House Prices - Where does it end?

[The Mad Rapper]

What about the average void periods that a landlord needs to figure into his sums.

Or the cost of repairs on the property.

Theres a lot of blue sky assumptions going on here.... a bit of prudence wouldnt go amiss.

Thanks for the comments, I have thought about this.

I have no mortgage to pay at the moment, so if my sister wants to move out or repairs are needed I could easily afford that.

After tax I earn almost 3K a month, I have no debt and aside from Child Support and utility bills I have no other outgoings.

I think the main thing putting me off ATM is the idea of owing the Bank/Building society so much money

 

[Visage]

I take back what i said.

Go ahead and buy a property - they can only go UP in value!!!!!

Your going to make TONS OF MONEY!!!

... oh yeah. You'd be a fool not to 'get on the ladder' .. its the responsible thing to do!!!!

Sweeping generalisations are soooo 2006.

 

[HEADRAT]

1. really? 10 or so years ago there were properties nobody would touch with a barge pole, or sat on the market for years.

2. if theres a recession. your equity will have went down by a massive chunk. Its stupid to assume that you will win in every situation.

1. Not in Cambridge, Location Location Location.
2. If you can prove to me that a house bought 25 years before isn't worth significantly more than it purchase price then you may have a point. (but you won't so you don't).

HEADRAT

 

[Mad old tory]

What if, at the end of the mortgage term .... theres a recession and you either CANT sell your house, or the value of it has plunged? You'll be either repossessed in one situation when you cant meet the capital repayment, or left with a tiny amount of equity.

Im sure you'll rue the day you ever thought interest only mortgages were a good idea in that situation.

That's not what ci-newman is doing though is it? Realistically, how many people never get pay rises over the years? His income will go up over the next couple of years allowing him to start actually repaying the capital as well as interest. To my mind, interest-only for a short period isn't a bad idea at all, provided that people don't stretch themselves too much. That would be the same principle with a standard mortgage too, though.

 

[DaveF]

.... with interest only, you have to remember that all your doing is renting from the bank, instead of renting from a landlord.

Not exactly. The big difference is that your interest payments are not linked to inflation or the "market rent". How much premium would you expect a renter to pay to have their rent fixed for 25 years?

Yes, in either case, if you genuinely think house prices, wages and rents will be lower in 25 years, then it would be a bad investment. But I really don't see that as terribly likely.

 

[HEADRAT]

This pdf is from 2005

http://www.nationwide.co.uk/hpi/historical/MPR0511.pdf

In 1995 the average house price was under 55K, in 2005 it was just over 155K, if taken over a longer period this line would still be up and to the right.

HEADRAT

 

[AthlonTom]

I went into the bank the other week and was rejiging my savings, the "Financial Advisor" (Sales Person) asked what the savings were for (20K) I said "house" she said:

"Dont worry about that, your only young, on your wage you can have a 200K mortgage - just spend your savings and enjoy it!"


Stupid woman.

I've been out of uni less than a year, and she thinks I should blow it on cars and holidays!!!

 

[brid]

Your missing the point.

Affordability is at its lowest point for decades and decades. Wage inflation has pretty much stalled and is at increasing risk of being deflated ... basically living in a global environment means everyone has to compete with everyone else for wages. Proof? The manufacturing industry, farming, call centres, IT ... the list goes on - but the fact remains that people arent going to be able to rely on their wages going up and eroding their mortgages like they did in the 70's. Thats where the term 'ladder' comes from - you remortgaged in line with your earnings and could afford better and better houses.

So - prices go up, and wages arent going up much ... that means your stretched as it is to afford a house with the monthly repayments. Regardless of the fact that property over the LONG TERM will go UP in value, you still have monthly payments to make for 25-40 years of your life.

In 1988 the press was full of the same kind of 'advice', and 5 years later, prices had dropped in real terms by 40% - which means you could have bought a house 5 years later for probably half the monthly payments that it would have cost before that.

So .... given that once you get a mortgage, youve signed your life away to make those payments for a very long time, is it not best to do that at the right point, and not at the top of a boom.



this golden day when you flog your house and make 100 grand on the equity sounds great - but its all about what that 100 grand will actually buy when you get there, and the struggle you had to make for all those years to get that 'pay off'.

 

[The Mad Rapper]

Your missing the point.

Affordability is at its lowest point for decades and decades. Wage inflation has pretty much stalled and is at increasing risk of being deflated ... basically living in a global environment means everyone has to compete with everyone else for wages. Proof? The manufacturing industry, farming, call centres, IT ... the list goes on - but the fact remains that people arent going to be able to rely on their wages going up and eroding their mortgages like they did in the 70's. Thats where the term 'ladder' comes from - you remortgaged in line with your earnings and could afford better and better houses.

So - prices go up, and wages arent going up much ... that means your stretched as it is to afford a house with the monthly repayments. Regardless of the fact that property over the LONG TERM will go UP in value, you still have monthly payments to make for 25-40 years of your life.

In 1988 the press was full of the same kind of 'advice', and 5 years later, prices had dropped in real terms by 40% - which means you could have bought a house 5 years later for probably half the monthly payments that it would have cost before that.

So .... given that once you get a mortgage, youve signed your life away to make those payments for a very long time, is it not best to do that at the right point, and not at the top of a boom.



this golden day when you flog your house and make 100 grand on the equity sounds great - but its all about what that 100 grand will actually buy when you get there, and the struggle you had to make for all those years to get that 'pay off'.

And do you think we are at the top of a boom now?

Given the shortage of housing, how likely is there to be a crash?

 

[ci_newman]

Your missing the point.

