House prices..

[v0n]

Yet another person ignoring the cost of borrowing money.

It is there to be ignored - it's not a choice between buying or living with your parents for free. Between spending £500 a month for a decade and having nothing to your name and spending £500 a month for a decade and having rights to property for even ££,£££ as almost immediate asset release, it's really no brainer.

The only situation where renting makes sense is if you could rent for less than mortgage minus market trend - as per hour example - if you could rent for £60,000 for a decade but mortgage would cost you £120,000 and expected change in value was to be less than £60,000, which quite frankly, is unrealistic and would mean in 10 years time from now we were in such deadly and long term recession most of us just wouldn't care anymore anyway.

 

[v0n]

Consider choosing between renting and buying for the *next year* only.

But you see, what's the point of the whole explanation when no one in their right mind buys for next year only. It isn't a car. You are gambling against very narrow tide expecting market to fall but your rent to freeze

There is a way to profit on price falls while renting, of course, if you are in good area, where £500 a month rents you £200,000 home (which quite frankly, is doubtfull, as it would mean the area that is actually running rental property market at loss, and bar few bad investments in "Cities of culture" and such, there is no such market in UK at the moment, unless you are renting under rent control for the past 10 years)

 

[clv101]

the thing about house prices is that its hard to predict, i remember on this very forum people talking about a major crash in 2005, i feel sorry for anyone who listened to them at that time and put off buying a house

Yeah, 'cos prices have really rocketed in the last two years.

Here's the Nationwide data:

http://www.nationwide.co.uk/hpi/historical.htm

Since Q1 2005 house prices are up 5.1% in real terms and are now clearly falling. If you'd bought in 2005, your stamp duty and fees would have eaten up most if not all of the 2006/7 gains and unless you sold before the start of this year you're now defiantly down on the deal.

You feel sorry for people put off buying a house in 2005? I think they are the lucky ones.

 

[nightwish]

But you see, what's the point of the whole explanation when no one in their right mind buys for next year only.

No they don't - incidentally that's another good reason why people rent - it's more flexible!

But OK, consider 10 years then...

Scenario 1: I rent for the next year and then buy a house for £190,000 that was worth £200,000 at the start of the year. (I think prices may fall more than that tho).

Scenario 2: I buy a house for £200,000 now that is worth £190,000 in a years time.

At the end of 1 year, I will be better off in scenario 1 as discussed above.

After that, for the next 9 years, whatever the market does, it will affect *both scenarios equally* (in percentage terms, assuming the houses are in the same area, etc).

ie. I'll still be better off renting while prices are dropping *now*. Just because prices will go up over 10 years or more, doesn't mean that I can't get a better return by waiting it out for a bit.

 

[v0n]

All in very unlikely scenario where £500 can rent you £200,000 house and house prices falling somehow don't affect rental prices (ergo - the lanlord for some reason takes the hit)

 

[nightwish]

See my earlier discussion about rental prices having very little to do with house prices...

 

[v0n]

See my earlier discussion about rental prices having very little to do with house prices...

In downtown New York maybe, but back in Europe, I'd like to see a buy to letter that rents £200,000 at loss and is keen on taking negative equity on the chin as well.

 

[dean_ham]

Just on the BBC news...

House prices have dropped by the biggest percentage in 15 years....

 

[clv101]

All in very unlikely scenario where £500 can rent you £200,000 house and house prices falling somehow don't affect rental prices (ergo - the lanlord for some reason takes the hit)

What are you on about?

Why does a house falling in value from £200k to £190k affect the rent? It doesn't. Just 'cos the house is worth less doesn't mean the landlord sticks an extra £50 on the rent.

The two markets are very separate.

...I'd like to see a buy to letter that rents £200,000 at loss and is keen on taking negative equity on the chin as well.

That's the problem and why many of the recent buy to let folk are screwed. Many are currently renting at a loss, including my landlord.

 

[Sagalout]

All in very unlikely scenario where £500 can rent you £200,000 house and house prices falling somehow don't affect rental prices (ergo - the lanlord for some reason takes the hit)

ours is close to that, and we're in a very nice area in the 3rd best place in the country to live - according to phil and kirsty!

 

[andyp]

A couple of my landlords are currently renting at a loss, or at very best breaking evens.

The others are only short terms so it makes no matter - I always offer a bit of a premium for contracts less than 6 months.

