A member of the Bank of England’s MPC has suggested that the housing market will never go back to what it was.
David Miles said home ownership will fall sharply, taking a back seat to renting, as people are forced to wait until they are aged 44 to get on the housing ladder, with banks refusing to offer large mortgages.
He said the credit crunch has created a new world where there will be a “lower rate of owner occupation and a bigger rental sector”.
Miles said he did not “think we should regret” the fundamental change in the housing market caused by the credit crisis, and said that renting could be of benefit to the overall UK economy.
Miles, who previously led an official inquiry into the mortgage market, cautioned against a return to banks offering mortgages to borrowers with small deposits.
He said: “Housing markets and mortgage markets have been close to the centre of the economic and financial turmoil we have lived through over the past four years.
“I do not believe that the housing market and the mortgage market will get back to where we were in the years leading up to the crisis. I also do not think we should regret that.”
He said that the economy might become more stable if Britons were less dependent on changes in house prices and mortgage rates.
He also highlighted the benefits to the economy of renting, rather than buying homes.
He said tenants can move more easily for new jobs, thus lowering the risks of structural unemployment.
Miles forecast: “It will take time for first-time buyers to accumulate larger deposits, so they will typically buy later and the share of home ownership will be lower.
“But in the longer run, it is not at all clear that a lower rate of home ownership represents a big loss to society.”
A new Bank of England survey has found that City experts believe the risks facing the economy are as great as on the eve of the credit crisis in 2008.
Comments
Not one to gloat - but I take dave's lack of response as an admission that his 'opinion' is simply merde de taureau that he does not take kindly to having his face scrubbed in good and proper...
'dave' - in answer to a couple of matters over a couple of your posts:
"25 year mortgages are a relatively new thing in the scheme of things..mortgages in the 1930s were over 7-10 years normally
25 year mortgages started in the 80s I believe"
Erm... nope. Not according to ANY OF the historical information I can find - the 25-year mortgage was alive and VERY well in 1930...
For example, this from 'The Working Class Owner-Occupied House of the 1930s':
"Using the average wage from the 1931 survey of £3.5s per week, Swenarton and Taylor say that only workers on this level of income would have had the status to buy a new house. A worker on this average wage equating to £169 per annum would have been able to buy a house based on three times the income, that is, £507. At this price a small three-bedroomed house or a two-bedroomed home of about 470 square feet could have been acquired in the early 1930s. At two and a half times the income, £422, a Taylor Woodrow "Wonder House" could have been bought. The repayments on a mortgage of £500 over twenty-five years at 5 per cent. equate to 11s 8p per week, rates would have been about 2/6 pence"
You been Googling some far-off land instead of the UK, daveyboy?
You also state: "this is a discussion board for opinion and I'm sharing mine"
Yeah. Thanks. Opinions are like a***holes - everyone has one. I'd prefer it if you didn't keep shoving yours in my face.
But of course - that's just my opinion... ;o)
"try to argue the point not the person"
A difficult one - as NEITHER have any substance.
Looking forward to your response - as always...
this is a discussion board for opinion and I'm sharing mine
try to argue the point not the person
'dave' - "this is a normal part of the re-adjusting of prices."
And you know this to be fact because it happened exactly that way early 90's, the 80s, and the 70s, of course.
Merde de taureau.
You wouldn't know normal if it bit your @$$ off...
"after prices have fallen 30-40% ftbs will buy rather than rent as 90-100% mnortgages will reappear."
WOW!! Reappear from where? How? Where will the money come from?
Dream on.
peebee
this is a normal part of the re-adjusting of prices.
the next stage is when estate agents refuse to take you property on unless the price is realistic knowing that it simply will not sell
after that buy to let portfolios will be liquidated at forced sale figures and surveyors will be forced to use lowest comparables.
after prices have fallen 30-40% ftbs will buy rather than rent as 90-100% mnortgages will reappear. and 1.4 million buy to let investors won't know what hit them
@ PeeBee on 2011-11-28 13:59:54
Could not agree more!
