If House Prices Drop Another 40% - Who’s at risk of Negative Equity?

brit1234

Cleaver wrote: »

Yeah, that's a fair point, I was a bit harsh.

Can you really see house prices falling 60% though? Honestly? Isn't it a moot point? They have fallen around 20% (I think - sure someone will correct me) and have been stagnant for most of this year. And we've seen financial meltdown, more of Robert Peston that is healthy and house prices seem to be clinging on. Maybe I'm wrong, but I can't see anywhere near another 40%.

I can see prices falling in newbuild flats 60% due to all the gift deposits, poor quality and mortgage fraud.

Other property types will fall less though. I can also see a over correction due to sentiment in the final stages. I will be buying well before that.

Cleaver wrote: »

Did you see my thread about selling my house last week? It was on the market for three days, had shed loads of viewings and (I didn't mention this in the thread) we had two offers £1k over the asking price. I dunno, I just can't see it sliding that much further. You'd think people would like to see us return to a sensible level but, as I've said a load of boring times on here before, the general public in this country love their houses, love seeing them as an 'investment vehicle' and seem hell bent on buying.

I have no doubt about that, there has been a massive vested interest propoganda campaign in the media which was decieving people into things had bottomed out. However I prefer to look at the economics of the issue rather than what a estate agent or buy to let company says.

Cleaver wrote: »

I wasn't trying to stiffle discussion, although I do concede it looks like that. But your post was just a load of stats... but then they weren't stats, they were based on a 'what if' situation of house prices falling 60%.

I have a degree in disaster management and have a very good understanding of risk assesment. On top of that the last 5 years I have been studying the various schools of economics too. Thus I like to asses the validity of both sides of portential outcomes. Now when i did this a few years ago and susgested 40-50% falls I was laughed at, at the same time the housing federation were talking about 10% rises year on year in 2007 which was totally unsustainable. They missed key variables such as money supply, al ot of these groups predictions are a joke or exclude key factors.

Cleaver wrote: »

Also, how much savings do people have? Could that be used to pay off mortgages, thus moving them out of negative equity? And, if negative equity just means you stay in your house for 6 or 7 years instead of 'moving up the ladder' every 2 years, is a bad thing overall?

Savings in the western world have dwindled massively, we are now reliant on savings from the east of the world. I have £30K for a deposit and that took years. I can't believe there will be a recovery when I represent a minority especially as the deposit conditions are relatively new and will take a long time for people to save up so the market can turn around. This spring bounce was partially caused by savers using their savings in property for what they thought would be a better return. Those savings are extremely limited and are being exhausted so the market can only go down from here. How far down, well thats another debate on here

mbga9pgf

Same here Brit, 75K on deposit and boy, it wasnt easy. It certainly puts it into perspective when I am going out and considering a mortgage twice the amount of the deposit!

I like to think I am ahead of those now learning that you have to save for stuff if you intend to buy it, by at least 3 years for those well paid. Our savings are 120% of joint income, not easy as I am a top rate tax payer.

Love to see where people are going to magic up 25% deposits from unless prices fall significantly. Especially as there are significant premiums associated with High LTV mortgages (base +4% not untypical I am finding).

Treadmill

I wonder how many people with car finance are in negative equity with their cars ?

wymondham

Treadmill wrote: »

I wonder how many people with car finance are in negative equity with their cars ?

all of them??

ad9898_3

I think a logical point is made when it is said that 'we have only lost 20% and we have had financial meltdown, there is no way we will get another 20% down, nevermind 30-40%'

The problem with this argument is that the real effects of the recession have yet to be felt, what we have had is 20% off due to lack of credit, that is pretty much it. What we have next is unemployment, taxes, IR's etc... all set to put a timebomb under any housing market recovery at various points in time over the next 3-4 years.

The steep bit of the curve down has probably played out now, granted, however now we have the slow grinding slope downward to come (LR down just -0.2% for instance), watch all those newspaper headlines I posted a few days ago, come to the fore again.

In fact some of them already have.

chucky

GDB2222 wrote: »

Surely many people who bought 10 years ago or more are looking at loans currently of 30% or less - unless they MEW'ed. In most cases, if they've been paying a reasonable amount to pay off the loan, it could be a lot less than 30%.

For BTLs, if you get a high enough initial yield it pays off any loans pretty quickly. Of course lots of BTL'ers bought unsuitable properties at yields that were too low.

some context and facts - we're quite a long way for Brit's theory to be remotely possible

penguine

We had our 2-bed flat valued last November for re-mortgage purposes, and the valuation was pretty conservative (lower than what 1-bed flats are on the market for now) so I am pretty sure we only owe about 20% of what the property is worth. So another 40% off property prices wouldn't put us into negative equity.

However we bought 11 years ago and have never MEWed or traded up which I think makes us very unusual especially in our age group. Just about everyone I know either moved house or borrowed on the equity to build an extension after they started having kids.

The first part of the fall in house prices affected those who bought recently, but if prices fall further it's going to start to impact on those who have traded up recently. Unfortunately, many of those affected will be young families which will have a knock-on effect for the rest of society.

MrDT

So, to summarise:

If property values drop a further 40% a bunch of people will have outstanding mortgages larger than the value of their property.

That's news? Not just stating the painfully obvious?

In the words of PN, I could do that, gis a job.

IveSeenTheLight

MrDT wrote: »

So, to summarise:

If property values drop a further 40% a bunch of people will have outstanding mortgages larger than the value of their property.

That's news? Not just stating the painfully obvious?

In the words of PN, I could do that, gis a job.

The prominant word there is "If".
I personally think this "If" is "Highly Unlikely"

MrDT

IveSeenTheLight wrote: »

The prominant word there is "If".
I personally think this "If" is "Highly Unlikely"

Haha - WRONG!

A bunch of people are already in NE.

If the "if statement" is satisfied, it just means it'd be a bigger bunch