UK Property Market Stagnating

[Gastines]

I wonder how the Exchequer will make up for the loss of revenue from Stamp Duty/Inheritance Tax/Death Duty +VAT, if there is a devaluation on property prices by a third? The Council Tax bills will of course be quickly adjusted to take in this depreciation?

Regards.

[Russethouse]

Guy I spoke to when opening a new bank account said that increasing VAT to 22% may be the way forward, not least because everyone pays it and its not like other taxes which can more easily evaded or avoided.......I wonder if Alistair Darling has reached the same conclusion?

[woolybananasbrother]

Why not tax the profits on house sales of primary residences on a sliding scale based on time occupied?

[Russethouse]

Because its better for people to move 'up' and release more afforable housing. Otherwise we would be building even more houses.

[Ian]

House price falls are good news for those "moving up" the property ladder...well so the logical part of my brain says!

[Gluestick]

Since the late 60s, there has been a preconception amongst an increasing number of people that they must "Move up the property ladder".

All well and good.

Unfortunately, this has been predicated on incomes net of tax and NIC increasing at the same rate as property price inflation; otherwise, it's simply not affordable.

Classically (textbook number) house prices have equated to circa 2.5 times gross income.

With UK average income at circa £26-7000 and the average house price at £ 175,000 and taxes at an all time high, then it doesn't take  rocket scientist to realise why there is a problem!

Since 1997, when the B of E synthetically reduced base rates to a 50 year low and mortgage lenders were increasingly competing with each other to garner an ever larger share of the market, on the back of Securitised Debt Instruments (which effectively increased their capital lending base, exponentially), skads of money from non-traditional sources - in this case the interbank market -  lenders and speculative builders could address a hithertoo untapped segment of the market: those with a salary but zero deposit.

Accordingly lenders outbid each other in offering up to 130% LTV (Loan To Value) ever-exended tenor (periods) up to and exceeding 30 years; low start; etc.

Buyers could and did "Churn" their debt by switching and every time they "Moved Up", they re-mortgaged, for more, thus instead of owning an increasing amount of equity, they were simply extending their debt obligation.

Just yesterday a young couple were interviewed on TV and were "astounded" that they were unable to obtain a 100% mortgage!

Welcome to the real world.

The whole of this carnival of nonsense was predicated on an effective rate of interest which was so very low (in relative terms), that borrowers could afford larger and larger mortgages since the interest cost was so low.

Thus the market became insanse and prices went far, far ahead of earnings.

All that has now happened is that the interbank market (a non-traditional source of funds for mortgage lenders) has, as it does, seen the light and shut the till.

When I first wrote a recent analysis of the UK economy back in June 2004, the total value of residential property represented circa 55% of the total value of the UK, capitally!

Last year this has risen to well over 60%! This valuation includes all roads, ports, airports, factories, government buildings and businesses.

And you cannot export houses!

(Source Government's ONS).

As a matter of interest, the developed proportion of the whole of the UK landmass is microscopic: when compared to the total landmass.

And that huge majority undeveloped landmass is owned, mainly, by families who can trace their anteceedents back to William the Conqueror, who stole the land from the Saxon peasant and gave it to his Norman Knights.

And that's the core reason for the wholly dysfunctional UK property market, since with average houses, the land value represents circa 80-90% of the gross value.

Plus çe change........................

 

[Quillan]

[quote user="Russethouse"]

Have the telegraph never heard of supply and demand then ?

[/quote]

With lenders tightening the strings and some now not giving mortgages to first time buyers this will have a knock on effect all the way up the chain which will slow moves down and add to people asking more realistic prices for their property. Looking at the repossession figures especially the Buy to Let ones there is a lot of property for sale that coupled with a stagnating property market because people can't get loans means that supply is now outstripping demand. I looked on Right Move yesterday and saw quite a few houses discounted down, one had dropped from 225,000 to 189,000 that's a 26,000 drop and I bet if somebody offered them 180,000 for cash they would probably bite their hand off.

I see the £ against the Euro seems to have bottomed out now with a slight increase. If you want to go back to the UK now might not be such a bad time, good exchange rate and cheaper housing on the way, a win, win situation I would think.

[Russethouse]

I think there is another reason for either buy to let's being on the market or them not being so popoular and thats something to do with 'taper relief' being abolished I think. I can't remember the details.

