I am always amused by amateur economists pontificating on the nature and causes of asset price movements. The monetary value of any asset may be defined quite simply as the most recent price paid for that asset in a fair and open trade. If just one house is for sale in your street, and the highest bidder offers £50k, then that is how much a house in your street is worth at that point in time. There is no need for a large scale sell-off to precipitate a crash: a dramatic reduction in demand will have the same effect.

As for the comments on leverage: there is no such thing as a free lunch! Better returns are achieved with leverage due to the concomitant increase in risk. If I buy shares with £10k, I can only lose £10k. If I use that £10k for a deposit on a small flat in Dorking costing £200k, and mortgage the remainder, I am exposed to a potential loss of £200k. And yes, the bank will want its money back at some point!

Richard, London,

Mass produced flats in inner city slums are cheap and unlived in because they're rubbish.

Who wants to live in a area of high crime, in a rented flat, that doesnt even have a parking space, or two.

There are still plenty of opportunities, not as good as there were, but solid long term investments.

If you can buy a house, rent it to someone, and after tax still be down £100 a month, its still a good investment.
Your costs wont change, but your income will go up with inflation and you will make good long term profits.

How many start up companies make profits within the first three years?
So why should rental housing?

The days of easy money and instant returns are gone, but your a buy to let investor, not a buy to let gambler.

Dominic, Manchester, UK

Alastar,
Yes the bank would lend you 100K to buy shares! Charles Shwab, Merrill would do that as long as all the assets are held by them. How much do you think you can lose on shares? 10%? 20% per year? that is really the max you can lose. So if you give me custody of £150k of shares I will be more than glad to lend you £100k cash out of the 150 total for a "mere" 8% interest rate. What your chance to default? NEARLY ZERO if you committ to stay invested for > 4 years.

Michele, Richmond,

For everyone's sanity I hope the housing market slowly deflates and we can continue life without these awful tv programs that spur on the amateur landlords and encourage people to give opinions that are backed by a lack of understanding.

I count myself in this as for two years now I have thought the property market has been in bubble territory but yet prices still move higher.

Logically house prices can not keep rising at a rate higher than wage inflation for ever because the people who can afford houses is ever decreasing. Though, This has made not a jot of difference recently as btl investors have taken over from first time buyers and petro dollar recycling has added huge liquidity to all assets.

I think the demand - supply arguement misses the point as demand can be transient when driven by speculation. If there was a fundamental shortage of houses why have rents not risen inline with prices? Rising interest rates will choke off demand sentiment will turn and prices fall!

george, London,

Many Buy to let investors are speculators who buy flats off plan and either 'flip' that is to say sell on their investment at a profit either before it is built or shortly afterwards. Hundreds of flats are being sat on by these creatures in Salford, in the hope that prices will shoot up when the BBC moves there. They are mostly empty because of the fear of tenents damaging the decorations before onward sale. The same thing is happening in Liverpool where thousands of flats are empty or being churned by these speculators. I hope they get their fingers burnt.

Newton, Ormskirk,

How can people make money in BTL in a country where you cannot depreciate the property, can only offset cash outlays against cash income, and rely upon capital appreciation for returns ?

CCTV, Hebden Bridge, England

"prices will only go sideways or up."

Dear Susan, check your history books because property prices have crashed in the past, several times. Forgotten negative equity already?

Neil Murphy, cromer,

To Martin of Belfast: People like to punt the supply and demand theory without actually thinking abut what it means. If demand really outsripped supply then rentals would have risen dramatically in the last few years, but they have not. My rental is less than half of what the interest portion if of what a mortgage on the house I live in sold for a year and a half ago, would cost.

People also have very short emories regarig the housing markets. Prices do not always go up! At the moment, pure speculation is fuelling the housing market and like the dot.com bubble, reality will eventually kick in when people realise that the underlying value is nowhere near the 'asking price'.

Chantel, UK,

Buy right and dont over extend your self. You can simply wait for the market to return to health to get your return. Investing in property is as old as the hills. Those who plan for the long term do best

Ben , London,

A 5% drop is hardly a crash, its a small drop, I battered 20% off the top of my house, when thats happening to everyone, its a crash.

Buy to letters normaly have 15%+ deposits, so to push them into negative equity prices have to fall at least that much.
They may not like buying a house for £100k and its price dropping to £95k, but its not going to drive them under.

For a real crash with house prices dropping 20%-30% we'd need sustained sell off and a recession.
As it is, large scale sell off are likely to met by large scale buy ups from first time buyers (remember those?).

