The mystery of the London property market - and how we could be in big trouble

Lbeard

After the financial crash in 2008, the overheated London and south east of England property market did not crash as expected.

This has been a mystery for years with many very implausible explanations. The market was supposedly kept buoyant by Russian, Greek, Chinese, North African capital flight. None of this was ever that plausible. You would need more than a handful of oligarchs and crooks buying up modest abodes to keep that market going.

And since the UK banks clammed up on lending to young people (if you look up the lending terms with many of the banks they're only offering mortgages to young people on very very high wages - I made a request for 350k claiming an income of 80k and was refused for not earning enough - less than 2% of young people in London would be on 80k a year), who was doing all the buying?

The mystery is solved. Since 2008 there has been a Buy To Let boom in the South East. 2 million mortgages given to mostly older people who already own their own homes. I believe their houses are collateral for the B2L mortgages. First the innovators, then imitators, then the idiots. They're even giving these mortgages to pensioners. The banks are giving them two armed mortgages, like the ones in American housing crisis. A low interest rate arm for a few years, then up to the full rate. The pensioners have been buying these houses thinking they can pocket the extra cash over the monthly mortgage repayment as return on their "investment", as they'll be long dead before they've cleared the mortgage.

The thing is, they've been making it extremely easy for people 50 plus to get mortgages, and virtually impossible for people in their 20s and 30s.

How this is a huge problem. To pay off these mortgages, 2 million, you'd need as much or more than 6 million young renters - the SE has a huge population, but not that many. What's probably happening, is like in Ireland, B2L speculators took out loans to buy B2L properties and never bothered getting tenants, to keep the houses in pristine condition. Some people in Ireland made a killing in a short time, but tens of thousands got caught out. There was also something strange about the London commercial property market. After the 2008 many businesses laid off lots of staff and vacated their buildings. Even in the City there are lots of empty office blocks. What's happening?

The banks, like they did in Ireland, can only jig the market for so long. If those pensioners have been spending borrowed money they can't pay back, how long before it goes bang. I was looking at some of the mortgage offers - they reset to the higher interest rate after a short period, only two years. So the time bomb doesn't have a very long fuse.

Why Ireland is in so much trouble? Because the UK is our major client, if their banks go boom, we'll be in a world of pain.

gaius c

Interesting scenario.

Any proof to back it up? You seem to be conflating vacant commercial units with residential rents and I'm not sure that's a good method. I'm only getting anecdotal evidence but friends are reporting that it's very difficult to find reasonable value accommodation. This article seems to indicate a 7% vacancy rate, which is a little higher than the normal 5%.

Agreed on the other parts. When it's easier for older people to buy second properties than young people their first, you know you're in potential bubble territory. Even in a city like London with it's large transient population, locking FTB's out of the market will lead to problems later on. Did the Brits succeed in doing what we attempted to do, reinflating the bubble?

Lbeard

gaius c wrote: »

Any proof to back it up?

Do a search for articles Buy To Let boom. like http://www.independent.co.uk/property/house-and-home/property/its-boom-time-for-buytolet-so-heres-your-homework-8650582.html

The problem with a lot of information in the market is who puts the information there. It's often estate agents and the like. It's actually hard to get any reliable information at all.

It's only recently I found out it had been close to 2 million B2L mortgages in a relatively short period. These people are not laying down cash for the LTV. The only explanation I can think of is their equity is their own houses.

And now what's happening is the "get on the B2L ladder before it's too late" - and you know where that leads.

You seem to be conflating vacant commercial units with residential rents and I'm not sure that's a good method.

No. I really just meant the commercial units as an aside. There is something funny going on with the commercial units too. Simply put, there is no sound economic reason why the prices should not have fallen - there is unsound reasons, which boil down to market jigging. (Which is a lot like Ireland - in that for a few years before the crash, commercial units were being sold back and forth to developers when there was no commercial clients)

I'm only getting anecdotal evidence but friends are reporting that it's very difficult to find reasonable value accommodation.

