House Prices

[ck1]

How can growth be capped at 5% increase?

[ToraToraTora]

they are proposing to cap house prices inflation to 5%, are they not?

[ClaryS]

What happens if you buy a house for say 20% less than its real value (£140k) in an auction, renovate it to a high standard, costing £30K and want to sell it ? Are you expected to sell at a loss?

[LazyGun]

They are suggesting it would be a good idea to introduce measures to calm house price rises if they go beyond a suggested annual average price rise trigger, by using their regulatory powers to restrict the type of mortgages some of the lending companies might be able to offer.

This seems like a very interesting suggestion to me - indirect measures or financial instruments that we could adopt to prevent bubbles like this occurring seem eminently sensible to me, and very much in the interest of the banks, consumers and hence governments.

http://www.telegraph.co.uk/finance/personalfinance/houseprices/10305771/House-price-inflation-should-be-capped-at-5pc-RICS-says.html

They are categorically NOT suggesting that statutory or mandatory controls or measures be introduced that would prevent homeowners from setting whatever asking price they want to their property, which is how several contributors to this thread appear to have interpreted it.

[ummmm]

So, for stupid people like me they will be restricting the type of mortgages available if we start to have another boom? Which in turn will slow the market down?

[ClaryS]

lazyGun so putting your explanation into practice then the fictitious person I mentioned above, who renovated his auction priced house, puts it on the market for £225k , its market value according to an Estate Agent. When they have a potential purchaser, and they have the house valued for mortgage purposes, the Mortgage Company will only value the house at the price it was bought for the previous year, + 5%?

[237SJ]

So this proposal only affects people who need a mortgage then? So you are selling your house and want to make a nice fat profit. Along comes a buyer who needs a mortgage but you know there will be financial constraints and the price you can sell is limited to +5%. Alongside, you have a buyer who doesn`t need a mortgage and you can make your nice fat profit. Which buyer are you going to favour?

[factor-fiction]

No claryS- nothing like that is being suggested as far as I'm aware. There will be no restrictions on individual price rises. It's worth reading LazyGun's good explanations again

[LazyGun]

@umm Thats my understanding of how it would work.

@clarys I am not at all sure that would be the kind of practical upshot. This is from the Independent;

"RICS said that the Bank could rein in prices house by limiting the amount people can borrow in relation to their incomes, demanding larger deposits from first-time buyers or imposing tighter repayment terms on mortgages."

Nothing at all there about reassessing the value of houses for sale, or trying to make some sort of assessment about the previous value of the property; Rather, if this trigger figure of, say, 5% inflation in the Average House Price Index be exceeded, the banks could ask mortgage companies to tighten up their lending policies.

[factor-fiction]

I'll repost part of what LazyGun said:

"They are categorically NOT suggesting that statutory or mandatory controls or measures be introduced that would prevent homeowners from setting whatever asking price they want to their property, which is how several contributors to this thread appear to have interpreted it."

[LazyGun]

@ 237sj There is no proposal to restrict the price at which you wish to sell you property at to a "5% increase in price!!!" Where are you getting this from? Have you read the articles linked to, or read the actual proposal?

[237SJ]

I didn`t say there was LG, I said that the mortgage seekers will lose out to those that don`t need a mortgage as they will be disadvantaged.

[factor-fiction]

Hi 237sj- when you said "Along comes a buyer who needs a mortgage but you know there will be financial constraints and the price you can sell is limited to +5%." I also took that to mean you thought there would be restrictions on individual price rises.

[LazyGun]

@237sj i disagree. The vast majority of those buying homes are doing it with a mortgage anyway. In the event of a prospective bubble, it may cause people to be more discriminating in what they want to buy, bargain harder, perhaps wait longer and save up a bit more. None of these things are necessarily bad things.

And to be honest, were i a seller, I would almost always discriminate in favour of the person who could assure me they had funds readily available, unless there was a significant price difference between 2 offers.

[237SJ]

//it may cause people to be more discriminating in what they want to buy, bargain harder, wait a bit longer and perhaps save up a bit more// In some areas, it is not possible to be discriminating in what they want to buy - you have to get what you can. My first property was a studio flat. No way did I want a studio flat but it was literally all I could afford. I had a large mortgage (in relation to the property price) and thank God I did because otherwise I would never have got on the ladder. People can`t save up a bit more when they are paying £1000+ per month on rent. That`s "dead" money which is only fueling the buy to let market. If the government want to help buyers, they could abolish stamp duty rather than meddling in the market IMO but of course they won`t do that.

[LazyGun]

@237sj Then by your own argument, any measures that might slow a property price rise bubble should be welcomed, and especially by first time buyers.

What is crystal clear though, from the reports - this is categorically not a suggestion that individual sellers are restricted as to what price they offer their property at, which several people here appeared to think it was, judging by their posts.

[youngmafbog]

//"RICS said that the Bank could rein in prices house by limiting the amount people can borrow in relation to their incomes, demanding larger deposits from first-time buyers or imposing tighter repayment terms on mortgages." //


Demanding larger deposits, larger than the ridiculous sums already demanded?

This is a non starter I'm afraid. It is just plain wrong and will only impinge on the poorest and young.

[modeller]

ygmb //Demanding larger deposits, larger than the ridiculous sums already demanded? //
You are missing a basic fact if you can't afford a 10% deposit, then you are unlikely to be able to keep up the morgage payments.
It was the 100% plus morgages that got us into the mess we are in. I knew people on benefits who were buying houses with no possibility of ever clearing the capital . They just kept extending the morgage period and you and I were paying the interest.
The government scheme of helping people to buy is crazy . It is already pushing up prices and even if the cap works house prices will double in 10 years. Which in turn will stoke up inflation.
House prices in my area have fallen by 20% over the past 5 years and the market had bottomed out and those at the bottom at last being able to get on the ladder. Had the government not interfered prices may have dropped further to where they should be. about 5 times the average wage rather than 8 times as it is .