First-time Buyer fear - Will house prices crash??

RHemmings

manhattan wrote:

looks quite nasty over there,i wonder if it will have an effect on us here?

People say that the US has had even fewer (none?) nominal falls than the UK. If they get big nominal falls over there, that should put the fear of God into the "property only ever goes up" brigade.

Bil2

I think that some of you doom-mongers are missing the point of WHY people buy houses to live in.

People buy houses so that after 25 years of paying a mortgage, they will own the house outright (hopefully before they retire!). For those of you in rented acommodation sitting around waiting for a crash- whether the value of my home falls or not (presuming I can meet the repayments if the interest rate soars)! at least I will not have to make anymore payments on my home once I'm retired.

To me, this is the major reason why most people buy a home to live in.

RajaStyle

Bil2 wrote:

at least I will not have to make anymore payments on my home once I'm retired.

To me, this is the major reason why most people buy a home to live in.

Hmmm lets hope your pension is in a position to cover the high council tax rates i'm sure will be making up the shortfall at the rate they're going .... hence being allowed to live in your home ... or forced to follow the many pensioners who move abroad to the likes of Spain every year as they can't afford to live here.

RHemmings

Bil2 wrote:

I think that some of you doom-mongers are missing the point of WHY people buy houses to live in.

People buy houses so that after 25 years of paying a mortgage, they will own the house outright (hopefully before they retire!). For those of you in rented acommodation sitting around waiting for a crash- whether the value of my home falls or not (presuming I can meet the repayments if the interest rate soars)! at least I will not have to make anymore payments on my home once I'm retired.

To me, this is the major reason why most people buy a home to live in.

The less mortgage that you need to take out, the quicker you can pay it off. Which is better, buying a house now and paying off the mortgage in 25 years, or buying a house in two years time and paying off the mortgage in 15 years?

manhattan

Bil2 wrote:

I think that some of you doom-mongers are missing the point of WHY people buy houses to live in.

People buy houses so that after 25 years of paying a mortgage, they will own the house outright (hopefully before they retire!). For those of you in rented acommodation sitting around waiting for a crash- whether the value of my home falls or not (presuming I can meet the repayments if the interest rate soars)! at least I will not have to make anymore payments on my home once I'm retired.

To me, this is the major reason why most people buy a home to live in.

everyone is in a different situation.

i am in a situation of low rent/nice area (£260 a month) 2 bed semi.

we have saved a large house deposit.

i dont fancy buying towards the top of a housing market and see my hard earned savings be wiped out.im sorry i cant take that risk!

so in my position,i can sit and wait until things look realistic. and IMO any sensible person in a similar situation should do the same.

or course we want a house to own and live in! but we are not going to pay an arm and a leg for an overpriced starter home for me,the wife and two children!



"rant over" lol

lush_walrus

richgirl wrote:

The housing slump is well underway across the atlantic, why do people think the UK will be immune to the housing slump, when our house prices are far more over priced then over there ?

Whats the average house price ? £167k

Whats the average salary ? £27k

Thats more than X6 average salaries.

And on top of this we have rising inflation but CPI and non recorded inflation i.e. fuel ! council tax ! etc.

House prices will move towards a state of under valuation which usually is around X3 average salaries, which implies a halving of house prices in REAL terms. And in sentiment terms more so ! These few months are likely your last chance to sell before we enter a house price decline spiral, where sellers chase prices lower by cutting 5%, 10% every few months, which by then is too little too late and demanding even more price cutting which IS what happens during a bear market, instead of buyers chasing prices higher, sellers chase prices ever lower...

Its not that people think the UK is immune, its more that due to the banks adding new options to the level of lending continually we are not yet at the point of property being unaffordable. Unfortunately as sad as it is, the banks are making sure that a slump does not come by introducing new forms of lending at a huge rate. They know exactly what they are doing, and they are very well aware that without this intervention there will be a property slump. But as long as the banks make property appear affordable then people will buy and beleive me they are. My EAs are all in the SE and property is still rising and is still selling, whether people want to take that fact on board or not is neither here nor there to be honest.

I personally do not agree one bit with what the banks are doing and to be frank with you I would love to see a slump in prices as we are all being pushed into a situation that isnt beneficial for anyone (even EAs), unless all of us love spending thousands on stamp duty every time we move.

Sad thing is, the UK banks are looking to the wrong economies for their inspiration on lending, the new generation mortgages are a direct copy of those that have opporated for years in Japan & Switzerland amongst others. Both countries remain to have property brought and sold even though no one can afford to buy anything on their own and it could well be that the UK never returns to one generation being able to afford anything.

