House Prices - Where does it end?

alexakasloth · 11 Apr 2007 at 17:45

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

About 99p at 2% inflation.

Bear · 11 Apr 2007 at 17:55

Mad old tory said:
Except, of course, for the fact that he is saving each month so that he can start repaying the capital in earnest as well in the coming few years. Obviously you'll ignore this though, like you've ignored this point all the way through.

Exactly, time and time again he has explained himself yet brid has blindly ignored it. I would have thought it was trolling but I know of many of these so called experts telling everyone is supposed to be doomed while they live at home with their parents.

dannyjo22 · 11 Apr 2007 at 18:05

ci_newman said:
Yes the idea is to be debt free by the time I retire in a house which I am comfortable with. My earnings are expecting to have gone up by that stage. So i'll be 51 years old (wow), own a house mortgage free with 14 years to save up to build a pension off of a reasonable wage.

It's all a gamble and I would rather not be paying for a house but I WILL come off better than had I been renting.

My 'plan' is built up around my parents method of buying... Their house is worth ~ £450k now, with a mortgage of only £90k left to pay and they are both under 45 years old. They plan to clear the mortgage before they are 50, leaving them with a house worth £500k, no mortgage and a HUGE disposable income (~£90k / annum before tax) to build a retirement-egg

I'm sorry I dont follow your plan here. Its confusing me slightly. You have borrowed 180k on interest only. How do you ever plan to be debt free in a house that you outright own?

I think I read you would sell and buy bigger in about 5 years.

So lets say your house goes up 100k. The gap to the bigger house will probably be 120k from what it is now. As you have just been paying interest how do you plan on making the jump and paying off 180k in the first place to ever own your house outright. I'm not saying your wrong, just I dont follow the plan. The only way my pea sized brain can see it working is if you stayed in the house for 25 years, took 25 years of equity and then tried to find a downsize property. Even then I reckon it would be a push to be debt free????

But granted your options are limited as 180k repayment is a no no.

Bear · 11 Apr 2007 at 18:15

dannyjo22 said:
I'm sorry I dont follow your plan here. Its confusing me slightly. You have borrowed 180k on interest only. How do you ever plan to be debt free in a house that you outright own?

I think I read you would sell and buy bigger in about 5 years.

I was under the impression he meant that he was using the interest only option to gain some equity so after the 2years is up, he can use the equity and any money saved to put towards a better repayment mortgage product. The interest only was only used as a stepping stone.

I sort of done the same thing when I bought my house after me and the missus graduated. We worked out we couldnt save a deposit fast enough to match the rise in house prices, so we got a 100% 1 year variable rate flexible mortgage. After the year was up, we used the equity gained in the house price to get a decent 3 year fixed rate mortgage.

ci_newman · 11 Apr 2007 at 18:20

VIRII said:
Are you on a special low fixed rate for 2 years with no overpayments allowed?

Over payments are allowed, but only up to a maximum of 50% of the total monthly interest fee. The interest rate isn't especially low (well, it is compared to current rates as I originally booked the mortgage in October). The clincher is that the over payment's don't clear the capital but only the interest on the loan.

Bear said:
I was under the impression he meant that he was using the interest only option to gain some equity so after the 2years is up, he can use the equity and any money saved to put towards a better repayment mortgage product. The interest only was only used as a stepping stone.

I sort of done the same thing when I bought my house after me and the missus graduated. We worked out we couldnt save a deposit fast enough to match the rise in house prices, so we got a 100% 1 year variable rate flexible mortgage. After the year was up, we used the equity gained in the house price to get a decent 3 year fixed rate mortgage.

And that's exactly my plan

Third Opinion · 11 Apr 2007 at 18:28

One thought that comes to mind with the house price inflation obsession is all your eggs in one basket.

I mean people rely on their house for their pension, it has replaced any kind of savings and buy to let has become the most poular way to spend inheritence.

I am not saying there will be a crash but if there is it's gonna totally wipe out peoples wealth. I personally think everyone should stand back, take a deep breath and stop betting everything they have on their roof over their head.

dirtydog · 11 Apr 2007 at 18:31

Third Opinion said:
One thought that comes to mind with the house price inflation obsession is all your eggs in one basket.

I mean people rely on their house for their pension, it has replaced any kind of savings and buy to let has become the most poular way to spend inheritence.

I am not saying there will be a crash but if there is it's gonna totally wipe out peoples wealth. I personally think everyone should stand back, take a deep breath and stop betting everything they have on their roof over their head.

What you are saying would make sense if a house was purely a financial investment like a pension scheme, rather than a place to live which everybody needs.

Bear · 11 Apr 2007 at 18:34

Third Opinion said:
I am not saying there will be a crash but if there is it's gonna totally wipe out peoples wealth. I personally think everyone should stand back, take a deep breath and stop betting everything they have on their roof over their head.

I dont think many are saying that at all. I think people are generally buying houses to live in and if it goes up in value, its a nice thing to see but ultimately is meaningless.

Even if there is a crash, so long as it doesnt mean you lose your job (which in reality is very possible), the price of your house is irrelevant unless it happens you are selling at that time.

Third Opinion · 11 Apr 2007 at 18:36

dirtydog said:
What you are saying would make sense if a house was purely a financial investment like a pension scheme, rather than a place to live which everybody needs.

But that is my point, but people are relying soley on property and nothing else. Sure we need a place to live more than anything else probably. So why risk so much against it?

dirtydog · 11 Apr 2007 at 18:37

Third Opinion said:
But that is my point, but people are relying soley on property and nothing else. Sure we need a place to live more than anything else probably. So why risk so much against it?

How is it a risk putting all your money into paying off your mortgage? You've lost me.