Dominic, Manchester, UK

The Buy-To-Let (BLT) market is proof of the absurdity of the Estate Agents' claim that excess demand and insufficient supply is a major cause of current high house prices. If demand was exceeding supply, rents would have risen in line with house prices; yet rents are falling or static. Current high house prices are caused by many factors one of which is speculation. When confidence in the housing market changes, there will be a rush out of property and the clever investors will look to other forms of investment. Many un-clever investors will suffer losses. Houses prices WILL NOT CRASH but will decline. House prices will only crash when a significant percentage of people are FORCED to sell - i.e. they are made to accept a lower price then they would otherwise do. FORCED sales could be caused by bankruptcy, a failing IVA, unemployment, rocketting interest rates but all of these are unlikely in the current economic climate. A decline? Yes. A Crash. No.

NickT, Aldershot,

Wo cares whether yield is 5% or 10% or whatever. Most people will have financed a buy-to-let property through a secured loan (using the BTL property as collateral). In this case ANY yield is good, as it is yield you gain on capital you would never have otherwise had - it's the banks money, not yours! In a way its a bit like a carry trade.

I grant you, if you bought a house outright (no gearing) and you are only managing a 5% yield then the situation is pretty miserable (just stick it in icesave at 6%), assuming there is no upside left in the housing market.

*Possible* up sides for BTL:
1)further gain in property, short term
2)static property market with gain in medium/long term
3)Rental pressure from a crash and higher interest rates increasing monthly rents (make sure your mortgage is fixed rate!)

Shane, Guildford, England

The house of cards built by estate agents, lenders, cheerleading economists and the media is about to come crashing down on the heads of the gullible who bought the sizzle instead of the steak. As the old saying goes "If it's too good to be true, it probably is."

anthony , london, united kingdom

"The economy is stable here, and relatively stable elsewhere. The sub-prime mortgage problem in the States was blown out of proportion and the equity markets by re-bounding have reflected that. "

The economy may not be as stable as hoped. The UK has a poor balance of trade (one of the worst in Europe) which combined with a high level of indebtedness and a less than ideal situation with regard to imports of oil and gas potentially puts it in a position where a recession becomes a significant risk as interest rates rise. Increasing interest rates may crimp demand (much as the subprime debacle in the USA has) from consumers, shaving points of growth, and it makes it harder for businesses to invest, making it harder to fund infrastructure to support exports which in turn might be hit by high interest rates making exports more expensive. A high value of Sterling would make imports relatively cheap, but that makes them more attractive than domestic products, threatening jobs.

A Watson, Northampton,

As mentioned previously you can’t look at the market so generally. As long as you do your research and are in for the long haul you will make money (decent) money. Are you looking purely at buying “somewhere” then you will be at the mercy of the general housing market as well as the local area market… now that’s where the real profit will be made. Is the area you’re buying into looking at regeneration? For example through new transport links like the East London line look at West Croydon or South Norwood, a dump now but in 10 years time… Ebbsfleet with the channel rail link. These are all area specific and will define their own market. You just need to be cleverer than the average bear.

Richie Rich, London,

"There will be no crash, not 20% plus anyway. There is far too much demand compared with supply"

And yet houses remain unsold, and flats unlet. This suggests that if there is demand it is not necessarily the same across the country and does not extend to properties at any price. Supply and demand breaks down when those who are at the demand side simply can't afford the supply.

"and lots more demand waiting to be unlocked when prices come off by 5-10%"

This very much depends on the overall affordability of mortgage payments. If prices go down but mortgage rates go up further then unless a first time buyer has a lot of capital they are no better off.

A Watson, Northampton,

Supply and demand is the key to any major alterations in values - yes they may well fluctuate. In the south, there are more people wanting homes than there are homes available. This is further exaggerated by people coming in from the EU, and is re-iterated by the fact that the Gov are desperately searching for land to build more new homes - they cannot keep up with demand. As long as that continues and a large number of us aren't wiped out by bird flu there will not be a massive alteration. Plus, a mortgage is a cost effective way to invest a large amount of money - you only need a small increase in prices, to ensure you get a better return on your deposit that you would elsewhere.

RD, Surrey,

Knowledge is Power - A lesson for all you doubters !

Will the bank lend you 100k to buy shares ? No it's to risky !
Will the bank lend you 100k to buy a house ? No Problem !

