House prices 'drop 1.9% in March'

[oli collett]

Guys, seriously. Whether house price drops are a good or a bad thing depends entirely on circumsatnces.

If you have several properties and are using them as a long-term investment, or are looking to renovate properties for profit, then high prices are good.

If you're a first-time buyer (like me) then low prices are good (so long as you can get a mortgage).

If you're a homeowner looking to upgrade, it really depends more on local factors and individual circumstances (such as how quickly you need to sell). However, the higher the prices the larger you can expect the difference to be between your current house and your next house.

Indeed. I do sympathise with people with big mortgages who are seeing the value of their house price drop, especially with the job market falling off at the moment it's not really a good position to be in.

I have less sympathy however for the buy to let folk who are now getting into a complete mess because they bought at the peak. I'm currently renting a flat that was bought at 20% more than what it's now on the market for 2 years later, and there's no way our rent is going anywhere near paying for what the mortgage must be, unless they paid a massive amount of cash for it as well.

I expect prices to continue to fall as the effects of the recession begin to spread which should start to bring prices back to sensible levels for first time buyers.

 

[Dolph]

I feel sorry for first time buyers at the moment, the barriers to entry to the market are higher than they've been for a very long time, despite the drop in prices.

 

[mattheman]

Why is it a bad news? Explain? Low house prices mean the sale price of your current property will be less, and a bigger house will still cost you more than a smaller one. See what I did there? I turned your argument on its head.

Can I politely enquire what your current housing and job situation are?

erm if you house price drops by 5% and a bigger house drops by5% then you pay less, if the house price rises on you house by 5% and the bigger house price rises by 5% you pay more. You gain much more on a price drop than many think.

 

[Nathan]

very true about crap areas falling the most, location comes first for me sadly.

 

[Dolph]

erm if you house price drops by 5% and a bigger house drops by5% then you pay less, if the house price rises on you house by 5% and the bigger house price rises by 5% you pay more. You gain much more on a price drop than many think.

But you have to consider the underlying causes of the price drop (in this case a very limited supply of money to borrow) and the effect of potential negative equity on your existing mortgage...

Just because the price has gone down it doesn't mean the house is more accessible for ownership to you.

Price is nowhere near as important overall as accessibility in the housing market.

 

[JAMAL]

Is it even wise to listen to the banks on how much prices are dropping?

Personaly i think we are going to see much bigger drops.

 

[Nathan]

I feel sorry for first time buyers at the moment, the barriers to entry to the market are higher than they've been for a very long time, despite the drop in prices.

Indeed, without a substantial deposit it will be very hard. I was fortuante to have enough in the bank along with fiance. Not many people will have £30k in the bank I suppose.

 

[mattheman]

But you have to consider the underlying causes of the price drop (in this case a very limited supply of money to borrow) and the effect of potential negative equity on your existing mortgage...

Just because the price has gone down it doesn't mean the house is more accessible for ownership to you.

Price is nowhere near as important overall as accessibility in the housing market.

no matter what you do your on negtive equity when you take interest into account. A house dosent cost you 200k it costs you 350k. 100k would cost you 175k.

btw the vast majority over the last 3 years has been IO mortgage, because people can't afford repayments so the opt for cheaper mortgage and unable to save the difference not only that if they did manage to save they would be taxed on their savings and if they lost their job and have over x amount of money they get no help from the government.
With IO, your mortgage doesnt go down like a repayment mortgage for example IO mortgage for 20 years at 5% you'll always pay the full 5% of a 200k mortage, your just servicing the interest not thr debt.
If youve taken out a repayment mortgage at the start you pay towards the interest and a little toward the mortgage itself, after x amount of time you pay more of you mortgage and less in interest rates. you service the interest and the debt.

Now after x amount of years you sell your home for 450K youve got to give back to the bank 200k then add the interest they repayment of 150K = 350k you only make 100K and have no home as the price has gone up to 450k you have 100k bring down the amount you have to borrow to 350k, then youll pay 650k, and thats if you can sell fast and hope your not caught in a down turn, you need to factor in the maintance costs etc.. and you actually worse of than a renter.

The only way an IO mortgage works if you dont lose you job and dont take any gaps in your work history and save the right amount per month. in other words youve got to save much more to compensate for the tax on you savings, meaning have far less money then you thought.

 

[Stretch]

Don't really care, I live in my house so I can't sell it

If you brought last year I’d care... a lot

I feel sorry for first time buyers at the moment, the barriers to entry to the market are higher than they've been for a very long time, despite the drop in prices.

It's fine providing you have enough income and a decent sized deposit, and tbh that's the way it should always have been.

The price drop is just factoring out the nonsense that's happened over the last few years with 125% mortgages, cheep buy to let etc. Some people will just have to accept they can't afford a house.

