RICS-Jan: Prices falling in less than half the country, 3rd month of improvement

IveSeenTheLight

Batchy wrote: »

The problem with your assumption is your assuming the guys earning power has increased or his (at least disposable income has increased),

Not at all,
I tried to explain simply how a stagnant or falling market can exclude you from having the option.
Naturally, moving from a £100k to £200k property is a massive jump and you would need to assess if you can afford or not, hence why I finalised the post by saying

Sure you'd be paying more for the property in a rising market, but that is something you can calculate if you can afford or not in your options.
In a falling or stagnant market, you may not have that option at all.

IveSeenTheLight

To follow up, when I first bought, I could just afford a property valued at £50k.
We did so on a 100% mortgage.
Four years after that, we moved into a property valued at £150k on a 80% LTV, partially funded by the equity increase and money saved.

Had properties decreased, instead of increased, I would not have been able to afford the 4 bed £150k property, despite it falling in value.

Thrugelmir

IveSeenTheLight wrote: »

Ruggy83's point stands though.

If you put down a 10% deposit on a £100k property you have £10k equity on a 90% LTV

If prices stay the same and you want to upgrade to a £200k property, you need to find an additional £10k, deposit just to meet a 90% LTV product.

On the basis that the individual could now afford a £180k mortgage. Its safe to assume. That their earnings would have either increased. Or they would have built up sufficent savings or equity to bridge the gap.


Lower prices means it is easier to bridge the gap. If you want HPI then the gap has to be bridgeable. Or the property chain won't function allowing movement up the ladder.

Mallotum_X

IveSeenTheLight wrote: »

To follow up, when I first bought, I could just afford a property valued at £50k.
We did so on a 100% mortgage.
Four years after that, we moved into a property valued at £150k on a 80% LTV, partially funded by the equity increase and money saved.

Had properties decreased, instead of increased, I would not have been able to afford the 4 bed £150k property, despite it falling in value.

But financially you were worse off as a result...

You are obviously pleased to have been able to have less disposable income each month than you could have had if prices hadn't changed.

For example.
Using your figures as an illustration, (have to make some asusmptions as you havent explained the full picture) but it does make a good example.

But at 80% LTV thats 30k deposit.

So assuming 50% of that was saved and 50% was increased house prices then, that was a 30% increase in house prices over the example.

Take the 150k house back by 30% and you are at 115k

15k deposit in cash =100k mortgage or 87% LTV

But instead 80% LTV on 150k = 120k mortgage.

Cost of the increased house prices of 20k plus interest.

Still a deposit of over 10% so access to some of the better interest rates that were available. It would take a large difference in interest rates to have made the monthly repayment worse.

However you look at it, inceasing prices cost you hard cash plus extra interest.

IveSeenTheLight

Thrugelmir wrote: »

On the basis that the individual could now afford a £180k mortgage. Its safe to assume. That their earnings would have either increased. Or they would have built up sufficent savings or equity to bridge the gap.


Lower prices means it is easier to bridge the gap. If you want HPI then the gap has to be bridgeable. Or the property chain won't function allowing movement up the ladder.

Totally agree, you need to be able to afford the higher mortgage payments.
There acan be a number of factors.

Remember the example is moving from a £100k property to a £200k property, so likely (in many areas) to be moving from a flat to a house.

Likelyhood is that it may be moving from single to dual income.

My example was simply looking at the deposit requirements, but I fully agree and understand the monthly affordability.

The £90k mortgage would be £4.5k for the year at 5% or £375 per month
The £180k mortgage would be £9k for the year at 5% or £750 per month.

It's quite plausible after a few years and with the potential of dual income to be able to afford the £375 per month increase for the increased space available

At the end of the day, if you can;t afford the repayments on the £200k property, then you shouldn't make that jump.

My point was that you may not have that option in a stagnant or depreciating market if you can't get the deposit together.
An appreciating asset helps to get the deposit part and give you the option to assess whether you can afford the increased mortgage payments.

IveSeenTheLight

Mallotum_X wrote: »

But at 80% LTV thats 30k deposit.

