I suggest you read this before buying a house

Xbigman

realwildone wrote:

Please don't insult our intelligence by telling us 42% falls are normal in Oz

4% falls in the US in ONE month are normal too are they.

Er, I didn't say 42% *falls* were normal. I said 30% *variations* were almost normal. My point was that taking a few months worth of figures and creating a trend tends not to work out. Now if after 6 months of the variation being consistantly price-drops you will have a trend. The fact that the UK has a stable housing market (I am talking statisticly not actually) does not mean other countries do.
If you watch the programs where the auctions are taking place you will see fairly big variations where 400,000 properties fetch nearer 600,000 (50% variation) and it is clear that a lot of pricing is just guesswork. Has the Sydney market been over hyped, it looks like it too me. Are we seeing a 42% correction in Australia as a whole in one month, no.

Now the US is another matter. Their market is overanalysed as much as the UK is, and like the UK there are mixed signals coming from the various measures of US house prices. I'm no expert on the US but I have looked at buying shares in a few UK housebuilders (well one mainly) that also has US operations and their house prices are not as overpriced as in the UK market so I think the correction in the states, if there is one, will be quite mild.
Is a 4% correction normal, I think you'll find the US data has an accuracy of +/- 5% so I'd have to say yes.

On the other hand the states has seen its interest rates rise 17 months in a row. If you applied a 4.25% increase to the bank of englands rates, so 9%, I think a 4% drop in house prices would be met with some relief!
Regards


X

alared

The reasons why property prices in this country are so high are low interest rates and secondly there are are too many greedy people with fingers in the "property pie" who are talking it up because it`s in their interest to do so.
They are all getting their cut from the government downwards (stamp duty),EA`s,banks,building soc,builders,insurance companies,survoyers,etc,etc.

lynzpower

F_T_Buyer wrote:

The problem is the lowest lenders can go is interest only. This who inter generational mortgages is just spin. No lender can make anyone take on someone elses debt. The mortgage is merly nominating someone who will take on the debt, but in 25 years (or whatever) alot will change.

An interest only mortgage is an infinity mortgage, unless you pay off the capital the debt never reduces. It's simple. If you can't afford the interest now, who cares what happens in the future.

The problem is the lenders have hit the affordability limit. The only other thing they could introduce is negative amortization (where you don't even pay the interest off, it just rolls up). But this means the banks make a loss (until you start repaying the debt), so I can't see it happening here like the US.

The only other issue is shared equity ownership, but the banks don't make money from owning bricks and mortar! Property IS dead money to a bank... lol

I did mention yesterday about the Advantage FlexiShare Mortgage from MOrgan Stanley.

http://www.ft.com/cms/s/6e7f9fbc-1ffa-11db-9913-0000779e2340.html

from that link

The product will breach the convention whereby most banks refuse to lend above more than about four times salary – or three times a couple’s joint salary – on a home. Homeowners would be able to borrow a conventional mortgage and a “residential ownership loan” of up to 35 per cent of the home’s value, at a lower rate. Morgan Stanley would then take a proportion of any rise – or fall – in the price of the home.

As an example, a home bought for £200,000 and sold after doubling in value to £400,000 would provide the lender with up to £70,000 of the capital gains, leaving the homeowner £130,000. If the home halved in value, say to £100,000, the lender loses £35,000 and the homeowner £65,000

And from http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=84181&XDU=1bbe50f9-f0a9-4caa-baa6-3300e5be5e9b&XDS=O&XDNG=True&XDKL=0&XDURL=http%3a%2f%2fwww.citywire.co.uk%2fNews%2fNewsArticle.aspx%3fVersionID%3d84181

The part of the borrowing at the lower rate, called the residential ownership loan (ROL), can be anything from 15% to 35% of the purchase price and interest is charged on this at a fixed rate of 2.99%. But this proportion is equity-linked and if the property goes up in price, the amount owing on the ROL increases in line.

For example, a purchaser buying a £200,000 flat will need a minimum deposit of £10,000 (5%) and they might decide to go for a mortgage of 85% or £170,000, and a 10% ROL of £20,000. If the property goes up in value by 10% the amount owing on the ROL goes up by 10% to £22,000. If the property should fall in value the amount owing on the ROL also goes down by the same proportionate amount.

And from Flexis website on the interest rates

Flexishare has the following interest repayment options available:

• 2 year stepped fixed rate at 5.69% (1st year), 6.69% (2nd year), thereafter LIBOR plus 2.50% (plus ROL at a low fixed rate of 2.99% for the term of the loan between 5 and 35 years)
• 3 year stepped fixed rate at 5.99% (1st year), 6.99% (2nd year), 7.24% (3rd year) thereafter LIBOR plus 2.75% (plus ROL at a low fixed rate of 2.99% for the term of the loan between 5 and 35 years)

Key highlights of Flexishare include:
• Borrowers have greater purchasing power
• Affordability based
• Lender shares in the appreciation and depreciation
• 5% minimum deposit - No Higher Lending Charge (HLC)
• Minimum loan of £30K, up to a maximum loan of £400K
• Available in England, Wales, mainland Scotland and Northern Ireland

Mark Clarke, CEO of Advantage, said:
“Affordability is a key issue in the UK housing market and by working with Morgan Stanley, we have created an innovative solution that strikes at the heart of this issue and complements the Government’s “HomeBuy" low cost home ownership initiative. However, it is important to note that Flexishare differs from the HomeBuy mortgage in several ways: Flexishare is not a job orientated product (i.e. you don’t have to be a key worker), the borrower can vary the share of lender participation and, importantly, we share the upside and downside of the property value.”

