
Apocalypse now: London’s property crash has begun - randomname2
https://medium.com/@dreilly35/apocalypse-now-londons-property-crash-has-begun-4bd489e594ce
======
slivym
I'm sorry, but this article just seems bizarre. It's not economically literate
- it doesn't actually examine the cost of a house relative to earnings and
access to mortgages. It doesn't make any attempt to quantify how much money
foreign entities actually invest in London. It doesn't cite any evidence that
prices have even started to drop!

Let me tackle this. Firstly, interest rates are still at historic lows, it's
cheaper to buy a house and pay the mortgage than to rent, so that core reason
to buy is still there. The only limit is deposits. The government has just
handed £5k to every first time buyer in London (stamp duty cut). That's not
going to cause lower prices.

Foreign investment doesn't come from Saudi Arabia, it comes from Hong Kong and
Singapore and Malaysia.[0] So his entire argument there is just misinformed.

None of the evidence he sighted actually points to a price crash now - it
points to long term pressures for prices to drop. You could have made that
argument 5 years ago.

Don't get me wrong, I'm not saying house prices won't drop at some point. This
just doesn't argue it at all well. It's more wishful and wishy washy thinking
that anything else.

There are far better arguments that the prices will drop in 2019/2020 - when
interest rates recover, buy-to-let investors will get stung by harsher taxes
and Brexit actually happens.

[0] [https://www.theguardian.com/society/2017/jun/13/foreign-
inve...](https://www.theguardian.com/society/2017/jun/13/foreign-investors-
snapping-up-london-homes-suitable-for-first-time-buyers)

~~~
cjrp
Plus the additional stamp duty on second properties, reducing the
profitability of BTL

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RobinL
As a Londoner, I'm sad to say high property prices seem sustainable.

With a decent deposit, you can borrow long term at around 2%, which makes
living in a £0.5m flat cost £10k a year, less than £1k a month. That's very
affordable for a couple.

The problem is the vicious cycle of low interest rates. I would argue that
most important variable affecting house prices is long term expectations of
interest rates. Very (very!) roughly, if long term mortgage interest rates
half, we would expect property prices to double.

In the past decade, property prices have been driven up by very low interest
rates, which have meant that's its affordable to service very large mortgages.
Interest rates have stayed lower, for longer than anticipated, which has
driven higher and higher prices

The problem is that these low interest rates have increased the potency of
monetary policy: with higher house prices, an increase of 1 percentage point
on mortgage rate hits you really hard. Previously a movement from say 5% to 6%
interest on your mortgage mattered less.

This means that rises in interest rates will be smaller and take longer than
historically, 'locking in' high property prices. I don't expect to see
interest rates return to 'normal' levels any time soon.

I'm not arguing that the market is not overinflated, but I doubt there will be
anything like an apocalypse. Maybe we see prices coming down 10%-20% at most.

~~~
soVeryTired
> Very (very!) roughly, if long term mortgage interest rates half, we would
> expect property prices to double.

This is only really true if interest payments dominate capital repayments. A
move from 10% to 5% (which happened in the years 1995-2005 [0]) might cause
prices to double, but a move from 0.5% to 0.25% won't.

On the other hand, it's instructive to play with a mortgage repayment
calculator. You can get a five-year fixed rate on a 25 year mortgage for 2%
per year at the moment: that means £424 / month. If the rate increases to 3%,
you pay £474/month. That's an 11% increase in mortgage payments - i.e. an 11%
drop in purchasing power. So either people pay more on their mortgages or
house prices drop.

The market is only pricing in a rate hike of about 0.4% in 2018. All other
things equal (which they never are) the pricing of swap rates suggests a drop
of 5%. It's worth remembering we're in a hiking cycle.

[0]
[http://www.bankofengland.co.uk/boeapps/iadb/fromshowcolumns....](http://www.bankofengland.co.uk/boeapps/iadb/fromshowcolumns.asp?Travel=NIxSTxTIxSUx&FromSeries=1&ToSeries=50&DAT=RNG&FD=1&FM=Jan&FY=1963&TD=20&TM=Feb&TY=2018&VFD=Y&VPD=Y&html.x=20&html.y=16&CSVF=TT&C=EP0&Filter=N)

------
HenryBemis
One thing that really makes me angry about owning property in England is the
(imho) fraudulent setup where I buy house (or flat) and have to pay rent to
the land owner. Yes, that is right. The LAND doesn't come with the HOUSE.

Also money laundring helped plenty, on insanely inflating the prices - money
from anyone who could afford this. There are buildings in London that are
empty. Kind of like a piece of jewelery that you keep as a safe-keep in the
safe (but only bigger).

