House prices 'will fall around 20%' by 2013

A correction in the price of housing in the UK is long over due but the impending spending cuts may be the catalyst for this. Does anyone really believe the likes of Miles Shipside who are always trying to talk the market up? Sellers may ask silly prices but those who really need to sell are not getting what they want and usually have to accept a lower offer as buyers do not have access to the capital needed to sustain the market at its current absurd levels.

As Some one who is buying property at present the prices are falling

my section of the market is as follows for a two bed flat in the NE area

2007 before credit crunch £950000

2010 £70000

2011 £60000

The above figs are true figs in my market I belive we have futher to go my guess is £55000 for a forced sale value

I cant see it getting better for a long time to come if FTB can get a maortgage this next few years could be a great oppertunity to buy

Landlords as myself have a great oppertunity to buy property with a great yeild and you can rent them till the cows come home

Something will have to happen to cause house prices to fall. The market is current;y frozen as no one has to sell as mortgage rates are so low so they can just sit and wait and no one want's to buy as they know prices will drop. Everything is being done by the governmen and BOE to make the market freeze.

you seem to not understand the cost of building. The markets will shrink as the rental sector increases.

Frozen now maybe, but gradually warming up by the effect of quantitative easing inflation!

Peter, We have QE inflation and QE low interest rates but we don't have wage rises so things aren't getting more affordable.

This is about right.

The most interesting figures i've seen recently show that across the poorer and cheaper parts of London, a single parent with 2 kids has the lifestyle an independent working parent would need £900pw take home to equal.

With incentives this big 20 something women are turning to benefit dependence single mumdom, and who can blame them. It's best for the children because mum is at home, it's best for mum because she doesn't have to wait until she's middle-aged to have her own home and have children. And in any event, by the time she's 37, she can afford to buy a home without the expectation that soon her income will collapse.

Once the next census results come thru, the policy drives will be bigger and many more homes, and raising the real incomes of parents thru couples sharing their tax allowances and large tax allowances for each child. The other side of this coin is poorer pensioners and hefty reductions in tax avoidance.

Because lets be honest, it's cheaper to reduce the tax burden on parents and have low cost private homes, than finance population replacement thru benefit dependence and charity housing to single mums. And when it comes to pensioners, it's time we learnt from those with a heritage from the Indian Sub-continent.

"a single parent with 2 kids has the lifestyle an independent working parent would need £900pw take home to equal."

Where on earth did you get that figure from? £900 per week take home is equivalent to just under £70k per year gross.

I agree with those above who see QE and low interest rates as stagnating the majority of housing markets. But due to my comments above, I'd be very wary of entering BTL now. I think those days are gone for all but the most professional landlords.

In my london road, beloved of BTLers, rent is way below mortgage repayments and the price houses achieve is now at late 2003 levels.

The really troubling story to come is in the tory voting suburbs where many took on very high income multiple self-cert mortgages to buy. They haven't gone to 2003 levels yet, but they will. These are 2nd and 3rd homes whose price is reliant on the equity raised from the previous home sale and rising wages. Add this to lower income multiples on mortgages and the fall is unavoidable.

Hi A Benington

I think you are a little bit out of date with BTL Mortgages

a lot of Landlords are now on tracker rates of about 2% so landlords who bought in the 2003 and after are sitting on very cheap loans if they cant afford them now GOD help the London Houseing market

a lot of new landlords entered the market and have had there fingers burnt

but I do see your point

House prices generally are still higher than realistic. London's a bit of an anomaly, partly because of all those with unusually deep pockets and partly because of the Olympics.

It's probably right that we'll have to wait until 2013 to see property prices resume a sensible, affordable level.

Developers making big profits was great (for them) while it lasted, but a lot of people lost sight of the fact that a house is primarily somewhere to live.

I agree with Dislexic Landlord i have a fair few on 1.5% and 2% over base and they are at this rate for many years to come...

if these BTL mortgages were cows i would have a fair size heard ...a case of milking them till the cows come home...lol

My son in law is moning at his mortgage payments ect. Looking through my old wage slips and googling the rate of inflation and interest rates in 1975 when my daughter was born inflation was 24%, average mortgage repayments were 12.77% and I, the only breadwinner, was earning £3377pa eqivalent to £25837 today with two kids. How did we do it? He and my daughter are on £60k and their repayments are £1327pcm with no children!

I hope things do not get as bad as that again.

