House prices could fall... Blog Discussion

Free_Mike

On the whole I agree with the blog. I can't however agree that houses are an "asset class". This certainly isn't true of your primary residence. Perhaps if you have BTLs you might think of them this way but even then I don't think it wholly applies.

Far from being an asset, for most people who own a home it is thier biggest liability - the asset is actually owned by the mortgage company not the person living in the house. This so called asset is costing them thousands in interest.

Even if you are lucky enough to have completely paid your mortgage your house is still a liability - it does not generate income for you - only costs you money (gas, water, electric etc) and If you think that having paid your mortgage means you have full control of your house - think again. Stop paying council tax/bills and you will find that the government has more control than you of your house.

The only time that houses are an asset is when they are actively making money for you - ie a properly funded BTL - the liability aspect still needs to be considered here though.

homer_j_3

I agree with the fact that nobody knows what is going to happen and this why nobody on here will know for certain that their opinion is 100% correct.

The whole key to home ownership for me personally is not primarily to say "my house went up by x amount last year or over the past x years" but to have somewhere to live in retirement without having to pay anybody to do so. Clearly the bills will be there but if I have no mortgage payments to make then the money I would have had to spend on rent at my retirement, would effect my retirement seriously.

Yes house prices will go up and they will go down as part of economic cycles. I personally cannot see that either these ups or downs will be nose bleeding heights or depressive lows and we have seen over the last 10-20 years.

The key is with house buying is to really 3 things:

1 - Buy within your affordability
2 - Ensure that you see it as a debt and that it needs to be repaid
3 - Do not borrow more to purchase items for keeping up with the jones'

Looking at each of the above 3 points.

1, Housing may well be unaffordable to a lot of people and I would say to those people, rent and save or rent and wait for a natural drop in the house prices or a mixture of both. Look at alternate ways of getting onto the property ladder like buying into shared ownership or buying with friends. These may not be right for you but be realistic and honest with yourself.

If you are lucky to be able to afford a property then I would not income stretch. I would say save further until you can bring it more into your affordability. Clearly life is always not this simple but all I am trying to say that throw caution to the wind. You need to be able to afford the repayment of any mortgage and this means at times when interest rates will be higher than they currently are.

2, Like any other debt you owe the money and have to repay it back. This sort of links into affordability but people take on bigger and bigger debt without really understanding what they are doing. People want bigger better houses but often do not realise that these come with bigger and not so better running costs such as council tax etc. These financial implications are often missed and as a result in increase expenditure can pressure the finances and ultimately stress them so much affordability to repay the debt is affected.

3 - Everybody has done this at somepoint in their life. The neighbours have just got a new car, we should get a new car. Oh the prople accross the street have just hade there 300 inch plasma delivered, we should get a new tv. Even as kids, you saw another child with something and you went home asking for it. This is just human nature I guess but I think as adults, you should concentrate on trying to buy things rather than buy now pay later options and if you cannot afford to pay for it now then what makes you able to pay for it later? This effect will snowball if you try and keep up with the jones' and this will lead to further debt, further pressure etc.

Ultimately, If you can get your mortgage repaid and avoid financial strain then the lows in the market should not be too much of a problem if you ride with it. The probles will only come to those that have secured everything they can agianst their property and have additional debt.

I would always recommend that you repay your existing debts before getting a mortgage and if you are an existing homeowner with debt, think very carefully on how you will pay your mortgage and debts in the future if there was a 1,2, 3 or more % interest rate rise. The simple way to look at it is that on a mortgage that is set at 5% - a 1% interest rate will add 20% to your payment, 2% will be 40%, 3% will be 60% on top of your current payment. If interest rates rise on your mortgage, I can guarantee that your debt will rise too where they are not on a fixed rate agreement. Sorry for the doom and gloom folks but hopefully you will see it as a balanced view.

jobi_4

Finally someone talking sense about housing. My husband and I had been looking for a first home for four years before we bought our house and it was a nightmare. Although we personally are happy now, getting on the property ladder is terrible at the moment and we have that many friends who are desperate to buy. I know people say renting is 'dead money' but it is more sensible than tying yourself down to a mortgage (especially the amounts being handed out at the moment) just at the wrong time. At the end of the day - even with a mortgage a large part of the repayments are 'dead money' and reflect the bank's charges and interest rather than the value of the property. I even have an theory that if we integrate further into Europe we may eventually taken on a European attitude to property and start renting a lot more. What do you think - will an Englishman's home always be his castle?

