The last House Price Crash...

Heyman_2

I'm going to use the last two posts before Nenen's in my follow-up here.

Yes, MrDT, the figures don't look too bad on paper, but how are FTBs going to do it if they're already servicing (or drowning in) cheap debt as ad9898 has pointed out? Not only are the banks currently asking for 25% deposit, but they've also reigned in their criteria to the point that literally anything on your credit history could put the blockers on your application.

Back in 1989 there was no internet, and I'm guessing that credit searches and information sharing between banks etc were far less sophisticated than they are now.

A lot depends this time on the banks - when they can start lending properly again and how much risk they will be prepared to take given what's happened. My guess is not much.

Generali

kennyboy66 wrote: »

You can then split down BTL into those who have 2/3 bed terraced house or multiple occupany lets in decent areas where rents may be stable and you get fewer voids, where investors may sit it out. If you are more than covering your mortgage, a combination of the costs of selling, inertia, and a mindset that will think property will recover in the long term may outweigh the rational response which would be to sell now before its too late.

Then there are those recent entrants (say last 5 years) who have bought city centre flats at massive prices. Falling capital values and no one to rent to (I'd hate to be a recent graduate looking for that 1st or 2nd graduate level job in the next few years) is going to be a toxic mix. I think this is where we will see most of the forced sales.

Maybe. My suspicion is that very few people have bought the mythical BTL 2 bed city centre flat on 85% mortgage. I'm sure plenty have but maybe not enough to make a huge difference.

My feeling is that the people in real trouble first are going to be the 30-somethings that have borrowed insane amounts of money to buy somewhere for their families to live. I know plenty of people in their mid-30s who can now only afford to work for absolutely top dollar and even then are just paying the interest on their mortgage. For so many people, the slightest financial wobble will spell absolute disaster.

These aren't even people that have been reckless, just sold a pup really: you're getting married and want to have kids. Well buying a house is just what you do.

Heyman_2

Generali,

*Heyman puts his hand up*

I am one of those people you talk about. In my early-30s, but still, the wife and I stretched to buy where we are now in 2006, and we bought with one eye on the future. Without getting into specific figures, we are ok at the moment - managing to put a good amount of cash aside each month etc, but maintaining the house and looking forward to kids are the things that put the pressure on. Anything unexpected over and above that (i.e. job loss, major house problem etc) would definitely take us to the brink.

I've been doing my usual wheeling and dealing with everything to make things as good as they can be, even down to getting our new mortgage deal arranged 6 months in advance so that we don't fall foul of potential negative equity, given how quickly prices are dropping at the moment. But it's still a concern.

I'm sure there are people worse than us. Anyone with a Northern Rock mortgage coming to the end of their 100 or 125% deal for example.

benood

Heyman wrote: »

The meltdown is inevitable - that's why I think the BofE should raise rates and get the pain over with.

Cor, and I thought the present inhabitants of No.10 and 11 were dire. I think it's more likely we'll see a "temporary" ditching of the inflation target to allow rates to be cut to Japanese levels - to stop the recession we're certainly due from becoming a depression.

A while ago I looked back at Halifax house price data for the last crash and was surprised that overall it showed only about a 10% nominal fall from peak to trough with no increases until 94,95.

It will also be interesting to see how our new near-monopoly provider of mortgages uses its post merger market power to maximise profits.

Generali

Heyman wrote: »

Generali,

*Heyman puts his hand up*

I am one of those people you talk about. In my early-30s, but still, the wife and I stretched to buy where we are now in 2006, and we bought with one eye on the future. Without getting into specific figures, we are ok at the moment - managing to put a good amount of cash aside each month etc, but maintaining the house and looking forward to kids are the things that put the pressure on. Anything unexpected over and above that (i.e. job loss, major house problem etc) would definitely take us to the brink.

I've been doing my usual wheeling and dealing with everything to make things as good as they can be, even down to getting our new mortgage deal arranged 6 months in advance so that we don't fall foul of potential negative equity, given how quickly prices are dropping at the moment. But it's still a concern.

I'm sure there are people worse than us. Anyone with a Northern Rock mortgage coming to the end of their 100 or 125% deal for example.