There is absolutely no reason to beleive that paymetns over 25 years are the only way the housing market can be or will be. For Switzerland and Japan not being able to afford to buy anything in a single generation has become a way of life, what is truely to say that will not happen here.
Perhaps we are all just on the edge of the biggest adaptation to the housing market ever. The thing with all of those people who state so clearly about the doom of the housing market is, if they are so sure why not just know that for yourself, rather than get so frustrated and so animated about those who dont agree. If those who think the housing market is not going to drop are so wrong, then why really would anyone worry, as with anything in life as long as you know what you know then that is good enough surely?

RHemmings

lush_walrus wrote:

Its not that people think the UK is immune, its more that due to the banks adding new options to the level of lending continually we are not yet at the point of property being unaffordable. Unfortunately as sad as it is, the banks are making sure that a slump does not come by introducing new forms of lending at a huge rate. They know exactly what they are doing, and they are very well aware that without this intervention there will be a property slump. But as long as the banks make property appear affordable then people will buy and beleive me they are. My EAs are all in the SE and property is still rising and is still selling, whether people want to take that fact on board or not is neither here nor there to be honest.

I personally do not agree one bit with what the banks are doing and to be frank with you I would love to see a slump in prices as we are all being pushed into a situation that isnt beneficial for anyone (even EAs), unless all of us love spending thousands on stamp duty every time we move.

Sad thing is, the UK banks are looking to the wrong economies for their inspiration on lending, the new generation mortgages are a direct copy of those that have opporated for years in Japan & Switzerland amongst others. Both countries remain to have property brought and sold even though no one can afford to buy anything on their own and it could well be that the UK never returns to one generation being able to afford anything. For Switzerland and Japan not being able to afford to buy anything in a single generation has become a way of life, what is truely to say that will not happen here. Perhaps we are all just on the edge of the biggest adaptation to the housing market ever.

The problem for the banks is diminishing returns. If people are going to pay more for property, then this money has to come from somewhere. People often say that they buy with interest-only mortgages as that is all that they can afford. This is already an infinite year mortgage, so these people cannot buy more expensive properties by increasing the term. The alternative is then for banks to take a cut in their profits by allowing people to buy more expensive property without having to pay the bank any more money. I do not think the banks are going to cut their profit margins much, if at all.

For there to be a revolution in banking allowing people to buy more, then the money has to come from somewhere. The only possibility I see are negative amortisation mortgages, where not only is no capital repaid, but not all of the interest is repaid. With unpaid interest being added to the outstanding amount, which grows. As I would hope most readers would agree, such mortgages are recipes for disaster.

You've also got to realise that the banks' profits depend on the risk of a loan. For example if the bank lends money at 3.5x salary and 5.5% interest is paid, then they will make a certain profit. If they lend money at 5.5x salary and 5.5% interest is paid, then they will make a smaller profit, due to increased likelihood of default. So just loaning more at the same interest rate cuts into profits, but if more is loaned at a higher interest rate to compensate, then we're back at looking at what people can afford to pay.

If there is to be any major change in banking over the next few years, it's likely to address the problem mentioned by many financial commentators that risk has been undervalued in the market. Due to house prices rising, making it easy to recover the amount owed if the owner defaults on the mortgage, organisations have been prepared to buy the risk from the bank for very slim margins. If the situation in the market changes. If bankruptcies and repossessions start rising, if interest rates rise, and if there are crashes in other foreign markets that scare those organisations, they will demand a higher margin for taking on the risk. And that will make mortgages more expensive.

BobProperty

RHemmings wrote:

....The only possibility I see are negative amortisation mortgages, where not only is no capital repaid, but not all of the interest is repaid. With unpaid interest being added to the outstanding amount, which grows. As I would hope most readers would agree, such mortgages are recipes for disaster......

As seen recently in America. :eek:

meanmachine_2

lush_walrus wrote:

Sad thing is, the UK banks are looking to the wrong economies for their inspiration on lending, the new generation mortgages are a direct copy of those that have opporated for years in Japan & Switzerland amongst others. Both countries remain to have property brought and sold even though no one can afford to buy anything on their own and it could well be that the UK never returns to one generation being able to afford anything.

I agree with most of your points - how can I not, you've proven to be right over the past year!!

But regarding Japan, I think you're way off. The ingenerational mortgage came about at the tail end of their last boom. That was 15 years ago. Since then property prices have slumped.

I agree that banks will do anything to keep lending going. But as regards them "knowing what they're doing", they don't. They have profit targets to meet and will do anything in the shorter term to meet them.

It's this short term greed that will cause a correction, not stop it. But it's just a question of when. And the answer might still be a few years away.

Bil2

RHemmings wrote:

The less mortgage that you need to take out, the quicker you can pay it off. Which is better, buying a house now and paying off the mortgage in 25 years, or buying a house in two years time and paying off the mortgage in 15 years?

I only stated '25 years' as this is the standard length for mortgages... paying off the mortgage earlier than this is obviously going to be beneficial.

The main point of my post was to state that most people buy houses to live in so that by the time they retire they no longer have to pay for the house.