PS. Why do people feel the need to tell me what cars they own, how much debt they are in etc. Get over it - it is not all that impressive actually!

TerryB_3

One factor not mentioned in Martins blog is maintenance.
When renting you know exactly how much it will cost each month for a roof over your head. Any problems with the property come out of the landlords pocket.

If people are considering buying, there need to consider interest rising, and maintenance.

What do people think is a good yearly figures to budget for maintenance on say a 3-bed semi over 20 years old per year?
I'm thinking between £1k -£1.5Kpa

pickle

odorus wrote:

Very good blog. At last some sense being spoken on the subject, by everyone.

As a landlord I would say that buying property on a BTL mortgage, anywhere south of Birmingham, is not a good investment anymore. Rents remain fairly low, whilst BTL mortgages have gone up, so the profits are not as good.

The other big problem comes from selling the property. It took me over 12 months to sell my flat in London, because the managing agent wouldn't allow BTL buyers, and FTB's couldn't afford the property, it was not in a fashionable area so wasn't at the top of London pricing.

It certainly depends on your own circumstances, but I would agree that renting is not a disgusting word. Look to Europe where most people rent and are very happy as owning property is often too expensive.

Renting is quite normal in the country I originate from but I find in the UK that the attitude is one of stigmatisation and that seems to transfer also to the way that estate agents treat the tenants. It is not very professional IMO. This is the only reason I am put off renting (although I am currently renting due to the poor quality of housing and prices of them). First of all there needs to be more government controls over the estate agents (no, not self-regulation as proffered by the OFT) - they need proper licensing and qualifications and there needs to be enforceable legal remedies (esp. in relation to rental bonds and repairs to properties) which are readily accessible to both estate agents and tenants where there is a dispute, or the contract is being broken. There also needs to be a standard rental contract. The one I have is unbelieveable in the number of clauses, some of which are plainly outrageous. I think that stiffer regulation would have to happen before renting became palatable. Tenants in the UK are virtually powerless, they are treated like serfs IMO.

goldmercury

Prices will drop IMO, ex-council houses purchased at £20k are going for £200k on the market at the moment. Global interest rates are rising hence the shody preformace of the stock market, the UK is behind on it's interest rate rise when we get a rise the bubble will burst and massive imbalances like the one I've mentioned in this post will become balanced again. Enjoy your SABBs whilst you can. If there is no crash then you will be pricing your childern and grand children out of purchasing a house, wonder where that pension we go to then!

meanmachine_2

A good point about how we never learn from history.

We're quite a simple species really.

10 years ago, it was quite common and accepted for rates to be 8-10% and for you to get that healthy return on a bank account.

Rates at 4% would have been regarded as barmy.

Just six months ago IRs at 8% would have seemed unthinkable, and yet with Chinese import costs starting to go up for the first time in a long time (how much cheaper can DVD players get, for instance?), maybe it's time to think the unthinkable.

Most homeowners will be fine though. Any crash will pass them by.
Interestign that, in the mid 90s the majority of the public had stopped thinking of homes as an "asset" and had gone back to seeing them for what they are - shelter.

Can't wait for that day to come round again. Trouble is, it might be a few years off yet (cf Ireland's insane house prices despite an abundance of land)

maka_2

i have just bought my 1st house after years of trying to get on the ladder not to sure if i have put my family at risk in doing this now with all the talk of the big price crash

whatamess_2

Nobody has mentioned the Home sellers pack yet. What effect will that have on the housing market? Less people selling so prices continue to rise as demand outstripes supply?
Or stimulate a crash as people who are up to there maximum affordability on there mortgage cannot cope with a rate rise so are desperate to sell for whatever they can get?
They say house prices have gone up this year. Not in my neck of the woods. My house is on the market for exactly the same as I paid for it 18months ago.
Looking at its price objectively would say it is over valued.
Messy

MickKnipfler

If you ask me, the only thing that's making house prices look anything like sensible is that money is so cheap.