 

[leaskovski]

To be honest some people say this and some people say that. In the end, if you know what you are doing you are not gonna get shafted. If you are not doing anything (either saving the money or plowing it into a mortgage) then you are lossing out.

People are going to say they are doing the right thing. yes they are. They are doing the right thing for their position. Nothing to argue about there.

 

[dowie]

So renting is a better financial option *if* you think that the price of the house you want to buy will drop by more than the cost of renting for that year, which I think it will.

exactly tbh...

renting is taking a short view on house prices buying is taking a long view on house prices

Renting is no more throwing money away than servicing the interest on a mortgage is throwing money away.

 

[Bes]

well the last 10 years average price has increase 214%, even with a 20% fall that is still a large increase

No no no no no no!

Something else people don't take into account is the mavity effect.

Let's look at a house:

You buy at 150K... Over 10 years it goes up 214%... now it is worth 321K

House prices fall 20%... that house is now worth 257K. In order to get back to 321K, it has to increase in value by 25%, despite falling 20%!....

So over ten years your 150K has become 321K, then fallen to 257K (Assuming falls are overnight, which they are not- so we would then get an even poorer return, as we might be looking at 12 years instead of 10). That equates to a compound annual increase of just 5.5% over ten years! If we use 12 years (So the climb from 150 to 321 takes 10, and the decline from 321 to 257 takes 2 years), then you are looking at performance of just 4.6%.

Factor in the interest you are paying on your mortgage, and you've probably 'made' practically zilch over that time...

Not exactly brilliant....

 

[Tank]

Landlord 0 , Tenants 1

Back at the start of the year my flatmates and I had a letter from the landlord serving us 2 months notice to quit as they wanted to put the property on the market and sell up. As a consolation they offered us a 15% discount on the last months rent in return for letting potential buyers around the property.

However over the previous 3 months we had become somewhat attached to the flat and we were reluctant to leave; it is huge and comparatively cheap! Unfortunately for them we've got free access to sound legal advice and upon close inspection it emerged that our 12 month contract had no break clause and no grounds for allowing viewings of the property until the last two months of the tenancy. Our contract was due to run until the end of September and so the landlord would only be allowed to conduct viewings from the end of July. However being somewhat reasonable and recognising that they want to sell we decided to try and strike a deal that would suit us both. We offered to move out of the property 3 months early, allow viewings immediately but in return we wanted one months rent free (£1733). They declined the offer, as they said that all they could afford was 2 weeks free rent. In the end we decided to just stay put until September.

Now, what I should have told you at the start was that while this argument with the landlord was going on, an agent came round to the house (without our permission) and valued the property. Subsequently it was placed on the agent's website for sale for the grand total of £1.1 million.

Todays news of price falls of 2.5% in a month have really put a smile on my face. According to the statistics on the BBC website prices have fallen by 2.9 percent in the last quarter, in other words a loss of £31900. Serves them right for turning down our offer of a months free rent to leave early. I wouldn't be too surprised to receive a phone call from them in the next couple of months about striking a new deal....

 

[HangTime]

^Indeed, but not everyone has owned their home for 10 years.
I think the point some people are trying to make is that buyers who broke the bank to buy at the peak of the boom (last summer say) with very little equity and a short-term fixed deal may find themselves in trouble when it comes to remortgaging if the value of their property falls significantly.

That said, I still maintain that the situation won't be too bad for normal/sensible buyers. The most extreme borrowers may get their fingers burnt but then that is a risk they take.

The value of your house only really matters in two situations:
1) You need to sell it (either directly or indirectly e.g. inheritance etc)
2) You use it as a wallet (i.e. you are dependent on loans secured against it).

This sounds a bit oversimplified, but it you think about it, if you are living in your house for the long term, until the time comes when you want to sell it, it doesn't really matter whether it is has a market value of £150k or £200k - it's not like your sofa suddenly gets more comfy, the garden grows better, or an extra room springs up from nowhere - the quality of life it provides remains largely the same. Obviously I'm talking purely about changes in value based on market fluctuations, not any actual work carried out on the property, changes in the local area etc.

 

[Bes]

^Indeed, but not everyone has owned their home for 10 years.
I think the point some people are trying to make is that buyers who broke the bank to buy at the peak of the boom (last summer say) with very little equity and a short-term fixed deal may find themselves in trouble when it comes to remortgaging if the value of their property falls significantly.

That said, I still maintain that the situation won't be too bad for normal/sensible buyers. The most extreme borrowers may get their fingers burnt but then that is a risk they take.

