Trying to buy a house in this area is near impossible

[StraferJack]

3.5 joint income?

That suggests we are back to back to where we were with bank lending then? Well not quite as I suspect there is less sub-prime at the moment but when the good customers are maxed out profits have to come from somewhere

[LondonMix]

You can buy a small house on that income with that deposit down the road in Catford. I know as I have friends looking in the price bracket. They are also looking in Eltham where for that money you could buy a house with a nice garden, near a good school and close to the station.

Does no one else in ED have friends that make those incomes. Where on earth do you think ordinary people live?

http://www.rightmove.co.uk/property-for-sale/property-43596857.html?premiumA=true

StraferJack Wrote:

-------------------------------------------------------

> "That's because your ?40k salary is competing with

> two salary couples."

>

> not in the scenario outlined it wasn't

>

> But let's take that two salary couple - what joint

> income do you want to give them? 80k?

>

> 3.5 times 50 k = 175k + second income of 30k =

> 205k

>

> That's not buying much. Even in Norwood

>

> But let's say they have savings of 50k and buy

> what - a 2 bed flat with that cash?

>

> What is next step for them? If they are young they

> have career progression but unlikely many people

> would earn money faster than house prices rising?

> Plus maybe they start a family and earnings dip.

> Interest rates go up and their outgoings explode

>

> I just can't see the progression that people used

> to be able to do

[stephen509]

Agree on ED house prices. Gone crazy, especially in the last 6 months.

I moved from ED to Beckenham few months ago. Thought I would miss ED, but love new area even more.

[LondonMix]

And you can do that without maxing out what the bank will lend you... My friends mortgage will be less than their current rent. Even with mortgage rates of 5%, that would still be 1,300 GBP a month. A couple pulling in 4k a month can easily handle that.

[Mick Mac]

Someone can explain to me the link between swap rates/libor and lenders' profits but based upon these long term swap rates, am i right in saying that interest rates are not expected to rise significantly in the medium to long term, or at least that the banks don't expect them to do so? anyone?

http://www.swap-rates.com/UKSwap_extended.html

Anyway standard variables, before interest rates fell, were 0.75% above base (having fallen from 1.75 above base being standard a decade ago) SVRs are now more than 1.75% above base in many cases to ensure the banks make a profit on current lending, but I'm not sure the current lending rates are as "low" as some people are suggesting, as compared to 5-10 years ago. There were always good offers available then, being well below the base rate at the time.

[Loz]

StraferJack Wrote:

-------------------------------------------------------

> 3.5 joint income?

>

> That suggests we are back to back to where we were with bank lending then? Well not quite as I

> suspect there is less sub-prime at the moment but when the good customers are maxed out profits have

> to come from somewhere

The income multiplier never really changed much. What did change was the Loan-to-Value the banks were willing to risk. At the height of the 'boom', Northern Rock was offering at mortgage (well part mortgage, part loan) of 125% of value, which was madness. Even 100% LTVs were not uncommon.

These days, banks are wary of anything over 80%.

[LondonMix]

Libor is the interbank lending rate which changes daily. The Libor swap rate makes a forward assumption about what the Libor rate will be on average over a given period and locks it in through a financial instrument-- usually commercial mortgages are swapped (or fixed) so borrowers have certainty over the interest they'll be charged. While lenders charge a margin on top of Libor for loans, lenders profits are something entirely different their profit is their total revenue less their costs which include processing and admin / staff etc etc loan write-offs etc.

Residential mortgages are often quoted in reference to the Bank of England base rate which is different to Libor (though Libor is influenced by it). That is expected to rise from 0.5% particularly if inflation picks up or the economy / employment figures improve.

[Mick Mac]

Loz Wrote:

-------------------------------------------------------

>

> These days, banks are wary of anything over 80%.

And that definitley a change for the better and should help harness price rises and repossessions/negative equity. Whilst it may be frustrating for a buyer having to have a 20% deposit, as the banking policy is being applied across the market it shoudl help provide restraint.

[Jo'sEnglish]

I think the tough thing is if you have to rent in London for any period of time.

We have pretty much one income (I'm a self-employed freelancer but mostly stay at home Mum) and we don't earn anywhere near ?40k but we were lucky enough to spend a couple of years in Australia earning 2 incomes and with higher interest rates and saved enough for about a 25% deposit on a flat here. We started out renting and now we pay about two thirds of what we did in rent on our mortgage.

We had to move a bit further out (to Hither Green funnily enough Mick Mac!) but we have a flat with 2 double bedrooms and a massive back garden and wasn't much over ?200k. That was a couple of years ago though, people are starting to catch on to the fact this is a nice area and still relatively cheap and prices are really increasing!

Anyway, my point is that it would have been impossible to save anything living and renting in London. When we moved here our rent was eating into our savings so we had to move before it got eroded away. And we do live a fairly frugal lifestyle but I just don't see how unless you earn heaps of money you can save while living in London.