Why ? Because property has always went up ... Check out the regional house price index's. Banks do their reseach
According to ecominists what will be the UK average house price in 2016 ? 400k

Whats better ? 15k in the bank making 5% and inflation running at 3% - making you in real terms 300 per yr OR
15k deposit on 120k semi - rented out at 150 per week (650)pcm Mortgage (480)pcm PAYING YOU 170 pcm (2040)per yr and capitial appreciating at 5% 6250 per yr - all told your 15k oulay making over 8k per yr ........OH YES and that's in the lean years ! Forget Dreamers who say Keep your penny's for a rainy day ... CASH IS KING!!..... get out there and use DEBT LEVERAGE to get ahead ... Have Money work for you instead of you always working for Money. The middleclass is disappearing! AliBlack

Alastair Black, Bangor, Northen Ireland

As mentioned previously you can’t look at the market so generally. As long as you do your research and are in for the long haul you will make money (decent) money. Are you looking purely at buying “somewhere” then you will be at the mercy of the general housing market as well as the local area market… now that’s where the real profit will be made. Is the area you’re buying into looking at regeneration? For example through new transport links like the East London line look at West Croydon or South Norwood, a dump now but in 10 years time… Ebbsfleet with the channel rail link. These are all area specific and will define their own market. You just need to be cleverer than the average bear.

Richie Rich, London,

Michele - thank god, someone talking sense about property! I wholeheartedly agree with your comments. The market is currently fuelled almost entirely by speculation, i.e. expectations of continued price rises. As soon as the general population begins to realise that there is no more money to be made, prices will drop just as quickly as they have risen. This is what happened in 1989-94. Values in real terms fell 35% in that period (from a lower peak than today in terms of income multiples) but high general inflation partially masked this fall by shoring up nominal prices. If you have a flat worth £100,000 and inflation is running at 10%, a stable nominal price means a c.10% pa real loss.

Add buy-to-let to the mix (where individuals have borrowed 20x their income or more and depend entirely on a consistent stream of rental payments to remain solvent) and you have all the ingredients for a prolonged and painful correction, this time made all the more obvious by lower general inflation.

Richard, London,

We're forever blowing bubbles, pretty bubbles in the air... they fly so high... nearly reach the sky... South Sea Bubble, Techology Bubble, Housing Bubble. The main cause of all these collapses was the irrational exuberance (AKA greed) of Joe Public. Having said that, house prices are high for a number of other reasons which include lack of supply through mad planning policies, daft valuations which support mortgage applications and of course the birth and death rates. More people need more houses and land is far too expensive because it is being restricted, prices might fall; by 20% or even 60% but has it ever happened in the UK before? We see past examples in Tokyo, New York and current problems in Spain. If you can only remember one thing at a time you should keep this novel idea in your cranium, property is a commodity like anything else that is affected by the old principle of 'it is only worth what someone is willing to pay for it'. And Warren Buffett hasn't bought into it.

Evan Owen, Harlech, Wales

Anecdotal evidence suggests there is a degree of cooling in the market already - my mother has had her (fantastic) "detached house with secluded garden in semi-rural location" on the market for over two months, priced at a reasonable value (ie as recommended by three separate estate agents!!) and has only had one viewer. They said they will buy it, but cannot sell their own house (The house is on the Staffs/Derbyshire border);

A friend's mother cannot sell her house in Yorkshire (similar circumstances);

the same friends have sold their buy-to-let property (Suffolk) as the rents wouldn't cover the mortgage payments;

we recently sold our buy-to-let property (Hertfordshire) for similar reasons.

In summary, very few buyers out there... property investors starting to sell.... interest rates rising..... first time buyers unable to get onto the ladder.... Anyone willing to bet against the bubble bursting?

TC, Harpenden, Hertfordshire

There are huge numbers of empty flats in both Liverpool and Manchester that I know of personaly. This must be reflected in other parts of the country. It is mostly due to the housing policies of John Prescott who has encouraged this through planning policies. To try and treat the housing of the population as some sort of command economy, set centrally is nonsense. These apartments, owned by speculators or buy to let landlords will eventualy cascade on to the market as the owners get squeezed between higher interest rates and lower demand for rented flats. There is only a limited demand for flats. The country is not wxclusively populated by young professionals who want to live in ex brownfield sites in the expensive and congested city centres. This sell off may well herald a general loss of confidence and effect the whole housing market. Just like the NHS, politicians have made a mess of this and the builders and developers have been taken in.

Newton, Liverpool,

Supply and demand is the key to any major alterations in values - although they may well fluctuate in the short term. In the south, there are more people wanting homes than there are homes available. This is further exaggerated by people coming in from the EU, and is re-iterated by the fact that the Gov are desperately searching for land to build more new homes - they cannot keep up with demand. As long as that continues and a large number of us aren't wiped out by bird flu there will not be a massive alteration. What's more, a mortgage is a very cost effective way to borrow large sums of money, and you don't need much growth to get a better return on your deposit than you would elsewhere (as long as the rent covers the costs).

