Easy to say just move somewhere cheaper but try telling your entire family/kids/friends that you want to move away and effectively start a new life.... it's hard. You can try telling yourself you will still stay in touch with visits and electronically but it's not the same, and it will fade away.
I'd love to move somewhere out in the sticks and cheaper in the future when the kids have grown up, in terms of what house/land I could improve on and to free up finances. But not enough to the point where I would lose touch with those that matter most.
I'd love to move country as I hate what the UK is now.... but never at the expense of family so it will never happen.
I don't define the above as wants. They are needs for most people; to be with friends and family.
But isn't a roof over your head just as important? Can you care for your family if you are living in a cardboard box? I'm exaggerating a bit here but what I'm driving at is that if you have paper wealth then you are not forced into a position where you don't have a home to live in. If you have no equity and lose your income then your home will eventually get repossessed. If you have equity then you can either draw down on it to stay where you are, or use it to secure a new home. If you don't, then best case scenario you get social housing which probably won't meet one's high expectations of a luxury mansion round the corner from family etc.
For sure it is hard to tell your family and friends you are moving away. But it's also hard telling your family you are getting kicked out of your house and you have nowhere to live. What I'm driving at is that paper wealth gives a lot more flexibility if you have it compared to not having it. People talk of it in terms of "oh, my assets have gone up by hundreds of thousands in value, but it's useless if everywhere else is more expensive too". But the reality is that housing is not the only thing you need money for, if you have the option to take cash out then you can get food, transport etc.
The reason paper wealth is "underrated" is it's not liquid. If times get hard can you actually sell up? If they're that hard who is buying and at what price? Are banks still loose with the credit, etc?
Edit - less of an issue if your house is owned outright.
It's not liquid but property isn't liquid in general - even if you have a million quid in the bank or under your mattress it's not like you can pop out and buy a new house of an afternoon in the way you might a loaf of bread. There's an inherent inertia to property so the lack of liquidity is less impactful than it might be in other realms (I acknowledge it is still a factor). And it just generally protects you more to have equity, it's easier to sell a house where your mortgage is 50% LTV compared to being in negative equity or whatever.
This is all well and good if your reason for selling is unique to yourself. (Lost job due to medical problems for example). On the other hand if the whole country is up creek and no one is buying you either default or end up selling at a much reduced price. The only people who win in situations like these are those with liquid cash to buy up all the leftovers.
I think having equity still helps in these situations because even selling at a reduced price you still clear all your debts and have capital left over compared to people who owe more than the much reduced price they sell for. And we are kind of going full circle on the scenario now too, the argument was that paper wealth is largely meaningless if other properties are going up in price, but if the whole country is up creek then presumably other property is getting cheaper too.
I guess in summary on this liquidity point, obviously wealth tied up in property isn't the same thing as having cash in the bank but I still consider it great to have. We're talking people here who are not making fortunes on other investments, they are basically people who ploughed their money into their personal residence and it is now worth hundreds of thousands of pounds more. Let's say due to these dramas they only make £150k profit instead of £300k profit, they then go back to renting but have a big wedge to put down as a deposit should they choose to buy another property.
I'm really surprised we haven't seen a bigger downturn in house prices. We were planning to move this year but the new mortgage rates and general cost of living increases we've seen a significant impact on what property we could afford and yet house prices have barely dropped.
What is propping up house prices? People are still moving but adjusting their expectations? People aren't moving at all? Demand is still outstripping supply?
A few reasons:
- There is an inherent lag because house purchases agreed today will probably take months to actually complete and then it take a while for land registry to be updated too
- Likewise people selling houses rarely slash asking prices quickly, unless they are desperate. They were told their home was worth £500k a year ago, they still want £500k even if £475k is more realistic now. They will slowly come down the longer it goes unsold but again that takes months
- In recent years there have been loads of ridiculously cheap long term fix mortgages, you'll have people out there who want to keep their mortgage as long as they can as it costs them less than the interest they receive in ISAs etc.
- The population keeps increasing by about a quarter of a million people a year, these people need somewhere to leave increasing demand for housing
- In times of uncertainty home builders may slow their expansion plans or artificially maintain prices in some way by limiting the supply of new housing (which obviously needs to keep pace with the demand)
- Less people moving - stats show that the volume of transactions in April 2023 was down about 25% on 2022.
- Help to buy was still running until the end of March - schemes like this artificially maintain prices, we should start to see the impact trickling through on new builds soon.
- Mortgage quotes are typically valid for 3-6 months period. So you'll have people buying houses using mortgages agreed when rates were lower. Don't forget it wasn't until February that base rate went above 3.5%.
In short, even if you ignore influencing factors, there is market inertia so you need to allow time for things to filter through. We've only just had an interest rate rise less than a month ago so I'd say wait for Q4 to see what the real impact is.