London always gouges new arrivals. And I think everyone is gouged out at the moment - hence the London riots. Lots of people in London are paying half to three quarters of their wages out in rent. It's not sustainable - not everyone is a banker on 6 figures. Most Londoners are not on high wages - the wages of those who rent has to sustain the B2L mortgages.

This article seems to indicate a 7% vacancy rate, which is a little higher than the normal 5%.

The vacancy could be a lot of higher. That article is from an estate agent - the figures may have been pulled completely out of thin air.

It's like the Independent article I posted above - those figures can not be taken at face value. Some simply do not make sense.

When it's easier for older people to buy second properties than young people their first, you know you're in potential bubble territory.

Yes, but normally only under specific circumstances should be easier for older to people to purchase second properties. When they have cash, and they already own their own home. What is not meant to happen is giving 100% or more BTL mortgages to older people who do not have enough income to cover the mortgage, and the equity they're putting as security against the mortgage is their own home.

Even in a city like London with it's large transient population, locking FTB's out of the market will lead to problems later on.

I think it has already led to problems. Young people are waking up to the fact they've been shafted by their own parents generation (sometimes their own parents).

Suzanne Moore of the Guardian has recently become a Buy To Let landlord.

http://www.guardian.co.uk/commentisfree/2013/may/22/house-price-boom-children-victims

Did the Brits succeed in doing what we attempted to do, reinflating the bubble?

There's no such thing as re-inflating the bubble - just keeping it going a little longer to catch the last of the suckers.

"Hurry up!!! Get on the ladder!!!"

djpbarry

Lbeard wrote: »

There is something funny going on with the commercial units too. Simply put, there is no sound economic reason why the prices should not have fallen...

Really? How about demand is still high?

Lbeard

djpbarry wrote: »

Really? How about demand is still high?

It's what or who is driving the demand. Demand that drives prices is how much capital is being made available to the market - like in Ireland, office blocks and other commercial properties changing hands, without clients to occupy those properties. In terms of looking at the prices, the market looks healthy. In reality it could just be pass the parcel between developers and banks financing the game - the party can keep going on as long as the bank refinances the transactions.

When this was going on it Ireland, if you saw empty office block after empty office block, you may have believed your eyes were playing tricks on you.

Too many people have an interest in keeping accurate information out of the market. One figure I heard about two years ago, was office space in the City was at about 25% unoccupied. When the banks got into trouble, they laid off thousands and thousands of people, and gave up the leases on a lot of buildings. The UK economy has not grown in years.... which means it's shrinking.

The prices didn't collapse after the financial crisis - some kind of jigging went on. I can think of any other credible reason why they didn't collapse - or why they're coasting like they are, without jigging.

gaius c

Lbeard wrote: »

Do a search for articles Buy To Let boom. like http://www.independent.co.uk/property/house-and-home/property/its-boom-time-for-buytolet-so-heres-your-homework-8650582.html

snip...

Dude. I'm as bearish as they come and I'm open to being persuaded by your theory but it's up to you to do the legwork, not the people you're trying to convince (i.e. me).

There's no point in rubbishing data that contradicts your theory and then not posting anything to support your own view. You posted two links, one of which is an editorial commentary and the other is a "how to" for aspiring landlords. Any support they lend your theory is entirely incidental.

Lbeard

gaius c wrote: »

Dude. I'm as bearish as they come and I'm open to being persuaded by your theory but it's up to you to do the legwork, not the people you're trying to convince (i.e. me).

I'm not a bear, I'm an Irish person who has been mugged by reality. This whole thing has been a mystery for years. I had heard lots of arguments (Russians, Chinese, Blah blah) none are plausible. The only thing that's really implausible about this theory is why the banks would be so crazy as to lend like this - if they have, they are going to crash the market.

There's no point in rubbishing data that contradicts your theory and then not posting anything to support your own view.

I can't find accurate information. It's newspaper articles from the last few years and they seem to be cutting and pasting from each other. And looking at what banks have been offering for B2L mortgages.

Crucially I only have one ball park figure. But that figure is crucial if it is true. I'm roughly putting the B2L mortgages at or approaching 2 million. If it's not at that, it will be soon. But as a figure - the simple question is, is that number of these kind of mortgages sustainable?

