Im calling it.....

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It's a tricky situation because we want to move house this year and will need to spend a sizeable amount above our current property value to get the sort of thing we want (probably around £200-250k extra). If there were to be a price crash then the differential between our current and future home would probably shrink down to say £150k. For us despite having more equity than most people (mortgage free) a price correction would be brilliant news as it would mean a smaller mortgage required for the same jump up the ladder. On the flip side interest rates are very low so it is easy to extend yourselves as adding say an extra £100k on a mortgage doesn't really impact on affordability in the way it used to.

Personally given current wages I think aside from specific areas, prices in general will have to start to plateau especially when another recession hits, but the likelihood of that having happened sooner was reduced by the incredibly cheap credit on offer (low mortgage rates, steady rise in LTV on offer, plus various government schemes etc) meaning that FTB are not priced out of the market in the way they should be.

For those worried about potential losses from a crash it is worth considering that even those who bought at the peak of the previous boom (2007) will probably have still made money on their property based on current prices, assuming they didn't have an expensive fixed mortgage product (even if they did, some areas will have boomed enough to compensate). Less effective than perhaps buying in say early 2009 but over the medium term, not a disaster. Unlike some goods, housing/land is a commodity that will always be in demand so the chance of there being a permanent fall in prices seems low so long as population continues to expand.
 
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I'd love to know what the actual total cost of building a house actually is though.

Or block of newbuild flats, whatever, just interested to know the sort of profit margins developers are looking at, because there is no way some of the flats cost anywhere near what they are selling for.

If I remember correctly, isnt this information on a Hom******'s report? Not 100% sure. If it is, not sure how accurate it would be, its the surveyor's best guess I assume.
 
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On the flip side interest rates are very low so it is easy to extend yourselves as adding say an extra £100k on a mortgage doesn't really impact on affordability in the way it used to.

.....
At the risk of stating the mind-numbingly obvious, past oerformance is no guarantee of future trends. Really low rates can't last forever, so the questions are when they start to rise, and then how fast?,

Remember rates nearly doubling in an attempt to stabilise us in the ERM? Even though the 15%+ didn't last long, mortgage payments persisted at 40-50% higher than they had been for several years.
 
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The main problem with staircasing is that any time you do, it is done at the property's current value.

My gf has this problem as she only owns 35% of her flat, but the flat itself has gone up 60% in value over the past 4 years, making it even more expensive for her to own more of the property she already lives in, and netting a nice chunk for the HA/government when she does.

You've got to put that in context though. Making it more expensive for her to own more of the property is no worse than if she'd had to buy a cheaper flat in the first place and then wanted to move on to this place as she would have needed more money to upgrade anyway (I'm assuming that simply borrowing more from the mortgage lender at the same terms wasn't possible). In fact she's better off because her equity stake has risen by 60% meaning that she can remortgage on more favourable terms to free up extra funds to buy out the third party. If the TP's share has gone up in value, then so has her's, and presumably with 35% equity she owns more of it than they do.

I think the only scenario where these schemes might potentially be bad is if you are taking them solely as a way of dodging mortgage interest in the first five years, on a property that will soar in value during that time (i.e. where the cost of borrowing from a bank would be more than offset by only having to to repay them the original loan amount rather than the current, increased value). In that scenario it could be preferable to own more equity with a bigger debt - but I suspect a lot of people using these schemes aren't in a position to take on a bigger debt anyway.
 
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At the risk of stating the mind-numbingly obvious, past oerformance is no guarantee of future trends. Really low rates can't last forever, so the questions are when they start to rise, and then how fast?,

Remember rates nearly doubling in an attempt to stabilise us in the ERM? Even though the 15%+ didn't last long, mortgage payments persisted at 40-50% higher than they had been for several years.

What I was getting at is that you can lock in a low rate now (earlier this year fee-free 10 year fixes were available at under 2.9%) meaning that even if you are potentially going to lose money (value of property) in the short-medium term on a house purchase, the cost of the extra money needed to buy compared to waiting for a crash isn't as exorbitant as it once was, or could be in the future. Or to pick up on your point, a drop in house prices of say 20% wouldn't be as palatable if it was accompanied by massively higher interest rates meaning that although you needed to spend less money to buy a house, the cost of borrowing was much higher.

What is a bit unusual about the current position is that we have both record high house prices without interest rates having risen. This means if prices crash before rates have risen, there isn't much wriggle room.
 
