House Prices - Where does it end?

stoofa · 11 Apr 2007 at 15:05

LOL
All you people looking to buy a house and hoping for a "Housing crash".
You do realise that should we get to the point where house prices crash, buying a home will be the least of your worries.
A price crash on houses isn't going to "just happen" - it will be a symptom of something a lot larger.
Maybe a major recession, that kind of thing.
In that situation people will be far too busy looking around for a new job or hoping that they have still got a job to worry about buying a house.

You may think you're 90% - 100% safe in your current job.
If things got to the point where one of the symptoms was a major drop in house prices I don't think you'd be worried about buying a house.
You'd be more worried about keeping whatever roof you'd already got over your head.

Mad old tory · 11 Apr 2007 at 15:06

Triad2000 said:
What goes up, must come down. The inevitable will occur at some stage but will probably take a lot longer than we think.

Not long run it doesn't. If you look at the trend of the stock market etc over time, it has steadily increased upwards. Yes there are recessions, but the overall movement is a steady upward one.

brid · 11 Apr 2007 at 15:10

There are over 500k empty houses in the Uk, so the statement about supply and demand isnt valid.

Quite simply, if you flood the economy with money by creating it like mad (like the BOE have), and then relax lending rules to the average joe ... you get an asset BOOM. More and more money chases assets like property and stocks and prices spiral ever upwards.

.... as soon as the flow of money is stopped. CRASH.

Meanwhile, personal debt is at a massive massive high - and the situation is getting more and more out of control. The only people who seem to say there will be a slowdown are homeowners who cant stomach the idea that their 'investment' might actually go down in value. Parents, Media and Peer pressure are keeping things going right now.... but its based on the assumption that the money will keep on flowing.

Recessions have happened before, and they will happen again.

Mad old tory · 11 Apr 2007 at 15:14

Hmm not sure what you're on about with the bank of England constantly printing money etc. Sure, the interest rate has been low recently, but the Bank aren't stupid enough to simply slap rates up 2 or 3% in one go, so you're talk of the supply of money suddenly stopping seems a little bit doomongerish to me.

ci_newman · 11 Apr 2007 at 15:16

Jonnycoupe said:
Point goes sailing over head....

What term was the mortgage? Will you own the house, and therefore have bought a house, at the end of the term.

Didn't think so.

It was the bank that decided what you could/could not afford, not you.

Ok, so I didn't realise that you meant buying a house outright- My point still stands though, I had mortgage companies offering my ludicrous amounts of money to buy a house with (i.e. 6 times our combined wages) but we worked out what we could comfortably afford, not the banks.

The mortgage term is for 30 years, but the fixed Interest period is for 2 years. At the end of the 30 years (if we stay that long), we will own the house outright.

I'm in the same position as a large majority of first-time buyers, what makes me unable to discuss my position in context?

lemonkettaz · 11 Apr 2007 at 15:18

What i want to know is, where does it leave my age group... Im 20 and when i finish uni there is no way ill be able to afford my own place....

I probably wont be able to afford a house until my 30s... providing my career goes well.

Its a bit silly.

brid · 11 Apr 2007 at 15:19

theres more to the housing market than housing porn shows on channel 4, and the words of the average spotty oik in a burton suit that works at the local estate agent.

.... the money creation rate (real inflation) is 13%. Eventually this will be tightened as inflation gets more and more out of control (which is why interest rates are on the way UP). When that happens, the supply of money gets less slack, and this means that its harder to borrow money .... if theres less people at the bottom borrowing money to feed the housing market ... it all comes crashing down.

People seem to forget the fact that there was a recession from 1988 to 1992.

Also .... banks never used to loan people 6x their income. It used to be the case that you got 3x and had to prove you were a solvent customer. These days any tom, dick or harry can buy anything on credit or get a credit card.

Those days of free money will end eventually.

aardvark · 11 Apr 2007 at 15:22

brid said:
There are over 500k empty houses in the Uk, so the statement about supply and demand isnt valid.

Quite simply, if you flood the economy with money by creating it like mad (like the BOE have), and then relax lending rules to the average joe ... you get an asset BOOM. More and more money chases assets like property and stocks and prices spiral ever upwards.

.... as soon as the flow of money is stopped. CRASH.

Meanwhile, personal debt is at a massive massive high - and the situation is getting more and more out of control. The only people who seem to say there will be a slowdown are homeowners who cant stomach the idea that their 'investment' might actually go down in value. Parents, Media and Peer pressure are keeping things going right now.... but its based on the assumption that the money will keep on flowing.

Recessions have happened before, and they will happen again.

absolutely correct - once the money flow stops (its about to happen in the US), recession, unemployment, the debt will have to be paid back - welcome to the late 80's.

ci_newman · 11 Apr 2007 at 15:23

lemonkettaz said:
What i want to know is, where does it leave my age group... Im 20 and when i finish uni there is no way ill be able to afford my own place....

I probably wont be able to afford a house until my 30s... providing my career goes well.

Its a bit silly.