From the Daily Mail 2012, Feb

http://www.dailymail.co.uk/news/article-2098971/Buy-let-boom-shows-signs-stopping-landlords-snap-property-worth-160bn.html

Jonathan Samuels, chief executive of property finance firm Dragonfly, said: ‘Landlords are making hay while the sun shines.
They can buy low and rent high, which is manna from heaven.’



See what they're doing here is encouraging people to take out B2L mortgages and pocket or even spend, the difference between the monthly repayment and the rent. The actual gap between rent and repayment is not that wide - only an utter fool would pocket any monthly overage. B2L is either something for professional landlords, people who purchase with cash, or young people who are looking at least 15 to 20 years before they start getting anything out of it - lots of Irish landlords are subsidising their tenants rent, that's not something pensioners could do. And if you were a pensioner could you be bothered.





According to the CML, when the buy-to-let market was in its infancy in 2001 landlords had obtained 185,000 loans to invest in rental properties.
Today, landlords have taken out 1.39 million loans, worth about £160 billion, to spend on their property empires, with an estimated 84,000 homes bought using specialist buy-to-let mortgages last year alone.

Of course the Mail doesn't give any dates, and you'd have to guestimate the periods. But is that kind of jump in the numbers sustainable?

You posted two links, one of which is an editorial commentary and the other is a "how to" for aspiring landlords. Any support they lend your theory is entirely incidental.

It's simply this. If there has been 2 million B2L mortgages since 2008, or even half that, then that is the market.

I would love to see the numbers - the real numbers. All the numbers. I have a strong feeling no one has them. Seanie Fitzpatrick types boasting of record profits but being incredibly fuzzy about how they're achieved.

They're going to run out of road very soon.

I'd like to hear a counter argument?

Lbeard

Older generation: Equity-rich buy-to-let landlords are emerging, opting either to rent to move or boost their pension plan

Read more: http://www.dailymail.co.uk/news/article-2098971/Buy-let-boom-shows-signs-stopping-landlords-snap-property-worth-160bn.html#ixzz2WbNLlEhx
Follow us: @MailOnline on Twitter | DailyMail on Facebook

Come on suckers..........Catch the keys of Death!!!

We've run out of young idiots.....

Welcome to the ladder.

Maura74

London has massive housing shortages since the RTB social homes were sold in 1980 by the Tories. They put restriction on using that purchase money from sale to replace the housing sold off. They are still not building social housing in London as they went it to be mainly private homes for the wealthy. They are still trying to sell off the rest of the social housing since they came back into power but people cannot even take them up on that as it is not as good deal as it was in the 80’s for the following reasons.

Most if not all of the stock of social housing left in London are flats since the sell-off in 80’s and 90's and what left are dilatation flats that needs a lot of work done on them and tenants do not have the income to pay for it. During the Labour/Blair years BTW they were the worse in building social housing than Tories.

Tories back again and Cameron has enhance the package but they will never succeed as housing prices has risen about 300% since 1980’s and the package they are offering is not near as good.

In the 80’s RTB sales had 75% discount. It was the same since until a couple of months ago and it was raised to 100k but even then not many have been sold off.

RTB purchasers were given 3 years to keep the property if they sold before then they would have to pay back the discount on a sliding scale. Now it is 5 years.

http://england.shelter.org.uk/campaigns/why_we_campaign/home_ownership_issues/is_buying_a_home_out_of_reach


http://england.shelter.org.uk/professional_resources/housing_databank


http://england.shelter.org.uk/campaigns/why_we_campaign/housing_facts_and_figures

worded

New RA caps are being introduced in London and people have three choices.
Move to a cheaper area - outside London
Fund the gap between RA yourself
Or get a job

There is a deal where single parents will keep the RA if they get a job.

Landlords did very nicely to now in London but with RA peared back significantly the rug will be pulled from many landlords.

Source - verbally from a Londoner in the know.

