Risk

Framps

macaque wrote: »

When you buy a property, you are effectively renting it from the bank. The bank does not reimburse your interest payments if the house price goes down.

Not quite - after a limited period of time, usually 25 years, the property is yours and you pay no-one for the right to live there. Over those 25 years the price will undoubtedly rise and fall - who cares, so long as you can afford the repayments...

If you do not buy then you will always pay someone else for the right to live in their house. Your monthly rent carries no long-term benefit so is merely an ongoing (until the day that you kick the bucket) short-term liability... sounds extremely risky to me.

carolt

HAMISH_MCTAVISH wrote: »

If you needed to buy a house, which is the greatest risk, and how do you perceive that risk applying to you?

Buy now, and risk prices falling before recovering in the future..... You could perhaps have bought cheaper if you waited.

OR

Delay purchase, and risk prices going up and out of your reach forever.... You risk not being able to buy a house ever again.

Surely those are really the only choices facing potential buyers today?

Isn't the second option the greater risk with the worst consequences? Or am I missing something.

This makes the odd assumption that calculation of risk is the main factor driving people's decision to buy, or not to buy.

People buy because they want a home, or don't buy - as in our case - because they want flexibility and don't yet know which area they want to buy in. Etc etc.

They don't make risk projections over a 25 year period. It's hard enough to figure out where interest rates and house prices will be within a year or two, let alone longer - and that's without considering personal factors, like what kind of job they might be doing over the next 25 years.

Do you really know what your job will be and your salary in 25 years?

I think the kind of person who decides they will be forever shut out of the housing market if they don't buy now is surely someone who takes doom and gloom re the future to a whole new level. Far from being an optimist about house prices, this person is clearly a deeep pessimist about life. :eek:

chopperharris

25 years of renting , and then guess what maybe another 25 years of renting-Buying equals half the renting , plus of course sundries like insurances and upkeep.

Then there is supply and demand , if you need rather than want to stay in a specific area you will pay a premium to own or indeed to rent.This premium may be offset by costs , ie cheaper home but longer or costlier commuting.

I just dont understand why the likes of city houses , overcrowding increases costs with strangled infrastructures when there is other cities and towns where it would be far more cost affective to live and work or indeed employ , but relocation of busniness would have to come first.

It works in the favour of the economy to have upward price increasing homes rather than renting or building more and cheaper...until that gets tackled then the status quo will continue....even with long term memory being ignored so soon after near economic collapse the rot is returning.To blame the banks for all the woes is wrong , they are supplying hmg with the money it needs and the boe is drving down the debt with qe and low interest rates.Just as well gb sold off all the gold at the bottom to repay all that nat debt or we wouldnt have had enough to pay the tally man for the short term , but what about the long term?

My word of warning ,everyone should buy a caravan , and learn how to black top , clean out gutters and lay monoblock , dont worry there will only be rich left with roofs and of course ministers with expense cons.

Scudlink

HAMISH_MCTAVISH wrote: »

Pretty sure that losing a job is no worse for a renter than an owner.

Renter loses job, can't pay rent, goes to government for help.

Owner loses job, can't pay mortgage, goes to government for help.

In both cases, if they can't get help, they will eventually get thrown out of the property and end up homeless, destroying their credit rating in the process. In both cases, after a period of time the credit rating will reset.

Child loses job, can't pay parents keep, parents let them live rent free.

chopperharris

Scudlink wrote: »

Child loses job, can't pay parents keep, parents let them live rent free.

Any decent parent should be making sure that "keep" should still be paid , your doing them no favours in life if you dont.If you have benefits after losign a job you can still contribute....I know i did.Thats probably the reason why I am so good with money , no debt but plenty savings , i got out the nest in early twenties same as siblings....rather than being some middle aged manchild like lots of guys my generation , some even with kids of their own like 1/3rd of my friends.

lemonjelly

HAMISH_MCTAVISH wrote: »

If you needed to buy a house, which is the greatest risk, and how do you perceive that risk applying to you?

Buy now, and risk prices falling before recovering in the future..... You could perhaps have bought cheaper if you waited.

OR

Delay purchase, and risk prices going up and out of your reach forever.... You risk not being able to buy a house ever again.

Surely those are really the only choices facing potential buyers today?

Isn't the second option the greater risk with the worst consequences? Or am I missing something.

HAMISH_MCTAVISH wrote: »

Pretty sure that losing a job is no worse for a renter than an owner.

Renter loses job, can't pay rent, goes to government for help.

Owner loses job, can't pay mortgage, goes to government for help.

