Unsure on what to do?

PH1LL

We have a 2 bed flat in Cornwall. We bought it in 2006 and our mortgage is £117k

We want to buy a house in the next couple / few years.

My concern is that the property prices will tumble more and we will be in such negative equity that we wont be able to sell our flat to move. I had thought about just keeping our flat and renting it out but the problem is that i have taken a recent pay cut and now our combined income is about £45k per year.

I think i may be bale to sell our flat and get out with no neg equity, really i would like to come out with the original £6k we put down as a deposit, i think maybe we could market it for 120-125

Also my mortgage is on a real good tracker rate at 0.59% above base rate, so our payments at the min are only about £100 - we are currently clearing all our overdrafts and credit cards whilst the mortgage is low.

Any idea how high interest rates will go?

What should i do jump ship now at a loss then rent?

Sit tight in the hope that prices recover?

Any ideas if and when the prices will recover to 2007 levels?

Thanks

Phill

princeofpounds

You are asking us to give several answers to questions no-one knows the answers to. All people can do is give you ideas but no-one, not even professionals, can forecast the future beyond a few months and even then it's uncertain.

> Any idea how high interest rates will go?

This is totally a decision of the Central Banks. In theory, they use them to contain inflation. At the moment, they are artificially low because they are worried about deflation. But this means an increase in the money supply which is a driver of inflation, so at some point we will have more inflation and higher interest rates.

The key is 'some point'. It could happen as soon as this year if the pound crashes again and imflation of imported goods spikes as a result. It might not happen for 10 years if the BoE are not loose enough with the money supply and deflationary forces remain in control.

Looking at UK history peak rates in a cycle could be in the double digits. Although this would cause payment stress at the time, it would be in an environment where the original principal value of the debt is eroding rapidly (this is how the older generations basically got rich on property).

I would think of it this way - rates could get a lot worse one day. They are unlikely to get much better though. I would be inclined to fix mortgages for at least some period of time, particularly if your finances are as marginal as they sound.

What should i do jump ship now at a loss then rent?

Largely dependent on personal circumstances. It's probably the economically correct thing to do - owning two properties is a true financial gamble you know, only to be taken when capable of handling the risks - but that doesn't account for the price of stability in your everyday life.

Sit tight in the hope that prices recover?

They are *very* unlikey to recover any time soon, unless the central banks take us into some kind of ultra high inflation scenario. Banks need to repair their balance sheets for credit to flow and that will take years. Almost mathematically if they have fallen about 20% now then they need to rise 25% to get back to old levels, which represents at least a couple of years appreciation in favourable conditions. Leaving aside the fact that momentum is still with the downtrend.

Any ideas if and when the prices will recover to 2007 levels?

A true unknown, but likely not soon.

besonders1

Most people don't define recovery as 2007 price levels i'm afraid to say. That was the top of the market when banks changed their lending process making it easier to obtain credit which was a total disaster. Whereas traditionally banks had much stricter multiples and criteria depending on the individual of which banks now are heading back towards. Obviously this play in crucial part in the reason why house prices more than doubled in such a short space of time and the reason why people can no longer sell their houses as easily as they could prior to the credit crunch. People may psychologically think their home is worth what it was at the peak mainly due to the media and property shows but trying to sell it at that price now is almost impossible as only a minority of people maybe in secure and high profile jobs are eligible for a mortgage now. Even then, I have friends which have been turned down for silly reasons, no one can understand why exactly.