Our first mortgage was based on 3.5 times our joint income I think or 3 times Mr RH plus half of mine. I found the letter Mr RHs employer at the time wrote the other day, a work of pure fiction [:-))][:-))]

[Alan Zoff]

[quote user="Russethouse"]

IOur first mortgage was based on 3.5 times our joint income I think or 3 times Mr RH plus half of mine. I found the letter Mr RHs employer at the time wrote the other day, a work of pure fiction [:-))][:-))]

[/quote]

I bet that was nothing compared to the fiction writing on some of the self-certification mortgages that have been arranged over the past couple of years.... These borrowers must be s......g themselves, with fixed rate periods ending and property values falling below loan values.

[Quillan]

I think I read somewhere that in France it's done on your take home pay something like the repayments per month cannot be more than 1/3 of your (or couples) monthly take home or something like that. If that's true then it seems a good idea to me.

[AnOther]

Not far wrong.

French Mortgage

The French appear significantly more circumspect and cautious than the Brits when it comes to borrowing, something to do with being generally poorer in the first place perhaps ?

[Gluestick]

[quote user="Russethouse"]

I think there is another reason for either buy to let's being on the market or them not being so popoular and thats something to do with 'taper relief' being abolished I think. I can't remember the details.

Our first mortgage was based on 3.5 times our joint income I think or 3 times Mr RH plus half of mine. I found the letter Mr RHs employer at the time wrote the other day, a work of pure fiction [:-))][:-))]

[/quote]

There are two core current problems with the B2Let market, RH.

One, is clear over-supply. Many people rushed to property as a hedge against inflation - they thought - rather than pensions after the disastrous last few years.

As the market zoomed, those holding an increasing portfolio could leverage and re-leverage, since most B2 Let lenders set 20% deposits for new lending.

Thus by re-mortgaging each couple of years, landlords could keep adding to their holdings for no extra capital injection.

CGT: yes you are correct. If the portfolio was treated by the Revenue as a Business Asset, then  after Four Years with Taper Relief then the gain was principally tax free. (Excepting when the gain, taken out as profit, would be taxed either under Corporation Tax or Schedule D Case IV, self employment income tax).

The new CGT regime takes away Taper Relief (which itself replaced Indexation for inflation) and increases the effective gain on liquidation of the asset/s.

There was and is little profit to be taken out on a straightforward letting basis: as Mrs G and I know only too well!

There is going to be a lot of pain from hereon out, as mid-sized and over-borrowed B2Let portfolios are unwound!

What people do forget is that gross rental income (The Rent Roll) is taxable under Schedule A; tax arising being gross rental - interest - any qualified costs (insurance, accountancy, management fees etc) but NOT, of course, any capital repayments. Thus a poor investment can now result in increased interest costs wiping out any profit and even a tax bill on top!

Assessing Income Multiples with scant regard to fact and truth has been yet another core problem of the last ten years: particularly so where brokers have been involved!

We've had brokers demanding that we lie about client's incomes: when I have informed these clowns that for me to do so is a criminal offence (False Accounting: conspiracy to obtain credit by fraud) for them and myself they haven't seemed to care..........

Shame a hundred or so weren't locked up as they ought to have been.

 

[Quillan]

[quote user="ErnieY"]Not far wrong.

French Mortgage

The French appear significantly more circumspect and cautious than the Brits when it comes to borrowing, something to do with being generally poorer in the first place perhaps ?
[/quote]

Well that seems a much better idea to me, I wonder if this is unique to France ?

[Scooby]

[quote user="Gluestick"][quote user="Russethouse"]

I think there is another reason for either buy to let's being on the market or them not being so popoular and thats something to do with 'taper relief' being abolished I think. I can't remember the details.

Our first mortgage was based on 3.5 times our joint income I think or 3 times Mr RH plus half of mine. I found the letter Mr RHs employer at the time wrote the other day, a work of pure fiction [:-))][:-))]

[/quote]

CGT: yes you are correct. If the portfolio was treated by the Revenue as a Business Asset, then  after Four Years with Taper Relief then the gain was principally tax free. (Excepting when the gain, taken out as profit, would be taxed either under Corporation Tax or Schedule D Case IV, self employment income tax).

The new CGT regime takes away Taper Relief (which itself replaced Indexation for inflation) and increases the effective gain on liquidation of the asset/s.