 

[Dolph]

no matter what you do your on negtive equity when you take interest into account. A house dosent cost you 200k it costs you 350k. 100k would cost you 175k

What a strange argument... Unless you're a complete idiot and took a mortgage with the interest front loaded on, you aren't in negative equity through interest at any point, because interest is calculated and added monthly on a repayment mortgage...

Yes, over the mortgage term (should you complete it fully) you will have paid more than the house was originally valued at, but that's a completely different argument to negative equity...

 

[Bes]

Aye, and Lloyds will show a rise - just they did in February. Its good news, its backed up further by a survey carried out by the Bank of England on credit conditions released yesterday and it found that banks expect to increase lending to individuals and businesses over the next three months. All good news for home owners!

Yes, because all homeowners want bigger mortgages when they move!

House prices have a long way to fall yet... I've been seeing this coming for a while now, and we still have significant declines to come.

 

[Bes]

no matter what you do your on negtive equity when you take interest into account. A house dosent cost you 200k it costs you 350k. 100k would cost you 175k.
btw the vast majority over the last 3 years has been IO mortgage, because people can't afford repayments so the opt for cheaper mortgage and unable to save the difference not only that if they did manage to save they would be taxed on their savings and if they lost their job and have over x amount of money they get no help from teh government.

You seem to have equity confused with interest. You will definately pay more than you bought the house for, but if you buy a house on a mortgage at 200K, pay off the mortgage (say 300K) and sell it for 200K, then you are not in negative equity. (Assuming inflation was 0%)

 

[mangobreeder]

long continue the fall, im planning to buy in september

 

[SKILL]

The Positive figures from nationwide, and HBOS back in january, are just blips.

I believe something like 1/3 of the monthly house price figures from 89-95 were positive, didn't stop house prices dropping on average for that entire time. Although that time they only dropped something like 13%, we've hit that in a year but we also hit a far higher 'income multiple' average, over 5x iirc, when the last trough was at 2x, which imply we still (just over 4x at the moment I believe) have a fair way to fall.

And that doesn't even take into account the fact that the rest of the economy is in tatters, with public debt so high that taxes are going to have to go up as well as inflation figures that rather than the dreaded deflation look like they might go up, funny considering interest rates at record lows and printing money...

 

[mattheman]

You seem to have equity confused with interest. You will definately pay more than you bought the house for, but if you buy a house on a mortgage at 200K, pay off the mortgage (say 300K) and sell it for 200K, then you are not in negative equity. (Assuming inflation was 0%)

Negative equity does only work when the house value drops compared to a morgage it also applies to when it doesnt rise as fast as you interest payments, all things being equal.

 

[Duff-Man]

Negative equity does only work when the house value drops compared to a morgage it also applies to when it doesnt rise as fast as you interest payments, all things being equal.

No, sorry. I think you have the wrong end of the stick.

http://en.wikipedia.org/wiki/Negative_equity

"Negative equity is a term used to refer to when the value of an asset used to secure a loan is less than the outstanding balance on the loan"

 

[a1ex2001]

Negative equity does only work when the house value drops compared to a morgage it also applies to when it doesnt rise as fast as you interest payments, all things being equal.

Please leave this thread. I resisted pulling holes in your firts post after someone esle did but your just spouting nonsense. Negative equity only occurs when you owe more on your mortgage than the house is worth if sold, that is the definition.

 

[mattheman]

You seem to have equity confused with interest. You will definately pay more than you bought the house for, but if you buy a house on a mortgage at 200K, pay off the mortgage (say 300K) and sell it for 200K, then you are not in negative equity. (Assuming inflation was 0%)

Do you really think a house you paid for now say 200k will be worth 400k in 20 years, the last 10 years wages havent go up as fast, your paying more tax, then take into account fiscal drag, so many other factors, wages need to be kept low to compete with china.

 

[mattheman]

Please leave this thread. I resisted pulling holes in your firts post after someone esle did but your just spouting nonsense. Negative equity only occurs when you owe more on your mortgage than the house is worth if sold, that is the definition.

If you dont understand or dont see how interest rates can pull you into negative equity,its not my problem really, and what you said is the basic definition.

 

[mattheman]

You seem to have equity confused with interest. You will definately pay more than you bought the house for, but if you buy a house on a mortgage at 200K, pay off the mortgage (say 300K) and sell it for 200K, then you are not in negative equity. (Assuming inflation was 0%)

Read what you said. then look at who has negative equity you or the bank, ok i'll help the bank isnt but you are, for you not to be in negative equity the price of the home must be sold for 300k plus any addtions you've done to teh property. When they talk about negative equity they arent talking about negative on behalf of the home owner but on behalf of the bank.