High price of London rentals?

[Loz]

> We need less debt in the economy - why are we subsidising it?

Less debt = less money in the economy. Money is debt in the concept of fractional-reserve banking.

[mikeb]

So why do we have exactly the right amount of debt in the economy just now?

[uncleglen]

If Nick Clegg gets his way with the 'mansion tax' a lot more prime property in London is going to be bought by foreign buyers

[LondonMix]

Taxes won't make homes more affordable. That's like arguing stamp duty makes homes more affordable. The cost of buying a home is exactly the same except that the government rather than the vendor is getting a portion of your money. People pay whatever they can and it doesn't matter if a portion of it is in taxes. Headline prices of homes will go down but they won't be any easier to buy.

[red devil]

If this snowballs, it could get messy... http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9900393/Rates-double-for-thousands-of-mortgage-customers.html

[LondonMix]

Yeah, Bank of Ireland did this last year too except that time it affected 100,000 residential mortgages. I think most people just switch providers as you'd be out of your locked in phase-- only those with no or very little equity will be trapped. Even so, a challenge to the financial ombudsman might find that this isn't really allowed. It will be interesting to see how that plays out.

[Jeremy]

I think you're missing the point, LM. The customers affected won't be able to get their old rate on the current market.

[LondonMix]

I do get the point. Most people will end up with a rate somewhere in between their current rate and new BofI rate. If they have at least 25% equity there are actually very similar rates available (though not for buy-to let). Either way, this is unfair which is why I said it will be interesting to see if the legal challenge is succesful. I just don't see it as the end of the real estate market and was trying to put it in context of changes BofI have made before that affected 9 times as many people.

[Jeremy]

LondonMix Wrote:

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> If they have at least 25% equity there are actually very similar rates available

Not sure about BofI in particular. But some people who got a mortgage pre-credit crunch could be on as little as 0.6% above base. There's no way you could get anywhere near that now, regardless of how much equity you have.

Surely this just equates to screwing customers out of hundreds of pounds a month.

[LondonMix]

In the article they made reference to the specific BofI rates that are changing. The current rates are 2.25% increasing to 4.49%. Many people, when they signed up to the rate would have been paying more before the Bank of England plummeted. Either way, it's totally wrong and I hope if those appealing are successful.

http://www.ft.com/cms/s/0/cd85f110-81bd-11e2-b050-00144feabdc0.html#axzz2MZUQaPog

[mikeb]

From Breakingviews today, advocating capital gains on residential property (and abolition / reduction in stamp duty / mansion tax).

http://www.breakingviews.com/uk-would-gain-from-homeowner-tax-switch/21072613.article

[Saffron]

From the G15:

London housing associations join private market to fund affordable rents-

Top 15 social landlords to build 13,000 new affordable homes but also let and sell properties at market rates to fund projects:

Housing associations in London are to venture into the private property market on a grand scale for the first time in an attempt to extend their social housing mission to "generation rent" ? the growing number of people who can not afford to buy in the capital and are vulnerable to exploitation from unscrupulous landlords.

The 15 biggest social landlords in London are working together to build 13,000 affordable homes by 2015 ? but they will also provide an additional 4,000 properties for rent at market prices and at least 1,100 homes for sale at regular London prices. They will use the profits to fund further affordable housing.

Housing associations have traditionally focused solely on affordable housing for low earners and key workers such as teachers and nurses. The new strategy is a widening of their scope to help those in their 20s and 30s who have become known as "generation rent" ? those trapped renting at sky-high prices, at the mercy of sometimes exploitative landlords....

http://www.guardian.co.uk/society/2013/mar/03/london-housing-associations-private-property-rent

[LondonMix]

Am I the only one horrified by the government's plans to give people interest free money for worth up to 20% of the purchase price for both new and existing homes wirth up to 600k? And this is without any means testing... Everything about it is madness and can only lead to massive price inflation.

[????]

Sub Prime part 2

[LondonMix]

Who has a God given right to own a house worth up to 600k?! The maximum amount on this scheme is rediculous. Not means testing it is rediculous. The concept of being able to buy existing homes is rediculous-- at least for new homes you can argue that its stimulating building to address the fundamental issue of lack of supply. This is literally just buying votes. It's outrageously irresponsible. Who in their right mind will even bother saving for a 25% deposit anymore when all you need is 5% and can get this rest (interest free) from the government (i.e. us the tax payers)!

[Saffron]

Yes, I'm very confused about that as well. Who/how is it meant to help?

[Huguenot]

It seems to make no sense at all. I'm flabbergasted.

