What do you think?

PH1LL

Our flat was valued at £130k in aug 2007.

If the 3x salary idea takes off that'll prbably mean flat will be worth about £70k?? Anybody agree with that or no?

If on average property prices go up 2.9% P/A that will mean it will take a bout 18 years to recover?!

We want to buy a house in 2 years time so will be benefiting in a big way from the price falles in one way.

If you were in this situation, what would you be thinking of doing?

Paying back whole mortgage throgh renting flat out - inc about 46k neg equity or handing the keys back and going bankrupt?

I would imagine lots of people will have this problem soon.

Phill

Blunty

Your flat will only ever be 'worth' what someone is prepared to pay for it. Its value in August 2007 is therefore pretty meaningless.

If I want to buy your flat, and you put it on sale at (say) £90k, under this new proposal my bank will only give me a mortgage of 3 x my salary, so it's all down to how much of a deposit I can save to bridge the gap (assuming there is one). It won't take me 18 years to save a reasonable deposit.

Lynsey

I think your £70k is a bit OTT, but I think they will drop over the next year.
As you say, if upgrading you will benefit.
Not a time for first time buyers IMO, better to sit and wait.

Lynsey

PH1LL

yes for sure, its only worth what someone or the market will pay. I used the valuation of aug 07 as an example at the peak of the market.

The question being though what would you do?

Service the loan untill all is paid (or untll the equity becomes positive)

or

Hand the keys back and go bankrupt?

I will probably choose to service the loan as i want to buy a house and dont want to be paying sub prime rates, and the money i will loose on the flat is a relatively small amount compared to what i will save on buying my house by the sea.

adrian_bond

hi PH1LL,

im in an almost exact situation as you. me and the missus bought our flat in april 2007 for £103k. this was approx 2.8 x our combined salary at the time.

with the 3 x multiplyer that the FSA are suggesting, does this mean that my flat is now worth substantially less than i paid and will never recover? i can comfortably afford my mortgage payements, and are about to start overpaying by £300 a month to clear the obvious negative equity. is this now a waste of time, and should i just stop payig eveything and declare myself bankrupt?

im so confused now of what to do. ive got three years left of a fixed rate which should hopefully see us through the obvious interest rate hikes that are coming, but my plans to move up the ladder when this comes to an end have been scared witless by thuis news.

has anyone got a crystal abll cos im scared!

julieq

The idea that house prices will suddenly correct to 3x average salary if there were a cap is complete and utter tosh. Since when was a first time buyer (i.e. one with no equity) able to buy a house at average prices? Anyway, on a 2.5 joint multiple, any couple with about a £46K joint salary is easily able to get to 90% of £130K. That's hardly cloud cuckoo salary land.

In fact the more likely effect is that it will put first time buyers a step or two back in terms of saving towards a home, which will in fact boost the private rental market because everyone has to live somewhere.

It's one of those lovely paradoxes which shoots straight over the heads of the uber-bears, but a scenario where house price inflation is low or prices are dropping, and interest rates are correspondingly low, means that rental income actually increases relative to the cost of servicing the underlying debt. So in fact it plays into the hands of the people they hate the most.

Incidentally, a 3x multiple builds in 9x inflation into pricing. At 3% average salary increase a year, that's a 9% house price inflation riser even on a capped mortgage.

ad9898_3

House prices, culminating in the 2007 paradigm, has bought the country to the brink of economic collapse, even if the 3x salary cap is not bought into law, 2007 prices, in real inflation adjusted terms will never return.

julieq

:rotfl: Lol ad9898, this year's new paradigm is no more house price bubbles? Excellent news.

3% wage inflation (i.e. 3x 3% house price inflation) + net population increase = we get back to 2007 levels quicker than you think.

ad9898_3

julieq wrote: »

:rotfl: Lol ad9898, this year's new paradigm is no more house price bubbles? Excellent news.

3% wage inflation (i.e. 3x 3% house price inflation) + net population increase = we get back to 2007 levels quicker than you think.

How so ?, the money no longer exists, and in real inflation adjusted terms as I have said, it never will again, if there is no money, there is no demand. It's the old analogy that most people would like a Bentley, but the price of such an item means 99% of people can't afford one, so demand is virtually zero.

As far as you wage caculation goes, it's highly unlikely to work as you suggest as that is just another ponzi scheme. 3% wage growth p.a. and 9% HPI don't work, as we are now seeing.

lostinrates

PH1LL wrote: »

Our flat was valued at £130k in aug 2007.

If the 3x salary idea takes off that'll prbably mean flat will be worth about £70k?? Anybody agree with that or no?

If on average property prices go up 2.9% P/A that will mean it will take a bout 18 years to recover?!

We want to buy a house in 2 years time so will be benefiting in a big way from the price falles in one way.

If you were in this situation, what would you be thinking of doing?

Paying back whole mortgage throgh renting flat out - inc about 46k neg equity or handing the keys back and going bankrupt?

I would imagine lots of people will have this problem soon.

Phill

Regardless of multiples, its very possible your flat will still be worth less than its 2007 value in two years. And I agree, I think its a problem that many people will have to face, sadly for them. If I found my self in this situation what I personally, as a non-expert, would do, is get overpaying my mortgage now: minimising the potential shortfall. I can't imagine ''choosing'' an option like bankruptcy myself, only taking it if there were no choice left. But you, and all others in your situation have my absolute sympathy.

julieq

Of course it works. There is an annual structural riser in house price inflation of 3x salary increase, unless the supply of mortgages is restricted via other criteria. At some point as prices drop and confidence increases people pick up on affordability and compete at the top of their range, which is what triggers booms. It didn't actually take that long for the losses in the 1990s to be reversed.

It's not anything remotely close to being a Ponzi scheme in that we've agreed (or at least I think we have) that a 3x/2.5x annual income leads to affordable repayments that are a small proportion of GDP - an individual will earn 40x their average annual income during their lifetime, so the amount of the loan is relatively small.

If you accept that, you accept that there is enough headroom in the economy to take up the 3x income riser in house prices. Otherwise you're arguing for restrictions on mortgage provision which are far more stringent than 3x.

The point you miss is that housing is not a discretionary purchase or an arbitrary investment. Everyone needs somewhere to live and there is a strong emotional engagement in where you live that triggers irrationality. You can either pay rent (in which case there's a steady income for landlords and a reason for the BTL market to remain bouyant) or you can buy a house, in which case you'll stretch to buy the nicest place you can afford.