will the buyers ability to pay. So they will still be disappointed.

er, you sure about that?
https://www.moneysavingexpert.com/tips/2022/03/23/

My son is currently looking to trade up in housing. He has had an offer on his house at the (IMHO very optimistic) asking price. He is now looking for a new house and has bid on one and lost - there were 7 other offers. The market seems very bouyant at present. Prospective buyers clearly are not put off by imminently rising mortgage rates (have they actually risen yet?), and salaries seem to be rising rapidly. Even so, my son and many other buyers are finding affordability a real problem at present.

Next year, mortgage rates will be higher and maybe there will be the spectre of rising unemployment as well. This may in time force buyers to bid lower, and maybe more housing will come onto the market through forced sellers. However, I do not see how housing will become more affordable, except for those with the cash already in the bank.

The fundamental affordability will not have changed.

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

[Nimrod103]

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

They will become cheaper, but only more affordable to cash buyers.

If the potential buyer is buying with money borrowed at a higher mortgage rate, they will not automatically be more affordable.

To put it differently, the houses will be 20% cheaper because buyers will only be able to afford to borrow 20% less money.

[Tara]

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

They will become cheaper, but only more affordable to cash buyers.

If the potential buyer is buying with money borrowed at a higher mortgage rate, they will not automatically be more affordable.

To put it differently, the houses will be 20% cheaper because buyers will only be able to afford to borrow 20% less money.

There is no need for the mortgage rate to be higher. House prices can fall by 10% or 20% while mortgage rates remain the same, move higher, or move lower.

[Nimrod103]

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

They will become cheaper, but only more affordable to cash buyers.

If the potential buyer is buying with money borrowed at a higher mortgage rate, they will not automatically be more affordable.

To put it differently, the houses will be 20% cheaper because buyers will only be able to afford to borrow 20% less money.

There is no need for the mortgage rate to be higher. House prices can fall by 10% or 20% while mortgage rates remain the same, move higher, or move lower.

Can you cite a time when house prices fell, but mortgage rates remained constant or moved lower?

[Tara]

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

They will become cheaper, but only more affordable to cash buyers.

If the potential buyer is buying with money borrowed at a higher mortgage rate, they will not automatically be more affordable.

To put it differently, the houses will be 20% cheaper because buyers will only be able to afford to borrow 20% less money.

There is no need for the mortgage rate to be higher. House prices can fall by 10% or 20% while mortgage rates remain the same, move higher, or move lower.

Can you cite a time when house prices fell, but mortgage rates remained constant or moved lower?

It is not really relevant whether there has been a time or not. The fact is that there is nothing to prevent house prices from falling if mortgage rates remain the same or fall. The two things are not mutually exclusive.

[Lanark]

For first time buyers, if selling prices fall to reflect the higher interest, then the interest rate doesn't make much difference to the total long term costs

Consider a nominal repayment of £500 per month:

Borrow £100,000@ 3.5% - repayment rate 500/month
Total interest=£50,187
Total cost = £150,000 (150% of the initial value of house)

Borrow £70,000 @7.5% - repayment rate 500/month
Total interest=£85,188
Total cost = £155,000 (220 % of the initial value of house)

Where you do see more of a difference is if you buy at £100,000 but then interest rates rise to 7.5%:

Borrow £100,000@ 7.5% - repayment rate 739/month
Total interest=£121,697
Total cost = £221,697 (222 % of the initial 100K or 315% of £70k)

[Lanark]

It is not really relevant whether there has been a time or not. The fact is that there is nothing to prevent house prices from falling if mortgage rates remain the same or fall. The two things are not mutually exclusive.

Interest rates are a big factor but they arent everything. There are lots of times where you can find rates went one way and prices the other (or vice versa),
https://www.economist.com/img/b/290/534 ... WOC077.png

[servodude]

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

They will become cheaper, but only more affordable to cash buyers.

If the potential buyer is buying with money borrowed at a higher mortgage rate, they will not automatically be more affordable.

To put it differently, the houses will be 20% cheaper because buyers will only be able to afford to borrow 20% less money.

There is no need for the mortgage rate to be higher. House prices can fall by 10% or 20% while mortgage rates remain the same, move higher, or move lower.

Can you cite a time when house prices fell, but mortgage rates remained constant or moved lower?

It certainly seemed that way in 2008-2009.
Was mostly looking at Edinburgh at the time, I presume some other places were different.
I sold up in Feb, moved out March; UK base rate was ~5% at the time
... it was ~2% by December.
Guy I sold the place to was underwater for the best part of a decade.
Surely you can't have missed all of this? I'm sure it must have made it in to the Daily Mail?

[Mike4]

Well if house prices fall by 10% then housing will become more affordable.

And if house prices fall by 20% then housing will become even more affordable.

And so on.

They will become cheaper, but only more affordable to cash buyers.

If the potential buyer is buying with money borrowed at a higher mortgage rate, they will not automatically be more affordable.

To put it differently, the houses will be 20% cheaper because buyers will only be able to afford to borrow 20% less money.

There is no need for the mortgage rate to be higher. House prices can fall by 10% or 20% while mortgage rates remain the same, move higher, or move lower.

Can you cite a time when house prices fell, but mortgage rates remained constant or moved lower?

It certainly seemed that way in 2008-2009.
Was mostly looking at Edinburgh at the time, I presume some other places were different.
I sold up in Feb, moved out March; UK base rate was ~5% at the time
... it was ~2% by December.
Guy I sold the place to was underwater for the best part of a decade.
Surely you can't have missed all of this? I'm sure it must have made it in to the Daily Mail?

This is a good illustration I suspect, of how bank lending criteria are just as important as interest rates. Was 2008 not when the crash was happening and lenders tightened their lending criteria, fiercely reducing earnings multiples and increasing deposit percentages? The effect on house prices was to cause a slip despite BR falling.

[Nimrod103]

It is not really relevant whether there has been a time or not. The fact is that there is nothing to prevent house prices from falling if mortgage rates remain the same or fall. The two things are not mutually exclusive.

Interest rates are a big factor but they arent everything. There are lots of times where you can find rates went one way and prices the other (or vice versa),
https://www.economist.com/img/b/290/534 ... WOC077.png

But the only significant house price drop in both graphs (which start in 1995) occurred at the point where the real mortgage rate changed direction to an upward trajectory.

[88V8]

If prices fall to any great degree, recent buyers will be underwater and there will be more defaults so lenders will pull in their horns.

Our first house was bought, with the aid of a mortgage broker, at 3 x main earnings and 2 x second earnings.
But at 15% interest it did not feel 'affordable' and when rates went to 17% it felt even less so.

We needed the mortgage broker because the required deposit was 20% which we didn't have, and he found a lender who was prepared to lend with a guarantee policy for 10%.

Between then - 1974 - and when we sold - 1980 - the selling price went up two-and-a-half times, and our salaries went up even more, so the repayments shrank from unaffordable to hardly noticeable.

Piece on the wireless this morning of which I caught the tail end, about the high number of houses being sold pre-market in hotspots such as the Cotswolds, The interviewee did suggest that the bubble may be approaching a gentle deflation.

V8