House Price Crash 3

Alan_M_2

The statistics also don't include reposessions, or situations like mine where I handed the keys back and walked away. As there was no sale. Sales of reposessions at auction are also not included. So the data is only as good as the information from which it's compiled.

I must say that I'm not bitter about the whole thing, crap happens and I got unlucky although it has effected my life since it's not stopped me setting up a business and getting myself back on my feet.

However, people should be aware of what can and has repeatedly happend over the years and should be provided this information as it happened, not hidden in meaningless statistics.

I'm not concerned with people making money or BTL magnates, I take my hat off to anyone who has managed to get themselves into a position where they earned a great deal of money, but I do think that the amount of credit being offered to naive young buyers is criminal, and the banks and financial institutions are overexposing people without giving them the full benefit of actually historical data.

I also predict Interest Only Mortgages will be the next endowment policy outrage when in 10 year time people realise they still owe exactly what they did to start with and have actually done nothing but rent their property from the day they bought it, and if prices do drop, negative equity rears it's ugly head again.

cwcw

Alan_M wrote:

The statistics also don't include reposessions, or situations like mine where I handed the keys back and walked away. As there was no sale. Sales of reposessions at auction are also not included. So the data is only as good as the information from which it's compiled.

I must say that I'm not bitter about the whole thing, crap happens and I got unlucky although it has effected my life since it's not stopped me setting up a business and getting myself back on my feet.

However, people should be aware of what can and has repeatedly happend over the years and should be provided this information as it happened, not hidden in meaningless statistics.

I'm not concerned with people making money or BTL magnates, I take my hat off to anyone who has managed to get themselves into a position where they earned a great deal of money, but I do think that the amount of credit being offered to naive young buyers is criminal, and the banks and financial institutions are overexposing people without giving them the full benefit of actually historical data.

I also predict Interest Only Mortgages will be the next endowment policy outrage when in 10 year time people realise they still owe exactly what they did to start with and have actually done nothing but rent their property from the day they bought it, and if prices do drop, negative equity rears it's ugly head again.

I suppose there are lies, damned lies and statistics. I agree with the interest only mortgage issue. I would never have considered taking one out. We opted for a repayment mortgage fixed rate for 2 years and we put 10% deposit down. I think we have been as careful as possible in that respect, just in case (though I still can't see prices falling in the medium-long term). We also bought in a very desirable location. At 23 and 21, I don't think we're naive young buyers (not that I'm saying you were aiming that at me).

In 5 or so years when me and my partner want to upgrade to a house, we will have accumulated equity in our flat and should be able to do so (unless we experience a disastrous collapse). Meanwhile, our friends will still be renting smaller places for almost as much as we pay on a repayment mortgage and will probably be even more priced out of the market.

As an aside, I read some sarcastic comments somewhere about buying leather sofas on 0% finance from stores and felt the need to address it. I have to admit we are guilty as we want to furnish the flat nicely, but we have the money ready now to pay the balance in a year's time, and since it is in a 5% savings account, the finance deal is actually giving us a nice discount on the suite. All we have to do is remember to pay the balance before the 12 month deadline, otherwise we will be locked into an excruciating 29.9% APR!! :eek: Surely this makes more sense from a "MoneySavingExpert" point of view than paying the whole lot up front?

mpsavuk

Alan_M wrote:

To back up Bob's post I was one of the people that did get caught in the 90's crash, this makes me pretty pessimistic about whats happening now as there is a feeling of Deja Vue.

In 1989 I bought a two bed terraced house for £72,000 (having negotiated down from £85,000), I was 19 years old, I had a £60,000 mortgage. I sold everything I owned for the deposit and was held up as a shining example of being sensible.

Three years later interest rates hit 15%, my mortgage and endowment was approaching £1,100 per month and my house was valued at £45,000. I couldn't keep up repayments, my parents weren't financially in a position to help me as they had their own monster mortgage, I couldn't sell the property to clear the debt (which was now increasing) as it wasn't worth what I'd borrowed.

If I could have afforded to ride it out I would have done, but the sums were so large back then that I just couldn't. I walked away with no property, no assets and £20,000 in debt, which stupidly I spent the next 10 years paying off. In hindsight I should have walked away and knocked them, as it made absolutely no difference to my credit record (even a couple of banking friends have since told mye I shouldn't have paid it back).

I'm 37 now, and I was very young when I bought, but there were hundreds of thousands of stories like mine at the time, not just a hand full.

There's now an entire generation of people from their early 30's and under that have no recollection of anything other than massive increases in property values, coupled with historically low interste rates and historically high levels of lending (in volume and in multiples of income).

I don't know which way the market will go, none of us do, but I have a terrible feeling about it, but then, I would wouldn't I. In my particualr case my house lost close to 40% of it's value

My situation was the opposite.
I bought in 1986 and sold in 1989....... just before the crash.
I made a cool 25K!
Even i could see it was heading for a disaster & believe me i am not the most financially switched on person.
But at least i avoided being a "greater fool".
I am currently renting & holding off buying at the moment because i am smelling trouble around the corner again, just as i did 17 years ago.
Really don't want to be a "greater fool" this time around & end up with a great big debt & in negative equity do I!

Alan_M_2

1986 is the year I left school, it would have raised a few eyebrows had I manage to buy that year:)

roswell

All I can add to my recolection of the last crash To paint the picture my parents had just emigrated from South Africa it was April 1991 , my parents were renting off a gent who lived in a 1 bed flat, we lived in his 3 bed house while we paid half his mortgage payment a month as rent, the neighbours managed to sell there house owing 20K and move it onto there next property. It must be bad news when the land lord can only get half his mortgage as rent, I remember when it came time for us to move on he offered to even lower the rent if we didnt leave..... his tenants were the only people keeping him from loosing the property.

undercoat11

I too worry that people don't believe the figures. Don't look at average prices, since they can't show you the individual problems that people had in the 80s and early 90s. My house was valued at 75,000 in 1987/8, but the one next door sold for £45,000 in 1998 - 11 years later it was worth 30,000 less. It probably took 12 or 13 years to get back up to 1987 levels.