Maura74

To be fair it is not just rents that the tax payer are paying it is also people in part-time jobs as well as low paid jobs, therefore we are paying large mulch-nationals also because they do not pay a living wage in and we substitute them to keep staff on low wages and they do not have to pay them living wage.

They should be some rent controls put in place as quickly as possible by the Lib/Con government.

The largest landlords are:

http://www.guardian.co.uk/business/2009/apr/16/grosvenor-property-losses


http://www.insidehousing.co.uk/repairs/londons-largest-landlord-may-need-to-reduce-stock/6524231.article?PageNo=1&SortOrder=dateadded&PageSize=20

worded

New lower rent caps are being applied very soon, aug I think

Lbeard

Maura74 wrote: »

London has massive housing shortages since the RTB social homes were sold in 1980 by the Tories.

No.

And this was more that 30 years ago. It's anti-tory mythology. I would consider myself pretty anti-tory, but I know this old canard is not true.

It's impossible to know if there is a housing shortage or not, or what that shortage entails. Remember how the ESRI issued reports calling for more houses to be built in Ireland, at a point where we had hundreds of thousands of excess.

It's in the interest of the building trade to talk up the need for more houses. Estate agents want more houses to sell.



The population of London is lower than it was in 1939. The housing stock hasn't remained static.





The population has risen sharply since 1990, it's possible the supply has kept has kept in step with that growth.

djpbarry

Lbeard wrote: »

This whole thing has been a mystery for years.

It's a simple case of supply and demand - where's the mystery?

Lbeard

djpbarry wrote: »

It's a simple case of supply and demand - where's the mystery?

The mystery was (was for me at least) what the demand was. If it was young people in jobs buying houses, and if the supply did justify the prices, then it would be fine. Then you have a sustainable market - one that is not going to crash because, the market isn't just tulips selling tulips to each other.

A tulipomania market is going to crash as predictable as the sun rising or setting - it's just a matter of time.

People buying property to speculate on, with borrowed money, when there isn't a market beyond the speculators is not sustainable. Like Ireland. Or all those eejits who bought Spanish holiday apartments, as "investments" - the only market was other eejits.

djpbarry

Lbeard wrote: »

The mystery was (was for me at least) what the demand was.

The general consensus is that it's from foreign investors.

Lbeard

djpbarry wrote: »

The general consensus is that it's from foreign investors.

Yes. But that is completely implausible. It would require hundreds of thousands of Russians, Chinese, and North Africans buying property. They'd have to buy up whole streets.

After the Arab Spring, the rich relations of the dictators high tailed it to London. They bought ridiculously over priced mansions and flats. But there is just not that many of them. And similarly Russian oligarchs and general crooks, there are just not enough of them. Even if you put all the oligarchs billions together, it wouldn't sustain a market as large as the South East of England. In luxury property yes, in former council houses; no.


And there just isn't hundreds of thousands of wealthy Russians, Chinese and N.African's flocking to London. The UKIP and loons belly ache about immigration, but net immigration, the balance of people coming and going, is just not that much. The Tories are trying to lower it to about a 100,000...But it never really shot off the scales at any point in the recent past.


And never trust the general consensus......

beeno67

I don't get the problem. Lets just say for arguments sake that there is a massive bubble affecting these properties. Say they drop in value by 50% (I don't believe there is any chance of this but let's pretend). Then lets say 20% of mortgage holders default (again a massive number way above anything one should reasonably expect). Based on this over the top analysis banks would be facing a loss of £8 Billion. Hardly worth getting too excited about. It would be like Ireland's banks just owing 400 million.

Now if you are talking about the entire UK market being overinflated that might be a different matter but you haven't really mentioned that possibility. I don't see how this relatively small number of properties could effect the entire uk market of over 26 million households

Maura74

The problem is supply and demand, not enough of supply and too much demand in London

There are 79,971 empty homes in London - which represents 2.4 per cent of the total housing stock. Lambeth has the highest number - with 4290 recorded empty homes.

In London there are 8,173,194 residents as of 2011, with an estimated population of 8,278,251 in 2010. This is almost double to all of the RoI 4.576 million (2011).

