It's true - houses just aren't moving

drbeat

neverdespairgirl wrote: »

If the sellers dropped their prices to £1k, they'd find a buyer.

LOL...if only?

But point taken - if prices were more realistic to peoples earnings and average deposit then sellers would find buyers. I'm sure those that purchased during 1992 - 2000 - providing they didn't MEW - would be better positioned to find buyers then those that purchased during 2001 - 2007 as their return expectations with relation to what they paid would be a lot lower!

WOW that was a long sentence!

EdInvestor

My predictions on the timing of the end of the credit crunch were too optimistic, that's all.Not many people foresaw the inflationary problems that hit earlier this year ( energy, food), which stymied the authorities' efforts to help end the crunch through lowering interest rates, among other things.

Markets are always a question of timing - as those who STRed 5 years ago because they thought house prices were imminently going to crash, well know.

WTF?_2

Uncommon_Advice wrote: »

The Houisng Market is amazingly intrictae at the moment. For three quarters of the vendors there is no point in dropping their price as a buyer can't be found at any level!

I'll bet you there are plenty of buyers for FTB properties at around the level of 75k (3x average salary).

Oh whoops, there aren't too many decent FTB houses available at 75k.

:think: Wait a minute ... do you suppose that could have anything to do with the stagnant nature of the market .... :rolleyes:

WTF?_2

EdInvestor wrote: »

My predictions on the timing of the end of the credit crunch were too optimistic, that's all.Not many people foresaw the inflationary problems that hit earlier this year ( energy, food), which stymied the authorities' efforts to help end the crunch through lowering interest rates, among other things.

The inflationary problems as a result of trying to rescue the housing market (low interest rates, cash handouts to banks) were well predicted and understood in advance.

Markets are always a question of timing - as those who STRed 5 years ago because they thought house prices were imminently going to crash, well know.

Well now you can join them, eh? Except that you still haven't caught on to what is happening in front of your eyes. By any chance, would most of your investing activities have been done during the bull markets of the late 90s to 2007 when it was practically impossible to lose?

drbeat

EdInvestor wrote: »

My predictions on the timing of the end of the credit crunch were too optimistic, that's all.Not many people foresaw the inflationary problems that hit earlier this year ( energy, food), which stymied the authorities' efforts to help end the crunch through lowering interest rates, among other things.

Markets are always a question of timing - as those who STRed 5 years ago because they thought house prices were imminently going to crash, well know.

Credit crunch? Surely you mean the "end of irresponsible lending"?

What will lowering interest rates do? And why do the "authorities" discount house price inflation in their inflation targets?

mircea

!!!!!!? wrote: »

You mean I couldn't get a mortgage today for up to 3.5x my salary if I produced a 10% deposit?

That was the 'norm' up until about 3 or 4 years ago when risk management took a long holiday in the United Sates of Securitization.

I pretty much believe you will struggle. And with house prices falling at the current rate, by the time you have your valuation done, the price is likely to have fallen and therefore the bank will offer you less - what do you do if the seller won't sell for less? You loose all the fees etc. That's simply unrealistic to expect the market to work like this. Are you also trying to tell me that if you have a 10% deposit, you are somehow shielded from falls of 40 - 50% that some people on this board brandish about? I for one cannot understand the logic behind the 10% deposit - if you can afford to pay your house long term, then you can do so with or without the deposit. This should be the bank's main concern. On the other hand, if you paid 10% deposit and your house value has fallen 50%, I doubt that it's going to make much difference to you if you owe the bank 80k or 100k.I would also add that even though 10% seems to be the norm now, the way banks are restricting loans at the moment, that might soon change. How do you know that they will not demand 20% soon or 30%. Or even 50%. After all, 50% would be just about right to eliminate any risk what so ever. The point I am trying to make is that lending money is a risk - so is crossing the street and any other activities we do on a daily basis. If we all started being risk adverse like the banks, everything would shut down. In my opinion, the main risk to a bank should be the ability to carry on paying the mortgage, and so far I haven't seen any evidence that the banks are doing this.

mircea

neverdespairgirl wrote: »

So you can get a mortgage. It's just you don't like the terms. That's very different indeed.

If you rent @ £700 a month, you would be saving more than the £150 a month difference, as you also save on running the place. I'd reckon more like £250 a month. That's £3k per year.

And you could also rent somwhere smaller, cut down on other outgoings, etc.

