to buy or not to buy - that's the question

F_T_Buyer

Its funny how when these threads come up, there is always someone who says, "well I know someone who sold to rent back in 2001, and now look at them." The reality is house prices were not massively overvalued in 2001, I would say they were fair value. Look at the debt levels, tax burden, trade deficits and you will realise the figures now are far far worse than 2001.

Do you realise how many warnings they have been about high house prices? Not from forum posters like me, but from reputable organisations like the IMF (International Monetary Fund), BIS (Bank for International Settlements), OECD and many economists. But do these warnings get airtime? Nope. The papers rarely report them because it would lead to less advertising revenue (which account for around 70% of a papers revenue) from the property sector.

Now don't forget the BBC, who have clearly decided to mainly report pro housing news. Any negative news that they can't avoid reporting is moved off the front page by the next day, and replaced by a more positive housing news story, which any of the vested interest happily provide.

Many economists have stated global interest rates are too low. Many have suggested with current money supply global interest rates should be around 8%. In fact, both the BIS and IMF have stated UK interest rates are too low.

The question you, and the rest of this country, needs to ask is "can I afford my mortgage at 8% interest rates?"

If rates were 8% in the UK, the 90s house price crash would look like a walk in the park. This is why our government is doing absolutely everything possible to stop the house of cards falling down. Look at taxpayers money being pumped into the housing market. Look at the fudged inflation figures to keep rates low. Look at how Gordon Brown is spending record amounts on public services and boosting employment so he can say all is well.

When will the bubble pop? I don't know. I was wrong, and didn't think it would last this long. I never expected mortgage lenders to lend the amounts they are in relation to pay. I never thought BTLers would buy with negative cash flows on mass. I never expected Sterling to be so strong as it currently is.

But does this mean I will always be wrong? Does this means gravity has been conquered? No. No.

What rabbits can be pulled out of the hat from now on? The most affordable mortgage the people can acquire is interest only, anything less and the banks lose money (and banks don't like losing money), but were pretty much there with first time buyers. More FTBs could be blinded that group co-buying is the answer. More parents may be convinced equity release is a must for their kids.

Does this mean the market will never crash? No. All the measures up to now are unsustainable, and any suggested policies will be unsustainable too. This just means when the bust comes, it will be far far worse.

sanfrancisco

bs0u0128 wrote:

people have been saying itll crash for years, it hasnt, i doubt it will it may just stabilise at a high

This is true. I have been alive for the past x years, ergo I will be alive forever.

Past performance is no indicator of future performance...blah blah.

pawpurrs

Angela at what price level are you looking at 50k and 6ok drops?

Angela_D_3

sanfrancisco wrote:

This is true. I have been alive for the past x years, ergo I will be alive forever.

Past performance is no indicator of future performance...blah blah.

That is how every HR department in the country decides who to hire and who to promote. Obviously they have got it wrong :rolleyes:

Verbatim

House price crashes happen but are not common. The last big one was 1989 following among other things the removal of multiple tax relief on mortage interest. Anyone able to sit tight and continue to pay their mortgage would have seen a huge rise in equity after6 or 7 years. The key thing IMHO is to ensure that you could pay the mortgage if interest rates went up. I first bought in 1979 and interest rates soared to 15%. luckily I had 2 spare rooms and could rent them....

Market_Oracle

mindovermatter wrote:

Hi,
We've sold our house (complete on friday) and will be renting a house in town.
What do you think that house prices are going to do next year?
We are not going to rush into buying another house but would appreciate any advice - is it as simple as thinking that if interest rates keep going up then house prices will drop?
Kind regards
Mindovermatter

Interest rates may go much higher than people imagine, as inflation has effectively neutralised the rises to date and we are pretty much we were at when base rates were at 3.5% in terms of fighting inflation.

Interest rates are on target for 5.75%, and I would not be suprised, if they go higher still !

House prices would feel the pinch with interest rates at 5.75% and higher, but until then they'l keep trundling along the highs.

If you do buy, run the sums with interest rates at 5.75% / Mortgage rates at 7%, to ensure you can afford the mortgage.

rrobbo

I personally have a preference to own my own home that goes beyond the financial pros and cons of home ownership versus renting and I'll probably always own regardless. What I have considered though is a buy-to-let as an investment and this is where you obviously have to look purely at the figures. I also think that you have to decide what it is that you're trying to achieve, the time period that you're looking at and the level of risk that you're willing and able to take.