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At the risk of stating the mind-numbingly obvious, past oerformance is no guarantee of future trends. Really low rates can't last forever, so the questions are when they start to rise, and then how fast?,

Remember rates nearly doubling in an attempt to stabilise us in the ERM? Even though the 15%+ didn't last long, mortgage payments persisted at 40-50% higher than they had been for several years.

Your first sentence is correct, the rest of your post then falls into the same trap as you've just warned about!

Rates might go up, rates might just stay relatively low for the foreseeable future maybe just fluctuating within a 1% range, there is no certainty here that allows you to make those sorts of claims about what they can't do, maybe the easy availability of credit eventually evolving and normalising to low rates is the future.... we'll have to wait and see.
 
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In fact she's better off because her equity stake has risen by 60% meaning that she can remortgage on more favourable terms to free up extra funds to buy out the third party. If the TP's share has gone up in value, then so has her's, and presumably with 35% equity she owns more of it than they do.

He didn't say she had 35% equity but that she owns 35%?... So surely the flat rising in value makes it more expensive for her to buy the other 65% from the housing association(or whatever third party owns) it in future. It only has a minor affect on her equity since she's only got a minority stake in the property in the first place.
 
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Your first sentence is correct, the rest of your post then falls into the same trap as you've just warned about!

Rates might go up, rates might just stay relatively low for the foreseeable future maybe just fluctuating within a 1% range, there is no certainty here that allows you to make those sorts of claims about what they can't do, maybe the easy availability of credit eventually evolving and normalising to low rates is the future.... we'll have to wait and see.

So, you think historically low rates can last "forever"?

I said nothing about the foreseeable future, not least because any vision of future rate changes, or the absence of, is speculation.

My personal view is that they won't change, or change much, in the near term, and if they do change, it'll be a gentle, graduated increase. But that scenario is always subject to external shocks which, by the nature of "shock" is hard to predict.

A cautious view of future rates, therefore, would be that even if you don't expect massive change, and I don't, to consider the impact on your personal finances if a shock occurs, and decide on going ahead, or not, with that in mind.

Going ahead if a 5% hike would cause a bit of belt-tightening is a different degree of risk from going ahead if it would cause certain bankruptcy.
 
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What I was getting at is that you can lock in a low rate now (earlier this year fee-free 10 year fixes were available at under 2.9%) meaning that even if you are potentially going to lose money (value of property) in the short-medium term on a house purchase, the cost of the extra money needed to buy compared to waiting for a crash isn't as exorbitant as it once was, or could be in the future. Or to pick up on your point, a drop in house prices of say 20% wouldn't be as palatable if it was accompanied by massively higher interest rates meaning that although you needed to spend less money to buy a house, the cost of borrowing was much higher.

What is a bit unusual about the current position is that we have both record high house prices without interest rates having risen. This means if prices crash before rates have risen, there isn't much wriggle room.
Point taken, especially if locked into a fixed rate for the duration of needing the mortgage. One caution, which you're probably away of anyway, is that some "fixed' rates are more fixed than others. Just be aware of fixed 'within a band' or 'up to a ceiling'.
 
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So, you think historically low rates can last "forever"?

they might they might not but yes it is possible ergo they 'can'. Maybe we won't even have 'money' as we know it now in 400 years time but until that point we may have low rates, no one knows for sure.

to say they can't is incorrect, there are no certainties in that regard despite them being 'historically low', as per the start of your post re: past performance... maybe they're an anomaly maybe they're the future and represent the equilibrium state that easy access to credit results in

point is that either is possible so to rule one possibility out arbitrarily on the basis of past performance is falling into the same trap you warned about initially
 
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Soldato
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they might they might not but yes it is possible ergo they 'can'. Maybe we won't even have 'money' as we know it now in 400 years time but until that point we may have low rates, no one knows for sure.

to say they can't is incorrect, there are no certainties in that regard despite them being 'historically low', as per the start of your post re: past performance... maybe they're an anomaly maybe they're the future and the equilibrium state that easy access to credit results in

point is that either is possible so to rule one possibility out arbitrarily on the basis of past performance is falling into the same trap you warned about initially

You know the really scary thing, is if there is another economic crash in the current climate of low interest rates, borrowing etc, how the hell do the Government inject stimulus into the economy again? We really cant go a lot lower than the current interest rates. More quantitative easing?
 