It is very different indeed. The Bank of England rate is 5% but my bank charges me 7% because they have to pay the director 3 million pounds a year. Saving 3k per annum, it will take you six years to save 10% on the average house price. That's without inflation. But what do you do when after 6 years you find out the banks are not lending over 80% anymore? My point is that rents are far too high to allow you to save for a decent deposit.

WTF?_2

mircea wrote: »

I pretty much believe you will struggle. And with house prices falling at the current rate, by the time you have your valuation done, the price is likely to have fallen and therefore the bank will offer you less - what do you do if the seller won't sell for less? You loose all the fees etc. That's simply unrealistic to expect the market to work like this. Are you also trying to tell me that if you have a 10% deposit, you are somehow shielded from falls of 40 - 50% that some people on this board brandish about? I for one cannot understand the logic behind the 10% deposit - if you can afford to pay your house long term, then you can do so with or without the deposit. This should be the bank's main concern. On the other hand, if you paid 10% deposit and your house value has fallen 50%, I doubt that it's going to make much difference to you if you owe the bank 80k or 100k.I would also add that even though 10% seems to be the norm now, the way banks are restricting loans at the moment, that might soon change. How do you know that they will not demand 20% soon or 30%. Or even 50%. After all, 50% would be just about right to eliminate any risk what so ever. The point I am trying to make is that lending money is a risk - so is crossing the street and any other activities we do on a daily basis. If we all started being risk adverse like the banks, everything would shut down. In my opinion, the main risk to a bank should be the ability to carry on paying the mortgage, and so far I haven't seen any evidence that the banks are doing this.

I don't believe I would struggle at all to find a mortgage at 3.5x my salary with me putting up a 10% deposit. I might certainly struggle to get a ludicrously cheap one - given that interest rates are currently 5% I'd expect SVRs to start at anything from 1.5% above that, as is traditional. Even then, 6.5%-7% is a very reasonable interest rate provided I'm not actually borrowing a huge multiple of my wages.

Ponying up a deposit proves a number of things. Firstly that you've actually got enough financial competence to manage your existing income and put some money aside. Secondly that you're insulated a little bit from negative equity. Thirdly, that the bank has some insulation from negative equity should repossession be necessary. Fourthly, that you actually have a financial stake in the endeavour yourself and aren't doing the whole thing with someone else's money.

If you can't see why the banks really shouldn't be giving out huge mortgages with no deposit it's no wonder that the result of sane lending practices is hitting you as a bit of shock.


And if FTB properties were priced correctly at 3-3.5 average salary with the rest of the market structured accordingly, I would have no hesitation whatsoever in plonking down a 10% deposit of my own since it'd be a pretty safe bet that they wouldn't fall much over the course of the years from when I took the mortgage out.

In fact, when prices hit that level I'll be putting my money where my mouth is as I presently have about 3 years salary worth of savings ... and I earn above average. Hopefully the bank won't be called upon to take any risk at all - I'll be assuming 100% and reaping the benefits of not being milked for compounded interest over two decades. But no way am I going to buy into the market until the price of the place I'm buying is realistic.

Frankly, given the overblown nature of prices even now the banks should be demanding >10% down from buyers because prices certainly have at least another 10% to drop over the next 12-18 months. I anticipate house-hunting in late 2010.

EdInvestor

!!!!!!? wrote: »

So Ed, have you been investing in much property yourself of late? You seem very keen to recommend others to put their hard-earned into bricks and mortar..

Not at all: I would recommend everyone to stay well away from the market until it stabilises, that's both buyers and sellers. If you own, just stay put.If you are an FTB, you have little choice but to rent and save.

If you absolutely must move, consider renting out your existing place and your new place, rather than wasting time and money discovering that you can't sell.

dopester

drbeat wrote: »

LOL...if only?

But point taken - if prices were more realistic to peoples earnings and average deposit then sellers would find buyers. I'm sure those that purchased during 1992 - 2000 - providing they didn't MEW - would be better positioned to find buyers then those that purchased during 2001 - 2007 as their return expectations with relation to what they paid would be a lot lower!

WOW that was a long sentence!

We've also got the double-whammy of earnings under pressure. I don't buy in to any real widespread wage inflation. Paycuts, less hours, and unemployment ahead. This economy is shrinking.

You'll soon be grateful to earn more than a 20p a day Indian teapicker. Then go buy your £75K house.