Bear · 11 Apr 2007 at 18:38

Third Opinion said:
But that is my point, but people are relying soley on property and nothing else. Sure we need a place to live more than anything else probably. So why risk so much against it?

Where is the risk ?? Besides where is the risk in a joint mortgage, if it gets bad kill the missus and get the life assurance

Third Opinion · 11 Apr 2007 at 18:45

dirtydog said:
How is it a risk putting all your money into paying off your mortgage? You've lost me.

If their is a recession, you lose your job or your relationship splits. You fall ill all of these could cause you to lose your home. Surely if your property is all you have then it could be an enormous risk.

Bear · 11 Apr 2007 at 18:49

Third Opinion said:
If their is a recession, you lose your job or your relationship splits. You fall ill all of these could cause you to lose your home. Surely if your property is all you have then it could be an enormous risk.

That could happen no matter what the state of the market, what makes it more applicable to the current market ??

dirtydog · 11 Apr 2007 at 18:53

Third Opinion said:
If their is a recession, you lose your job or your relationship splits. You fall ill all of these could cause you to lose your home. Surely if your property is all you have then it could be an enormous risk.

You would still need to pay the bank back the money you'd borrowed if your house was repossessed, which might not be covered by the proceeds from the sale. In that case your other investments would be used to cover the shortfall, with the possible exception of pensions which I believe are now protected even in bankruptcy. I think it is a negative way of looking at it though; it is surely better to repay the mortgage as quickly as possible to minimise interest payments and hasten the day when you no longer have to pay anything.

FirebarUK · 11 Apr 2007 at 18:55

I'm going to be waiting a little while to hope the market crashes. Will be renting a 3/4 bedroom place next year as am expecting a child with my wife. Currently got a nice decent amount towards a deposit on a place though, would just kick myself if I entered the market to be immediately followed by a crash in prices. Also gives me some time to do some research & learning

Might contemplate emigrating anyhow tbh.

Bes · 11 Apr 2007 at 18:57

A long period of low interest rates not seen before and low unemployment is fuelling huge increases in house prices. Once one of those things starts to slide, the maket will begin to cool rapidly. House prices are driven by sentiment, and whilst it remains good and BTL remains 'fashionable', house prices will continue to rise.

True there is supply and demand, but demand only remains because banks are still willing to dish out mortgages on ridiculous multiples and lend people the £200K for their one bedroom flat in some corner of the UK. Conditions will not remain so favourable to buyers forever, and the enormous amount of credit & cash sloshing around at the moment will not be there when banks and building societies tighen their lending crieteria.

The whole market is being driven by interest rates and banks who are out to make as much money as possible. It is unsustainable and eventually economic conditions (unemployment, interest, inflation, and so on) will cause institutions to tighten their lending crieria and raise their rates. Once that happens, people will start defaulting on their mortages, find their finances streched because their credit card company has raised the interest on outstanding debt, and reposessions and personal bankrupccies will rocket. This will happen sooner or later. The current situation is totally unsustainable.

The tragedy for people around my age is that we have grown up in an era that has seen capitalism come into its own thanks to a remarkable period of sustained economic growth, low interest rates, and intra-global investment, all of which have fuelled spending by both individuals and companies which has lead to booming stock markets, and dazzling corporate profits. All of this trickels through to the housing market, and increased prosperity and good previaling economic conditions make borrowing cheap, and BTL and so on an easy way to make money- especially as (already mentioned) house prices are rising.

Sorry not a very coherent rant as I've not slept since Monday now- might rewrite more cohesively after a wee lie- down.

crystaline · 11 Apr 2007 at 18:57

Bear said:
That could happen no matter what the state of the market, what makes it more applicable to the current market ??

Because people are watching what is currently happening in the US with a watchful eye. Money has been leant by banks irresponsibly in both countries, and how much difficulty that will cause in the future has yet to be seen. The collapse of many of the sub-prime lenders in the states is a warning note and leads people to think the market may become quite unstable.

crystaline · 11 Apr 2007 at 19:01

Bes said:
snip

I think it is important to also note the drug effect that low interest rates have on a society. Japan is a prime example of this. They simply can't raise their artificially low rates unless they want to go back into recession. There is no buffer area so to speak. Lowering the interest rates has always been a traditional way to re-energise an economy. It was what the US did after September 11th.
Like you said, we have seen low rates for far too long and it will be interesting to see how many people fall victim to them when they rise.

brid · 11 Apr 2007 at 19:03

I only wish i still lived at home - lol. I'd be a millionaire if so .... well maybe not, but i'd be able to live like a king.

Im not going to turn this into a trolling match any more - but my feeling is that if you cant afford to buy a house with a proper mortgage, then basically borrowing money to gamble (investment is a gamble remember) for me PERSONALLY is something i just would not do. Its essentially just the same as borrowing money to put on the stock market, gold, commodities, or the horses.

Nothing is certain in this world, and if i knew that prices of houses definately WOULD rise by 20 percent in 2 years, then i would get a hundred grands worth of credit cards and make that bet. Its only a guess though - and with any guess, you have to take the various factors into play.

Just look at the USA ..... currently at the start of a house price crash.

scorza · 11 Apr 2007 at 19:03

FirebarUK said:
I'm going to be waiting a little while to hope the market crashes. Will be renting a 3/4 bedroom place next year as am expecting a child with my wife. Currently got a nice decent amount towards a deposit on a place though, would just kick myself if I entered the market to be immediately followed by a crash in prices.

If you're buying a place to live, and you plan on staying there a while, why does it matter if you buy then there's a house price crash? You can still afford the repayments on your mortgage, and in the long term the value of your home will increase.

Sure you might be able to buy your price cheaper if you wait, but equally you might be kicking yourself if prices continue to rise for a few years. No-one has a working crystal ball I'm afraid.