Pbro Agent: "The market needs to be allowed to find it's own level without any further interference."
Tell me, matey - would you agree that the above statement should equally apply to the "interference" of Estate Agents who hammer at vendors for price reductions in order that they can hit (...or at least get within a wedge and a two-putt of hitting...) their monthly/quarterly/whatever-period 'Numbers Game' sales targets to balance their P&Ls and achieve their bonuses?
Its good to see so many crystal balls giving so many different readings.
House prices to differ all over the country in 2012. (Roz, you can quote me on that if you wish)
whats amazes me is what exactly did they want to achieve by the loose policies?
its clear the boe were not independent and I would bet they had their own personal vested interest buy to lets which they wanted to prop up.
no wonder they reduced interest rates to 0.5% otherwise as darling said 'the uk economy would collapse'
what a shambles and the results of this folly will be felt your years if not decades.
@Just an idea
"Why not increase the term to ay 35 years, even 40, seeing as we now work longer, thus decreasing the amount payable on a monthly basis and allow people to borrow more against what they earn?"
That was what got us into this mess in the first place. UK Banks were influenced by American models of "affordability" at the end of the nineties and the first half of the noughties and the notion of mortgages equating to 3 times earnings went out of the window.
If we had have stuck with 3x earnings, the housing market would probably have cooled off naturally in the early noughties - instead prices continued to rise ever higher and banks thought of ever ingenious ways of lending money to keep the pyramid rising further and further ending with the 125% mortgages of Northern Rock fame.
Now house prices are unsustainably high, banks have returned to arguably more sensible lending methods and many people have been left trapped in negative equity. The market needs to be allowed to find it's own level without any further interference.
Regards
PbroAgent - homeowner with not much equity (if any) and 33 years left of a 40 year mortgage.
Yeah!
But what about my castle?
More churnalism.
Have a read of the actual speech and there are more interesting things he said.
He basically said that lower house prices is expected now, and not a bad thing. This sort of talk is basically preparing the masses for price falls.
However, he also said that they don't want the prices to fall until the leverage decreases, ie loan to value goes down.
So the Bank ideally wants level prices for a while whilst debt is paid off a bit, then they pull the plug on prices.
Dunno how long that will take though, but QE4 should help buy some time. And some finger-crossing is probably being done at the Bank xD
Just an Idea: "I haven't read all of these posts so this may have been floated already but...I presume that 25 year mortgages are at that length because people would generally be working for around that length of time. Why not increase the term to ay 35 years, even 40, seeing as we now work longer, thus decreasing the amount payable on a monthly basis and allow people to borrow more against what they earn? I don't claim to be any kind of expert in this field, but would it work?"
Once upon a time people borrowed the money to buy a house and pay it back over 25 years because that was a reasonable amount of time to repay the capital. I borrowed £18k when I first bought - earning about 8k at the time - So paying back capital at about £750 over 25 years - plus (of course) the interest was doable.
Since then every trick in the book has been tried to get people to borrow more to push house prices up. Low cost endowments being just one example of tricks pulled off by the financial services industry.
You have to stop and engage your brain for a second. What does it tell you if now people can't afford to pay the capital back over 25 years - they need 35, 50 or even (heaven help us all) inter-generational mortgages to pay the capital back - even with low interest rates. Maybe, just maybe, the price of the house is too high? Naah, couldn't be that!
paul
its because of gaps and repairs he is down each month including non payments...bankruptcy looms imo as each 10% drop puts him 130,000k in negative equity
I meant mortgaged portfolio owners will see equity disappear like those in ireland
25 year mortgages are a relatively new thing in the scheme of things..mortgages in the 1930s were over 7-10 years normally
25 year mortgages started in the 80s I believe
extending them just makes people a slave to debt and keeps prices high which is not good ultimately
In japans housing boom(near the end) they bought out 99 year mortgages you could pass to your kids.
shortly after that in 1991 prices collapsed and fell 70%..some property in central tokyo fell 90-99%
even 20 years later prices are still 40% less than 1991(actual prices not inflation adjusted)
we've been pumping houseprices for decades now and the end is near
@Dave
Your mate has got to get his sums right as if he is short by £1000 each month - what does he do when he has a void or an expensive repair?