I'll bet for every BTLer with an 85% mortgage on a new build there are 10 people in their 20s or 30s with a huge mortgage who just can't afford for anything to go wrong. They can't get ill, they can't lose their job, they certainly can't get pregnant by mistake. In many cases, it's not profligacy as such - people go on about plasma TVs and holidays, big deal you can get a large screen TV in the supermarket for £400 and can fly to Europe for the price of a round of drinks. Most of my mates that find themselves in this situation must be clearing £1k a week easily.

The biggest financial problem facing a lot of people is that housing is so massively and eye-wateringly expensive.

moanymoany

When I was a lass my cousin got engaged. She and her fiance opened a savings account to save the deposit for a mortgage. They had a van - cheaper to run - and spent their evenings together in either my aunty's front room or his parents front room, they both lived at home. Her fiance worked as much overtime as he could. Sometimes they went to the flicks.

This went on for two years at the end of which they got married and moved into their house. Families contributed what furniture and bits and bobs they could. What they couldn't afford to buy they rented - and only essentials.

If two people get together today this is an option for them. Trouble is modern life bleeds cash. Must have a car, mobile phone, nights out, new clothes, holidays, television, computer, dvd player, ipod, bought lunch, posh coffee ... and all the upgrades, all of which take away someones future opportunities.

Heyman_2

moanymoany wrote: »

When I was a lass my cousin got engaged. She and her fiance opened a savings account to save the deposit for a mortgage. They had a van - cheaper to run - and spent their evenings together in either my aunty's front room or his parents front room, they both lived at home. Her fiance worked as much overtime as he could. Sometimes they went to the flicks.

This went on for two years at the end of which they got married and moved into their house. Families contributed what furniture and bits and bobs they could. What they couldn't afford to buy they rented - and only essentials.

If two people get together today this is an option for them. Trouble is modern life bleeds cash. Must have a car, mobile phone, nights out, new clothes, holidays, television, computer, dvd player, ipod, bought lunch, posh coffee ... and all the upgrades, all of which take away someones future opportunities.

Too true. Is that what they call 'social responsibility'?

Heyman_2

benood wrote: »

Cor, and I thought the present inhabitants of No.10 and 11 were dire.

I know, I know! It's an extreme view, and to be honest what I really want is a big fat interest rate cut to make things easier for us in the short term! But looking at the economy as a whole, interest rates aren't where they need to be. We're told inflation has 'peaked' but has it really? What if it hasn't?

Heyman_2

Generali wrote: »

The biggest financial problem facing a lot of people is that housing is so massively and eye-wateringly expensive.

Yes it is. Not for long though! But even as it comes down I think there will still be affordability issues as we've previously discussed.

Maybe the recovery is 6 years away - enough time for everyone to get bad debts of their credit history!

WTF?_2

moanymoany wrote: »

When I was a lass my cousin got engaged. She and her fiance opened a savings account to save the deposit for a mortgage. They had a van - cheaper to run - and spent their evenings together in either my aunty's front room or his parents front room, they both lived at home. Her fiance worked as much overtime as he could. Sometimes they went to the flicks.

This went on for two years at the end of which they got married and moved into their house. Families contributed what furniture and bits and bobs they could. What they couldn't afford to buy they rented - and only essentials.

If two people get together today this is an option for them. Trouble is modern life bleeds cash. Must have a car, mobile phone, nights out, new clothes, holidays, television, computer, dvd player, ipod, bought lunch, posh coffee ... and all the upgrades, all of which take away someones future opportunities.

To be fair, none of those things are required and with a bit of commonsense many of them don't have to cost a fortune.

However, a lot of people have bought into the notion of excessive consumption and associating self worth with physical signs of wealth. They'll have to take responsibility for that now.

As you say - and what a scary number of people apparently fail to understand - credit/debt represents you trading your future income for cash today and paying an additional premium for doing so. You are literally selling your future opportunities.

Having lived a lifestyle based on cannibalising future earnings, many people are now going to have to get used to not only living within their means but also substantially below their means when you take into account debt repayment.


I don't really think that this has widely sunk in yet - the general public seem to view what is happening as something distant on their TV screens. This is going to impact the lives of everyone and change society drastically.


The good news of course is that for those of us who were sensible with our cash, there should be a lot more opportunities coming our way even if we face getting hurt by the oncoming recession.