I don't see why you can't afford when you get out of uni, this is my point... Me and my other half left Uni last July.. By October we were ready to start buying a house without any form of deposit. It all depends on what degree you are doing (obviously) but the average grad wage is ~ £20k, and as single occupant you should be able to get a mortgage for ~£90k which should cover a flat / apartment of some kind in most parts of the country

Samtheman1k · 11 Apr 2007 at 15:24

AcidHell2 said:
But in reality interest rates can only go one way and hats up.

Why do you say that just out of interest?

brid · 11 Apr 2007 at 15:28

Interest rates to the man on the street are only a SMALL factor to the bank of england.

The value of the currency, selling bonds (which is how money is created) and a whole host of other things influence rates.

Some people seem to think gordon brown and the bank of england decide interest rates depending on how happy or sad it will make that nice couple from number 21 down the street feel with their mortgage payments.

.... As the government proved 15 odd years ago when it had to put interest rates up to 15%..... this aint the case

Samtheman1k · 11 Apr 2007 at 15:31

brid said:
Interest rates to the man on the street are only a SMALL factor to the bank of england.

Exactly my point I was about to make. There is also a trend for people to use a buy-to-let property as their pension. This means that it is in the government's interest for house prices to increase as it means bigger pensions = less burden on the government's own pension crisis. The 'right to own' a property is way down the list on factors affecting interest rates.

daz · 11 Apr 2007 at 15:34

ci_newman said:
The mortgage term is for 30 years, but the fixed Interest period is for 2 years. At the end of the 30 years (if we stay that long), we will own the house outright

You'll own the house outright, but even after 30 years if you decide to sell the house, you'll still owe the mortgage company the value of the mortgage. Because you're only paying off the interest each month, the mortgage doesn't get smaller.

You'll have to hope that your property increases in value substantially over the next 30 years.

brid · 11 Apr 2007 at 15:34

House price inflation is the only thing that has kept this country from going into recession since 9/11.

The former governer of the bank of england even admitted this a few weeks ago. He said they artificially kept interest rates low (and flooded the economy with cheap money) so keep the public buying houses, to keep prices rising, and to keep people re-mortgaging their houses to 'withdraw equity' (a terrible idea) in order to spend on the high street.

His words were something to the effect that what they did back then, would have to be fixed in the future.

lemonkettaz · 11 Apr 2007 at 15:35

ci_newman said:
I don't see why you can't afford when you get out of uni, this is my point... Me and my other half left Uni last July.. By October we were ready to start buying a house without any form of deposit. It all depends on what degree you are doing (obviously) but the average grad wage is ~ £20k, and as single occupant you should be able to get a mortgage for ~£90k which should cover a flat / apartment of some kind in most parts of the country

lol i have no idea.. 90k doesnt seem to give you a lot though

Samtheman1k · 11 Apr 2007 at 15:36

ci_newman said:
I have to agree, it is a complete gamble and if the Interest rates shot up and housing prices froze, then I would be up ****-creak. I simply resent having to pay to rent a property when I could be making the same payments on a house that I own

But you're not making payments on the house as you have an interest only mortgage. Interest is effectively as dead money as rent is.

daz · 11 Apr 2007 at 15:37

One thing to point out at this stage is that we are seeing at least a two tier economy in this country, with growth etc at substantially different rates. One good interest rate for London isn't necessarily apt for Newcastle or rural Wales, which is bad enough within the country... you can imagine what effect this would have had if we had joined the Euro and our interest rates were set by mainland Europe.

Samtheman1k · 11 Apr 2007 at 15:37

lemonkettaz said:
lol i have no idea.. 90k doesnt seem to give you a lot though

It may not give you a lot, but it will give you a footing which you can upgrade to later on. You can't expect a 3 bed semi straight out of uni!

Samtheman1k · 11 Apr 2007 at 15:38

daz said:
you can imagine what effect this would have had if we had joined the Euro and our interest rates were set by mainland Europe.

Given that EURO interest rates are lower than BOE interest rates, I think that it will make house prices rise even further!!

ci_newman · 11 Apr 2007 at 15:39

daz said:
You'll own the house outright, but even after 30 years if you decide to sell the house, you'll still owe the mortgage company the value of the mortgage. Because you're only paying off the interest each month, the mortgage doesn't get smaller.

You'll have to hope that your property increases in value substantially over the next 30 years.

I haven't been very clear really... the Interest only period is for 2 years to get us on the ground with a house. We will be earning enough to pay off capital (as well as Interest) on the house however the type of mortgage means that regardless of what we pay the mortgage company for the next 2 years, our payments stay the same. It therefore makes sense to stick that money in a high-interest account and then pay off a lump sum at the end of the two years before taking the mortgage elsewhere

e.g.
We currently owe £180k on a house worth £180k
In 2 years, we take the mortgage elsewhere or renew it on a house now worth £200k, with an additional £10k savings to pay off
Therefore, in two years we owe £170k on a house worth £200k.

It's a fickle and very risky game to play, but it is likely to work to our advantage for the next few years @ least