How has he got 10 btl's that are loss making and the only way he can see to get out of it is to re-mortgage?
Oh dear! Oh dear! Oh dear!
Your second comment (if it is the same Dave) is rubbish. All equity holders will not see it all dissapear.
At one time rent officers and only us old uns rememver them looked at 1937 as the date when there were an equal number of rented as owners. Since then we have seen the boom in ownership.
Owners are still looking at their home as a money making possession. I am still getting the twits saying 'I am not going to give it away'. My answer to some of these idiots is to say no you will not give it away until you the day you die and until then it is worth what someone will pay for it.
Last week a client who had inherited a house who made this crass comment to me and my answer was its just been given to you so dont complain at what it sells for as its all profit.
I haven't read all of these posts so this may have been floated already but...I presume that 25 year mortgages are at that length because people would generally be working for around that length of time. Why not increase the term to ay 35 years, even 40, seeing as we now work longer, thus decreasing the amount payable on a monthly basis and allow people to borrow more against what they earn? I don't claim to be any kind of expert in this field, but would it work?
B Boomer - So much for all this nonsense about renting being "unsutainable in the long run"
Okay, let's go with your theory. People today will rent all their lives - in my area that means £800 for a flat - £1200 for a 3 bed semi - £1500 for a 3 bed estate box. They devote a large proportion of their salary to paying rent - all their lives and are unable to save much or contribute to a pension.
Who is going to pay the rent when they retire? Oh yes - the taxpayer with his incredibly deep pockets paying enough tax to keep millions of people in rented properties that are 10 times more expensive to rent than council and privately rented housing used to be (in the historical period you are referring to) while they are paying enough tax to pay back the capital and interest on the anywhere north of 1.4 trillion we are borrowing at the moment.
Yes, you're right - it is a very sustainable model!
What you haven't got in your rose tinted version of the rented past is that rents used to be low! My aunt rented a flat in Dulwich all her life from a private landlord - no bloody Shorthold Tenancies in those days. And the flat wasn't worth - who knows what mad number today - big (huge actually, their main reception room was about 25' x 25' - kitchen was about 20' x 12') 3 bed flat over 2 floors of a 4 or 5 storey Victorian house) 500k ? some nutty number no doubt.
So, no, this daft idea that houses can change hands at currently inflated prices - with the associated large mortgages - that require very high rents - that the housing stock can gradually move back into the hands of landlords is, sorry, just pie in the sky.
It could happen, if house prices were lower, But, if house prices were lower, people would be able to BUY them. If you just stop and THINK for a second, it doesn't really matter whose name is on the deeds - the lender still has to be paid.
B.Boomer....On that basis and due to the low level of transactions you can expect the UK agency fee model to change considerably over the next few years to be more inline with the US and Spain etc where they can charge up to 3 times more to sell a property then here.
Please help.
I built a castle in 1066 for £30,000. I am worried that its value went up over the last 1,000 years but now its value might drop back to what I paid for it.
I took a loan out on it to buy a second hand Ford Fiesta, I might get reposessed by my great Aunties bankers.
Please help.