I do agree from local news that there that it is very difficult for young people to get on the property ladder. Young people have to live at home until they are in their middle or late thirties before they can get onto the property ladder, this as well as having to have a massive deposit.

http://www.londoncouncils.gov.uk/londonfacts/default.htm?category=10

djpbarry

Lbeard wrote: »

Yes. But that is completely implausible. It would require hundreds of thousands of Russians, Chinese, and North Africans buying property. They'd have to buy up whole streets.

There are quite a lot of people in Russia, China and North Africa. Quite a lot of people from other parts of the globe too.

I'm not seeing why this is so implausible? Foreign investment in London property is estimated at £5 billion per year. Most new homes are being bought by overseas investors and, as you allude to yourself, there is anecdotal evidence that a large proportion are being kept empty.

Lbeard wrote: »

And there just isn't hundreds of thousands of wealthy Russians, Chinese and N.African's flocking to London.

Who says they have to be resident?

Lbeard

beeno67 wrote: »

I don't get the problem. Lets just say for arguments sake that there is a massive bubble affecting these properties. Say they drop in value by 50%

Let's just say.

(I don't believe there is any chance of this but let's pretend).

Because you're a glass half full kind of guy, instead of a glass half empty kind...of guy. Let's hear the numbers if you have them...The road to hell is paved with wishy washy optimistic wishful thinking.

Then lets say 20% of mortgage holders default (again a massive number way above anything one should reasonably expect). Based on this over the top analysis banks would be facing a loss of £8 Billion. Hardly worth getting too excited about. It would be like Ireland's banks just owing 400 million.

No. You are wrong. For the market to crash it doesn't require anything like a 20% default. The market just needs to stall. The reason banks have been loaning to dopey older people, has been because they're using the "equity" in their houses on the banks balance sheets. If the banks run out of dopes, providing capital for new purchases will become more difficult - and as less capital is going into the market, first the market will stall, like a plane's engines cutting out mid air. And once the book value of those doddering dopey "investors" equity starts to fall, the process will accelerate.

Now if you are talking about the entire UK market being overinflated that might be a different matter but you haven't really mentioned that possibility. I don't see how this relatively small number of properties could effect the entire uk market of over 26 million households

The market price is not decided by properties off the market - it's decided by those that are.

Lbeard

djpbarry wrote: »

There are quite a lot of people in Russia, China and North Africa. Quite a lot of people from other parts of the globe too.

Billins of people in China. The vast majority of Russian, Chinese, and North Africans are broke ass broke.

I'm not seeing why this is so implausible?

Plausibility can depend on credulity. How credulous you are. Like some people believe the virgin Mary puts in regular appearances in the west of Ireland.

Foreign investment in London property is estimated at £5 billion per year. Most new homes are being bought by overseas investors and, as you allude to yourself, there is anecdotal evidence that a large proportion are being kept empty.

5 billion is nowhere near the amount need to fuel the prices at the level they're at. In the rural south east (country but near commuter stations) house are on the market for over a million, but I have heard from friends living there, that you can rent similar houses for under a grand a month.

Who says they have to be resident?

DJ, do you know who you remind me of?.......You remind me of my mother. She was a real Irish property booster. When I asked her, a long time back, ten years ago, who was going to buy houses in Ballydebogarse Carlow...She said Dublin people looking to have holiday homes. Holiday homes in Bally de bog arse.......Indeed. Holiday home in rural Carlow. Get away from it all...come to Carlow.

djpbarry

Lbeard wrote: »

5 billion is nowhere near the amount need to fuel the prices at the level they're at.

So what amount is?

Lbeard wrote: »

DJ, do you know who you remind me of?.......You remind me of my mother. She was a real Irish property booster. When I asked her, a long time back, ten years ago, who was going to buy houses in Ballydebogarse Carlow...She said Dublin people looking to have holiday homes. Holiday homes in Bally de bog arse.......Indeed. Holiday home in rural Carlow. Get away from it all...come to Carlow.

All of which has what to do with my point?