In many ways these considerations are very similar to those for any other type of investment. What makes the buy-to-let slightly different though is that it's one of the few instances where Joe Public is actually encouraged to borrow money to use speculatively. It's this highly leveraged investment that actually makes buy-to-lets such an attractive proposition for many people. Imagine a situation where house prices double over 10 years. This gaves a growth rate of around 8% a year. In isolation this seems like a reasonable return, albeit with some risks. What transforms this though is if you only have a 20% deposit and have tenants who pay the mortgage and all costs for you. In this case the property that you bought for £100,000 and sold for £200,000 after 10 years has made a £100,000 profit on your initial investment, which may be nearer a 22% compound yearly return. All this is potentially tax free if you do things properly. If you'd put your £20,000 in the bank at 5% for the same period you might make around £11,000 in the same period. The government even actively encourages the gamble by allowing mortgage payments to be deducted for rental income.

The figures make a pretty compelling argument, nearly 10 times the rate of return, based on property growth figures that currently look quite conservative. The only problem is that the gearing not only accentuates the possible profit, it also accentuates the possible loss. A fall in house prices of just 2.5% a year over the same 10 year period would result in a 100% loss of the initial investment. Whilst I wouldn't want to predict any fall in property values at all I can't believe that the term 'negative-equity' can be removed from our vocabulary completely.

I get the impression that the dynamics behind house price movements and the factors influencing them have changed over the past 20 years and are continuing to change. Therefore we are in uncharted waters and predictions become increasingly difficult. From anecdotal evidence and what I've read in a few different places there appears to have been a growth in both small-scale professional and 'hobbyist' landlords. It also appears that there's an increase in those people buying properties for capital growth rather than rental yield. In those cases one has to assume that the shortfall from rent is being met from other sources. One potential consequence of this is that the supply of rental properties isn't in response to demand, leaving the potential for over-supply. This in turn potentially means a fall in average rents and an even larger fall in rental yields given the ongoing increase in property values. If the secondary source of income to cover these rental gaps dries up, through unemployment or bonus reductions, then people will then likely be forced to sell their properties and, if it is on sufficient scale for supply to exceed demend, there is only one likely direction for prices to go. This is coupled with affordability in general as prices and interest rates increases (admittedly this may make those people not on the property ladder a captive audience for the new landlords but that may not be enough to prop up the market).

I'm in Northern Ireland at the moment and property prices have risen aggressively, particularly over the last 6 months. When we bought our current house in December we held onto our two bedroom apartment just outside Belfast. An identical apartment was sold for £130,000 around that time - a level that we were surprised to see reached at the time. I've just put the property on the market today with the expectation that it will go for around £190,000. In that same period the average rent achieved for these apartments has risen from £475 to £500. Even this level of rent is under pressure because of the volume of rentals becoming available in the area. The estate agent thinks it likely that our sale will be to an investor as a buy-to-let.

I own an apartment in New Zealand (had for two years) and a house in England (had for 8 years) that I'll continue to let because I bought them with a long-term perspective and I'm happy enough with the investment right now. I simply struggle with the figures and level of risk as the market stands at the moment (I may also have become more risk averse with age).

Personally I'd like to see the market switch back to a position where property is view more as a place to live than a commodity. The boom and bust cycle that the current approach may lead to is only really in the long-term interests of the larger corporations who managed to take a slice of each transaction. A reduction in the levels of stamp duty for private purchases and an increase in the levels for commercial purchases would potentially help to even things out, as would some reduction in the levels of mortgage repayments allowed to be offset against rent.

None of these views have any scientific basis and, like all opinions, are open to be shot down. They're just a few of the things that I've considered when I've looked into getting/holding a buy-to-let property at the moment. These, in turn, have some potential impact on residential property prices. Right now I wouldn't predict a fall in property prices but I do get the impression that there are an increasing number of variables influencing the property market and many of these are looking difficult to predict with any level of certainty.

mcbiddy

Mmmm the eternal question.
am a FTB, been looking for ages (on my own) and i keep thinking what if the prices crash just after i buy? well i guess that's the risk to take. although i must say Martin's got a point when talks about the property !!!!!! on telly, that probably contributes to price rises. in any case NOBODY can predict what will happen when. so it's up to individuals to take the risks. that's the way i see things anyway...

Angela_D_3

pawpurrs wrote:

Angela at what price level are you looking at 50k and 6ok drops?

Ours was on at 315k and we took £249,500
We've offered £200 on £247,500k

No news yet !!!

pawpurrs

Blimey those are one hell a drops at that price level, thats a 20% drop!!!!! Yikes, Ive never known that sort of drop in all my years in Estate Agency. Was it on for way too much?!?!?!?

200k on 247,500, if I had an offer like that dont think I would reply either, crikey.
Whereabouts are you?