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they might they might not but yes it is possible ergo they 'can'

to say they can't is incorrect, there are no certainties in that regard despite them being 'historically low', as per the start of your post re: past performance... maybe they're an anomaly maybe they're the future and the equilibrium state that easy access to credit results in

point is that either is possible so to rule one possibility out arbitrarily on the basis of past performance is falling into the same trap you warned about initially

Oh, for pity's sake. Are you a professional hairsplitter?

The planet won't, according to our best understanding of physics, last forever. Sooner or later, the sun's fuel runs out and it dies. So unless we discover something fundamental that contradicts our current understanding, and we can reverse the sun's internal processes, the planet won't last forever either. I doubt any financial institution, or government finance ministry is factoring it in, but whatever pleases you.

So for the terminal pedants out there, I'll rephrase my original comment. It is extremely likely, to the point of near certainty, that of a probability approximating to but never quite reaching 1, that rates will rise before our sun explodes or otherwise ceases to function within a range consistent with continued human existence, or a giant meteorite destroys us, or an unstoppable treatment-resistent virus kills us all, or aliens destroy earth, or some other natural or unnatural calamity befalls us, that interest rates will rise though I concede that there is a very small possibility that they will stay precisely where they are, all evidence and logic to the contrary notwithstanding, and also a potentially but unproveably larger but still small chance that they will drop to zero or even go negative.

Happy now?

I remain firmly unconvinced that qualifying every single brief remark with sufficient caveats to cover against pedantry actually adds to the flow of a thread.

Now I remember why I put you on my ignore list. Back you go. And please, I beseech you, do me the courtesy, the huge favour even, of adding me to yours, too. Life's too short for this.
 
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You know the really scary thing, is if there is another economic crash in the current climate of low interest rates, borrowing etc, how the hell do the Government inject stimulus into the economy again? We really cant go a lot lower than the current interest rates. More quantitative easing?

Negative interest. BoE literally start paying to lend money.
 
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You know the really scary thing, is if there is another economic crash in the current climate of low interest rates, borrowing etc, how the hell do the Government inject stimulus into the economy again? We really cant go a lot lower than the current interest rates. More quantitative easing?
It depends what the cause is. Everyone is getting hyped up on excessive lending so there's no realistic chance of the BoE putting rates up. Even going back to 3% interest rates is almost unimaginable, let alone 5% or even double digits like we had in the late 80s. Japan is playing with negative interest rates... We seem hellbent on copying their economic failure so I'd guess we follow them.

Recessions are healthy for an economy because it means dead wood and zombie industry is allowed to fail. Yes there is short term pain but avoiding it and inducing situations like we have currently are far worse in the long run.

Also there's not much chance that housing in London will drop until we have a contraction in lending. That seems to be the defining factor of the current property price situation.
 
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I'd love to know what the actual total cost of building a house actually is though.

Or block of newbuild flats, whatever, just interested to know the sort of profit margins developers are looking at, because there is no way some of the flats cost anywhere near what they are selling for.

The land value (per unit, pro-rata) is likely to be equal if not more than the build cost, particularly in London.

Generally, developers will work to a minimum profit on cost return of 20%, sometimes less and often more.

In terms of build cost it depends on specification, form of construction, location and another number of factors (self build, full tendered contract etc), but bog standard could be about £130 per sq ft and can go as high as you want it to go.

Then you've got to factor in planning costs, SI costs, land remediation if required, professional fees, agents fees, finance costs, warranty/insurance costs....it quickly adds up.
 
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He didn't say she had 35% equity but that she owns 35%?... So surely the flat rising in value makes it more expensive for her to buy the other 65% from the housing association(or whatever third party owns) it in future. It only has a minor affect on her equity since she's only got a minority stake in the property in the first place.

Good point re: equity/ownage. I'd been working on the assumption that she actually had a majority stake with 35% of that being equity and the rest a mortgage with the TP owning a minority share of say 25%, but it looks like that isn't the case in hindsight.

However, I still don't think this scenario represents an issue with staircasing in all cases. IMO staircasing is no better or worse than any other form of 'upgrading', assuming everything else remains equal - it is just to be expected that if you want to buy an asset in future, that it will cost more money if it has increased in value. Having a 35% stake in a £1m property isn't much different from having a 100% stake in a £350k property; assuming both rise 60% in value then if at that point in time you want to own the more expensive property, it will cost you the same (an extra £1.04m over your current equity).

Obviously if have a reduced equity because of paying rent (e.g. lets say if you weren't paying rent to the 65% stakeholder then you could afford more than £350k equity in another place) then your profit will be lower - but that is to be expected if you have chosen to live in a better property.
 
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