Currently having large headaches around banks undervaluing a property I'm selling and trying to buy in a nice chain. People aren't willing to compromise and it's causing chaos for all parties involved. It's a great time to move house guys, I'd totally recommend it. /s
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
Its utterly baffling. We have had this on both our purchases and neither one of them was even slightly overpriced. One was a flat in a set of blocks of flats and there were at least a dozen 2 beds that had gone for basically the same price we were paying for a 3 bed and they still decided it wasn't worth it.
Same for our current house and within 3 years our house is worth nearly another £100k vs what we paid for it. Sometimes they are just ******* idiots and its a nightmare.
The most ridiculous thing was that with the deposit we were putting down the housing market could have crashed about 40% before the bank would be in any danger of losing any money and they are perfectly happy to give out 95% mortgages. Utterly bizarre.
Soldato
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To be fair you have to remember that just because you have got someone offering that amount doesn't mean it's actually worth that amount.
I have a thread going in Home & Garden that i will keep updated. The architectural drawings are on the thread.Thats going to be a hell of an extension my friend! Well, I say that, with the prices builders charge these days it will probably be an above average sized shed
I would argue that is the very definition of a houses worth? If a houses value wasn't what someone is willing to pay for it then there would be an independent system that values houses and sets prices. The fact that houses have consistently gone up in value for a long time since 2008 suggests that people are not overpaying for houses. If prices are too high and demand is too low or people are unwilling to pay those prices then they would come down.
My experience and that of plenty of others is that you can give them all the evidence you want that the market value for a property is X and they are unlikely to change their mind. A cookie cutter flat that is 1 of hundreds should be a good example of them talking out of their arse when it comes to valuations. If 20 flats that are smaller than the one I am buying but otherwise almost identical go for similar money over the previous 6 months, most sane people would call that the market value for said flat.
But a bank is lending me a percentage. As an example:
I offer £250k on a house and want to borrow £150k and the bank says, no, that house is only worth £225k. The risk they are taking on is that the house drops below £150k in value and they repossess it and take a loss. The house either has to drop £75k or £100k depending on the valuation.
I offer £225k on a house and want to borrow £200k. The bank says "lovely, seems fair price" and lends me that money. If the price of the house drops by £25k they might be out of pocket now. I know that the interest rate they offer is linked to LTV but they are taking on far more risk on the supposed "accurate valuation".
It doesn't make sense that the banks valuation has any place other than in their own risk decision making and how much risk they are willing to expose themselves to.
In the above example they are taking a far greater risk with the second example and yet that is the one they wouldn't take issue with.
Basically, I don't see why they take such issue with what you are paying. The numbers are the numbers. All they should care about is their valuation vs your deposit.
To be fair the bank aren't valuing the property to sell on right move with nice pictures and a bit of a tart up to make it look better, they are valuing a worst case situation with a smashed up repossessed property they need to move quickly and all the fees bourne by them.
So why do they care more about the "overvalued" house that the owner will have 50% equity in vs the "correctly" valued house that the person has 10%
Thats my point. All the bank cares about is the amount they would be able to recover if a repossession was to happen and your ability to afford the repayments when they offer the mortgage.
I'm of the view that most of the data suggests that we're in the early stages of a not insignificant house price correction, one that I suspect will unfold over the next couple of years.
It would not surprise me if lenders are of a similar view, so perhaps that's what you're seeing; remember it always takes quite a while for the general public to re-align their perception of value when the market turns and there's no reason to think it would be any different this time.
I realise that's not what you would like to hear given your position, so hopefully I'm wrong.
It would not surprise me if lenders are of a similar view, so perhaps that's what you're seeing; remember it always takes quite a while for the general public to re-align their perception of value when the market turns and there's no reason to think it would be any different this time.
I realise that's not what you would like to hear given your position, so hopefully I'm wrong.
Approximately a third of house purchases are for cash only and I suspect most others have a significant percentage of built up equity involved. People will be reluctant to move under a falling price market so all that would do is dramatically reduce supply. I doubt that prices would fall more than a few percent if that, more likely a short hiatus in rising prices.
There's a fear of a housing bubble collapse, but that fear has been there for 15 years and we haven't seen it yet. Even the 2008 crash was nothing but a blip in real terms.