The graph above looks remarkably accurate, I bought my first house in 1973 as a 25 year old "professional" on £2300 per annum and was not allowed (by the Building Society) to have the mortgage that I needed of £7250 without including part of my wife's earnings. That house was a small detached bungalow near Manchester that would not be affordable today by anyone in similar circumstances. (and I also got tax relief on the mortgage)

@ Dislexic

Agree that landlords are having a good time

A mortgage on one of our London flats is currently 2%, about £380 per month. Flats of this type currently rent for £1500 per month and people are queueing up to rent whatever is available

All our mortgages are on 2% - so hugely below-market financing compared to what FTBs face nowadays when they are buying

I can only see a shortage of all types of housing as construction has stopped yet immigration and household formation continue to grow

I cannot see interest rates rising much as this will tip the UK back into recession which will then spoil the Govt's chance of raising more tax revenue to spend on daft schemes

LANDLORD X, This just illustrates how ludicrously low interest rates are at the moment and how important it is for them to be increased.

@ Jonathan

Higher interest rates will push the already fragile economy back into recession

LANDLORD X, You are assuming that:

1. Low interest rates will save the economy.

2. Increasing interest rates would make things worse.

But, know interest rates may not prevent a recession and increasing interest rates might reduce inflation so make things more affordable. Unfortunately in economics it is not possible try two different things at the same time so we will never know.

Edward Spear - Don't decry your son in law so quickly. You have no doubt been enriched beyond all realistic expectations by rampant growth in house prices. When 70's inflation was 24% your debt was falling at a similar rate because your wages were rising at maybe 15-20%. Too many older people seem happy to see their own generation enriched at the expense of their children and grandchildren who now look forward to tiny uncertain pensions, unaffordable education costs, unaffordable family housing, working until they are 70, 40% tax for the ordinary earner, insecure jobs in global companies that increasingly hire and fire on the bais of finding ever cheaper labour. Just because people have an ipod or a flat screen TV which didn't actually exist in the 70's doesn't make them better off than you were and likely are.

@ Jonathan

We have the lowest interest rates in 300 years and the economy still shrank in Q4 of 2010!!! What on earth makes you think that the private sector needs higher interest rates at a time when business lending is already falling??

Higher interest rates = another recession

In any case Govt needs low interest rates to try to grow the economy so it can raise more tax to waste on the public sector. That hasn't changed. So we are stuck with low interest rates for many years to come.

Govt will be happy to tolerate some inflation in exchange for not having to cut Govt spending in real terms

LANDLORD X, The government dooesn't mind high inflation and low interest rates as it also eats away at their debt. But one persons loss is another persons gain, while the government are printing money and keeping interest rates low people holding GBP are losing. What the BOE will mind is loss of confidence in the GBP which is a real risk.

Jonathan - What do reckon the economic impact of the Irish economy/housing situation will be for the UK, bearing in mind its importance as an importer of UK goods?

Peter, I'm not sure, the UK government has lent them some money so they can keep buying our exports, a bit like China did to us, it's probably a good time for property investors in Ireland or if you prefer the climate Spain might be a better choice.

There are so many uncertainties around the economy, interest rates and house prices at present

Rent, do not buy

Then you do not face these high risks

OK your rent might go up a bit...but you do not face the prospect of catastrophic losses if the property market fails...or if you need to move and cannot sell or get mortgage

We need a much bigger and better rental sector in UK - to match what they have in Germany and USA - so that people are not compelled to try to buy because there is no alternative

Landlord X, There you go again with your sarcastic double/tripple bluffing. Are you going to take your own advice and get out of the property market?

I am not being sarcastic

I say it how it is - if you don't like it that is your problem

I continue to invest in property

But FTBs would be better off renting in most cases as property pricess may be about to drop again

LANDLORD X, It's not that I don't like what you say, I don't mind what you say at all, I was just commenting on it:

"Rent, do not buy" - This could be good advice if property prices are to fall by up to 20% in the next 2 years.

"OK your rent might go up a bit" - It might not, with the government reducing the amount of money its paying into the rental sector with cuts to housing benefit rents are more likely to fall than rise.

"We need a much bigger and better rental sector in UK" - More rental properties are coming on the market as more people who can't sell at the price they want are renting their property out causing more property to be on the rental market which will also probably result in a drop in rents.

Where I live, nothing is selling yet people keep hanging on for prices last seen in 2007/8. However I have just discovered that a house nearby put on the market in 2008 initially for £625K actually sold about a year ago for £328K. If people were more realistic about valuations we might see a housing market start up again.