Key highlights of Flexishare include:
• Borrowers have greater purchasing power
• Affordability based
• Lender shares in the appreciation and depreciation
• 5% minimum deposit - No Higher Lending Charge (HLC)
• Minimum loan of £30K, up to a maximum loan of £400K
• Available in England, Wales, mainland Scotland and Northern Ireland

Something like this means that banks WILL make from property, in the way that this sort of ramping. The banks are still talking explicitly in terms of capital gains. If the tide is turning in terms of the public believing in capital gains, then this looks like a last ditch attempt to me of the banks going.. ."no no your property will make money, course it will or why would we keep a share? " If the property remains at its purchase value they will have still gained the interest payments in the interim. Its a way of getting people paying back interest on 75k I pay IO 350pcm, on 200k it would be more like a grand a month interest only, and with that 7.24 interest rate............... :eek:

Gorgeous_George

meanmachine wrote:

Come again?

How does that work? As a FTBer, I can now borrow less on an affordability mortgage, so that pushes prices up how?

Or do you mean that there'll be a rush to get mortgages, fearing higher borrowing costs in the future? I guess that's possible.

It does look like Sydney and parts of the US are going into a correction phase. Sadly we're unlikely to follow unless rates go above 5%.

Having said that, new build flats outside the capital are going to crash whatever happens, imo.

I guess if people think interest rates are likely to rise some could be tempted to buy now at a fixed rate as they believe it would cost more in the future. Of course, this is flawed if prices fall as IRs increase.

You can fool some of the people all of the time.



GG

Gorgeous_George

Does Australia have as many immigrants as the UK. This helps to push prices higher.



GG

PoorDave

meanmachine wrote:

Come again?

How does that work? As a FTBer, I can now borrow less on an affordability mortgage, so that pushes prices up how?

Or do you mean that there'll be a rush to get mortgages, fearing higher borrowing costs in the future? I guess that's possible.

It does look like Sydney and parts of the US are going into a correction phase. Sadly we're unlikely to follow unless rates go above 5%.

Having said that, new build flats outside the capital are going to crash whatever happens, imo.

I mean exacatly that. People who were hanging around the market,thinking "we'll buy next month" every month, but who are now rushing into buying at this month's interest rates because they think next month (or whenever) rates will rise some more, and thus it'll cost them more to borrow the same amount.

Negative amortisation eh F_T_Buyer. Now that sounds dangerous! In a way it's the lenders finding more sneaky ways to earn more money that will push us from the "soft landing" that all us homeowners think is the best we can ever expect from the market to the massive crash that could be lurking around the corner.

To a certain extent you can see the logic behind raising income multiples, as rates seem to be low, compared to the 3x or 3.5x days, so the affordability CAN work out the same at the lower rates.

I hope everyone with deposit money hanging around has some of it at least invested in shares in the main mortgage lenders, so someone gets some of their profits back off them.

dougk_2

alared wrote:

The reasons why property prices in this country are so high are low interest rates and secondly there are are too many greedy people with fingers in the "property pie" who are talking it up because it`s in their interest to do so.
They are all getting their cut from the government downwards (stamp duty),EA`s,banks,building soc,builders,insurance companies,survoyers,etc,etc.

I disagree - the main reason for the high prices is demand. People in the every increasing populated UK want to buy a house so there is LARGE DEMAND. More people in the past two years have moved to the UK than the number of new houses (rabbit hutches???) built. On top of that more people are living on there own or as couples rather than larger family units. Again more people now own their own homes rather than rent.

You cannot comapre the US to the UK as the vast majority rent and do not want or see the need to buy. Planning regulations are also almost non-exsistant in many states and the price of construction are much cheaper (as is the cost of living) partly due to the materials used and the lack of regulations against things like energy efficiency.
.

spottydog

Having moved from London to Sydney last year I've seen both markets recently.

Sydney house prices have generally reduced by about 10% over the last couple of years. What I'm noticing is that properties that go on the market priced at over what their value was in 2003 are generally finding they are having to reduce their expectations by 10 to 15%. Properties that are priced realistically are still selling, its very noticible that places seem to be going within a couple of weeks or sitting on the market for a long time then finally changing agents, reducing the asking price and selling in a few weeks.

Auction clearance rates are fairly low at present somewhere around 45 to 50%.

It's also noticable that whilst this article was about major price reductions, yesterday the article was that house prices have risen in Sydney in the last Quarter by 1.4% (although down on the year by 0.5%) and a survey showed something like 60% of respondants are planning or considering buying an investment residential property in Sydney in the next 12 months.