[Mick Mac]

Well you have done what we did JoE and I'm sure you won't regret choosing Hither Green. We made some good friends there. Its better IMO to choose what you can afford rather than streching yourself to be in your ideal area initially. Once there is some capital growth in the property you can use that to move on, if thats what you want.

[Mick Mac]

LondonMix Wrote:

-------------------------------------------------------

> Libor is the interbank lending rate which changes

> daily. The Libor swap rate makes a forward

> assumption about what the Libor rate will be on

> average over a given period and locks it in

> through a financial instrument-- usually

> commercial mortgages are swapped (or fixed) so

> borrowers have certainty over the interest they'll

> be charged.

Thanks LM. And do the current long term 30 year swap rates at 3.5% max tell us anything about waht banks think about future rate movements on the long term or not?

[DaveR]

"But let's take that two salary couple - what joint income do you want to give them? 80k?

3.5 times 50 k = 175k + second income of 30k = 205k

That's not buying much. Even in Norwood"

If we're going to talk in generalities, we can hardly treat Norwood as the extreme case. Many people who work in London don't live in London at all - they live in Harlow, Watford, Slough etc. - where ?205k does buy more, even after taking commuting costs into account. Prices in ED reflect demand, and as has been observed, that demand does not appear to be primarily driven by over-leveraged buyers, but by high earning, equity rich folks who have been persuaded that ED has 'upped and come'. What is happening here now is near on exactly what happened 30 years ago in Islington, 20 years ago in Notting Hill and 10 years ago in Dalston. The reason it's kept on happening is because London has continued to get richer and more (comparatively) rich people, both foreign and domestic, have decided they want to live/own property in the city rather then the burbs.

All of which is not to say that there isn;t anything wrong with the housing market in London and SE England, in particular in relation to artificial limits on supply. But even if that changed, it's unlikely to make a significant dent in prime London property prices (and, strange as it may seem, SE22 is creeping into the lowest level of 'prime' housing).

[LondonMix]

Roughly speaking, it would suggest that banks don??t think LIBOR on average will be greater than 3.5% over the next 30 years.

Without going into all of the intricacies of how the monetary system works, there is a need for banks to borrow money on a short time basis as part of ordinary banking operations.

The Bank of England??s base rate is the rate at which the Bank of England lends to banks overnight in exchange for collateral (ie. Secured lending)?Xthe bank deposits collateral with the BofE (usually a government bond) in exchange for cash and the bank gets the collateral back when it repays the loan.

LIBOR is the rate at which banks lend to each other for 3 or 6 months without any security backing the loan (more akin to a credit card / IOU). Because both the term is longer and there is no security behind the lending, the LIBOR rate is usually higher than the Bank of England base rate. So normally you would assume that the Bank of England base rate will be below the future LIBOR rate.

On top of the Bank of England Base rate, banks will decide how much to charge as a margin for residential mortgages based on how they asses their risks / profits. However, one of the many reasons we have anti-competition laws is so that banks have to compete against each other when setting margins to ensure a ??market rate?? that should be reasonable. Hence why occasionally you seen banks having to do sell offs when their market share becomes too large etc.

I can??t stress enough though how inaccurate swap rates are regarding estimating what the future will actually be. It??s really just the market??s (i.e. the amalgamation of thousands of informed yet fallible views from people who work with these rates) estimate today of what rates will be in future. There are a thousand and one political and economic factors that can and will change the analysis regularly. In the 70s, no one in the market would have predicted that the political decision to make the central bank independent would have dramatically decreased inflation and interest rates in the 90s and 2000s.

The short answer to your question was yes but I wanted anyone reading to slog through all of that so the take away is you never know what could happen so always assume a reasonable buffer when working out your finances ??

Mick Mac Wrote:

-------------------------------------------------------

> LondonMix Wrote:

> --------------------------------------------------

> -----

> > Libor is the interbank lending rate which

> changes

> > daily. The Libor swap rate makes a forward

> > assumption about what the Libor rate will be on

> > average over a given period and locks it in

> > through a financial instrument-- usually

> > commercial mortgages are swapped (or fixed) so

> > borrowers have certainty over the interest

> they'll

> > be charged.

>

> Thanks LM. And do the current long term 30 year

> swap rates at 3.5% max tell us anything about waht

> banks think about future rate movements on the

> long term or not?

[Mick Mac]

Thanks. Good summary :)

[????]

some random thoughts:

in the long run there is too much debt floating about out there - private but especially soveriegn/govt and thus - inflation at a just above(if not there's trouble) targets globally - will slowly eat it, (and the real prices of houses away). This won't be great for us individually or as users of public services as neither real incomes nor govt spending won't keep up with this inflation. That's the only unhorrific way out of 'debt' but won't be at all pleasant, especially for the poorest/unemployed. Gonna a get sh1tter. But at some point the prices won't 'seem' so mad.

London property's position as a safe haven for the very riches' and pretty riches' wealth is the main reason behind the bubble (especially as to them, the double digit % fall in the pound against most currencies back in 2008ish maens property prices did fall here)

There was in trend terms a bubble in 1999/00. I got out smugly - that cost me ?100k net as I got sheepishly back in in 2004...... don't listen to a word I say.