All advise welcome.
up to 1970s most housing that was rented was owned by very large companies or manufacturing businesses for their workers and owned cash
unfortunately the current rented stock is mainly mortgaged and owned by people on average salaries who are about to go spectacularly bankrupt
At last, someone speaking sense. David Miles is absoluely spot on - except for the suggestion that a rental sector which is larger than the home ownership side of things represents some sort of "new world." It doesn't. Quite the opposite, in fact. For hundreds and hundreds of years - right up until the late 1970s - it was the absolute norm. So much for all this nonsense about renting being "unsutainable in the long run" (Puzzled of Tumbridge Wells)! Except for a little 40-year blip, it's the way things have always been. As for this current crop of sullen and resentful would-be FTBs - so what if we babyboomers made a killing on the property ladder and are now blowing it all on holiday cruises? Tough. It's over, guys. Just get used to the fact that widespread home ownership is just another late 20th-century fashion that has had its day.
Yes finally DOOM ON.
/me rubs hands together
========================================
A sadly inevitable consequence of restricting mortgage availability so that only the wealthy can buy houses.
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actually historically restricting mortgage availability has meant a fall in prices
true wealth invests all over the place
people with property 'wealth' via equity are likely to see it all disappear
There does seem to be an increasing acceptance that property will continue to consolidate in the hands of an ever smaller and wealthier segment of society, whilst the young are forced to rent and enrich their landlords.
A sadly inevitable consequence of restricting mortgage availability so that only the wealthy can buy houses.
“Who will the Boomer generation be selling their family homes to if Gen X have too few working years left to qualify for a mortgage and their offspring have oodles of student debt?”
To a first time buyer subsidized into massive debt by the taxpayer I expect.
puzzled of TW
your post is of a high quality as you have pointed out the end game in a ponzi scheme.
we are basically lending to the wrong people...lending to someone on 25k,with a buy to let portfolio so someone on 40k can rent it from them.
1.4 million buy to lets are going to find that tenents don't want to rent as houseprices fall
Its the next financial disaster/scandal and its all right in front of our eyes.
friend of mine has 10 btl with 1.3 million mortgage,he is already 1000 pounds short each month and he's just had revaluation done so he can remortgage.Unfortunately his portfolio is deemed worth only 1.2 million
he's on interest only and earns #28k working for the post office
Rantnrave: "Who will the Boomer generation be selling their family homes to if Gen X have too few working years left to qualify for a mortgage and their offspring have oodles of student debt?"
Good point, well made.
The trick is not to worry about it. It will all be okay, apparently, if only the pesky banks would lend! I have nephews and nieces 'stuck' in shared ownership housing - in their late 30s who have given up on the idea of ever being able to afford to have a family.
Who will the Boomer generation be selling their family homes to if Gen X have too few working years left to qualify for a mortgage and their offspring have oodles of student debt?
No wonder we're in the mess we're in if people with such wooly thinking are on the MPC committee.
Time goes by, people are born, people die and, gradually, ownership of the housing stock recycles. Normally banks lend money to people entering the market - they pay the money back over 25 to 40 years (depending on how many times they move) - and the next generation does the same thing. (You'll note of course this is a big win-win for the banks, they lend money on the same property over and over again.)
But now, apparently, this is all going to stop and, as the housing stock recycles - it is going to be bought to be rented out. Where are the people who are going to buy to rent going to get the money from? The heady days of remortgage, build up a bit of equity, re-mortage, buy two, remortgage, buy 4 etc. are not going to happen again - so where, I wonder, does this MPC member think the money is going to come from.
Does he think the banks will endlessly lend to people to buy houses to rent them out - but they won't lend money to people to buy houses to live in.
I think people are in for a shock - one of these days the 40 year old priced out generation are going to get pretty miffed. And, all this talk of renting is unsustainable in the long run. It's one thing people paying £800 a month for a 2 bed flat when they are in their 20s - what is supposed to happen when they retire? Is the state going to start paying all these big rents. This scenario may only be 20 years away - and the state will not even have started to pay back the debts being taken on now.
It really is time we had someone in the government and the Bank of England with the wit to think this through.
wow....most people at 44 are thinking about death.
what a joke..this idiot thinks this situation is sustainable does he?It could of course be that prices fall 50% and people buy rather than rent age 24.
banks would reintroduce 90-100% mortgages
oh and buy to let investors would be wondering what hit them