House Prices

[Turion]

Cyberman - the abolition of mira was announced in the 1988 budget, but implementation delayed until August, producing a 4 month spike to what was already an overbought market. Yes it did make the declines of the following year more pronounced, but overal it had no effect on the level of prices by 1995.

The 40% drop I predict is based on real terms, so an actual drop of 20% over 5 years, with 4% average inflation with give roughly a 40% drop in real terms. 20% actual drop seems to be the mid-range consensus now so it could be worse. Negative equity will also afflict millions of households who bought with little or no deposit. There is likely to be a crisis of reposessions as many of these people will see their 5% fixed mortgages hiked to 7%+.

[Sysman]

A fair bit of that slump was MIRAS linked because the Tories abolished mortgage interest relief around late 1988. This caused 'artificial' demand in the housing market and a rise in house prices as more first-time buyers took the plunge to grab the last chance of MIRAS relief. There was thus a big rise in demand followed by a corresponding drop in 1989.

The driving force as I remember it was that under MIRAS, the Chancellor suddenly allowed 30K tax relief for each person on joint mortgages, rather than 30K full stop. When it was announced that this was coming to an end in 1988, there was a sudden rush to buy. MIRAS itself carried on until about 2000.

[Sysman]

Finally found a correction. MIRAS wasn't abolished in 1988, it was restricted to relief on 30K. MIRAS wasn't phased out until 2000.

It was double MIRAS relief which was removed in August 1988

This was accompanied by a drop in the highest tax rate from 60% to 40%; both events combined to make tax relief on homes less worthwhile pursuing.

[Bod]

Sentiment is everything, when the mass-hysteria bites the fan blades will reek of tulips.

and not before time....

I will be ready to buy (cash) in 18-24 months or so.

[Mailman_1]

Dont forget that up until 1995 or 1996, the interest rate was controlled by the chancellor and used as a political tool ie: High interest rates keep the rich rich and the working man in his place. When the BOE took over, the interest rate is used (as it should be) to control inflation and prevent such crashes etc. Also, in 1989, Assured Shorthold Tenancies came into play allowing the owner of the property to charge a "real world value" to tenant rather than the regulated tenancy system which was and still is severely biased towards the tenant.

My vote is for a stagnation or minor drop due to media panic and herd mentality, then a rise in property values after maybe 12-18 months. The last thing the BOE wants is a recurrance of 1988. If property values drop more than 5%, interest rates will be lowered to stem repo's etc.

[Moscow Mule]

My vote is for a stagnation or minor drop due to media panic and herd mentality, then a rise in property values after maybe 12-18 months. The last thing the BOE wants is a recurrance of 1988. If property values drop more than 5%, interest rates will be lowered to stem repo's etc.

This will only happen if the banks find some cheap money from somewhere. With the mortgage market unraveling (see numerous threads today) the demand for property will shrink.

[Peoplesoft bloke]

This will only happen if the banks find some cheap money from somewhere. With the mortgage market unraveling (see numerous threads today) the demand for property will shrink.

Indeed - low BOE rates won't mean much if mortgage rates don't reflect them and/or there are no mortgages available.

[AtW]

My vote is for a stagnation or minor drop due to media panic and herd mentality, then a rise in property values after maybe 12-18 months. The last thing the BOE wants is a recurrance of 1988. If property values drop more than 5%, interest rates will be lowered to stem repo's etc.

BoE already dropped rates, but morgage rates are only rising - the link between the two are not direct, there is no law requiring banks to have lower or higher morgage rates - given that the banks lost money in subprime the only way they can make up for these losses is to get more money from existing customers.

[Mailman_1]

There is still cheap money out there, you just need a bigger deposit to secure it. Upto 75% is as cheap as always. This will only affect FTB's and startup BTL'ers.

[AtW]

There is still cheap money out there, you just need a bigger deposit to secure it. Upto 75% is as cheap as always. This will only affect FTB's and startup BTL'ers.

Mailman_1, are you the same idiot who was named Mailman on this forum?

The main problem for housing market will existing borrowers (3 mln people) coming of 4.5% interest rates on property that they bought in the last 12-24 months, and they would have to find money to almost double payments - 7.5%+.