Some people really did struggle at that time and although they "rode it out", it wasn't without some hardship - friends of mine were in negative equity for approx 10 years when they bought at the top of the market. They were paying a mortgage double that of their neighbours who bought some time later. I also know of someone who lived in a one bedroom flat in London bought for herself and her boyfriend. They later married and had 2 kids, but were stuck in that one bedroom flat until the building soc allowed them to buy a larger flat and take their negative equity with them - it cost them a fortune.

I too was lucky and bought before the large house price rises of the late 80s, but it was only pure luck, certainly not judgement. I could easily have bought at the time of the greatest rises, as I was young and naive and believed all the "buy now or you will never be able to move up the ladder". I feel quite sad that young people may have been taken in again and so soon after the last house price fiasco.

gallygirl

My recollection of the 80's makes me feel the situation is very different. We paid 45k for a 3 bed detached in Feb 87 (:eek: :eek: :eek: yes, I know, was a fortune to us at the time!!!!) , neighbours paid 5k more 3 months later, 6 months later they were 65k, they 72.5k in Feb 88. The rapid rises panicked people people into buying.

Now prices are rising slowly. The house you buy today at 150k wasn't worth 90k a year ago (unless you're in Merthyr Tydfil maybe). Yes people want to buy, but there is not the same stampede. I believe that the smaller rise in house prices over say 5 years relative to the 60% rise in 1 year in the 80's should be factored in to any potential crash.

BTW - saw yesterday prices have risen by 6% over the past year. So if you had bought a year ago you would already have a 6% cushion when the 'inevitable crash' happens......

mystic_trev

another sobering read.

http://www.creditaction.org.uk/debtstats.htm

"The average house price in the UK in August 2006 for first time buyers now stands at £152,172 which is an annual increase of 6.9%.



First-time buyer income multiples reached their highest level ever in August at 3.27 times the average income, according to the Council of Mortgage Lenders (CML). The average new mortgage for first time buyers has now reached £112,000. The average age of a first-time buyer is 29.



According to the National Association of Estate Agencies (NAEA) first time buyers accounted for 11.1% of properties purchased in September.



Housing costs have risen sharply for first-time buyers: their average mortgage costs are now a third of average earnings. As a consequence a third of all working households under 40 cannot afford to buy even at the low end of local housing markets.



First-time buyers are increasingly relying on their parents for a cash handout to help them fund a deposit on a property purchase. One in four people aged 20 to 35 was counting on parental help. One in eight, meanwhile, said they expected their parents to act as mortgage guarantor - thereby putting the parental home at risk."

undercoat11

Actually, when I bought my house (back in the mists of time), my salary per month was £650 plus or minus a bit. My repayments on my £23,000 mortgage were something like £230 a month, so I must have been very hard pressed. This was back in 1985.

Just my thoughts. I don't think we need to underestimate the struggle that it has always been to buy your first house. I think the difference is that the value of my house in 1985 went up considerably over the next 5 years (but it dropped again!) and my salary was increasing by 6 or 6.5% every year. I don't know how long it will take to make a £300,000 mortgage to look small.

westernpromise

cwcw wrote:

I don't understand the 40% drops. Obviously there were such cases but the average price didn't fall that much at all.

I think two things are going on there. First, national averages tend to smooth things out - the crash hit from south to north and took about 2 years to play out. Scotland didn't really crash at all.

The second thing is that annual averages don't reflect the actual peak and trough. In cells G230 and G231 of your link, for instance, we see an average price of £82,383 in London in 1989 and one of £83,821 in 1990. That looks like a small rise, but what actually happened was that property started 1989 at £80,000, went up to £90,000, then fell to £70,000 (or so) during 1990. In that scenario, the prices reported as averages in that spreadsheet are all arithmetically feasible, but don't reflect what actually happened to people who bought or sold around then. Basically, anyone who bought much after late 1988 was in negative equity for at least 3 years.

My neighbours lived in an identical flat to mine and we both paid £85,000 in early 1988. They had to sell up 2 years later as they had a kid on the way and they got £59,000, so a net fall of 30% in 2 years. Those worst off were probably people who bought starter homes on huge estates: the builders were flogging off new ones at giveaway prices so second hand ones were worth even less than that.

It's easily forgotten how disastrous that can be. If you can't sell your house then you can't move - to get another job, for instance. You can't start a family, unless you happen already to have room for one. If you bought as conhabitees, you can break up, but you can't separate. You are basically no better off than a council tenant, chained to your cottage.

At the same time I am surprised at people in this thread who think there should be a limit on how much banks should be allowed to advance. That seems to me to be nannying of the very worst kind. We are all responsible adults and we should all be able to take a view on whether a place is worth it or not. A situation where nobody can afford to buy anywhere is obviously completely unsustainable by definition, so some sort of correction must be due.

Personally, I think it will come from the straw / camel's back effect of more and more tax rises. We are already being warmed up to expect colossal "green" (actually red) tax increases, as though this will make any difference to anything, and the reform of council tax is going to make it more expensive as a matter of course. It will also be a regionalised correction, I think, confined to England and the south-east, because that area is already electorally lost to the Government and therefore it doesn't matter what happens there in terms of electoral consequences.