'Want it now brigade'

dmg24

Some more definitions for you. According to the International Accounting Standards Board:

An Asset is a resource as a result of past events and from which future economic benefits are expected to flow.

A Liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Therefore the property is an asset.

The mortgage, council tax and other bills are liabilities ... rent would also fall into this category!

Jim_B_3

In light of these careful definitions, I would like to change my wording to more truly reflect my meaning.

A house costs you money every day you live in it, and any future gains on the house are a gamble. Viewing the house as an asset, which it may or may not turn out to be, is presupposing you will win your gamble at some unspecified future date.

Note that in this definition asset does not indicate profit, which is a common assumption in property these days - selling for less than you paid still gives an immediate economic benefit, though you come out in the red.

Jim_B_3

dmg24 wrote:

ringo_24601 - someone with a sensible question at last! This thread really has become quite random ...

It has strayed, but discussion of wider economic issues can only help us all save money (yay!). I'd like to see more such economic discourse.

lisyloo

Hi Phil,

We can all wait for a recession then we can afford a house. Unless, during that recession, all of those who waited for the recession lose their jobs.

A few points:

1) If I thought a recession was likely I think I'd rather be renting than spend a lot of money on transactional costs and then get repossesed.

3) You can get redundancy insurance, plus there is statutory redundancy pay for anyone whose been in their job 2 years.
I would say that insuring your liabilities is a jolly good idea to consider.

3) Some jobs are more redundancy proof than others. For example demand for undertakers is fairly constant. Doctors don't seem to be out of work either. If it's of great concern then pick a proffession or area of work. My company is global so will only be slightly affected by a UK recession.

What a good idea...lets all hope for a recession!

I did not say, lets hope for it.
I was warning that it's a possibility.

Whether you HOPE for it or not will not make a jot of difference. However how you PLAN for it (like taking redundancy insurance or not buying a house) is going to make a massive difference to how you weather the (potential) storm.

bikerqueen

Ringo - We did, several years of horrendous experiences with landlords, at least with this landlord (Northern rock ) I know that as long as they get paid they wont chuck me out, and After 2 years I now own about three bricks in the front wall all of my own!

Pennywise

But a lot of the heartache in the last housing recession was caused, not by being made redundant nor the interest rate rises, but by people HAVING to move when they were suffering from negative equity. This is a point that few people realise and one which will ALWAYS be with us, regardless of the economy, unemployment and interest rates. In the early 90's, in my experience, it was other factors that caused the problems, not interest rates and unemployment.

Life happens!

People find that they HAVE TO move. Whether that is because their families are growing, their relationship has broken down, they have to move to be closer to ill relatives, they have to move for a better job or for job relocation.

Whilst house prices are static or growing at whatever rate, it is almost a certainty that people can move freely. However, as soon as there is a slight downturn, people with 100% (or higher) mortgages are trapped unless they have savings to bail them out. This is simply because the sale proceeds, less EA and solicitors costs, are less than the mortgage redemption, so extra funds have to be found to repay the mortgage. Then of course, the deposit or savings to go towards the next house are depleted, causing them to need another 100% mortgage and probably to buy a cheaper house. Common sense would dictate such a position was not one to put yourself into, and of course, if you didn't have to, you wouldn't, but like I said, Life Happens, and sometimes you just HAVE TO sell at whatever price you can to move your life forward. That may mean having to take on unsecured loans or credit card debts to pay the shortfall. Of course, some people have to take difficult decisions and either make themselves bankrupt or hand back their keys to the lender just to escape and move on.

Such selling will exaccerbate slowing or declining house prices. That is why some experts say we're on a knife edge - it won't take much to destablise and then there could well be a free-fall. Repossessions and desperate sellers pull the prices down around them too, causing more people to be in or close to negative equity, perpetuating the problem still further.

I think it is a very dangerous position to say that because employment is high and interest rates are low, there won't be a house price crash - look back through economic history - things always change - no boom or bust is ever identical to a previous one.

lisyloo

Exactly.
No-one knows what is going to happen and a recession may not come, but I think conditions are "knife edge" enough to mean that it's a good thing to wait if you can like vish is doing.

Of course that's easy to say if you're in a nice house like I am, but you have to weigh up the risks, for short term convenience.

Each to their own, but for my vote, it looks risky right now.

PoorDave

lisyloo wrote:

Exactly.
No-one knows what is going to happen and a recession may not come, but I think conditions are "knife edge" enough to mean that it's a good thing to wait if you can like vish is doing.

Of course that's easy to say if you're in a nice house like I am, but you have to weigh up the risks, for short term convenience.

Each to their own, but for my vote, it looks risky right now.

but how long have people been saying it's risky? 3 years perhaps? Is it any more risky now?

These are the tricky questions

PoorDave

Jim_B wrote:

Honestly don't know. If you start getting paranoid about the raw numbers, you'll end up with tinfoil wrapped round your head, but that doesn't mean they haven't fiddled it. Plot it, play with it, see where it leads you.

I ask because the actual fall from late 80's early 90's peak to trough seemed smaller than legend would have you believe, but then we're looking at countrywide avergages, i think, which i suppose are as relevant to Mr FTB as the countrywide monthly stats rolled out these days. I mean just because the whole country goes down a bit, doesn't mean the house for sale next door goes down, or up!

Confusing!

lisyloo

but how long have people been saying it's risky? 3 years perhaps?

Longer than that because I bought 3.5 years ago and decided to ignore them back then :-)
Up to 5 I think.

Is it any more risky now?

In my view it is.
I think we are closer to recession for a number of reasons.
For example look at what has happened to oil and energy prices, look at what is happening in the NHS with people losing jobs. Look at what has happened to personal debt, repossessions and bankruptcy during that time.

These are the tricky questions

Yes indeed. I agree.
Even though all those risk elements are there it does not mean it will automatically end in a recession or house prices falling.
However I certainly think people should question the age old wisdom of whether it's always good to "get on the ladder" and I don't see that it should be the only choice or the automatic choice.
I know there are some bad landords out there and some terrible properties, we can all think of bad anecdotes but I can't believe the rental property is all bad and there can be advantages to not having the responsibilities and costs of home ownership.

I agree with you it's tricky. I found it very tricky 3.5 years ago but decided to ignore the doomsters and went ahead.
As it happens it's turned out fine but that is partially luck and partially judgement. I do think there are some differences betweeen then and now though. My own living costs have risen more than my salary, so yes I do think we (Uk economy) are now in a worse state generally.