So when will House Prices Hit the Bottom?

IveSeenTheLight

Snooze wrote: »

Two FTB friends of mine each bought in 2006 with NR 95% mortgages on 8 year deals............................these are what I would call your average type of person with a £15-20k ish income ...................................................................................... ........ I don't think either of them should have ever been given a mortgage in the first place.

It is a valid point that it is possible that some people may not be able to afford property and partly why in America the problem was initiated with people being offered property and mortgages they could not afford.

I personally think it is great to own my own properties, however maybe there needs to be a culture change (along with law if necessary) to make it a culture that is also happy to rent as an option.

I'm sure your two friend prefer that they have been able to buy rather than rent.

ad9898_3

RainMaker wrote: »

The UK banks (at least those needing it) have all be re-capitalised.

If only things were that simple, read Thrugelmir's post for the reasons why.

RainMaker_2

ad9898 wrote: »

Really ??, the irony is, to a great many people the latter has become a luxury too, so I don't think my analogy was too far from the mark. I was just trying to explain this 'pent up demand' issue is fiction, nothing can have a pent up demand if it's way too expensive for people to aspire to in the first place.

I disagree.

Take your Ferrari scenario. There's little doubt that most people would like one. But it's not affordable for the majority, not because of the price, but because of the price of borrowing. Borrow £ 100k over 5 years for your Ferrari @ 8% and the monthly payments would be over £ 2k - beyond most of us. Now take the same loan on a 25-year 3% interest-only basis and it drops to £ 250 / month. I'd buy one myself on those borrowing terms !

The demand is not based on price, but on the terms and ability to borrow in order to buy the asset.

Now add into your Ferrari scenario the fact that it may well treble or quadruple in price over 25 years, then on those borrowing terms there'd be a massive demand for Ferrari's. It's exactly the same with the property market, except the additional positive that everybody needs somewhere to live.

HammersFan

I have a feeling we have hit the bottom. Just a hunch based on things not seeming to get much worse across a series of indicators. A house at 120k on todays lending rates, with 20% down looks quite a bit cheaper than renting.

RainMaker_2

Thrugelmir wrote: »

NR ( until yesterday anyway and at a much reduced rate), Abbey Nat , Bradford & Bingley, Halifax , Foreign Banks and smaller wholesale funded mortgage lenders. This is over 50% of the mortgage lending market.

Well Norther Rock are lending (as you note), B & B were almost exclusively BTL, and as far as I know Abbey (Santander) and Halifax are both offerings mortgages. 50 % of the mortgage market ? Am I missing something here ?

overlander

I think to realistically estimate what house prices will do in the future need you to take a step back from all the carnage. Although I say in my next sentence forget about important things its because these can change and they are very variable and if anything they will have an even greater downward pressure.

So forget about jobs, bailouts, folk with money stashed away as they are in the minority. To get to a realistic forecast you have to forget everything and look at the outcome of this mess. The outcome is 10-15% deposits and lending multiplies of 3-4 salary simple. Until house prices fall to roughly 3.5 time the average salary they will drop. Now this is different for every area so you have to do a bit of working out for yourself. Inflation has to be taken into account, based on my rough predictions assuming that when the 3-4 multiplies work there way through the system in about a year we are talking 10-15 years before we get anywhere near the levels 0f 2007. Now add in all the other things like unemployment you could easily add another 5 years.

Maisie11

Agree with Rainmaker 100%. The most important benefit when you buy a house is that you can live in it. You are not at the whim of the LL, you can decorate anyway you like. You can have a dog without having to ask permission and you wont get notice to quit when the LL sells up, decides a relation needs the place etc etc.

I disagree with the fact that 99% of people dont have access to mortgages, there are more and more people coming onto MSE in their twenties looking at buying their first home. Interest rates are really low, house prices have dropped and there is a pent up demand. If I was mid twenties, with a partner and with a stableish job (what is nowadays!) I wouldnt hang around too much longer. It reminds me of women and to a lesser extent men always looking for their ideal partner. They walk around with a list a mile long and wonder why they are still unmarried with the biological clock ticking loudly.

There are a number of people on the forum wanting their £500k house for £200k and post accordingly, dont take any notice. They talk about averages and three times salaries but it doesnt make any difference. It is the area that is the most important thing. They also get hung up with various websites, commentors etc telling them this, that and the other.

Then fact is that no one really knows when we are going to hit the bottom. If you are planning to stay in a house for 5 years plus and you get a fixed rate for a number of years you should be fine.

Of course we could get run over by a bus....... Life is just too short to keep waiting and watching.

IveSeenTheLight

overlander wrote: »

I think to realistically estimate what house prices will do in the future need you to take a step back from all the carnage. Although I say in my next sentence forget about important things its because these can change and they are very variable and if anything they will have an even greater downward pressure.

So forget about jobs, bailouts, folk with money stashed away as they are in the minority. To get to a realistic forecast you have to forget everything and look at the outcome of this mess. The outcome is 10-15% deposits and lending multiplies of 3-4 salary simple. Until house prices fall to roughly 3.5 time the average salary they will drop. Now this is different for every area so you have to do a bit of working out for yourself. Inflation has to be taken into account, based on my rough predictions assuming that when the 3-4 multiplies work there way through the system in about a year we are talking 10-15 years before we get anywhere near the levels 0f 2007. Now add in all the other things like unemployment you could easily add another 5 years.

Multiples of income. things have moved on really to affordability facts.
Two people with the same income can have vastly different outgoings

If you look at this spreadsheet, you will see that the UK average is currently 4.62 for house price - earnings ratio (This does not include a deposit)
The 26 year average is 4.01
http://www.hbosplc.com/economy/includes/15_01_09Affordability.xls

ad9898_3

RainMaker wrote: »

Now take the same loan on a 25-year 3% interest-only basis and it drops to £ 250 / month.

You seriously can't believe that IR's are going to average this over the next 25 years surely.

interest-only basis

Without a proper investment vehicle, only the foolish would ever take out such a loan, which will cost you.

The demand is not based on price, but on the terms and ability to borrow in order to buy the asset.

The ability to borrow the money doesn't exist on the levels that we are talking about, demand is based on price, I certainly wouldn't buy said Ferrari even if it only cost me £100 a month, it would be round my neck forever.

RainMaker_2

ad9898

I think you've missed my point. So I'll leave it at that.