Question about house prices

robfosters

robfosters

robfosters

Caporegime
Joined
1 Dec 2010
Posts
53,766
Location
Welling, London
As we all know houses in and around London have rocketed in value and continue to rise. What I want to know though, and it's a bit of fortune telling, but do house prices in other parts of the country increase as fast as London properties?

Basically, what I want to know is that if someone owns a London house with an interest only mortgage of £230,000, but is currently valued at £335,000, after another 12 years, could the rise in value outstrip other parts of the country at a rate that will allow the equity to be enough to buy a smaller property outright further out of London?

Basically, my mum is in the situation, is fed up and her current equity is enough to buy a decent apartment elsewhere. She likes where she is though and if the above is true, I'm advising her to wait for the 12 years as she will be in a better situation than if she was to sell up now. Her current mortgage is £650 a month and the actual rental value of the house is £1,250 a month, so I think she's on a pretty good deal there.
 
I say London, but we are on the outskirts. A place called Welling, near Bexleyheath. It's still called the London borough of Bexley though. I'm sure the ripple effect catches us sooner than others.
 
holymonk said:
In London yes, but will it last forever, things will crash eventually.
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Depends on your view of a crash. If 10% compound over 10 years and then in year 11 it crashes by 20% is that what you consider to be a crash? It would need to crash by 60% to break even. If house prices crash by 60% overnight we have a lot more to worry about. Plus the equivalent cheaper property would have crashed as well.
 
Anything could happen.

If you find the secret behind predicting the future, please let us know.

A thing to note is that your mum is probably on a sweet tracker deal, remortgaging to release equity or switch to BTL (or reaching the end of the mortgage) scuppers that.
 
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robfosters said:
I did look, but I could really find anything concrete. Dont forget though, this is a forum.
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he was being sarcastic, if you could accurately predict the future value of some asset in say a decade you'd be able to make a fortune, you're essentially asking for a crystal ball

yes London house prices have previously risen more rapidly than the rest of the country that doesn't mean this trend will continue for a decade

I think the more important thing to question is WTF is she doing on an interest only mortgage if she's not got any other investments to pay it off at the end of the term? What if prices fall and she can't re-mortgage either due to no/low equity or age or both?

I'd be advising her to go and get some advice from a mortgage advisor rather than taking punts on the housing market.
 
holymonk said:
In London yes, but will it last forever, things will crash eventually.
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It already did - back in 2007. Maybe we'll see it happen again though there have been various changes made to banks since last time around so the wider impact probably won't be as severe.
 
dowie said:
he was being sarcastic, if you could accurately predict the future value of some asset in say a decade you'd be able to make a fortune, you're essentially asking for a crystal ball

yes London house prices have previously risen more rapidly than the rest of the country that doesn't mean this trend will continue for a decade

I think the more important thing to question is WTF is she doing on an interest only mortgage if she's not got any other investments to pay it off at the end of the term? What if prices fall and she can't re-mortgage either due to no/low equity or age or both?

I'd be advising her to go and get some advice from a mortgage advisor rather than taking punts on the housing market.
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It's impossible. There is no way she could afford a repayment mortgage. She's not in the financial position to do that. I'll be the first to admit my mums not very intelligent when it comes to finance, and my **** of a father left her in a right hole when he found a younger bit of skirt. She was left with 2 kids, £40k cash (from a house worth £165k) and a £23k a year job.

One thing I have told her to look at is the Homewise home for life plan as she will be at an eligible age when the mortgage finishes, and I'm sure she'll be able to afford a little house with 40-50% knocked off. Neither me or my brother are bothered about any inheritance. We're happy as long as she has a nice home to call her own for the rest of her days.
 
MonkeyMan said:
Depends if your mum is prepared to wait 12 years, if she's fed up thats quite an ask!
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She's fed up with the uncertainty. She likes where we are, but is scared of hitting 68 and being turfed out with nowhere to go. I'm trying to convince her that this won't happen.
 
I've been in my current house in the South-East for a bit under 5 years and we've just arrange a remortgage. Current value is 50% higher than we paid for it. So not as high as London but still rising strongly.
 
robfosters said:
One thing I have told her to look at is the Homewise home for life plan as she will be at an eligible age when the mortgage finishes, and I'm sure she'll be able to afford a little house with 40-50% knocked off. Neither me or my brother are bothered about any inheritance. We're happy as long as she has a nice home to call her own for the rest of her days.
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How are you sure of that? She's on an interest only mortgage so for all you know(house prices can fall as well as rise) she might have no equity in the property in 12 years time.

You're basically encouraging her to take a punt on the property market and then if that punt pays off to use the proceeds to invest in a new home via some scheme that is likely to offer very bad value for money.

I'd get her to go speak to a mortgage advisor if I were you. She's got 12 years left on this mortgage so presumably it wasn't taken out recently - do you know what rate it is and have you compared to the cost of a repayment mortgage today with the equity she now has? A mortgage advisor isn't going to cost you anything initially and could be helpful here.
 
robfosters said:
She's fed up with the uncertainty. She likes where we are, but is scared of hitting 68 and being turfed out with nowhere to go. I'm trying to convince her that this won't happen.
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How far away is 68?

If she is unable to save anything until then and will rely solely on a state pension, then you both will likely have to help her out.

Use the existing equity and get an interest only mortgage again in your names in the future and pay for it with the knowledge you will inherit the equity afterwards. Even if house prices simply rise with inflation in 12 years, LTV should be close to 50%. In a worst case scenario house prices are still where they are now in 12 years (i.e. decreased 25% in real terms) then LTV is still decent.

That obviously depends on interest rates in the future which is a bit of a problem trying to predict.
 
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muon said:
How far away is 68?
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12 years

My brother was toying with the idea of buying it when the mortgage is up and letting my mum live in it for the cost of whatever she can get in housing benefit when retired. He'll be 34 then. Problem is, if the house is worth £400-500k, selling it for £240k may not be that straightforward.
 
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