h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

With buy-to-let investors taking over lots of potential first-time-buyer properties, mortgages being offered at ever-longer terms and shared ownership meaning that buying an extremely small section of property is becoming standard, is the market ever likely to crash like it did in the late eighties?

"With buy-to-let investors taking over lots of potential first-time-buyer properties, mortgages being offered at ever-longer terms and shared ownership meaning that buying an extremely small section of property is becoming standard, is the market ever likely to crash like it did in the late eighties?"

Two answers, the short versions of which are:
1. I doubt it and
2. If it does, good.

I doubt it's going to crash again any time in the next few decades, because we saw the crash of the 90s and the effect it had on the economy and it won't be *allowed* to happen again like that. I mean, people are now talking about 6% being a "high" interest rate, worrying whether they can meet their payments, etc. Bod help them if they'd been that strapped when the rate topped 15%.

Also don't think it'll crash because one of the reasons it did was that suddenly people couldn't get the credit to make their payments. But when that crash happened, you could get three times your salary over 25 years. Now you can get more like five or six times and over much longer terms. Not good for the individual long term, but it does make it less likely that they'll be repossessed. It was a rash of repossessions and quick sales which punctured the price bubble, and those very buy-to-let investors will be able to buy up those properties at realistic prices and keep the market buoyant.

But then if there is a crash... does it matter? Seriously. Lots of people lose "their" home, which was never theirs anyway, and have to rent. Well, good. They obviously couldn't afford it. Financial Darwinism. Plus, if you're right and too many properties are buy to let, those investors won't be able to raise rents, profits will fall, their mortgages will default and they'll be repossessed and the properties will come up for sale.

Ultimately, prices will remain high because there IS enough money floating about and there is the demand in this crowded island. We just don't build enough houses, so prices go up. That and the fact that more and more people are choosing to live alone increases demand.

SoRB

Btw, I didn't mean my post to read that a crash would be a bad thing - I think the market's mad...

I very much doubt there would ever be a "crash" of the 80s sort of proportions. Put ismply in our "cosumer debt" ridden society there is ismply too much political capital to be lost for any government to counternance allowing interest rates to get to the high levels routing in the 80s.

I do however suspect that the disparity between what people earn and the current value of proporty will normalise slightly, probably more to do with flat housing prices in an inflationary environment than from any sort of "crash".

It is somewhat common sense that the value of such a commodity can continue to rise out of all proportions for *ever* if it did no one would be able to afford mortgages or afford rent that serviced mortgages.

P.S. I rather suspect there would be more interesting debate if this thread were located in "ask" I for one hardly ever check talking point and only stumbled on this by chance.

P.P.S

Where I said:-

"...commodity can continue to rise...."

The can should read cannot.

Way out of my depth when it comes to economics, but my advisor assures me that interest rates are extremely unlike to rise that high and that fast ever again since they are now under the conscious control of the Bank of England, rather than just allowed to vary with the market.