RD, Surrey,

How long have we been hearing this? At least 4 years.

A crash is a rapid drop in prices. Surely a very slow reduction is a soft landing, not a crash.

Anyone who buys a property for a quick return on investment is a fool.

I am in B2L. I plan to have my properties for a further 22 years. I have long term fixes on the mortgages and so the interest rates will have no impact for a good few years yet.

All the time the city boys at the top of the food chain are getting big bonuses the rest of us further down the food chain benefit from their input at the top.

Si, Reading,

Im a landlord with half a dozen properties and the maths dont add up. so ive got a large lump of cash sitting in the bank. its seems to me that its just like shares ! and that too scary for me. I bought in 98-00 and have a debt ration less that 30%.but i pity the fool whos still at it. But there are plenty of takers who are willing for now but i wont be one as I enjoy stress free nights.......and looking at all those 100k's in my account . You can keep your paper profits .......CASH IS KING!!

caz, GRAVESEND,

Let's hope the media can keep talking prices down, it might have the same effect as it did when they were talking them up.

Evan Owen, Harlech, Wales

House prices can't keep rising faster than earnings for ever. The further the ridiculous house price bubble expands, the bigger will be the bang when it finally pops.

What's different to the 89-94 crash is that back then the debt-fuelled property development 'industry' didn't form such a large slice of the UK economy.

I for one am looking forward to watching 'Property Ladder' in about 2-3 years time. Although I suspect the programme may have to be cancelled ....

Jon Leigh, Southern, France

Rising interest rates will put the bite on many mortgage holders but the bottom line is supply and demand, due to massive influx of people from E.U. and elsewhere and the lack of any new social housing being built you have a choice, pay up or live in a tent (or live in rented and pay the owners mortgage for them).

simon, leeds, uk

As somebody who almost vomits at the number of TV shows proclaiming the virtues of investing in "property" (never houses or homes) and who has grown very bored of hearing about the paper gains some people have made on their houses, I look forward to a long period of seeing these rentiers suffer. Houses are for living in. You only need one at a time. A swinging capital gains tax must be introduced to claw back these paper profits, although I believe that IHT and stamp duty should be scrapped to compensate. Also, why do you get tax relief on interest on a second home but not on a first home? And why are community charges discounted for second homes? Surely they should be doubled for second homes, trebled for the third one and so on! I would also make the charge 1% of cost - old people who lived in their homes for years would then pay little community charge but a lot of CGT on their death. Blair would pay £144,000 p.a. on his fancy house in central London. A fair system,please!

dave, slough,

The late entrants to the buy to let world, I would say anyone buying in the last two years, bought into an overblown bubble. The assumption that double digit annual capital growth was a certainty has now proved to be wholly wrong. The factors against the buy to let investment are overwhelming. Rising Interest rates and disappearing yields. No capital growth in prospect in the short term. Scarcity of fixed interest deals when a mortgage fix term runs out. Deposits have to be placed with a third party, at a cost. Safety regulations about gas appliances add to the cost. Regulations about Homes in Multiple Occupancy require expenditure to achieve compliance. HMRC are targeting private landlords who may be claiming too much tax relief. Buy to let lenders are toughening their stance in the face of increased risk.

But what would scare me the most if I was an over stretched buy to let investor is this; It may now be too late to sell without taking a hit. You can't outrun an avalanche.

A Patrick, Bath,

It doesn't matter how bad I wish I saw a crash, Gordon Brown will never let it happen.

Fabio C, London,

Maybe in certain pockets of London BTL is still a good idea. But anywhere else, it's time for BTL investors to sell and sell fast. Higher interest rates are on their way, HIPs, a surplus of rented stock in my area, look at what's happening in Spain, USA. Sell up and realise your equity whilst you can!

James B, Wigan,

Buy to let has increased by a factor of 26 since 1998.

What happens when the 2-3 year fixed rate morgage period expires and these landlords have to find another 25% on repayments?

http://www.ablemesh.co.uk/thoughtsboombust.html

gordong156, MK, UK

I've just been looking at two-bedroom flats to let in Docklands and £250/wk is really stretching it, D Short.

Yes, you can get a two-bed flat for about that in Canning Town (which is not Canary Wharf in any way, shape or form) but to get the plush Docklands apartment in E14 to which you are alluding will cost at least £600/wk.

There's a lot of stretching of the truth when it comes to conversations about property.