In both cases, if they can't get help, they will eventually get thrown out of the property and end up homeless, destroying their credit rating in the process. In both cases, after a period of time the credit rating will reset.

Buying & renting are different beasts. Personally I do feel that most who do one or the other have different aims.

If a renter becomes out of work, they can claim housing benefit, which, provided the rent is reasonable/market rate, will cover the full rent as long as the claimant meets the qualifying criteria for the benefit.

If an owner becomes out of work, any government support will only meet interest payments. There is no support towards capital repayments.

For an owner, the home is a capital asset as well as a home. Therefore there is the risk of losing it, in addition to any potential equity built up or deposited.

Credit rating is not affected in any way by losing a rental property due to rent arrears. Though it is for mortgage arrears.

Also, credit isn't reset, as such a case is likely to affect credit rating for many many years, and increase any future secured borrowing costs.

So, arguably, purchasing a property involves more personal and financial risk...

breadlinebetty

lemonjelly wrote: »

Buying & renting are different beasts. Personally I do feel that most who do one or the other have different aims.

If a renter becomes out of work, they can claim housing benefit, which, provided the rent is reasonable/market rate, will cover the full rent as long as the claimant meets the qualifying criteria for the benefit.

If an owner becomes out of work, any government support will only meet interest payments. There is no support towards capital repayments.

For an owner, the home is a capital asset as well as a home. Therefore there is the risk of losing it, in addition to any potential equity built up or deposited.

Credit rating is not affected in any way by losing a rental property due to rent arrears. Though it is for mortgage arrears.

Also, credit isn't reset, as such a case is likely to affect credit rating for many many years, and increase any future secured borrowing costs.

So, arguably, purchasing a property involves more personal and financial risk...

Lemonjelly,

It doesn't matter that the government only pay the interest on a mortgage if a person loses their job - the property will ALWAYS rise in value eventually - and if the person decided to sell in 10 years time the property would be worth at least 2 or 3 times what it is today. So, not only would they pay the the capital off - they'd have a 200/300% PROFIT on top!

What profit do you get back when you move out of rented? Not one bean!

And it's rubbish to say you won't affect your credit rating by getting into rent arrears - if you're taken to court over unpaid rent that will go on your credit report! A judgement can be made against you for the outstanding debt.

Generali

breadlinebetty wrote: »

Lemonjelly,

It doesn't matter that the government only pay the interest on a mortgage if a person loses their job - the property will ALWAYS rise in value eventually - and if the person decided to sell in 10 years time the property would be worth at least 2 or 3 times what it is today. So, not only would they pay the the capital off - they'd have a 200/300% PROFIT on top!

So you think that house prices will rise by an average of 12-15% for the next 10 years, ie a studio flat in Clapham, currently asking about £295,000 (link) will be going for somewhere between £885,000 and £1,180,000?

I have my doubts. One of us is going to be wrong.

mewbie_2

HAMISH_MCTAVISH wrote: »

Delay purchase, and risk prices going up and out of your reach forever.... You risk not being able to buy a house ever again.

This is where it all falls down. You are implying a housing market in the future where no one can afford to buy. Where houses remain with their owners, because no one can afford them.

I'm not an economic guru as Generali can testify, but I suspect if no one could afford to buy your house... it would effectively become worthless.

HAMISH_MCTAVISH

mewbie wrote: »

This is where it all falls down. You are implying a housing market in the future where no one can afford to buy. Where houses remain with their owners, because no one can afford them.

I'm not an economic guru as Generali can testify, but I suspect if no one could afford to buy your house... it would effectively become worthless.

Not at all Mewbie.... Although it may well be a future where you cannot afford to buy, that is not the same thing at all as "nobody".

I'm implying a future where only the top earning 30% of households can afford to buy, and then only at 4 or 5 times household income.

Thats what happens when we build just 80,000 houses a year, but form 250,000 new households a year. When we add enough people every year to fill a city the size of Manchester, but only build enough houses for a city the size of Aberdeen. Thats happening today, and it's only going to get worse.

Unless that changes, then only the top earning 30% of households need to be able to afford a house in order for prices to rise. And as banks will still, even today, lend good earners between 4 and 5 times joint income, then that becomes the effective cap on prices in the medium term.

Five times household income of the wealthiest 30% of households, which translates to prices far higher than todays.....

As for the long term, who knows? I fully expect when that threshold is reached, and we're nowhere near it yet, then banks will find an innovative new way to lend yet more money. 40 year terms, intergenerational mortgages, etc etc etc.

To my mind the absolute cap on house prices is where the costs of purchasing become higher than the costs of an adult lifetime, 60 years or so, of rent. That would put house prices, in real terms, at about 3 times todays values.