[PSJ]

http://www.positivemoney.org/issues/house-prices/

[LondonMix]

Exactly Quids :). It's okay to have a natter about this but if anyone tells you they know exactly what's happening in the London market just smile and nod.

London has one of the most complex residential markets in the world. It's international both in terms of renters (who rarely buy) and owners (who don't necessarily live here). Add to this social housing policy and planning laws as well as interest rate policy and government schemes like Help to Buy and its extremely complicated.

Normal statistical analysis regarding earnings and house prices isn't easy to interpret because circa 30% of people who live in London (and largely work here too) are in social housing. Their incomes are included in the averages but the lower value of their housing is not. Also, a lot of middle income workers in London live in the home counties. The only way to even get to grips with affordability would be to look not at average incomes but the incomes of those who live and work in London and buy / rent in the private sector. You'd also need to exclude housing purchased by wealthy foreigners who don't earn income in London but can pay loads for flats and houses.

Its a mess to understand. Unless its your business to speculate in real estate your just better off buying a house you can afford and that you wouldn't mind living in for 5-10 years if you had to.

The only thing I think I know for sure is that we need more housing in London and more growth in jobs outside of London to make the situation better.

[Jessie]

An interesting article in the New York Times a couple of days ago: http://www.nytimes.com/2013/10/13/opinion/sunday/londons-great-exodus.html?_r=1&

[Saila]

I'm most definitely on the wrong side of this 'bubble'

I think a lot of ppl were caught out during the 'crisis' by selling into it. Ultimately what no-one predicted was the massive amount of cash that has flooded in from Europe. As the Uk was seen as a safe haven (xref that NY times article)

i'm however in the negative camp (I see house price rises as negative).. primarily because, it feels like the government are trying to inflate their way out of debt, and they see house prices as a sacrifice in that process. i.e. they don't mind a bubble in house prices, cos ultimately that's a weird daily-mail vote winner anyway - so not a huge sacrifice!

but they *need* to get out of debt... so inflation may be their quick fix option

[Blackcurrant]

It's easy to see why prices are rising so fast in SE22 and other parts of London simply by looking at the supply numbers on Rightmove. Excluding properties under offer, there are only around 130 properties on the market. The number was over 400 in 2009. Supply has plummeted and we all know about supply and demand (note that the fall in supply is not primarily a demographic phenomenon, though that does make it worse).

Nobody needs to sell while mortgage rates are so low - forced sellers just don't exist at the moment. Anyone with a bit of equity is paying peanuts on their mortgage and can comfortably service the debt. Landlords can easily cover their outgoings with rent. Consequently, there's nothing for sale and the supply/demand balance has gone beserk.

Meanwhile, it's impossible to beat inflation with savings as the bank rate is still near zero. That makes property look good - relatively.

Clearly the whole market is underpinned by the bank rate and things could turn on a dime, as they have done, dramatically, several times already. Not before the election though.

I don't think help to buy (help to vote) is a factor outside the bottom end of the market. There can't be many people buying 600k houses who only have a 5% deposit and ?150k salary. But I could be wrong.

[The Minkey]

A couple of semis in my street sold for under 500k in just the last couple of months. One was on at 489, the other at 499, I'm told they went for a little under the asking price. Small 3 bed houses with big gardens backing onto the Aquarius. So it's possible to get a house for under 600k in a decent area within a 20 min stroll across the park to ED. Still, I'm amazed they are fetching what they are because just a year and a half ago, they were fetching 350k.

[Loz]

PSJ Wrote:

-------------------------------------------------------

> http://www.positivemoney.org/issues/house-prices/

Wow, that's a wackadoodle website. Apparently, house price are high lately because banks have been creating money and lending it to people... like they haven't been doing that for a few centuries. The solution is apparently for only the government to create money and "any newly-created money should be used to fund public spending, reduce taxes, pay down the national debt or even just distributed to citizens."

Yep, the answer is for the government to just print money. What could possibly go wrong?

[Otta]

"I don't think help to buy (help to vote) is a factor outside the bottom end of the market. There can't be many people buying 600k houses who only have a 5% deposit and ?150k salary. But I could be wrong."

I don't know, this could be a way for a lot of people to move up the ladder a bit. Something which, as has been pointed out by others, isn't as easy as it once was.

[Otta]

And although I'm hoping it will help me to buy, it certainly won't help my to vote tory! ;-)

[Blackcurrant]

Otta Wrote:

-------------------------------------------------------

> "I don't think help to buy (help to vote) is a

> factor outside the bottom end of the market. There

> can't be many people buying 600k houses who only

> have a 5% deposit and ?150k salary. But I could be

> wrong."

>

>

> I don't know, this could be a way for a lot of

> people to move up the ladder a bit. Something

> which, as has been pointed out by others, isn't as

> easy as it once was.

Wouldn't you have more than 5% equity if you were trading up? Help to buy isn't available to people with a deposit larger than 5%, so second-time-byuers are excluded unless they're in negative equity.