losing sleep over it

mr218 · 18 March 2005 at 5:06AM

hi all

here is my situation. my husband and i own a flat now worth in excess of 150K. we have had an offer accepted for a house worth 315K. good house, garden and garage, ticks all the boxes for me.

the way we are financing the purchase is by remortaging the flat to get 80 K out it and rent the flat out. we also have a deposit of 50 K and our mortgage broker is getting a mortgage of about 185K, which would be 4.5 times my husbands salary. i am at the point trying to start a scientific research business and am looking for funding and therefore have no income contribution.

we did all the sums and figured out that assuming the flat could not be rented, we woudl be able to cover both the mortgages just about on his income, but that would not leave much spare cash or savings.

if the flat is rented out and i think it should easily rent it would be financially comfortable for us.

our worries stem mainly from the direction that hte housing market will take. tehre are a lot of conflicting messages about upturn, downturn, levelling out , crash etc with regards to the property market. i found this on the internet, by an apparently eminent econmist, which appears to indicate all doom and gloom and a plummetting of the market.

http://www.economics.ox.ac.uk/members/andrew.farlow/Part1UKHousing.pdf

under such circumstances, we are very worried about buying the new house. i want the house because we have spent months before we could find anyting remotely as good as this. also, since it is a dwelling first and an investment second, i would happily take a slow decrease in prices or levelling off in prices. but it is the spectre of a property crash and rising interest rates that worries us and especially tonight we spent a long time adding up the numbers and since then i cannot sleep. i am feeling quite restless and started to browse this forum.

i appreciate that no one knows what will happen or is likely to happen, but i would still appreciate your input and advice.

meera

deemy2004 · 18 March 2005 at 5:21AM

Crikey I would also be worried after reading 22 pages of drivel.....

For no matter who it is, all any one does is make a guess on market direction. They can then always find pages full of stats to support their point of view.....

There are litterally hundreds of scholars, professors that have been calling the demise of the UK property market since the dot com bubble burst in early 2000 ! Thats 4 years ago ! in which time house prices have soared !

Infact I sent an email to a professor telling him off a few years ago ? about the nonsense he's publishing about a UK house price crash... can't recall his name now but will do a search on the net.

NOW, saying the above. My 'GUESS' is that house prices will drift lower somewhat for a number of years due to the fact that they are historically overvalued.

As for crash.... There is NO sign of a crash at this point in time.... We have full employment, growing economy, a growing population (due to immigration), growing salaries.

Unless a recession is just around the corner there is not much sign of a crash... But as with everythign you have to constantly reevaluate the picture every few months.

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Ahhh found it !

http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/oswald/

Onething I note from looking at the list ! He has removed the articles or updated them ! I.e. was calling a crash in the housign market for 2001 to 2003 ! Now theres an article what says 2003-2005 !
Though if you read the article thats still posted up there the crash started at the start of 2003 and by now we are some 30% off the peak .... :rolleyes: Instead house prices soared in 2003 and continued rising in 2004....
http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/oswald/housingaccountancynov2002.pdf

Get the picture

its all just a guess no matter who it is :beer:

Don't worry, be happy, go buy your house, live in it for remember you have but a short LEASE on life ! If worse comes to worse sell the flat. :j

lady_noluck · 18 March 2005 at 5:32AM

Stop worrying and buy the house. Even if the housing market slows down etc you said it's a dwelling first suggesting you want to live there a while. Prices always fluctuate but if they drop, they will go back up again. Life's too short to worry. If you can't rent the flat out and money becomes too tight. You could always sell it.

garysletters · 18 March 2005 at 5:23PM

what you actually need to worry about is the interest rates, not house prices.

The only people who need worry about house price falls are those who are selling up and not buying again or down-grading (elderly moving into smaller homes or those moving abroad etc)

If you intend to live in a house, its value is of little importance. if my house suddenly dropped to a value of £1000 overnight, i'd still live here, it'd be the same house, the same neighbours, same garden. Whereas if interest pushed my mortgage up by £100 a month, then that'd cause more problems!

