A$..love the way you write @ times, even the forgiveness of a well placed scoundrel or two..let us ruminate – a market in a state of denial, a market gorged on usury having successfully perverted supply & demand..the hushed Brit bank purchases of virtually ALL treasury debt, mirroring US practice of Fed purchase of US treasuries..the list rolls on..the perspective from the Brit David Maloney @ Golem xiv is such that no government & no financial authority in the world is worthy..
money & authority via gun muzzle mean different things to folk..its not only the bread lines now crying out for justice never arriving, its the markets too..coming pain will not be equally distributed, but only the inner ring can pray to their Shaitan to be spared

The UK housing market is indeed a ‘house of cards’. Many here in the UK are already struggling to make the repayments on thier mortgages even though interest rates are at an all time low. Any increase in rates will risk bringing the entire economy crashing down. This is not an overblown claim and is not just linked to the ability to repay a mortgage. Many who are familiar with the UK housing market will also know that this ‘market’ is the single most import factor governing consumer confidence – perhaps due to the cultural aspect of viewing ones house as not just a place to live but a status symbol and long-term financial safety blanket. If the homeowner has little or no equity in thier home they are very unlikely to spend elsewhere in the economy. Maybe this is just a cultural thing in the UK, I would be interested to know if similar feelings exist elsewhere.

The CEBR totally disagree that prices will fall.

I was under the impression that prices were going up as per the land registry!

Cloud cuckoo land or what?

The trouble is that brown and the bank of England, didnt let the market sort its self out, and just lowered interest rates to the bottom, this just stored up trouble for later, it is now later and there is nothing to do but let the correction happen, it maybe 2 years late but it will happen !

I sold one of my flats in SE1 and am just dropping the price on the 2nd one right now to get rid off.

No question the market is a house of cards and much better to be in cash (not the pound).

Thanks Tony B Liar for the mess you made not just of Britain, but the global economy and global stability as well. Who was he working for? Where is he now?

Most people bought property when rates were high, so why are they struggling now they are low?

the problem is, the BOE thought that by now with all the stimulus measures that we would be firmly on track but what’s happened is the ‘emergency’ interest rates have been left on hold too long and now they don’t know what to do….. oh dear!

there has been a global reinterpretation of monetary policy and the impression that with enough money printing markets can be ‘bucked’ but as we all know from history that can never be the case.

the BOE needs to nudge rates up right now to get back in the loop and start normalisation. people expect this now and in a way they can deal with a situation that’s ‘normal’ far easier than the cloud cuckoo land we are in at the moment.

Ed Note: that makes it a real nightmare for those like my godson who just bought a flat in London, sadly he will have to learn about property investment from experience as he never listens to anybody anyhow.

Dear Ed,

Very informative article! This has answered my question from 2nd June and gives great hopes to potential 1st time home buyers like me.

Tony, the answer to your question lies in the very big price increases across the board. Fortunately I’m in a position to have eliminated fuel (which has more than doubled in price over the last 10 years) from my equation by stopping using my motorbike. Many people, especially those who live in out lying commuter-zones don’t have that option.

@ Comment by Tony – 04 June 2011

Most people bought property when rates were high, so why are they struggling now they are low?

1)Estimates are that over 1 million people remortgaged (with equity release in many cases) to take advantage of low interest rates since 2008. Many borrowed up to the limit of thier abilty to meet monthly repayments even at the new low rates.
2)Many first time buyers took out unsecured loans (for a deposit) in addition to many, many more first time buyers who took out mortgages which pushed thier ability to meet repayments, even at low interest levels.
3)Since 2009 earnings increases for the majority have fallen far short of inflation.
4)Since 2009 many people have lost thier job or have been forced to take a reduction in pay / hours worked in order to keep thier job.
5)Inflation has wiped out at least 20% of EVERYONES ‘real’ disposable income since 2009, thereby putting significant pressure on everyones ability to meet mortgage repayments.
The list could on but I think you may now get the general idea that the UK economy is no where near as strong as government figures would suggest and that the property ‘house of cards’ needs only the slightest push to collapse the whole lot……..