That said, it is a pitty that plenty of people will see that they got a
mortgage of 999 for a flat that "now" costs 200-300,but it is healthy for this
parasitic/fraudulent behaviour to end.

~~~
deadbunny
Freehold properties are by far the norm in the UK. Leasehold usually only
applies to flats/appartments. You are making it seem like leasehold is the
norm which is absolute nonsense, dare I say fraudulent.

~~~
MistahKoala
Flat conversions aside, what he's describing is a common practice amongst
builders of new-build homes, which I assume is the experience he's most
familiar with.

Developers will allow the freehold to be purchased, although restrictive
covenants can be attached - in effect, binding the homeowner to similar
restrictions as if they were still leaseholders.

The Government recently announced that it would be banning the practice of
charging ground rent for properties on leaseholds longer than 21 years.

[https://www.gov.uk/government/news/crackdown-on-unfair-
lease...](https://www.gov.uk/government/news/crackdown-on-unfair-leasehold-
practices--2)

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ilikerashers
A rather thin and sensationalistic piece. While everyone would love for
property prices to crash, share prices to collapse and everything to become
miraculously cheap again, nothing mentioned hints at this.

Oil prices? Might have driven the run up in properties in Mayfair but are all
these owners suddenly going to hit the market to sell as they desperately need
cash? I don't think these buyers are particularly hard up.

Similarly, the 8k debt figure is across the UK. Not really relevant to those
spending £1 million+ in central London.

Yeap, it's depressing for buyers in London, SF and NY. Either figure out how
to make a high salary or don't try climbing that ladder!

~~~
cm2187
There is certainly a significant slowdown and a tsunami of stock of new built
luxury towers coming to the market. Just in canary wharf you have perhaps 10
residential sky-crappers in construction now. They started slashing the asking
price but I don't even know if all of them will be completed. While rates are
low, sellers can abstain from selling which is what I understand is happening
now, transactions have dried out. But rates are on the way up and people will
be forced to sell (relocation, divorce, family expanding, inheritance, etc).

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FridgeSeal
> the prospect of Jeremy Corbyn waiting in the wings to become Britain’s next
> Prime Minister is a rather more relatable bad omen for London property
> values.

This seems to be contradicting itself: it's not a bad thing that house prices
come down if they're too high. Arguably they _should_ be brought down if
they're too high (ideally in a more controlled manner, no one wants prices to
collapse in a catastrophic manner). As such, shouldn't we be welcoming
Corbyn's strategy here?

> While undoubtedly a lovely sentiment, Jez, making state confiscation threats
> out loud isn’t great for shifting houses to minted foreigners.

As if we should endeavour to endlessly bow to the wishes of foreign investors?
Running your own country into the ground and making it hard for your own
citizens to live there doesn't do you any favours. Foreign investors should
take a backseat to ensuring the people who live and work there can actually
afford to and aren't having to suffer exorbitant rents.

~~~
tajd
It entirely depends on your perspective. I think the article is relatively
balanced on either side, both stating the positives and negatives for the
property market failing and also making tongue in cheek remarks about
Londoners.

Personally I think the state stealing property is not a good thing, however,
this could be a good thing if you take the opposing view.

~~~
FridgeSeal
Whilst attempting to seem like they're presenting both sides of the argument
they do misrepresent what Corbyn says: he's never says or implies that the
state will steal the property, he says houses/apartments/etc that are kept
vacant would be bought and turned over to residents who need the
accommodation.

I don't think it's particularly partisan to say that's not a bad thing, in my
experience when the government buys something off citizens they usually do it
for a very good price, so it's not like it will be taken from them with no
notice and no recourse.

~~~
tajd
Ah, I have not kept myself well informed enough. Thanks for clarifying!

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leocassarani
>>> While undoubtedly a lovely sentiment, Jez, making state confiscation
threats out loud isn’t great for shifting houses to minted foreigners.

I found this passage very strange. Throughout the article, the author seemed
to be advocating the position that most Londoners seem to hold: that houses
should be for people to live in, and not for overseas property investors to
use as an investment vehicle. So why should anyone be concerned about
"shifting houses to minted foreigners"?

Legislation that would stop housing being kept deliberately empty by overseas
investors has been shown to be hugely popular with the public – but that's not
mentioned by the article, either.

~~~
marrs
I think he was just pointing out that it is contributing to the uncertainty in
the market, and therefore increases the chances of a crash. I didn't read it
as a criticism of Corbyn per se.

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nextweek2
Title should read:

"London house prices suffer a blip, will recover in a year to 18 months"

Read the blogs own reference: [http://uk.businessinsider.com/london-house-
prices-2-drop-in-...](http://uk.businessinsider.com/london-house-
prices-2-drop-in-2018-2018-2)

2% is not a crash, nor an Apocalypse...

~~~
otp124

      > 2% is not a crash, nor an Apocalypse...
    