[/quote]

Just a correction - taper relief has never been available to corporates.  Corporates retained the old rules (with indexation allowances).  Similarly, the change to 18% flat rate CGT only applies to individuals, partnerships, trusts etc - not to corporates.  In any case Schedule A let property (buy to let) does not qualify as business property for the purpose of taper relief.  The only let properties that were eligible for taper relief were furnished holiday lettings which qualify as a Sched D (VI) trade.

[AnOther]

I agree but I don't know about other countries except for Italy where I believe a similar situation may prevail.

Be it right or wrong I have a pet theory that the initial impetus for todays dire predicament was fundamentally set in motion by dear old Maggies Council House "Right to Buy" scheme.

Indeed, with the benefit of a massive discount and a small mortgage which was not a great deal more than the previous rent had been, this was how I first got on the property ladder. I then more than doubled my money when I sold a mere 2 years when the obligation to pay back the discount expired, the rest is, as they say, history !

[Gastines]

If you buy and sell in the same area, it seems fairly obvious that you will get like for like. To go up the ladder you either have to put your own savings in or borrow a bit more on your mortgage,ie against the higher value of the new property.I think a vast majority of my age group had as much chance of buying as the majority of todays first time wannabees. Some of us have Lady Thatcher to thank just as much as the amount of work or money we put in.I was lucky enough to be in a Co-ownership block. Co-ownership being a title that means the opposite,you don't,  co-own anything. At the time I was told by the agent that a portion of the rent was being paid off the mortgage and if I sold I would get a cash sum. NO!!!  I was very naive then and just glad to get somewhere to live.In Bournemouth at that time property to let was virtually non existent.   However,along came Mrs T and the Housing Act , although Co-Ownership was at first omitted and I spent 3 years getting a scheme together so our flat residents could buy with no help from The Housing Corporation but a lot of obstruction. The only way upward then for most tradesmen was to buy a property that needed work and just try and move up each time. My wife and I moved 10 times before we got out of the woods and mortgage racket but the effort was worth it and we only have ourselves to thank. The problem now seems to be a result of the greed of the Lenders and their Agents into basically kidding the general public that they can borrow what they like with very little of a cost evaluation to the borrower. I expect the latest scam to be revealed will be the Equity buy out schemes so that the banks etc. can get their hands on your property for a fraction of it's worth.

 A good example of todays lenders is the double-glazing ad on TV. Windows cost £3200, nothing to pay first year then pay over 3 years, repayable sum £8400. Not bad interest!!

Regards.

[Scooby]

[quote user="Gastines"]

 My wife and I moved 10 times before we got out of the woods and mortgage racket but the effort was worth it and we only have ourselves to thank. The problem now seems to be a result of the greed of the Lenders and their Agents into basically kidding the general public that they can borrow what they like with very little of a cost evaluation to the borrower. I expect the latest scam to be revealed will be the Equity buy out schemes so that the banks etc. can get their hands on your property for a fraction of it's worth.

 A good example of todays lenders is the double-glazing ad on TV. Windows cost £3200, nothing to pay first year then pay over 3 years, repayable sum £8400. Not bad interest!!

Regards.

[/quote]

Last attempt - tried to post this five times now - with server application error each time!

First of all, unsecured credit offered on double glazing is not the

same as secured lending by a high street bank.  Secondly, I work for a

high street bank and, believe it or not, I spent three hours at a high

level, strategic planning meeting last week discussing the current

crisis, the increasing level of repossessions, and our position as a

bank going forwards.  Quite a significant amount of time was spent

discussing this issue - with the primary objective of ensuring we

treated our customers fairly.

[Gluestick]

[quote user="Scooby"][quote user="Gluestick"][quote user="Russethouse"]

I think there is another reason for either buy to let's being on the market or them not being so popoular and thats something to do with 'taper relief' being abolished I think. I can't remember the details.

Our first mortgage was based on 3.5 times our joint income I think or 3 times Mr RH plus half of mine. I found the letter Mr RHs employer at the time wrote the other day, a work of pure fiction [:-))][:-))]

[/quote]

CGT: yes you are correct. If the portfolio was treated by the Revenue as a Business Asset, then  after Four Years with Taper Relief then the gain was principally tax free. (Excepting when the gain, taken out as profit, would be taxed either under Corporation Tax or Schedule D Case IV, self employment income tax).

The new CGT regime takes away Taper Relief (which itself replaced Indexation for inflation) and increases the effective gain on liquidation of the asset/s.