The value of your house only really matters in two situations:
1) You need to sell it (either directly or indirectly e.g. inheritance etc)
2) You use it as a wallet (i.e. you are dependent on loans secured against it).
3) You want to buy a new, better, more expensive house

This sounds a bit oversimplified, but it you think about it, if you are living in your house for the long term, until the time comes when you want to sell it, it doesn't really matter whether it is has a market value of £150k or £200k - it's not like your sofa suddenly gets more comfy, the garden grows better, or an extra room springs up from nowhere - the quality of life it provides remains largely the same. Obviously I'm talking purely about changes in value based on market fluctuations, not any actual work carried out on the property, changes in the local area etc.

When you sell (which you inevitably do), you want to buy somewhere else to live presumably, unless you are going to rent, or live in someone else's house, in which case your argument is invalid, as you profit hugely from increasing prices.

If I want to move from house A (at 200K) to house B (at 25% more), it will cost me £250K to buy house B. Fine. £50K difference.

If I want to move from house A 5 years later when the market has risen 10%, I have a problem.

House A is now worth £220K. House B is still 25% more, but now costs £275K. Now I have to stump up £55K (10% more) to move house. Oh dear. My quality of life may decline, as I need to repay an extra 5K of debt to afford my dream home.

In general, people benefit from low house prices, not high ones.

 

[Old Wino]

Mortgage:
25 years, monthly payments stay roughly the same.
Rent:
50 years of ever increasing monthly payments right up to the day you die.

 

[HangTime]

^^Point 3 you added there is already covered by point 1
It's obvious that for people who's sole reason for selling is wanting to 'move up the ladder', an overall decline in the price of housing is good.

Some people benefit from low house prices, not all. It's worse for people considering downsizing (maybe retired people with large homes who's family has flown the nest) in order to fund their twilight years. It's worse for people who inherit property they intend/need to sell. It's worse for people emigrating to other countries with different housing markets. It's worse for people who need to take out large loans against the value of their property. It's worse for couples who split up and go their seperate ways taking 50% of the sale each.

Mortgage:
25 years, monthly payments stay roughly the same.
Rent:
50 years of ever increasing monthly payments right up to the day you die.

Just because one stays roughly the same and one increases all the time, it doesn't mean to say it is necessarily cheaper or better value.
Mortgage rates can also be highly volatile at times depending on what sort of deal you have. You only have to look at the early 90s to see that, although hopefully with monetary control being largely handed over to the MPC, this is less of an issue now.

 

[Bear]

Back at the start of the year my flatmates and I had a letter from the landlord serving us 2 months notice to quit as they wanted to put the property on the market and sell up. As a consolation they offered us a 15% discount on the last months rent in return for letting potential buyers around the property.

However over the previous 3 months we had become somewhat attached to the flat and we were reluctant to leave; it is huge and comparatively cheap! Unfortunately for them we've got free access to sound legal advice and upon close inspection it emerged that our 12 month contract had no break clause and no grounds for allowing viewings of the property until the last two months of the tenancy. Our contract was due to run until the end of September and so the landlord would only be allowed to conduct viewings from the end of July. However being somewhat reasonable and recognising that they want to sell we decided to try and strike a deal that would suit us both. We offered to move out of the property 3 months early, allow viewings immediately but in return we wanted one months rent free (£1733). They declined the offer, as they said that all they could afford was 2 weeks free rent. In the end we decided to just stay put until September.

Now, what I should have told you at the start was that while this argument with the landlord was going on, an agent came round to the house (without our permission) and valued the property. Subsequently it was placed on the agent's website for sale for the grand total of £1.1 million.

Todays news of price falls of 2.5% in a month have really put a smile on my face. According to the statistics on the BBC website prices have fallen by 2.9 percent in the last quarter, in other words a loss of £31900. Serves them right for turning down our offer of a months free rent to leave early. I wouldn't be too surprised to receive a phone call from them in the next couple of months about striking a new deal....

You sound smug with yourself but all I can see is that you are scum. The bloke wants to sell his house, he gives you notice and wants to show people round and offers a 15% dicount in rent for compensation. You being greedy ***** want to fleece him for a months rent which could potentially be needed to pay the mortgage.

So for the fact he wont let you off a months rent, you are smiliing at the news he has lost money on his house when he has been totally reasonable with you but you are greedy bunch of *****.