Perhaps overall, but the article is mostly talking about the high-end market.
From the reference:

    
    
      > Prices falls are concentrated in the most expensive areas of London...
      > The top 11 of London's 33 boroughs are down an average 7% annually...
      > Kensington & Chelsea .. have fallen sharply there by 12.9% in the last year — more than £200,000.
      > Prices in Camden fell 10.8%, the City of London by 18.2%, and in Wandsworth by 12.7%.
    

Perhaps you meant the lowest end, as this part more closely resembles your 2%
drop:

    
    
      > The 11 cheapest boroughs have seen a modest fall of 1.3% over the year overall...

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newhere420
>>> the cost of getting by — long ago went past insane (£17,040: the cost per
year of educating a four year-old child at Thomas’s school in Fulham, not
including uniform).

Note that this is only if you send your child to private school, not merely
"getting by". Even among the middle classes, this is not very common,
especially at four years old. The nicer parts of London have some of the best
state schools in the country.

~~~
Oras
Spot on, and looking at the last paragraph: > Whisper it: 2018 will be the
year smug Londoners finally stopped boring on about basement and loft
conversions at smart dinner parties Sounds like someone who just against rich
rather providing facts. The article seems to target the expensive areas in
negatively emotional approach.

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Moodles
Another thing which non-UK readers might not be aware of is that the UK
government introduced a "Help to Buy" and "Lifetime" ISA, which is essentially
an account with some bank where, any money you put in (up to a certain limit),
the government will give you an extra 25% free if yiou use it to buy your
first home. While this might seem to help with home ownership, I think studies
have shown that it only really benefits people who were already saving hard,
and thus it only really contributes to house price inflation. I'd be
interested to know if other countries have similar schemes.

~~~
i_feel_great
Australia has the "First Home Buyer's Grant". It just serves to inflate the
general price of houses though.

~~~
FridgeSeal
Yes, it's a pity that went south.

For readers not familiar with this mechanism in Australia, sellers just raised
prices by the value of the grants.

~~~
evgen
And for people not familiar with economics, the pool of potential buyers all
ended up with the same bonus and used that bonus to bid up the fixed pool of
available housing stock.

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SCdF
Which London though?

There are a lot of different boroughs, and the way their house prices move
seem to be somewhat independent of each other.

The bottom falling out of Kensington because there is no oil money seems like
a vastly different situation to just generally people wanting to live in outer
suburbs.

~~~
HenryBemis
I don't think that any borough was left un-manipulated. I spent some time in
Deptford.. (yes Deptford).. very lovely and alive place, nice community gym,
flea market, train lines that take you to LB/CS..

A 30sqm studio went for £1.3k. With that money in some EU capitals you rent a
3 bedroom flat in a brand new & modern building (parking included).

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DrBazza
Nope. Demand still exceeds supply otherwise the government wouldn't be trying
to build thousands of new houses and flats each year. Also, London is an
employment hotspot. When people stop moving to London, then prices will drop.
UK _net_ migration is still over 200,000 a year, so that's 200,000 people on
the demand-side of property prices.

~~~
jwblackwell
I think the top of the market is falling as foreign buyers are deterred for
various reasons. You are right though, there is so much demand for entry level
homes a substantial crash is unlikely

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stuaxo
Most people aren't sending their kids to private school, I stopped reading at
the point where they talked about school fees - this simply doesn't affect the
majority of people.

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cup-of-tea
While it might happen, I can't help but think articles like this are partly
wishful thinking and partly trying to be self-fulfilling prophecies. I find
it's extremely hard to get unbiased opinion about markets, even from friends,
because you just don't know if they are actually in the market themselves.

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jwblackwell
Having been observing the market closely for a few months, it does look like
the asking prices for many £1-3M properties are being reduced. When you
consider inflation is running at 3% in the UK currently it's easy to see house
prices fall by 10% this year.

On the high end, it's easy to see that figure reach 20-30%. At the entry level
of the market though, there is still so much pent up demand for housing I
personally can't see any significant falls, just growth flatlining.

~~~
sjtgraham
Asking price is irrelevant, the price at which the property exchanges
ownership matters.

It's like the people that insist their super special collectible widget is
worth $5000 because there is an eBay listing with that price that has been up
for 7 years and not sold.

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ourcat
The sentence "It’s not all skagheads in tenement blocks running up these
debts" really shines a light on the author.

Pretty offensive, I thought.

~~~
EliRivers
In what way? There are people who do think this. He's saying it's not correct.
Is it the use of specific words that's offensive?

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drumhead
A rather bitter article,let's not forget the last time prices crashed was
after the banking crisis 10 years ago, and then subsequently recovered all
their losses and went up some more. The fundamental reason for high prices in
London is a serious lack of supply. Until that's solved, prices aren't really
going anywhere.