David Rothwell, Brighton,

Susan,
If prices fell by 15% people would not touch property with a barge pole until sure that prices have leveled out. After prices fall by 15%, would you risk another - say - 5% fall? Remember that - due to leverage - every 5% price movement (up or DOWN) means a change of 50% in buyer's equity (assuming 90% mortgage financing).
However, we do not even have to see price falling. It suffices for price to stagnate, and BTLers, who now have 3% rental yield and potential profit only from capital, will start selling.

Michele, Richmond,

Ask yourself this question - if prices fell by 15%, don't you think there would be a new wave of investors stepping in to snap up a(nother) property for posterity? Prices may stagnate, but barring an economic slowdown of gargantuan proportions - following a disaster beyond the scale of 9/11 for example - prices will only go sideways or up.

Susan, London,

The market will not crash, people dont trust the stock market and pensions. People will hang to on to property, there is a lot of immigrants coming to the UK.

A lot of people have huge equities, to compare no with 15 years ago is unrealistic
Buy Buy Buy.. Debt on property will make you rich

dave, Bedford,

I've just been looking at two-bedroom flats to let in Docklands and £250/wk is really stretching it, D Short.

Yes, you can get a two-bed flat for about that in Canning Town (which is not Canary Wharf in any way, shape or form) but to get the plush Docklands apartment in E14 to which you are alluding will cost at least £600/wk.

There's a lot of stretching of the truth when it comes to conversations about property.

David Rothwell, Brighton,

There will be no crash, not 20% plus anyway. There is far too much demand compared with supply, and lots more demand waiting to be unlocked when prices come off by 5-10%. I.e first time buyers waiting in the wings to buy when prices cool off just a little.

The economy is stable here, and relatively stable elsewhere. The sub-prime mortgage problem in the States was blown out of proportion and the equity markets by re-bounding have reflected that.

Lastly, there is an enormous amount of liquidity in the cash markets, i.e lenders will lend you much more now than they ever have done before. For the moment that won't change, therefore any historical comparison of house prices is not valid, you can now borrow more on the same wage, therefore house prices can rise more freely as a result.

No crash ahead from where I'm sitting.

Pete, London, UK

I think discussing the housing market as a single market now is missing the point.

The £80k houses from the 70's in reasonable areas of Manchester are going to be reasonable investments even at higher rates and prices, where rents and mortgages are roughly equal.

The £150k new builds across the road are likely to be much harder to make money on.

However, any new supply is going to be in the high price range.

A portfolio based on older lower cost housing is still making money, and assuming rents dont fall and 100% mortgage, will break even at 6%.

Some BTL's may be in for a kicking, those who bought badly on speculation, but those who planned ahead will weather the storm.

Dominic, Manchester, UK

Two bedrooms in Docklands for £250? I think you've been smoking something but if not, show me where I sign.

Will, London,

what about supply and demand? so long as there is more students, more migrant workers and more single/divorced occupancy households there is a demand for rented accommodation. between 89/ 94 these factors weren't on the radar.
if the lenders weren't so generous then the capital wouldn't be available to joe public to fuel this ridiculous boom

martin, belfast,

The crash is starting and in fact has already started up here in the grim north, prices on quite a few houses have dropped 5% and are still not moving the only way is down..

A huge amount of BTLs have come on the market hoping to sell before the prices drop to far for them..

Any figures given as a whole are distorted by London and glossed over by estate agents, why because people selling you property have a lot to lose, only down to their own greed..

THE CRASH IS HERE AND IS SLOW , BUT IT IS HAPPENING..Live with it..

Karl T, Chester, Cheshire

You can rent a two bedroom, two bathroom modern flat in Docklands now for about £250 a week, which is a great bargain for flat sharers - a couple with an en-suite bathroom, and a singleton with his or her own bathroom. Bliss, and a bargain, compared to flatshares I had in the 1970s in London in converted houses, where you had to be in and out of the bathroom in the morning, or there'd be a furious knocking at the door. No wonder you get flatsharers who are working in the West End, not Docklands, commuting to E14. However, not so great for the letter. You're talking about a 5 per cent return on capital worth when all around the world you expect 10 per cent., so something is wrong somewhere, and it can't go on for ever.

D. Short, London, UK

I think it is impossible that the number of BTL investors grow. Rents are not going anywhere and interest rates can only go up. Who bought to make a quick buck will sell this summer together with those who are overstretched by leverage. People who entered in the past couple of months or are buying now will suffer, and learn the hard waty about the risks of financial leverage. House price reductions of 5% will wipe out half of the landlord equity.

Michele, Richmond,