So assuming 50% of that was saved and 50% was increased house prices then, that was a 30% increase in house prices over the example.

In my example, there was no additional saved.
The £30k deposit was made up from £20k from 20% property appreciation and £10k from the original equity deposit.

Mallotum_X wrote: »

However you look at it, inceasing prices cost you hard cash plus extra interest.

I've never denied that in an appreciating market, you will end up paying more over time.
My simple point was that in an appreciating market, it helps to get the deposit required to move up the ladder, whilst in a stagnant or falling market it becomes harder to achieve

Mallotum_X

Confused now, you bought a 50k property with a 100% mortgage.... yet had a 10k equity deposit? Or did you pay off 20% of the original loan within the 4 year period being described?

Also as an aside 20k appreciation on 50k would be 40% appreciation, which in a stagnant market would have put the 150k house at 107k....

IveSeenTheLight

Mallotum_X wrote: »

Confused now, you bought a 50k property with a 100% mortgage.... yet had a 10k equity deposit? Or did you pay off 20% of the original loan within the 4 year period being described?

Also as an aside 20k appreciation on 50k would be 40% appreciation, which in a stagnant market would have put the 150k house at 107k....

Your confusing two seperate posts.
One was simply a hypothetial example of £100k and £100k properties giving scenarios of stagnation, 20% drop and 20% rise.

My first property was £50k, 100% which allowed my savings to be used for solicitor fees and refurbishment.

Mallotum_X

"To follow up, when I first bought, I could just afford a property valued at £50k.
We did so on a 100% mortgage."

"The £30k deposit was made up from £20k from 20% property appreciation and £10k from the original equity deposit."

Which statements relate to actual events?

Nenen

IveSeenTheLight wrote: »

Totally agree, you need to be able to afford the higher mortgage payments.
There acan be a number of factors.

Remember the example is moving from a £100k property to a £200k property, so likely (in many areas) to be moving from a flat to a house.

Likelyhood is that it may be moving from single to dual income.

My example was simply looking at the deposit requirements, but I fully agree and understand the monthly affordability.

The £90k mortgage would be £4.5k for the year at 5% or £375 per month
The £180k mortgage would be £9k for the year at 5% or £750 per month.

It's quite plausible after a few years and with the potential of dual income to be able to afford the £375 per month increase for the increased space available

At the end of the day, if you can;t afford the repayments on the £200k property, then you shouldn't make that jump.

My point was that you may not have that option in a stagnant or depreciating market if you can't get the deposit together.
An appreciating asset helps to get the deposit part and give you the option to assess whether you can afford the increased mortgage payments.

IveSeenTheLight wrote: »

I've never denied that in an appreciating market, you will end up paying more over time.
My simple point was that in an appreciating market, it helps to get the deposit required to move up the ladder, whilst in a stagnant or falling market it becomes harder to achieve

Whilst I agree with you up to a point, personally, I don't think it is quite as straightforward as your second quote implies.

I would have thought that, given your scenario of a single income being sufficient to buy and live in a flat, when a partner moves in, then during the period of dual income it would be perfectly possible to save £20,000 over the course of 2-4 years. If prices had remained stagnant then you have £30,000 (10K equity + 20K savings) to put down on a £200,000 house giving you a mortgage of £170,000.

By contrast, in your own example of property price increasing by 20% the £200,000 house is now £240,00. You have 30K (from your current equity) and 20K saved (as above) giving you a much larger deposit but a bigger mortgage of £190,000.

Had prices dropped by 10% then you have zero equity and 20K savings and the 200K house is now 180K = 160K mortgage.

The flaws in this system only begin to become apparent when the amount of saving possible minus the total negative equity leaves too small a deposit to obtain a mortgage. For example, had prices dropped by 20% then you have -10K equity plus 20K savings =10K and the 200K house is now 160K. This would be fine if you could get a 94% mortgage as you would only have a £150,000 mortgage. However, as we all know, 94% mortgages are not readily available in the current economic climate.

Ho hum.... back to the drawing board!