Duggys Housemate

Lbeard wrote: »

DJ, do you know who you remind me of?.......You remind me of my mother. She was a real Irish property booster. When I asked her, a long time back, ten years ago, who was going to buy houses in Ballydebogarse Carlow...She said Dublin people looking to have holiday homes. Holiday homes in Bally de bog arse.......Indeed. Holiday home in rural Carlow. Get away from it all...come to Carlow.

As far as I remember he was never other than bearish on the Irish Property market.

The mistake you are making is simply put. You think that all property markets are everywhere the same, without regard to the actual conditions in the actual cities or countries. So it Ireland fell, then London must fall.

Some reality checks.

1) Ireland was building unto 150K units a year in the boom. The UK is building about 200K now - which your graph shows is much less than the 1960's. Relative to population thats equivalent to us building about 10K a year - which maybe we are now. However our population is decreasing.

2) London is not getting most of these new builds although it needs them.

3) Net immigration in the UK - which is immigration minus emigration - is not useful for discussing London. The 100K a year figure ( which is aspirational) would probably mean 200K immigrants - mostly to London - and 100K emigrants, mostly not from London. Also internal migration to London continues apace as it is the only part of the UK booming. Moving from Dublin to London is recorded in the immigration stats, moving from Belfast isn't. So the Net immigration could be 100K and London could, and would probably, see an increase in population of more than 100K.

In fact the stats show that Londons "official" population is growing at about 100K a year, and housing is not keeping up with that demand. Thats the reason.

Lbeard

Duggys Housemate wrote: »

1) Ireland was building unto 150K units a year in the boom. The UK is building about 200K now - which your graph shows is much less than the 1960's. Relative to population thats equivalent to us building about 10K a year - which maybe we are now. However our population is decreasing.

I don't think we're building 10k at the minute. And although 10 / 20 k sounds low, it's probably at the edge of sustainability for Ireland. Housing stock lasts a very long time. 10k over 30 years would be 300k houses, 20k, 600k. I can't remember the ESRI's figure from years back but it was something like we needed 65k houses a year - absolute madness.

I don't know a sustainable figure for the whole of England. There will be much more demand in the south than the north. But what is the figure? People pull silly numbers out of the air - rubbish like the south needs 6 million houses

2) London is not getting most of these new builds although it needs them.

Where are they building? If it's within commuting distance of London, you can consider it supplying London.

3) Net immigration in the UK - which is immigration minus emigration - is not useful for discussing London. The 100K a year figure ( which is aspirational) would probably mean 200K immigrants - mostly to London - and 100K emigrants, mostly not from London. Also internal migration to London continues apace as it is the only part of the UK booming. Moving from Dublin to London is recorded in the immigration stats, moving from Belfast isn't. So the Net immigration could be 100K and London could, and would probably, see an increase in population of more than 100K.

But demand in terms of numbers of people is not a good indicator of capital demand on house prices. If it's young people from eastern Europe, or Asia, they're going to double or triple up, to save rent money, and most will not stick around to buy. At the least you'll have three to four of these young immigrants to a house. You're only looking at 30k houses.

In fact the stats show that Londons "official" population is growing at about 100K a year, and housing is not keeping up with that demand. Thats the reason.

You're only looking at 30k houses. If the stock is needed.

The average house price for London is now 500k. That's a really hefty mortgage. Do London rents justify it? Forget about the supposed influx of east European hordes...It's all about capability to pay. I do not think it's there. And the market is just old idiots flogging houses to each other.

There's too much bull in property. It's impossible to find out true details. Last night I saw figures for London properties worth over 1 million. And apparently, well less than a thousand 1 million plus properties change hands each year in London.

Remember the demand that drives the price ultimately comes down to ability to pay. And the English are getting broker not richer, so why would the prices for the south east be on the rise, when nothing else is happening.

Duggys Housemate

Lbeard wrote: »

The average house price for London is now 500k. That's a really hefty mortgage. Do London rents justify it? Forget about the supposed influx of east European hordes...It's all about capability to pay. I do not think it's there. And the market is just old idiots flogging houses to each other.