VH · 18 March 2005 at 6:08PM

garysletters wrote:

what you actually need to worry about is the interest rates, not house prices.

Absolutely. If you are already on the property ladder and not planning to buy, sell, or raid your equity, then the price of your house is irrelevant.

If you think back to the last housing market crash, it was the huge increases in interest rates that caused most of the repossessions.

deemy2004 · 19 March 2005 at 1:24AM

VH wrote:

Absolutely. If you are already on the property ladder and not planning to buy, sell, or raid your equity, then the price of your house is irrelevant.

If you think back to the last housing market crash, it was the huge increases in interest rates that caused most of the repossessions.

Hmmmm. If your primary asset drops relative to the value of everything else that is still increasing than that would actually be quite worrying even if people don't intend on moving for several years.

Afterall in 3 years you can make 15% on a savings account, set that against a drop of 15% over three years and that 30% difference would be felt quite strongly, which would result in a loss of both consumer and economic confidence, as which happened during the early 90's

mr218 · 19 March 2005 at 3:50PM

deemy2004 wrote:

Hmmmm. If your primary asset drops relative to the value of everything else that is still increasing than that would actually be quite worrying even if people don't intend on moving for several years.

Afterall in 3 years you can make 15% on a savings account, set that against a drop of 15% over three years and that 30% difference would be felt quite strongly, which would result in a loss of both consumer and economic confidence, as which happened during the early 90's

well, one of the reasons we can afford a second property of such a high price is that we have made a so-called gain the property market with our first property.
i call it a so-called gain because as long as i am living in the uk and am active in the property ladder, this amount of money can only be leveraged to buy a new property and cannot be liquidated. so if i lose all of this money in the possible impending property market crash, i would feel miserable but in real terms i would have lost the money which was never mine to begin with. i am mainly concerned with getting a nice place to live in.

you mention that i could make 15% on a savings account. but the proportion of money i am able to invest in a savings account in comparison to the mortgaged amount will be miniscule and hence the gains will be also be proportionately low.

my point is that all the gains i have made in the property market will always be consumed either in buying a new property or during a market crash.

is my reasoning justified? as other respondents have identified, i should be wary of interest rate increases. so is the solution for the short-term to take up a fixed interest rate?

VH · 19 March 2005 at 7:23PM

deemy2004 wrote:

Hmmmm. If your primary asset drops relative to the value of everything else that is still increasing than that would actually be quite worrying even if people don't intend on moving for several years.

Afterall in 3 years you can make 15% on a savings account, set that against a drop of 15% over three years and that 30% difference would be felt quite strongly, which would result in a loss of both consumer and economic confidence, as which happened during the early 90's

Worrying yes, but like I say, if you have no intention of moving, then it makes no difference what your house is worth. My house has trebled in value in 2 years but it makes no difference to me as I have no intention of selling it. If a surveyor told me it was worth £5000 then I wouldn't really be bothered unless I wanted to sell it (OK, I would be p*ssed about being in negative equity, but I can comfortably afford my mortgage).

Prices are relative to demand, if no-one wants to buy your property then it is worth nothing. What happened in the last crash was that huge interest rate rises meant people could not pay their mortgages and so their houses were repossessed. Panic is self-feeding - a glut of properties became available of the market, which caused prices to drop. The price drop made people wary of buying which lead to further price drops because of less demand. People are like pigeons - if a few get scared the rest will fly as well.

mr218 wrote:

is my reasoning justified? as other respondents have identified, i should be wary of interest rate increases. so is the solution for the short-term to take up a fixed interest rate?

It all comes down to affordability. It's worth taking out a fixed interest rate mortgage, rates are not likely to decrease in the near future as the Bank Of England are worried about house prices increasing even more.
Your biggest concern should be whether you can afford the mortgage if in interest rates went up. If a couple of rate rises will wipe you out then you're taking a big risk.

losing sleep over it

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