Would house prices dropping affect me ?

hookbeak

Here's the situation, My house is on the market for £170k, i have 100k of equity (well, today i do)

The house i want is on at £220k, therefore i'm looking at extending my mortgage from 70k to £120k.

Having read all the opinions on the board of how prices still have to drop dramatically, i'm wondering if it actually affects my situation - for example:

my house today worth 170k - if a drop of 50k - then worth £120k
house i want worth 220k - if a drop of 50k - then worth - 170k

by my maths (which were never good) i still need to borrow an extra 50k.

As far as i can see, it'll only hit me if my house fell to < 1991 values and put me into negative equity - and i *really* can't see that happening.

Can anyone point out any obvious stupidity in my calculations that i've overlooked ?

* just to point out btw, the house i'm looking to move to is one i see myself still living in in 20 years time....

Numenor

Chances are the more expensive house will drop by more.

If yours dropped by 25% it would drop by £42.5K to £127.5K
If the other house also dropped by 25%, it would drop by £55K to £165K

Then, you'd only need to borrow an extra £37.5K, not £50K

Of course there's no guarantee that the two houses would fall by the same percentage.

penguine

You're assuming the house you currently own will drop by 29% while the house you want to buy will drop by 22%.

If house prices were to fall by exactly the same percentage for all properties (which isn't going to happen) and as an example both houses fell by 29%, then the house you're buying would have a drop of approx 64k, not 50k.

However given that you are looking to live in the new home for at least 20 years and you already have a good amount of equity, I personally wouldn't worry too much about falling house prices. If you're happy to wait awhile longer, as house prices fall the difference between your current home and your next home is going to shrink, but if you really want to move now then I would go ahead and do it, however look to lock a low interest rate for the longest possible period.

Buying in a falling market is most risky for first time buyers; those trading up don't have as much to worry about.

hookbeak

i had though of that, and whilst i'd rather keep the extra money that's a sacrifice that wouldn't bother me *too* much - it's not mind blowing amounts of cash in the scheme of things. We are buying it as a home after all - and we really need more room - or less kids.

Graham_Devon

hookbeak wrote: »

my house today worth 170k - if a drop of 50k - then worth £120k
house i want worth 220k - if a drop of 50k - then worth - 170k

by my maths (which were never good) i still need to borrow an extra 50k.

No, not neccesarily. They drop (very generally, depending on local demographics etc) by percentages. Which means the house you want to buy becomes cheaper each drop of say 2%.

2% off 100k =98k - lost 2k
2% off 200k = 196k - lost 4k

So yours, because it's worth less, will drop less, in very general terms. Meaning what you need to borrow to upgrade, will become less and less.

But it does depend on how houses are hit in your area.

pingu2209

hookbeak wrote: »

Here's the situation, My house is on the market for £170k, i have 100k of equity (well, today i do)

The house i want is on at £220k, therefore i'm looking at extending my mortgage from 70k to £120k.

Having read all the opinions on the board of how prices still have to drop dramatically, i'm wondering if it actually affects my situation - for example:

my house today worth 170k - if a drop of 50k - then worth £120k
house i want worth 220k - if a drop of 50k - then worth - 170k

by my maths (which were never good) i still need to borrow an extra 50k.

As far as i can see, it'll only hit me if my house fell to < 1991 values and put me into negative equity - and i *really* can't see that happening.

Can anyone point out any obvious stupidity in my calculations that i've overlooked ?

* just to point out btw, the house i'm looking to move to is one i see myself still living in in 20 years time....

Falling prices will help you as price drops are not in cold ££s but in percentages. Therefore, if your house and the one you want both drop 15% your house drops a smaller amount in cold ££s and the additional mortgage you need is smaller.

dealsearcher

It also depends where you are selling and where you are buying. Prices are falling at different rates around the country. Even in one area different types of housing are experiencing different falls or even rises.