House prices..

itsallaboutyou said:
I have to say surely this really only affects people who are trying to sell?

I'm not denying that readily available credit is to blame - 'cos it is. It's the whole buy it now, pay later attitude that's caused the mess(as I understand it?), that and sub-prime mortgage lending.

If I was to get a mortgage for £150,000 and over the next 12 months the value of my property declined to less than that - yes there'd be an issue - but surely it would only be a real issue if I was trying to sell? That probably makes no sense.

After 25 years when that mortgage is paid off - the property is mine to do with as I please.. and lets be serious, prices arent going to fall for ever...
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Correct.

But there's reasons why many people are forced to sell.

Moving house for a new job.
Unable to afford the mortgage payments.
Divorce/breakup.
Moving house because current one is too small for another baby


Falling prices and even negative equity isn't a big problem for those that can sit tight and wait for the prices to rise again. But for a fairly sizable number of people, that just isn't an option.
 
itsallaboutyou said:
I have to say surely this really only affects people who are trying to sell?

I'm not denying that readily available credit is to blame - 'cos it is. It's the whole buy it now, pay later attitude that's caused the mess(as I understand it?), that and sub-prime mortgage lending.

If I was to get a mortgage for £150,000 and over the next 12 months the value of my property declined to less than that - yes there'd be an issue - but surely it would only be a real issue if I was trying to sell? That probably makes no sense.

After 25 years when that mortgage is paid off - the property is mine to do with as I please.. and lets be serious, prices arent going to fall for ever...
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Not necessarily true.
Let's say you buy a £200K house today with £20K deposit and £180K 2 year fixed rate repayment mortgage.
The loan to value (LTV) percentage is 90%, i.e. your mortgage is for 90% of the house value.

Now assume that house prices fall by 10% over the next two years.
Now you have a £180K house and a £174K mortgage (you would pay off around £6K capital in the first two years assuming a 6.5% mortgage)
Now your LTV percentage is 96.7%, significantly higher than before.
While you aren't in negative equity you may not be able to remortgage and you will then be put onto the bank's SVR mortgage and your repayments could go up significantly.

So, no moving house at all but someone could get stung quite badly.
 
clv101 said:
Sure. But why buy today for £150k when you could buy the same place for £135k in a years time? Or buy a better house for the same £150k in a years time. Sure it only 'matters' if you are trying to sell, but losing £15k (10% of £150k) is still losing £15k. The argument that it's okay to buy at the top of the market assuming you'll stay put for a decade or more is rubbish - it's still better not to buy at the top.
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if you dont buy now, and things start getting better then your stuck in the same place as before? (its all guess work) with what you are writing you are obviously expecting this to still be going on in a years time
 
Third Opinion said:
That would be top of the market then. Unfortunately probably worth less today.
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It does appear to be that way unfortunately. He mentioned it cost £176,000 at the time.

Bug One said:
Woo hoo. I've just had my offer accepted on my first house.

We've been looking at houses for a while, but we settled on one house in Sandwich.

Its not a big house. Basically a 2 up 2 down, but its in a nice location, and there is lots of room for improvement. Plus its got a huge garden.

Can't wait to move in now!
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I've just had a quick look and there are 3 bedroom places (not 2 as above) up for sale starting at £137,000. I could have the location wrong though?
 
Stinky said:
if you dont buy now, and things start getting better then your stuck in the same place as before? (its all guess work) with what you are writing you are obviously expecting this to still be going on in a years time
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It's already getting 'better' ;)
 
Friend of mine just sold his house, was worth £285K last year, just sold for £249K.

Difficult price though as it was just over the stamp duty rate so get's hit with 3%!
 
"More than four million families have used a credit card to pay the mortgage or rent in the last year."

"Settling debts by withdrawing cash on a credit card is probably the most expensive way possible with interest rates as high as 28 per cent, and indicates a disturbing level of desperation on the part of homeowners."

"Nearly three million families have had to borrow money from friends or relatives, or take out a personal loan, to pay the mortgage or the rent."

"About 2.2million households spend more than half of their income on their housing costs. "

http://www.dailymail.co.uk/news/article-1027566/More-4m-families-use-credit-card-pay-mortgages.html

Yes OK it's the Daily Mail........but the report was carried out by the homeless charity Shelter using its own statistics. It doesn't say what areas the 7,000 families surveyed are from, so it might be unfair to extrapolate this and generalise about the UK in general.

It certainly shows how tough it is getting out there. I can't believe so many people have been suckered iin and believed that "it's different this time".
 
Haircut said:
Not necessarily true.
Let's say you buy a £200K house today with £20K deposit and £180K 2 year fixed rate repayment mortgage.
The loan to value (LTV) percentage is 90%, i.e. your mortgage is for 90% of the house value.

Now assume that house prices fall by 10% over the next two years.
Now you have a £180K house and a £174K mortgage (you would pay off around £6K capital in the first two years assuming a 6.5% mortgage)
Now your LTV percentage is 96.7%, significantly higher than before.
While you aren't in negative equity you may not be able to remortgage and you will then be put onto the bank's SVR mortgage and your repayments could go up significantly.

So, no moving house at all but someone could get stung quite badly.
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Thats a really interesting way of looking at it, I spy someone in the financial sector!?

I hadn't really thought about LTV - it makes perfect sense to me so thanks for that!

Although, I still think that its a valid argument.. :)

clv101 said:
Sure. But why buy today for £150k when you could buy the same place for £135k in a years time? Or buy a better house for the same £150k in a years time. Sure it only 'matters' if you are trying to sell, but losing £15k (10% of £150k) is still losing £15k. The argument that it's okay to buy at the top of the market assuming you'll stay put for a decade or more is rubbish - it's still better not to buy at the top.
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True - if people are willing to risk - each to their own.. I bought mine in Dec '06 and luckily got a 4 year fixed rate at just over 4%...

div0 said:
Correct.

But there's reasons why many people are forced to sell.

Moving house for a new job.
Unable to afford the mortgage payments.
Divorce/breakup.
Moving house because current one is too small for another baby


Falling prices and even negative equity isn't a big problem for those that can sit tight and wait for the prices to rise again. But for a fairly sizable number of people, that just isn't an option.
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That's a good point and one I hadn't really considered in my rather abrupt view!
 
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itsallaboutyou said:
Thats a really interesting way of looking at it, I spy someone in the financial sector!?

I hadn't really thought about LTV - it makes perfect sense to me so thanks for that!

Although, I still think that its a valid argument.. :)
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No, I'm not in the financial sector.
I used to work in IT for one of the big investment banks though and I developed an interest in financial and economic things there.
 
chaparral said:
http://news.bbc.co.uk/2/hi/business/7445324.stm

Lets hope that house prices drop by 44% over the next five years....(Am praying for them to)
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Why? The only cause for that would be people being unable to buy them due to lack of available credit.

It won't help all those people who have been moaning they can't afford to buy a house, they still won't be able to afford to buy a house.

It's important to remember the cause behind the effect. Desire for ownership hasn't changed, so for drops to be sustained, there will have to be another factor surpressing demand.
 
dirtydog said:
A 44% price drop wouldn't help people currently unable to afford to buy a house? How do you work that out?
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As dolph said. The ONLY reason house prices would drop so dramatically, is ridiculously high interest rates.

If that happened, the people finding it difficult to afford a house now, would equally find it difficult to afford a house then.

IE

Buy house now for 200k at 4.6% interest rates = 30 year ~ £1000 a month.

After a 44% drop with 15% interest rates that house would be what, £110k, but your monthly payment is going to be ~ £1600 a month.
 
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