*snip*

this golden day when you flog your house and make 100 grand on the equity sounds great - but its all about what that 100 grand will actually buy when you get there, and the struggle you had to make for all those years to get that 'pay off'.

You still haven't suggested an alternative for me...

 

[Visage]

Your missing the point.

Affordability is at its lowest point for decades and decades. Wage inflation has pretty much stalled and is at increasing risk of being deflated ... basically living in a global environment means everyone has to compete with everyone else for wages. Proof? The manufacturing industry, farming, call centres, IT ... the list goes on - but the fact remains that people arent going to be able to rely on their wages going up and eroding their mortgages like they did in the 70's. Thats where the term 'ladder' comes from - you remortgaged in line with your earnings and could afford better and better houses.

So - prices go up, and wages arent going up much ... that means your stretched as it is to afford a house with the monthly repayments. Regardless of the fact that property over the LONG TERM will go UP in value, you still have monthly payments to make for 25-40 years of your life.

In 1988 the press was full of the same kind of 'advice', and 5 years later, prices had dropped in real terms by 40% - which means you could have bought a house 5 years later for probably half the monthly payments that it would have cost before that.

So .... given that once you get a mortgage, youve signed your life away to make those payments for a very long time, is it not best to do that at the right point, and not at the top of a boom.



this golden day when you flog your house and make 100 grand on the equity sounds great - but its all about what that 100 grand will actually buy when you get there, and the struggle you had to make for all those years to get that 'pay off'.

So the basis of your argument is someone buying a property at the very top of the market and then selling at the very bottom, 20 years ago?

 

[HEADRAT]

this golden day when you flog your house and make 100 grand on the equity sounds great - but its all about what that 100 grand will actually buy when you get there, and the struggle you had to make for all those years to get that 'pay off'.

Your missing the point, nobody is saying that they are going to do this as a short/medium term investment, it will be a long term investment.

I notice you've still not provided any numbers to support your argument.

HEADRAT

 

[brid]

House prices have tripled in 10 years, and theres over 500k houses standing empty in the UK.

..... wouldnt you say if something tripled in price, then it was booming?

At what point does it all come crashing down? Do you see a day when a 1 bedroom flat costs a million pounds, while the average wage is 40k a year .... which is how it will be if things continue.

How can you make the 10 grand a month mortgage payments if you only make 2k after tax?

Things cannot physically go on forever like this - its the whole point of a cycle. Things return to normality and keep the steady trend going - but in order to have that trend ... a boom has to be followed by a bust.

 

[brid]

Your missing the point, nobody is saying that they are going to do this as a short/medium term investment, it will be a long term investment.

I notice you've still not provided any numbers to support your argument.

HEADRAT

Duh - of course your right - take an average selling price from 25 years previously and YES it will be higher 25 years on (by and large).

.... then again, a can of coke used to cost 10p when i was a lad and its 60p now - go figure.

If thats the only means you have to support your reasoning then its a good thing you arent a financial advisor.

 

[brid]

So the basis of your argument is someone buying a property at the very top of the market and then selling at the very bottom, 20 years ago?

No - its someone overstretching themselves to 'afford' a house they arent actually buying (interest only), and relying on a variety of assumptions that in 25 years everything will be sweet - but blissfully ignoring the day to day reality of servicing that mortgage and how it fits in with your aspirations as a human being (like being able to afford a wife and/or kids).

Im offering an alternative view of all the 'advice' on here. Thats all.

 

[VIRII]

but what sort of repayment are you looking at on that?

Surely the percentage of your monthly salary that goes on a repayment will be very large.

I guess it depends on what you earn. The higher your income the larger the multiplier that you can comfortably afford is. The food, electric, water, gas, insurances etc aren't much higher for a couple living in a 500k 4 bed house on a 70k income than those of someone in a 200k 3 bed house on 30k income.

I would probably go for a mortgage of about 5x joint income if the need arose, currently our mortgage is about 1.3x joint. We are likely to move up a few brackets soon though, as, when and if something decent comes up where we live at a realistic price. There's one down the road for a little under 400k. Would mean some changes in lifestyle though, is it worth the sacrifice?

 

[Visage]

No - its someone overstretching themselves to 'afford' a house they arent actually buying (interest only), and relying on a variety of assumptions that in 25 years everything will be sweet - but blissfully ignoring the day to day reality of servicing that mortgage and how it fits in with your aspirations as a human being (like being able to afford a wife and/or kids).

Im offering an alternative view of all the 'advice' on here. Thats all.

Has there ever been a 25 year period where house prices havent risen?

 

[HEADRAT]

.... then again, a can of coke used to cost 10p when i was a lad and its 60p now - go figure.

Duh! but a house will have gone up significantly more than price inflation, the house will be worth 100K's more!

Has there ever been a 25 year period where house prices havent risen?

If Brid can't provide proof of that then his argument is fatally flawed.

HEADRAT

 

[VIRII]

Why? As long as you can make the repayments whats wrong with it? I believe that the 6x salary mortgages are only offered in exceptional circumstances e.g. salary of £100k in the first place, and you'd have to convince them that you can make the repayments.

The easiest way for the government to reduce supply pressure on the housing market would be to increase the penalties of second home ownership.

You don't need to be on that much, I have been offered 6x.

 

[brid]

the house that cost 8 grand back then .... how much of an income multiplier did that represent?

it might be worth 150k now ... but what is the purchasing power of that 150 grand, versus the purchasing power of 8 grand, 25 years previous.

If the decision to buy a house is based on a number, 25 years apart ... then yeah - go ahead and buy.




.... i wonder what that 60p can of coke will cost in 25 years time?