For what it's worth, I wouldn't consider a 10% drop in prices to be a correction either. A correction would be a 30-40% drop in prices but we might see a return to prices similar to pre-covid times.
The ONS house price index just saw a 1.1% decline from December to January 2023; the top of the market was around October last year in my opinion, and I think that we're now starting to see things begin to unwind.
New mortgage approvals have just fallen off a cliff, putting them at their lowest since 2008/2009. House prices followed shortly afterwards back then and I suspect that with real wages falling at the fastest rate for 100 years and interest rates at their highest for 15+ years, that we'll start seeing it feed through soon enough. House price transaction data (note - not asking prices) always lags large market shifts by at least 6 months or so and with the fact that that we've seen a 13%-15% increase in landlords selling up over the last four months of 2022 (they sold 35,000 more houses than than bought last year) it's only going to increase supply just as demand is cooling.
There's far too much data to cover on this, and you can't look at any one single factor in isolation to form an overall opinion; but to be honest, the last thing I want to do is get into a lengthy house price discussion this afternoon; I'll just say that the stars look like they're aligning to me, and that given the data, I would be fairly surprised if we don't see at the very least a pull back to pre-pandemic levels.
House prices always go up until they don't for a bit...
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For me a correction would be 10-15%. That's just down to choice of language.
Affordability and stress testing will affect mortgage approvals and obviously some regions may have a reduction but most will not in my view. However as you say it is a huge topic and not readily defined. I notice a slowing in some areas for what I deem to be overpriced offers. Houses are still selling however.
A reluctance by some estate agents to price independantly and not be swayed by their clients is apparent in some cases.
A reluctance by some estate agents to price independantly and not be swayed by their clients is apparent in some cases.
People have been saying it's not sustainable and complaining that one day things will correct and go back down since as long as I can remember being aware of house prices.
Over time they have only ever gone up. I don't see any reason - even financially unstable/difficult times - where it would not continue to do this on average over time, inside a fully functional economy that is not surviving war/nuclear/zombies.
I have an issue with the term "correction" in itself. If we are talking about house prices having a temporary fall back/blip, then continuing to rise again, then yes, call it a correction if you like. A "correction" results in what the market are currently able to pay for a house which demand dictates. "Correction" to a lot of people though, is an oxymoron with regards to the housing market in that they believe a true correction in terms of value, would be for prices to literally half, aka "CRASH".
There are dedicated forums for this where deluded people like to pretend that this is going to happen and is only a matter of time for the bubble to truly burst...
It won't ever be allowed to.
Over time they have only ever gone up. I don't see any reason - even financially unstable/difficult times - where it would not continue to do this on average over time, inside a fully functional economy that is not surviving war/nuclear/zombies.
I have an issue with the term "correction" in itself. If we are talking about house prices having a temporary fall back/blip, then continuing to rise again, then yes, call it a correction if you like. A "correction" results in what the market are currently able to pay for a house which demand dictates. "Correction" to a lot of people though, is an oxymoron with regards to the housing market in that they believe a true correction in terms of value, would be for prices to literally half, aka "CRASH".
There are dedicated forums for this where deluded people like to pretend that this is going to happen and is only a matter of time for the bubble to truly burst...
It won't ever be allowed to.
Caporegime
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The only way it will "correct" is when supply meets demand, which the people at the top, let's face it, who are rich, have zero incentive to do so, since why would they want to see their own portfolio fall?
It's not all or nothing; only upwards or only downwards forever...
I've seen 3 significant corrections in my lifetime and there absolutely will be more in the future.
No one thinks that prices are going to go on a multi decade decline or anything ridiculous like that; the last time that happened was in the 1800's; we're talking about the possibility of 1-2 years of cooling and the unwinding of pandemic related house price inflation; that's what most people would consider a correction, and from what I can see, it's already beginning.
I'm sorry that you think that makes me deluded... I'm a homeowner and I don't want to see my house devalue, but I like pouring over data and that's my interpretation.
In fact, I would argue that thinking the're always going up in a straight line, in the way that you appear to, is what's deluded; they never have done throughout history, so why would they in future?
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Not really, it will correct if economic conditions allow and you only have to look at what happened post 2008 to verify that it can and at some point will happen again.