There's too much bull in property. It's impossible to find out true details. Last night I saw figures for London properties worth over 1 million. And apparently, well less than a thousand 1 million plus properties change hands each year in London.

Remember the demand that drives the price ultimately comes down to ability to pay. And the English are getting broker not richer, so why would the prices for the south east be on the rise, when nothing else is happening.

House prices are not set by home buyers all the time, but also by BTLers as you show. The rents in London are high so the return on capital is high. That might reverse when the rent allowance is scrapped. If it doesn't we aren't looking at a bubble but a normal market fact.

By the way there is no point is arguing about London's house prices and suggesting there are lots of houses being built in the neighboring towns. that might be the case but that indicates that london is full. People would prefer to live close to work, not in Watford and Reading and so on. ( The cost of commuting itself runs to thousands for lots of people working in London and living outside it). If housing ever started to soften in London the outliers would move back in.

I think London is doomed to high rent for ever unless there are government interventions, and that won't happen until the present young generation get to power, if ever.

Lbeard

Duggys Housemate wrote: »

House prices are not set by home buyers all the time, but also by BTLers as you show. The rents in London are high so the return on capital is high.

Average London rent is about 1,400 a month. I know some Buy To Let offers are giving an introductory arm of 2.8% (which ain't going to last). But on an average house price of 500k, the interest alone is close to 1,400.

Some of the offered rates are even lower. Even below 2% - offer rates below deposit rates. It CANNOT LAST - UK inflation is running at 2.7%..........Growth is 0% once you adjust for error. That economy is shrinkin'

What's really going on is some of the B2L pensioners are pocketing the difference between the repayment and the rent - and it can't be much, a few hundred quid. As soon as the crap hits the fan, they'll just pocket all of the rent, like a good few boom time JR Ewing types have been doing for the last few years in Ireland. Working capital. It's the banks fault, not good solid conservative paddies. Need the money to buy tweeds and flat caps, and petrol for the 4x4. To create wealth you have to show people you are wealthy and wise.

That might reverse when the rent allowance is scrapped. If it doesn't we aren't looking at a bubble but a normal market fact.

It's not being scrapped, it's being capped. And the vast majority of people who are in receipt of the benefit are working people with children. The bankers need bottle washers and bottom wipers. There are lots of bottle washing and bottom wiping jobs in London, but they don't pay very well. The British government has to borrow to subsidise the servants of the rich.

It won't take any heat out of the market, because I believe at this point the market is completely detached from reality - like Ireland in 2000 and 5 Those were the days my friend.. Ireland 2005; a land well outside the reality based community; driven on dreams and hot air.

By the way there is no point is arguing about London's house prices and suggesting there are lots of houses being built in the neighboring towns. that might be the case but that indicates that london is full. People would prefer to live close to work, not in Watford and Reading and so on. ( The cost of commuting itself runs to thousands for lots of people working in London and living outside it). If housing ever started to soften in London the outliers would move back in.

And if people move back in, then prices will fall in the outlying areas, meaning people will move out, until there is an equilibrium. There is a preference thing - and that's what people balance the commuting/non-commuting cost against.

I think London is doomed to high rent for ever unless there are government interventions, and that won't happen until the present young generation get to power, if ever.

In the last big crash in the 80s, hundreds of thousands of young people squatted in London - there's no rent, like no rent. The speculators handed the keys back to the banks, and the banks had hundreds of thousands of properties they couldn't give away. "Getting on the ladder" in London in the early 90s was very easy. I know people who bought flats for less than their annual wage.

But even when there was massive defaults and squatting in the 80s, London rents rose (this is an economic effect I won't explain - but it will only save the bacon of those with huge equity in their rental properties and whose repayments are well below the rent).

A lot of London properties bought in the 1980s, were still in negative equity in 2000. Of course then there was the property boom.

Historically, a "normal" market means nothing. Property is usually a rubbish investment unless you can get in at the bottom of the market and wait. Boosters and Polly Annas like to ignore the full realities of the market. The market is either sinking, stagnant, or rising.