The big price falls are over.

lynzpower

I really do think that values will take a further hit adn I crtainly do not think property prices have plateaud.

Even in a low IR environment, once taxes increase, and they will, there will be people struggling.

There is a lot of talk of this at the moment on media, and Im worried myself aobout what proeprty value we could afford, given that we cant do any affordability sums based on whats happening right now.

What might be affordability under todays labour government will not be affordability under Conservative. Although I agree with the need for tax rises, Ive no idea at all what the tax take will be and what I will be able to afford come the day. There are talks of restricting Child benefits, tax credits and taxing universal benefits. I dont think UK population is really ready for this, AT ALL.

I am starting to hear a few people jittering about this, what will happen.

For the overstretched this is likely to hurt.

Thats why Im not buying now, I will wait and see what looks affordable, and to see what happens in distressed sales.

LydiaJ

mbga9pgf wrote: »

30-35% total drops on average across the market is what I am going for. depending upon cuts post-election though, it could go up as high as 50% from peak if the conservatives take a sickle to the civil service. Which I am pretty hopeful of.

I think that "post-election" label is the important thing. The current government are doing everything they can to prop everything up as though the economy is business as usual. As long as they keep doing that, I think HP will stay pretty stagnant. But it's not sustainable in the long term, so after the election, lots of things could change, and it's anyone's guess what will happen to HP.

dopester

ad9898 wrote: »

Don't get me wrong, I still feel there will not be any 2000-2007 HPI for a long time, but my feeling is that we are in a trough now, and that trough will likely last for some considerable time, (years probably), with minor +'s and -'s either way. Now I'm open to be being persuaded that I'm wrong........ so if you have a good argument, go for it.

There is too much debt. Too many people are over-extended imo. Too many people are having their employment circumstances changed (pay-cuts / redundancy / rising unemployment). Guys like that BTL trying to sell off his portfolio so long as you take on tens of millions in loans....

Low rates... has to be this way. It can't stop the crash. We will soon see more deep month-on-month falls. Debt liquidation. Even the Rochdale Labourite traded up towards the peak, believing the previous gains to have been "profit", as he piled into a more expensive house. The power of leverage is just a killer when it begins working against you.

Rochdale_Pioneers wrote: »

You're making some pretty sweeping statements about me there. Too big a mortgage bought too early? Nope, traded up from the last house where we made 120% of the price we paid as profit.

Graham_Devon

ad9898 wrote: »

Ok, many of the regulars here maybe a little shocked at my stance on this, but after the Nationwide figure today, it kinda got me thinking. With the base rate set to stay low for sometime to come it is giving a lot people out there pause for thought(not me by the way:D), I don't think we can underestimate the impact of low rates at the moment is having on the market, BTL landlords who don't have to refinance are unlikely to be forced to drop rents to any significant degree, which gives all those STR's and FTB'rs food for thought, why keep renting ?

If they can buy now and fix a good deal, with a lowish LTV (especially STR's), I believe this is what they are doing, this is stopping prices falling significantly further. Sentiment is also a powerful tool, which the government and media have used to maximum effect over the last few months.

Don't get me wrong, I still feel there will not be any 2000-2007 HPI for a long time, but my feeling is that we are in a trough now, and that trough will likely last for some considerable time, (years probably), with minor +'s and -'s either way. Now I'm open to be being persuaded that I'm wrong........ so if you have a good argument, go for it.

Simple.

An average wage, will not afford a starter home in MOST areas and lending does not bridge that gap anymore.

I refer to the average wage that most people earn. Not the average wage which takes into account footballers and bank bosse's £8m bonuses.

dopester

Can someone please give me a breakdown of how this Independent journalist comes to the £25K equity in his example... after a tradeup, then a 25% crash.

I can't get my head around how he comes to that figure (my maths has it at more), although agree with the low-rates bit.

One of the reasons interest rates are so low is that assets such as houses are depreciating in value. If house prices are rising, you are forced to pay a price for your gains. When they are falling, banks are grateful just for the repayment of principal. What you gain on the cost of your mortgage you more than lose on the size of your debt, which is inflating relative to your equity and income.

For years, the dynamic has worked like this. Say you spent £100,000 on a house using £50,000 of mortgage finance and £50,000 of equity. By the time you came to sell the house, the price might have doubled to £200,000. If you kept the same proportion of debt to equity, you would then have £300,000 to spend on your next house.

