House prices..

[HangTime]

as ive mentioned before. people can still get very very good rates if they have 25% to put down!

I think that's part of the 'problem', a lot of people don't have 25% to put down. And what's more, it is getting increasingly difficult to get mortgages with >90% LTV, so all those people who were boosting the market by coming onboard with little or no deposit are now being crowded out.

A while back, a couple earning say £40k/year could buy up a house with maybe only £5-10k saved up. Whereas now they have little option but to either buy a much cheaper property (driving down the average price), or rent instead. Affording the repayments isn't an issue for them, it's just that the chosen lifestyle to date hasn't involved building up a lot of savings.

Of course, I'm not necessarily saying that this is a bad thing - just that it's a reason for downward pressure on house prices.

 

[DaveF]

And also, that 50% drop in 4 years is 23.5% drop in nominal amounts coupled with 4 years of 3.5% inflation, which gives around a 50% drop in real values.

The calculation is (1 / ((1-0.235) / (1.035^4))) - 1, which gives ~50% falls.

What's the justification for calculating it like that? It's not how I'd calculate it.

Suppose a loaf of bread costs £1, and a house costs £100K. So right now, the house costs 100K loaves of bread.

After 4 years inflation, the bread costs £1.1475 (=1.035^4) and the house costs £76.5K (=(1-0.235)*£100K). In other words, the house now costs around 67K loaves of bread.

Fall in "real terms" is 33%.

(Perfectly likely I'm wrong, as your figure matches the article, but I don't really understand why).

 

[HangTime]

^I'm inclined to agree.

Imagine a situation where there is no inflation. The equation would then allegedly be:

(1 / ((1-0.235) / (1^4))) - 1 = ~30.7%

23.5% is not the same as 30.7%. How can the fall in "real terms" be any different from the fall in "nominal terms", when there is zero inflation? It makes no sense.

 

[mattx2]

Swap rates have gone through the roof today over 6% for 1 and 2 year rates.

At these rates banks will need to charging retail rates at over 7% to keep margins. The "credit crunch" is far from over

 

[Haircut]

What's the justification for calculating it like that? It's not how I'd calculate it.

Suppose a loaf of bread costs £1, and a house costs £100K. So right now, the house costs 100K loaves of bread.

After 4 years inflation, the bread costs £1.1475 (=1.035^4) and the house costs £76.5K (=(1-0.235)*£100K). In other words, the house now costs around 67K loaves of bread.

Fall in "real terms" is 33%.

(Perfectly likely I'm wrong, as your figure matches the article, but I don't really understand why).

No, you're right. Not sure why I did it like that, should just have divided one figure by the other and then taken from 1 to get the percentage.
Not sure where their 50% comes from.

 

[Third Opinion]

I see 23,200 are already in negative equity. Not good.

http://news.bbc.co.uk/1/hi/business/7445324.stm

 

[FirebarUK]

That was pretty much a given though, unavoidable whilst 100+% mortgages were still offered. People who had no inclination to save in early life could happily decide to go grab a house.
A few married friends grabbed a couple, one of them have already lost about £15k off the value of their house. What's worse is that they bought it (signed, done and dusted) before they'd even VIEWED the place. They now have to pay around £6k to have all the plumbing redone.

Currently we've moved into my wife's parents place to boost the amount we can save. Aiming to put down a 50K deposit on something over the next couple of years.

 

[Dolph]

But it's worth remembering negative equity is only a problem if you have to sell, or took a silly short term mortgage deal with the assumption that you would definitely be able to remortgage at the end of it.

If you're not selling or changing your mortgage provider, it's irrelevant, just as a high value of your house is irrelevant.

 

[FirebarUK]

Absolutely. I just get the feeling a lot of people don't consider that, and hence why negative equity will most likely be quite a bit issue for the majority.

/sweeping statement.

 

[Stinky]

That was pretty much a given though, unavoidable whilst 100+% mortgages were still offered. People who had no inclination to save in early life could happily decide to go grab a house.
A few married friends grabbed a couple, one of them have already lost about £15k off the value of their house. What's worse is that they bought it (signed, done and dusted) before they'd even VIEWED the place. They now have to pay around £6k to have all the plumbing redone.

Currently we've moved into my wife's parents place to boost the amount we can save. Aiming to put down a 50K deposit on something over the next couple of years.

that is the fault of the agent! we never allow people to buy / let a house without even viewing it!

 

[Stinky]

But it's worth remembering negative equity is only a problem if you have to sell, or took a silly short term mortgage deal with the assumption that you would definitely be able to remortgage at the end of it.

