BoE: Gloomy Outlook

dopester

neverdespairgirl wrote: »

Pounce is an overstatement.

However, we are looking very seriously at the moment.

For buyers in our particular circumstances, now could very well be a great time to buy.

Because the falls to date mean you can now buy outright? That alone doesn't make it a great time to buy.

My view is areas down your way will see more dramatic falls in property value - but then I'm countered by Chucky (more of a local to you) who doesn't see it playing out that way, and now yourself, apparently seeing value.

If this is still true couldn't you hold out for a little bit longer?

We pay under market rent, I think. By quite a lot!

It's all well and good for me hoping to see further corrections in value for houses currently in the £200K to £300K range, so I can pay/borrow substantially less.

The savings involved must multiply dramatically for those holding out to see some deeper correction in values for far more expensive properties - if such falls in value come to pass of course.

neverdespairgirl

We aren't going to jump in blindly.

But we're getting to feel very cramped in our flat now, esp. as our son's 5, starting school, etc. For example, we do really want to have a kitchen you can do more than just have one person stand and cook in - more sociable.

And our LL wants to sell up in the not too distant future.

So we've got to look at moving, either in to a new rented, or a buy. The same factors which make buying a 4 bed here a great jump from a 3 bed also apply to renting.

With a hefty deposit, and a sub-4% fix for 5 years, a drop in prices would be a long way from the end of the world, so long as it's somewhere to stay in for years.

It's very circumstances-specific, really.

And the good news for us - lots of new stuff on the market, supply up a lot, but places sticking, too.

Percy1983

I will say I am at the point of saving and probably going to go for 15% deposit. As it is in my local area £90k should get me what I want.

As I say it annoys me that I will be paying 4-5% on my mortgage, yet a friend who got a 110% mortgage is now enjoying 3%. I keep telling myself I was right not to jump in at the same time and so far it would seem right as prices have dropped and as much as my friend won't admit it I know he hasn't got a chance of re-mortgaging right now which could lead to problems.

Yes I know life isn't fair so I am just getting on with it, luckily for me I want a home to live in and start a family in, I don't expect it to be my pension aswell.

chucky

dopester wrote: »

My view is areas down your way will see more dramatic falls in property value - but then I'm countered by Chucky (more of a local to you) who doesn't see it playing out that way, and now yourself, apparently seeing value.

i actually see less value now than 18 months ago.

more people are looking at property than 18 months ago which means that there is more competition for property and people are less likely to take big hits off their asking prices.

i always say this but people don't like it - it's always a good time to buy but there are better times than others to buy property.

michaels

One issue I have with inflation measures is that by definition the basket is backwards looking - Imagine a scenario in which oil and petrol prices rise sharply also pushing up food prices. Inelestic demand means that these items will take a larger proportion of average expenditure whilst price falls for TVs and fridges will be rather redundant as fewer of these will be afforded, but the inflation measure will be based on a basket that had purchases in the proportion based on the previous buying pattern.

This also means that different social groups may suffer very different inflation rates - those who mostly can only afford food and energy were badly hit when these increased sharply in 2007 whereas the overall basket that includes large capital items didn't change by as much - or on a more detailed level when interest rate fell those on trackers gained hugely, those on svr less and those with long fixes not at all.

Generali wrote: »

Clothing has got a lot cheaper as has technology (how much would a 25" CRT TV cost in 2000? Today you can get one for how much? £200? I have 3 large, widescreen 2nd hand CRT TVs which between them cost me $0 and I had the same in the UK!). The 'tablet PC' I type this on probably has better performance than the laptop I bought in 2005 yet while that cost me £1,000 this set me back $300.

Much food seems to have gotten cheaper to me too. Travel by train and car has increased in price but bicycle prices have come down a lot, again due to technology, and that's my preferred mode of transport. The price of alcohol in pubs is up but is probably flat or down in supermarkets.

House prices have shot up obviously but what about mortgage payments? Probably not so clear cut there.

Thrugelmir

Generali wrote: »

My suspicion is that if/when rates start to rise they may end up having to come back down again. There's an awful lot of debt out there still.

Thats why the Basle regulations for banks have been pushed back 6 years from 2012 to 2018.

As the markets wouldn't have coped with both global Government debt issussance, and the banks increasing capital reserves with a combination of reduced lending and equity raising.

Seems as if we're looking at an extended period of financial adjustment.

No ones even suggested how consumer debt gets tackled yet either.......

treliac

RenovationMan wrote: »

Everything is looking rosy for my interest rate gamble. We need 3.5 years of low rates and then I'll be set for life. 3 years until the end of my mortgage deal and overpayment cycle and then .5 years to allow me to get a decent 10 year fixed rate.

You are in a good position and are making it work to your advantage. Good luck!

But what about those on low cost deals who are still struggling and aren't overpaying? What will the overall effect be when those deals come to an end?

Generali

michaels wrote: »

One issue I have with inflation measures is that by definition the basket is backwards looking - Imagine a scenario in which oil and petrol prices rise sharply also pushing up food prices. Inelestic demand means that these items will take a larger proportion of average expenditure whilst price falls for TVs and fridges will be rather redundant as fewer of these will be afforded, but the inflation measure will be based on a basket that had purchases in the proportion based on the previous buying pattern.

This also means that different social groups may suffer very different inflation rates - those who mostly can only afford food and energy were badly hit when these increased sharply in 2007 whereas the overall basket that includes large capital items didn't change by as much - or on a more detailed level when interest rate fell those on trackers gained hugely, those on svr less and those with long fixes not at all.

I agree entirely. On a similar note, I wonder how well 'inflation' measures would capture people cutting spending as they appear to be doing now. If you go from spending £300/week to £250/week by cutting out luxuries but inflation is flat, has your cost of living fallen or remained the same?

RenovationMan

treliac wrote: »

You are in a good position and are making it work to your advantage. Good luck!

But what about those on low cost deals who are still struggling and aren't overpaying? What will the overall effect be when those deals come to an end?

I'm not sure what you want me to say?

Thrugelmir

The matter is up for debate. As its the wealthy that are potentially less effected than the average borrower.

In CP 10/16 on responsible lending the FSA called for debate in the industry about the future of interest-only mortgages and said there was a possibility the regulator would ban them. Their review is part of the FSA’s move towards a sustainable mortgage market where borrowers can afford to repay their loans as opposed to service their interest.


The risk of borrowers using interest-only mortgages as a method of increasing the amount of capital they could borrow and then being unable to afford to repay was much higher for borrowers buying more average priced homes than for those investing in high value property.
"Someone borrowing on an interest-only basis for a £100,000 house and then finding that they can’t afford to repay will present a bigger risk for the lender in reality than someone borrowing £500,000 for a million pound house.
“People borrowing on an interest-only basis at the more expensive end of the market are generally doing it out of a conscious choice to plan their finances that way. They also usually have other sources of income and will have many more options, including down-sizing, if their income is reduced in any unexpected way. “At the lower end of the scale there is more of a danger that borrowers are taking interest-only in the shorter term to make loans more affordable. If there is to be some restriction of interest-only deals, it would make sense to put more conditions on those types of loans. It’s these borrowers who have fewer forbearance options if they do default – they’ll be harder hit than those with equity in a higher value property if they suffer a loss or reduction of income.”