Ive just come to this thought which might highlight the problems in the property market

I have a very large portpholio of 2 and 3 bed flats and house which genarate a very nice income and im getting more for rents every time a teant leaves and a new tenant rents so thats great

BUT Im looking at present on buying a Bunglaow for myself

I looked at a nice 4 bed bungalow for 400k on right move and then for the first time in my life I looked at rentals in the same Area I also found the property that I wanted to buy was also avalible to rent

I could rent the Bunglaow for £900pcm this got me thinking

to buy the property I would need 25% deposit in todays mortgage market

I think I would need about 125k in total to buy this bunglalow

In the north East with 125k I could buy 8 two bed flats which would give me a clear profit of around £1840 pcm

Im a investor and have been since 1982 I would not put my foot in the residential property market for a house to live in

The above really shocked me looking out side the Buy To Let box buying a house to live in just is not worth it

Im going to stay where i am in my semi detached two bed bunglaow and buy more small BTL properties unti the market turns which it will but i think it will be over 5 years or more

Dislexic Landlord, I think you might be right, the bottom fell out of the BTL quite early on. A number of landlords who had jumped on board the BTL mortgage bandwagon when mortgages were easy to get and property prices overpriced got their fingers burnt being unable to keep up with the repayments and fill the properties with tenants, many of these had serveral properties repossessed which then came on the market and sold at low prices. The landlords who have built up thier portfolio over a number of years at a steady pace are more likely to be in a much better position.

Dislexic, can you really buy 8 two bed flats for £125K in the north east? That's only £15.6K each! - sounds like third world country prices.

LOL No Dennis you cant buy a flat for £15.6k

Thats the deposit the purchase price is 60K just a point to note the flats were 95k in 2007

Ive just had an offer accepted at £55k so getting back to house prices there falling still

as a german that has traveled to england since the early 90s, lived in Ireland, Germany, US and now in England I remember being amazed how expensive properties were, at least in comparison. There are more estate agents within 100 yards than my entire home town had. Not a buying culture in Germany (at least not compared to here or spain).

Looking at the prices England (and I exclude London as it is an economy in itself) was and still is almost laughable if you compare what you get for your money in absolute terms (Berlin, Cologne).

Interestingly in relative terms it kind of matches my rule of:

1 year rental x 20 to 25 equates the property price.

This to me is a clear indication of inflated prices.

Why pay more? is the world a lot better in the UK ? Not when I look at the health and pension situation. But not everyone can just move country right!? So in my opinion this was fueled by a) media b) at the time endless supply of credit c) culture of owning (tenants rights in Germany are almost shockingly strong)

a and b have gone down apart from repeats on telly and we all know about the LTV needed these days.

I remember well how the parents in law ran the bricks and mortar story down my throat and yes, easy to be happy if you benefited and had property from 1980 onwards... not so funny if you went in at the peak. Statements like it will always go up come to mind...

I expect a correction still... I don't think we have seen it..... I like my little house and just pray that I negotiated down hard enough, to survive the correction w/o negative equity. Still I am mentally prepared for a nasty surprise.

Can anyone tell me if the "earnings" is household or personal? If its personal, surely the higher proportion of families with two incomes partly explains the huge inflationary burst in house prices over the last generation. Previous generations might have had an extra earner so they could compete for better property - but this has driven inflation of the property market.

When I bought my first house in the 70's I was allowed by the Building Society to borrow only 3 times my gross salary plus only a small portion (can't recall the actual figure) of my wife's. The assumption being that she would get pregnant and stop work. (I guess this would be illegal under sex discrimination laws now). However at the age of 25 I was able to buy a small two bedroom detached bungalow. There is no way a 25 year old on an equivalent sort of job earning about £20+K could now buy that same house which would cost over £250K. I am sure that house prices are just a reflection of how much people are allowed to borrow and that this has fueled house price inflation.

In addition the property investment culture on TV hasn't helped.

Dennis , Now we've got councils lending to people who can't save their 20% deposit, mortgage providers offering 5 times salary loans. These sort of policies have a dramatic effect on house prices, and when confidence is high people will even lie about their wage on self-certified mortgages to cash in on any future property price gains. When confidence in more gains is really high building societies are happy to lend 125% mortgages as they know in a couple of years the property will be worth that much. It's not really surprising that we have seen them go above 3 times earnings. And it won't be surprising to see them fall when confidence is lost, but I can't see them ever falling to 3 times salary as the BOE are focusing on low interest rates and as Suzanne siad many households have two wages. But builing societies must think that 20% os possible or they wouln'd charge much higher interest rates for less that 20% deposit loans.

Long term house prices relative to income may be at an all time high but provided interest rates remain so low, and have done for so long, mortgage repayments are ridiculously easy on an interest only basis.

I can't see London 2 bed flats coming down in price any time soon without a dramatic increase in interest rates, which may harm the economy - but maybe not, inflation is problematic.

Therefore landlords can pay 2% of 350k per year, 7k per year, rent out the flat for 1,250 per month (conservatively), that's 8k profit. Plus asset that's going up by 3% per year. Assume 50k deposit, that's 18k profit per year or over 35%.

Extremely nice leveraged returns. Do the calculation when houses were going up 15% per year and you see why we have a house price bubble.

How often does an Estate Agent tell a prospective buyer/seller that prices have further to fall ? In Outer London prices have fallen for a modest 2 bedroom flat by about 25% over the last 3.5 years.

ok landlords barons or whatever anyone wish to buy house in west yorks 3 bed asking 135