If you're not selling or changing your mortgage provider, it's irrelevant, just as a high value of your house is irrelevant.

most poeple who bought back then at 100% will be looking (i would have thought) to stay put for 10+ years

 

[FirebarUK]

that is the fault of the agent! we never allow people to buy / let a house without even viewing it!

Couldn't agree more, it strikes me as silly on the part of the buyer and irresponsible on the part of the agent. I guess the agent was desperate...

 

[Edinho]

most poeple who bought back then at 100% will be looking (i would have thought) to stay put for 10+ years

I dunno I think a lot did it because they had to, and were afraid of missing the boat. Sensible people buy a house because they want some where to live and eventually own it. Thing is if your sensible you would have seen through all the garbage about never being able to own a home because of a housing bubble that was unsustainable, and sensible people dont go for 100% mortgages.

 

[Stinky]

Couldn't agree more, it strikes me as silly on the part of the buyer and irresponsible on the part of the agent. I guess the agent was desperate...

i would guess that all agents that would do that would be national big names. independant agents 'usually' respect there clients (what i have noticed from experence)

 

[Sagalout]

but 50% in 4 years. i would eat my hat if that happened. I wouldnt put a minimum bet of £1000 on that though (as i dont have £1000 to my name )

I'm guessing that you're fairly young? late teens/early twenties? If so you've probably spent all your working life with the housing market and interest rates as they have been in the last few years. Its therefore difficult for you to comprehend just how much and how quickly things can change. I started work in the late 80's, working for a bank. Back then we used to get a 5% deduction as a staff benefit on a mortgage. Customer rates were typically 8 or 9% (http://www.houseweb.co.uk/house/market/irfig.html#1990). Prices fell through the floor, and quite a few of my friends who were just a bit older and had bought houses lost an awful amount of money. Some were fine and just rode it out (and of course profited from the later boom) but others through various circumstances (including large numbers of redundancies in the banking sector) lost large amounts of money, the greatest of which was about £45K in negative equity which he's only just finished paying back some 12/13 years on.

At the moment you're still in denial, but for those of us that have being there before its just an inevitable cycle. Next time it happens (and it will) you'll be the one sharing your experiences whilst the next batch of young whipper snappers is full of confidence that things cant possibly get that bad.

 

[Stinky]

I'm guessing that you're fairly young? late teens/early twenties? If so you've probably spent all your working life with the housing market and interest rates as they have been in the last few years. Its therefore difficult for you to comprehend just how much and how quickly things can change. I started work in the late 80's, working for a bank. Back then we used to get a 5% deduction as a staff benefit on a mortgage. Customer rates were typically 8 or 9% (http://www.houseweb.co.uk/house/market/irfig.html#1990). Prices fell through the floor, and quite a few of my friends who were just a bit older and had bought houses lost an awful amount of money. Some were fine and just rode it out (and of course profited from the later boom) but others through various circumstances (including large numbers of redundancies in the banking sector) lost large amounts of money, the greatest of which was about £45K in negative equity which he's only just finished paying back some 12/13 years on.

At the moment you're still in denial, but for those of us that have being there before its just an inevitable cycle. Next time it happens (and it will) you'll be the one sharing your experiences whilst the next batch of young whipper snappers is full of confidence that things cant possibly get that bad.

maybe so.

but i still think 50% decline is a awful lot!

 

[Dolph]

I dunno I think a lot did it because they had to, and were afraid of missing the boat. Sensible people buy a house because they want some where to live and eventually own it thing is if your sensible you would have seen through all the garbage about never being able to own a home beacause of a housing bubble that was unsustainable, and sensible people dont go for 100% mortgages.

Sensible people certainly can and do go for 100% mortgages, provided you know the risks and the situation.

The problems come when people don't assess the risks and the situation appropriately, or take it because it's literally all they can afford, as opposed to their being other reasons why you may not have (or want to use) a deposit.

 

[Sagalout]

most poeple who bought back then at 100% will be looking (i would have thought) to stay put for 10+ years

Thats the problem. If you bought a 3 bed house in your twenties then you probably can just stay put.

What if you bought a studio flat in your mid twenties thinking that the market will only go up? You now are looking to get married and start a family, but cant because you cant afford to sell the flat you're living in because it will cost you an extra £25K just to pay the bank back and start again.

 

[Sagalout]

maybe so.

but i still think 50% decline is a awful lot!

It is an awful lot.....but they went up an awful lot aswell

 

[clv101]

maybe so.

but i still think 50% decline is a awful lot!

Sure it's an awful lot - but also remember house prices are as high as they have ever been with respect to the long run average and with (I think) respect to average earnings. From such a height large falls are more likely. It seems a dead cert we'll see at least 10% off nominal in 2008, that rate could continue for a couple of years more, factor in inflation as well and we're getting close to 50%. It's certainly not impossible.