[/quote]

Just a correction - taper relief has never been available to corporates.  Corporates retained the old rules (with indexation allowances).  Similarly, the change to 18% flat rate CGT only applies to individuals, partnerships, trusts etc - not to corporates.  In any case Schedule A let property (buy to let) does not qualify as business property for the purpose of taper relief.  The only let properties that were eligible for taper relief were furnished holiday lettings which qualify as a Sched D (VI) trade.
[/quote]

 

Yes I agree about Business Asset Relief on B2Let, Scooby. Shows one ought not to try and do three things at once. Trying to clear my desk for the weekend.

Failing!

I have also been struggling with the server cutting me out time after time! Not conducive to clarity of thought!

Poor writing on my behalf about Limited Companies: I didn't mean that Taper Relief did apply to them: rather meant that if the profit is withdrawn (thanks to NCDs!!), the withdrawn profit would fall to tax: even as a dividend now, sadly.

Again shows one ought not to try and do too much at once!

Thanks for the correction.

 

[Russethouse]

From the Mail today :

http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=556769&in_page_id=1770

[Benjamin]

It's OK it's stopped stagnating: now it's falling like a stone. Another of today's Reuters reports.

By Matt Falloon

LONDON (Reuters) - House prices fell in March at their sharpest pace

since the recession of the early 1990s, the country's largest mortgage

lender said on Tuesday, raising expectations interest rates will be cut

this week.

Prime Minister Gordon Brown, whose popularity has slumped, quickly

sought to calm fears of an economy on the slide, saying the decline was

"containable" and a tiny reversal of the huge house price rises seen

since his Labour government came to power in 1997.

House prices fell 2.5 percent during last month, the Halifax said,

more than six times as much as analysts had forecast and the largest

monthly decline since September 1992.

The surprisingly severe drop reinforced opinions that the housing

market faces a bleak year as mortgage lenders grow more cautious and

the credit crunch feeds through to households.

The annual three-month rate of house price inflation stood at 1.1 percent. Six months ago, that rate was in double figures.

[Alan Zoff]

I was amused by the comments made recently by Ray Boulger, a top man at John Charcol, one of the biggest UK mortgage advisers.

He had picked up on the "conspiracy" between certain mortgage lenders to avoid using negative words such as "crisis" or "problem". Instead, the reason for not being able to lend is down to positive factors such as excessive demand or "financial prudence". Nothing to do, of course, with an international credit squeeze and inability to raise the funds to lend.

And as Boulger rightly comments, this begs the question as to why they have only just decided to become prudent lenders!!! 

[Quillan]

'They" (I would like to meet this bloke called 'They' he has a lot to answer for) on the C4 News said by 33% by the end of the year. I am sure the 'experts' talk the rate down at times but we will see.

[bigears]

hi

For anyone wishing to move 'back' to the UK, if you can sell your house here, you will be in a good position to buy, what with the advantageous exchange rate and the falling UK property prices.

 

[AnOther]

That'll be one piece of good fortune then for those caught out by the health changes and forced to go back !

Maybe somebody should set up a property exchange for those trying to sell in UK to move to France and vice-versa.

Personally I have always been convinced that the crash was going to far far worse than the industry were admitting to, let alone predicting, and I won't be a bit surprised to see 25/30%, how glad am I that I got my house sold last August [:D][:D][:D]

With the current price levels and lack of confidence, plus the disappearance of 100% + mortgages the 1st time buyer is an extinct species and without them the market grinds to a complete halt.

Great timing for those ridiculous and useless HIPs too wouldn't you say ?

Framboise: If you read this I hope it's worked out for your friends [blink]

http://www.completefrance.com/cs/forums/3/1056653/ShowPost.aspx#1056653

[Quillan]

Well I know who 'they' are now, I have seen them in the flesh. They were on News Night last night being interviewed by none other than the great Jeremy Paxman. They are a bunch of experts on house prices and the economy, quite eminent in their field (well thats how they were introduced). The first question asked was how much they thought house prices would fall by and the answers were 5%, 10 to 15% and 30 to 40% respectivly. I have come to the concusion that my method of  throwing darts at a board and flipping a coin (for more expert advice) is pretty accurate.

I also saw in the news that Experian have done a review on negative equity which has been picked up by the Telegraph. It's not quite as detailed as the report on TV last night which said it also effected South Wales, Scotland and Briton but their is a link to a map from Experian that shows the areas at currently at risk

Telefraph Artical - http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2008/04/08/ncredit208.xml