Impact of House price crash..?

smallstu16_2

As a prospective first time buyer,

Ive recently spent alot time doing my research on mortages, prices and the general process and beleive im fairly clued up.

However ive been finding it difficult to find a plain speak explanation of the impact of a house price crash.

Can anyone help? Thanks in advance :money:

Tallymanjohn

Last time this happened it got a lot of people into a 'negative equity' situation which meant they were stuck with the house & unable to move on if needed - they owed more on the mortgage than the house was worth. We bought our current house from someone in this situation & he had to move for his job - they lost thousands. If you plan to stay for a long period, or if you have a decent deposit then it's less of a worry.

ReportInvestor

It also got pretty tough if you had bought with someone who turned out not to be a long term partner after all.

One effect re MSE, though, could be that meanmachine finally gets onto the property ladder .

If a crash happens then some pessimists think that the housing market may be flooded by buy-to-let properties - providing opportunities for buyers.

But it's difficult to predict. Each "crash" is likely to be different.

Unemployment and, especially, high interest rates were a feature of the last one. Buy-to-let may feature more if there is another around the corner. If that's the case the two bed flats could start looking affordable.

Guy_Montag

ReportInvestor wrote:

One effect re MSE, though, could be that meanmachine finally gets onto the property ladder .

And the rest of us...

rsykes2000

Plain speak using nice round figures. You buy a house at the peak of the market for 100K with a 5% deposit, ie paying 95K with a mortgage.
The following week, something triggers a price crash, your house is now only worth 75K. You are then in negative equity to the tune of 20K, ie if you sold your house now you would not be able to pay off the mortgage using the proceeds.
Now, if you intend staying in the house for the next 10 years, it is likely that prices will have again risen to wipe out the negative equity. However, if you need to sell after 2 years or so, it is unlikely this will have happened, so when you sell, you will still have to find money to pay the remainder of the debt owed to the bank for the mortgage.
Hope this is understandable

BobProperty

Well.....
Those that have to sell are forced to take what they can get for their property. Those in "negative equity" (i.e. loans secured on their house are greater than the value of their house) get CCJ's off lenders and their credit rating gets totally stuffed. Too many bankruptcies, repossessions and broken loan agreements mean losses to lenders. Lenders overcorrect and cut back LTV's, earning multiples and tighten credit ratings for products. So it's harder for people to buy. All this reduces the turnover in the housing market so EA's, brokers and other connected services get less work. This also has a knock-on affect on the contruction and homeware industry, people spend money when they move house. In a recession, homeowners don't want to spend money as they are having to use it all to keep from losing their house. Alternatively, they are hanging on waiting for the prices to fall more before they move up "the ladder". This happens in all recessions. People stop buying goods because the price is falling, so sellers have to cut prices to sell, so buyers wait for the price to fall some more.

mrcow

ReportInvestor wrote:

One effect re MSE, though, could be that meanmachine finally gets onto the property ladder .

I agree......that would be the biggest impact.

But I still can't see it personally ;)

MDJO_2

try https://www.housepricecrash.co.uk - they have plenty to say on the matter although they are rather bias towards a crash in the near future , but it does have all the house price predictions etc in one place. good luck

pollyanna24

Does it go hand in hand that with a house price crash, interest rates will go to silly levels? Or is this just something that might happen because it happened last time?

Not too concerned if my house goes down in value cos I intend to stay in it a long time, it's just the interest rates I concerned about as my fixed rate is up in about 17 months time.

smallstu16_2

Ahha so a big negative equity would be the big problem,

Cheers everyone!

lol Who wants to guess at the liklihood of crash then....

dunstonh

The professional landlords wouldnt mind a property crash. Whilst all the amateur mortgaged buy to lets are getting repossessed and facing shortfalls, the real landlords will be rubbing their hands together picking up properties dirt cheap with much better rental yields possible.

As has been said, each crash is different. So its hard to predict what will happen. You may not even get a crash but find 10 years of no property value changes. That is already happening in some areas where there has been virtually no increase in property prices in the last 3 years.

If there was a crash this time, the consequences are likely to be far higher than last time. Too many people have bought mortgaged buy to lets which in reality they cannot afford over the long term. They could not only lose their let property but also their primary residence as well. They themselves could find themselves going from landlord to tenant.

No-one knows if and when a crash will occur. In a 25 year cycle, you would expect at least one. All the indicators are pointing to one occurring but no-one actually knows when it will start and to what degree it will happen.