[LondonMix]

It?s supposed to help people who are ostensibly paying as much in rent as they would have to pay for a mortgage but can?t get a mortgage only because they can?t save up a deposit. I can understand as I have friends in this position who are paying rent higher than my mortgage. However, without an increase in supply, this program is just going to lead to massive house price inflation. Also, given that its not means tested, its fundamentally unfair to those who do save up a deposit and risk their own money (rather than tax payer money) buying a home. Even in London, no one is prevented from buying a house because they can?t afford a 600k price tag. There are lots of places you can live in London for less than that and the idea that tax payers will effectively subsidize the purchase of high value homes in relatively affluent areas is outrageous. It shows how desperate the government must be to put forward policies they think will win them votes however I?ve never seen anything so fundamentally irresponsible and ill thought out.

[El Pibe]

Does this mean my house price is going to go up?

Excellent I think a new car :D

[DJKillaQueen]

I couldn't agree more LondonMix. It seems as though this governement is determined instead of helping to normalise rents/ house prices, to further inflate the problems. What happens when minimum house prices go up even more as a result? Will the government then increase help it gives to first time buyers? And has it no consideration for where the money to pay for this will come from?

This too combined with increased discounts for right to buy council tenants, another ploy to further deplete affordable council rental stock.

My opinion is that governemnts in this country see home ownership and the equity involved as the solution to the long pensions crisis. What else could be the thinking behind this totally illogical policy?

And at the same time, we are about to see a range of measures come into force that will force some families and individuals into homelessness and severe hardship at the other end. I'm just left speechless by this coalition's take on housing problems.

[LondonMix]

I often disagree with various policies for ideological reasons but this is simply bad policy. It has been condemned by everyone. The financial community, the Office for Budget Responsibility, director-general of the Council of Mortgage Lenders expressed concerns when questioned by the Treasury select committee regarding the proposals, even the US Treasury Secretary has commented. It's just a really, really bad policy idea. Apparently the Bank of England has the power to kill it, and I'd be surprised if they would let it stand in its current form.

[DJKillaQueen]

Well let's hope they do kill it. Banks are not mortgage lending for good reason. The housing market needs to be exposed to the same market forces as any other sector, otherwise we are heading for a scenario where no-one can afford to buy anything (apart from the super rich), and you don't to be Einstein to figure that one out.

[Saffron]

http://www.bbc.co.uk/news/magazine-22952667

The word "precarious" crops up a lot in conversations with renters in the UK.

Tenancy agreements of just a year are the norm in many places, with either party able to terminate at the six-month mark.

"If you want to have a child, you know it's almost impossible in private rented accommodation as you could be thrown out," says Shiv Malik, a journalist and co-founder of the Intergenerational Foundation.

But with more people forced to rent longer, how can people prepare?

One way is to look at the rest of Europe. Long-term renting is normal in many places.

Figures for 2011 show that 13.3% of people in the UK privately rent (with social housing, the renting figure is 32.1%). This compares with 51% in Switzerland, 40% in Germany and 32.8% in Denmark. European countries provide much greater legal protections.

Renting itself needn't be a disaster, Malik says. "In Germany people who rent have a right to make it their home."

But in the UK it can feel like a second-class system. There are limited protections. Landlords can boot people out of rented flats with a month's notice. In countries such as Germany, Switzerland or Belgium, long-term contracts and more flexibility give tenants the chance to plan for the future.

...

...Many renters would welcome longer contracts where increases are pegged to the rate of wage inflation.

Banning lettings agents from charging fees to tenants would be another move that would please many renters.

Neither of those measures are currently in the pipeline, so how can renters make the best of the current situation?

...

Many renters focus on saving money, hardening themselves to making sacrifices so they can build up their deposit.

Young people in the most expensive parts of the country - like south-east England - may need to ask themselves if they could do their job anywhere else.

And that's exactly how high rents could be damaging to London. Still no solution insight?

[Burbage]

Two possibly relevant bits of news have appeared recently.

First is a BBC piece that seems to vindicate the fears of some that Help to Buy would just push house prices up.

http://www.bbc.co.uk/news/business-22794816

Second is a Guardian article about the rent-to-rent market, which seems right dodgy to me. Though I admit I'd be tempted if I wasn't a rancid pinko.

http://www.guardian.co.uk/money/2013/jun/29/rent-to-rent-property

The main trick seems to be renting a flat like a proper tenant, dividing it up and subletting it at a healthy profit to those poorer, more desperate or with iffier references, without the need to own the property or hang about if things go pear-shaped. Being a Guardian article, it should probably be taken with a few pinches of salt. But, like the beds-in-sheds thing which seems to have been bigger than anybody thought, there might still be a lot of it about.

[DJKillaQueen]

Both ideas (whether true or not) will do nothing to help housing inflation.

Why can't we just let normal market forces dictate the value of homes? If there are no first time buyers (for whatever reason) prices will come down. But no, everytime the first time buyer pool starts to dry up the banks and government dream up another scheme to keep it going. We've gone from 2.5 salary based mortgages and 10% capital deposits to no deposit and self certified (unlimited) mortgages, from no subletting on a mortaged property to buy to let, and from part buy part rent to lets give money to people to help them buy a property! It can not go on.

And the knock on effects on rents from this is there for all to see as well.