Neil,

I agree with most of what you say but my view is a larger fall. On average-

Year one: -5 to -10%
Year two: -5 to -10%
Year three: 0%
Year four: 0% to 5%
Net over three years = -10% to -20%

Add in for inflation around about 30% real fall.

The UK house price indexes will need to make a sharp upward correction to achieve only -5% over the next year.

http: / /news .bbc .co .uk /2 /hi /business /7378215 .stm

The trend is down and a larger fall over the next year is likely.

Hi Tom

Thanks - you could be right on your forecasts!

Which is another reason to stay clear for the next 12 months - at the moment either of us could be right - but either way, investors shouldn't commit more money to this market for the moment.

Of course, the sharper any correction, the sharper any rebound might be...

Cheers
Neil

Hi,

I love forecasts so far into the future. I think our meteorologists need to take a leaf out of your books when forecasting even a week ahead!

Have a good weekend :)

Chris.

:-) Thanks Chris

We are supposed to have 5 days of rain here in Valencia, Spain - but actually the sun is just starting to come out!

Makes no sense, eh?

Cheers
Neil

If Toms predictions are correct, is UK property still a strong hold?

I just missed getting out in time, and I'm now looking at renting my old flat, which is depressing when looking at Tom's figures.

Yes Minsk - UK property is still a strong hold if you take the view that the sharper the fall - the faster the rebound.

Which is why a mix of my forecasts and Tom's could be right - and it shouldn't change your strategy.

Cheers
Neil

Neil - good article and I agree with your comments and feel give or take 5% you are probably spot on with the forecasts !

But the one point I think is missing from your article and the current biggest stumbling block is the lack of competitive financing/re-mortgaging options in the market.

I dont necessarily think the market is dropping but just correcting itself from a very over inflated stand point - largely within the new build flat market.

Irrspective of what the market is doing, if the mortgage deals are not there it can up or down all it likes but unless you are a cash buyer you can't take advantages of the opportunity and this will be the biggest driver in the buy to let market in the next 3 years.

This week alone I have been offered deals in the UK by developers of between 25-40 discount from list price - all very well but I cant get the mortage deals !

Sooo I think this is the real issue not necessarily the property prices !!

I don't think you can separate the availability of credit from prices, the two are closely linked especially if credit restrictions remain in place for the long term.

looking back at my btl mortgages over the last 6 yrs - for most of the time I was actually paying less than the bank rate, by moving from discount to discount. Clearly this is unsustainable for any bank in the long term.

I cannot see these deals coming back in the short/medium term (possibly in 15-20 years when everyone forgets how it ended up last time), so I think we have to get used to mortgages at bank rate plus 1.75-2.00%.

Of course, as this equates to around a 30% increase in financing costs, it will have an impact upon house prices. The banks know this so will reduce LTVs, so bigger deposits required which will further impact upon house prices.

Quite where house prices will end up I have no idea, but it is not a market I would want to be investing in at the moment. At least not until prices fall to a level where you can purchase a property and then rent it at a price that covers the mortgage and running costs from day 1.

This is what I did after getting burnt in the 1988/9 crash, I sold up in 1989 (because I couldn't afford not to) and stayed out of the market until 1996, when rents did could cover all purchase costs from day 1 - and with hindsight it worked out pretty well.

I wish those who see this as a buying opportunity well, in part because this time I didn't get out in time and would love my fears to be proved wrong, but will be surprised if in 5 years time the returns made it worth the risk.

In some parts I agree with you but the key underlining factor in the property market is the issue of supply and demand - if/when banks increase LTV on purchases the biggest people affected are first time buyers and low income house holds, which mean these people wont be able or want to buy so will therefore rent - bingo !

Again rentals are supply and demand and therefore will force rental yields up, if the property is in the rigght location and is habitable !

But as I have always said property is a long term investment strategy post 20-30 years and if you focus on this and aren't geared too tightly you you will be fine. Those who do have poor cash flow and have been gready looking for the quick buck and short terms gains were miss guided in the first place. Hopefully this market condition will remove some of the arm chair investors and inside tracks/fast tarck properties of the world and allow us serious investors to crack on and offer the market a service.....

In Todays Daily Telegraph there is an article in which George Soros predicts a much longer recession for the UK than in the US.

I am turning very negative in my outlook for the UK as far as property price growth goes, and I think the only saving grace is reasonable yields. Germany and Japan have had nearly 20 years of zero growth and I think we in the UK could be just about to enter this phase for the following reasons.

1. Credit crunch- speaks for itself, a lack of liquidity will eventually force prices to fall just the same as in stockmarkets- and just like excessive liquidity of 100%+ interest only mortgages forced price appreciation to the currently unsustainable levels.

2. Earnings Growth in the UK is small, taxes are ever increasing and fuel/food prices are taking an increasing proportion of take home pay.

3. Interest rates_ the next rise could be upwards to avoid and inflationary spiral. The B of England is in a catch 22 situation, because if it then raises rates, there is risk of a property price crash as mortgage holders find it harder to pay and defaults increase

4. Past History: House Prices have been typically about 4 x annual average earnings. This countrywide would average out at about 120k, so if house prices were to correct to something near this level we would be looking at about a 35% drop in prices. This could well even be exceeded as the banks will take a long time before they adopt the carefree lending policies of the last few years.

5. BTL- This especially relates to inner city flats, but extends beyond them. Sentiment has changed and many landlords will be hesitatant (rightly so I think ) about entering/reentering the BTL market.

6. Inadequate Supply- Often mooted as the reason why the UK is much safer than the US housing market. True,we have not had the building excess as over in the US, but the UK market has become much more overheated, with affordability much more stretched than has ever been the case in the US. The credit crunch and lack of affordabilty will conspire with market forces to reprice UK housing costs.

7. Rental Yield: this is one fact which might sustain values, but high rents are largely sustained by housing benefit subsidies and it is quite possible to see Central Government in the future tring to bring these subsidies down to more realistic and affordable measures.

I know this might be thought provoking but I am asking the question, what is there to support residential property at it's current value in the UK. Consideration of these points leads me to answer, " Very little indeed"


7. Rents