That process has now gone into reverse. If house prices fall by 25 per cent in value rather than double, your equity would be worth just £25,000 but you would still have the same quantity of debt. Assuming you kept the same debt-to-equity ratio for your next purchase, the maximum you would pay would therefore be £50,000.

http://www.independent.co.uk/news/business/comment/jeremy-warner/jeremy-warner-this-housing-correction-has-a-way-to-go-yet-1662347.html

a) £50K deposit + £50K mortgage financing to buy £100K house.
b) House prices double... house now worth £200K.. mortgage around same lets say at £50K... = £150K or equity (if selling up) with a £50K mortgage still to clear at competition.
c) Buy a £300K house. Use £150K of equity carried-over from house sale + £150K mortgage.
d) House prices fall 25%.. = £300K house lost £75K of value = £225K current market value. Outstanding mortgage of circa £150K. Equity £75K? Still pretty brutal.

mewbie_2

So we have a nasty recession at the tail end of a house price bubble of biblical proportions, with FTB's priced out for five years minimum, and the bottom propped up during that time by mewing stupid 'investors'. Houses tripling in price for no obvious or good reason - certainly not inflation or wage rises. Unemployment is rising, and the shysters like InsideTrack, Bovey, Wilsons are busted.

I do not believe the crash is over, merely a spring time blip pulling in a few punters. By comparision with the bonkers days - houses aren't selling, banks aren't lending, and punters aren't punting. This is nowhere near the end of the story.

Graham_Devon

IveSeenTheLight wrote: »

I dont understand the theory thay people cannot afford house prices at £150k at 5-6% but they did when it was £180k at 5-6%

Can I try and explain this for you?

It's your trying to understand the theory. You have the theory wrong.

People could afford 180k at 5-6% because they had jobs. They had high lending. They could afford it because credit was easy. The debt board on here in fact had quite a few threads where people would often pay their mortgage month to month from overdrafts or credit cards. Also, equity could be released if needbe.

Also, people like my parents were topping up their mortgage payments with their interest from savings, which they now could not do (they dont need to now, but thats besides the point).

Also, the theory does not just look at people can't afford 150k at 5-6%. The theory takes into account current mortgage rates being 5-6% when the base rate is 0.5% and also, rates were 6-7% when the base rate was 5.75%. That in itself states that mortgage rates are soon to get more expensive than they were when base rates were 5.75%.

It also takes into account debt payments, in which most non secured debt rates are going up. Wages will most likley stay static for most next year, or fall.

The theory does not only consist of the current mortgage rate, end of. That's why your not getting that theory.

Charlton_King

Graham_Devon wrote: »

Simple.

An average wage, will not afford a starter home in MOST areas and lending does not bridge that gap anymore.

I refer to the average wage that most people earn. Not the average wage which takes into account footballers and bank bosse's £8m bonuses.

But two average wages will... not rocket science, really....

Cleaver

ad9898 wrote: »

Ok, many of the regulars here maybe a little shocked at my stance on this, but after the Nationwide figure today, it kinda got me thinking. With the base rate set to stay low for sometime to come it is giving a lot people out there pause for thought(not me by the way:D), I don't think we can underestimate the impact of low rates at the moment is having on the market, BTL landlords who don't have to refinance are unlikely to be forced to drop rents to any significant degree, which gives all those STR's and FTB'rs food for thought, why keep renting ?

If they can buy now and fix a good deal, with a lowish LTV (especially STR's), I believe this is what they are doing, this is stopping prices falling significantly further. Sentiment is also a powerful tool, which the government and media have used to maximum effect over the last few months.

Don't get me wrong, I still feel there will not be any 2000-2007 HPI for a long time, but my feeling is that we are in a trough now, and that trough will likely last for some considerable time, (years probably), with minor +'s and -'s either way. Now I'm open to be being persuaded that I'm wrong........ so if you have a good argument, go for it.

I don't really have a clue. I would say that anyone on this board who can take one stance for a long time, then look at the environment around them and change their opinion in a considered way really adds to the discussion and good debate. Nice to see.

Graham_Devon

Charlton_King wrote: »

But two average wages will... not rocket science, really....

Most families have kids and therefore do not earn 2 wages...if they do, a hell of a lot will be going on childcare.

No, your anecdote is not rocket science. It's just not realistic. Apply it to most families I know and work with, and you will find one parent either works part time, or not at all, as its simply not worth it. I only know one who has 2 kids and both work full time, but then again, their grandmother does all childcare for free.