There wasn’t a great drop in UK property prices in the 1930’s during the depression unlike the USA. People blame Brown, Blair or whoever but the British economy has been run this way for many decades if not centuries. When one considers that Tony Benn’s representative here on earth, Michael Meacher, controls a vast property empire and is still a serving MP, what chance of a change in the status quo?

UK property is almost certain to correct over the next 3-5 years but don’t listen to this mob sentiment for long term revenues. London rentals have increased significantly over the past year and this will help many investors service the inevitable higher interest rates. Think long term and major cities, particularly financial centres. Paris valuations are up 22% in the previous 12 months, Hong Kong up 18%, London 8% and even New York is seeing some upward movement. The editor’s godson should think 10..15…20 years and then any temporary nightmare will turn to a dream. However bad it gets over the next 3-5 years he can seek comfort that he didn’t join the moron’s who purchased concrete boxes in the Middle East!

I think that property will not fall much more.
The reason I believe this to be is is that provided people can afford the monthly mortgage interest payments, they will stay where they are as the mortgage interest is less than rent and people will believe that property will eventually go up because of inflation.
Interest rates in the UK on mortgages will not go up because there is already a huge margin (3.5% variable rate against 0.5% bank base rate) for the banks compared to the usual 1.5% difference there used to be (variable rate 7.5%; bank base rate 6%)
In London and the South East; property prices will continue to increase as most of the buyers are foreign and property in London will look cheap with the weak pound. The Next big buyers are the Asians (Chinese and Indians).
One of the main reasons that people are not moving is because of the costs and unavailability correctly to buyers of mortgages as banks are now being more sensible offering generally 80% mortgages (instead of 125% in some cases) and proper multiples of earning (4 x joint incomes) instead of 7 times.
Property is still a good investment (especially against investment funds and bonds) long term as prices will always follow inflation (though lags behind) and rental value will also follow inflation and interest rates.

The author completely misjudges the power of the BoE and the Government to manipulate the market.

The author is bullish about the Dubai property circus! I rest my case…

Paul King, good point.

Perhaps the author is sore that he chose to invest in Dubai and not London which has done well.

Ed Note: Not true, Dubai house prices are still up x3 since 2003-4, even after the crash, London is not even close.

Another pathetic comparison from the editor! It would be like me saying there was only 5 properties for sale in Dubai in 2003! What about the growth over the past 2 decades?? What a surprise – Dubai’s property circus didn’t exist then! What about the values over the past 3 years?? – No contest! What about security of property?? – No contest! What about regulation?? – No contest! What about QUALITY?? – No contest! What about the rental market?? – No contest?? What about quality maintenance?? – No contest! The best advice is don’t invest in this circus!

Ed Note: Dubai rental yields are x2 or x3 UK levels – and what about UK house price falls since 2007 outside London? On quality I simply don’t think you can compare Dubai new build with a 30s semi. And don’t get me on to tax! You will get much better returns on Dubai property over the next five years than the UK, both income and capital appreciation.

More delusion…. Rental yields here are of the fantasy variety because the bulls are always behind the game! In the real world with today’s rental rates against value here in the circus you achieve no better than the UK and the tax free environment = zero quality maintenance! The editor attempts to mislead by his hopeless comparisons…ie Dubai – outside London! In that case let’s compare Surrey values to Ajman! Let’s compare Chigwell to RAK! Let’s compare LONDON to Dubai! – No contest!!…in both income, capital appreciation, regulation, security of property, and quality in a different league. As a point of note: my kitchen in a 1992 new build apartment in Chelmsford, Essex was of a much higher quality than anything I’ve seen in Emirates Hills, Jumeirah Golf Estates and the Palm!

Ed Note: How many kitchens have you seen in those locations? Your just wrong on yields and so much besides.

Paul King is right on so many things Ed but you seem to have closed your mind on the Dubai property issue. I wish you well if that is where you are putting your money. I am in UK property and not here. Sadly there are too many variables both direct and indirect that get in the way.

Ed Note: We constantly write on Dubai and UK property and have hardly closed our minds – that is what the naysayers on Dubai property have done…