House Price Crash 4

cwcw

Some people argue that a crash wouldn't be a bad thing for new FTBs as the houses they will move to will also be cheaper. Can someone explain the logic here? If I pay £150k for a place with £15k deposit, a 10% drop in value wipes clean my equity from the deposit, and any higher drop in value leaves me with negative equity and unable to move. Maybe I'm missing something, but I can't see how a crash would be anything but a disaster in the above situation.

MrChips

I think the logic is that if you have a £150k house and are looking to move to a £200k house, if prices fall 10%, you only need to find an extra £45k as opposed to £50k.

In practice it might be tricky if you are in negative equity.

Alan_M_2

I see no advantage at all.

cwcw

MrChips wrote:

I think the logic is that if you have a £150k house and are looking to move to a £200k house, if prices fall 10%, you only need to find an extra £45k as opposed to £50k.

In practice it might be tricky if you are in negative equity.

But the extra £45k would have to be made up entirely from borrowed money as my equity from the deposit would be wiped out. My new mortgage would be £180k, whereas if prices stayed static my new mortgage would be...... £185k..... I see, gotcha! :rotfl:

ManAtHome

Hell of an attraction for indebted chancellors (which the next one will be if all goes to plan - hope it doesn't) - property is not very portable...

Doozergirl

lypsey wrote:

Sentiments makes every market and if the sheeple keep seeing these kind of headlines then the FTB (the few there is now) and the BTL'ers who are driving this markets will stop buying . The BTL'ers may also start to sell.

Anyone here selling up on the basis of a bit of commentary in the Times?

Selling up because you believed the hype about 18 months ago and can't afford the mortgage and massive voids on your new build? Maybe. Any of those saying yes actually read The Times?

lypsey wrote:

As I explained before my house went up 100% in under 3 years . No market can sustain that .

No context. My first property rose 100% in 18 months. Not sustainable? Anyone want a 1 bed conversion in London for £89,950?

lypsey

Mr Broderick

I am making a big assumption here but you don't mention a current house so I am guessing you are a first time buyer. When I was 20 or 21 I waded in big time on a very flash apartment that at the time my employer bent the truth on my salary and I was stretched to the limit (and a bit further). I was in a rush to buy the day before MIRAS which was double tax relief ended. This was a signal for the last crash in house prices

It took me 9 years to get out of negative equity. I bought in 1984 and it was 1993 before I could move. My advice to you is think very carefully before you leap into the unknown and just say " I am in for the long term "
What happens if you have 100k negative equity . Why shouldn't the market drop to 2000 levels. What happens if :-
1) You need a bigger house to start a family
2) Unemployment is sharply rising now , say you are made redundant . If you have 100k debt (if you have neg equity) then I can assure you , you will not be able to sell because you will be bankrupt or downsize because you will NEED a BIGGER mortgage to settle the bill
3) What happens if your employment moves you 100 miles up the road and you need to move house . You won't be able to move because I assume like most people you are mortgaged to the hilt
4)If your family needs you and you need to move closer to home

There are so many variables and I could probably think of another 10 reasons why you might need to move . Please remember that your wages may only go up 2% a year so the chances of increasing your mortgage are relatively low

I made the same assumptions as you when I was young that the market would always go up , my family bailed me out and I learnt a hard lesson so please be careful you never know what is round the corner.

Also remember
1) Global inflation is rising
2) Global interest rates are rising , for the last decade we have had lower than "average" interest rates and some stage they will have to rise
3) Unemployment in the UK is rising
4) Most importantly the moving trend since the 1930's has traditionally been you can borrow 3.5 times your salary to get a mortgage. This has worked very well for the last eighty years and we have avoided BIG crashes but that ratio is 6.8 times salary. It will return to normal levels and wage inflation will not do that for a long long time. Therefore house prices have to come down
5) it is well documented that ftb'ers are priced out of 9 out of 10 towns. The market will not sustain this . You have to have FTB'er to keep the ladder moving

I do not want to scare you but I just wanted to pass on the mistakes I made

Alan_M_2

Miras ended in 1989, that was the year I bought. Is that a typo cause you would have made a killing if you bought in 84.

Anyhow, one thing often overlooked about negative equity is you are effectively in debt to the tune of whatever the negative amount is, this means you cannot get loans, credit cards, finance, vehicle leases and cannot move (or very difficult to move) until you're back in equity.

uk_steve

aderbyshirelad wrote:

Congratulations Alan M.

At last, a reasonably balanced, informed and sensible conclusion to this pretty pointless "debate" - and it only took two posts to get there. I'm over the moon. Can that be the end of it now - PLEASE??

Erm dont read new posts next time if it up sets you? :rotfl:

:T :T :T :T :T :T :T :T :T :T :T :T :T :T :T :T :T :T :T :T :T

wolvoman

Doozergirl wrote:

Anyone here selling up on the basis of a bit of commentary in the Times?

Selling up because you believed the hype about 18 months ago and can't afford the mortgage and massive voids on your new build? Maybe. Any of those saying yes actually read The Times?

No context. My first property rose 100% in 18 months. Not sustainable? Anyone want a 1 bed conversion in London for £89,950?

But a huge amount of the upsurge in the housing market has been caused by hype and sentiment. Why do you seem to believe that hype and sentiment can only work one way?

Accommodation demand alone cannot account for the recent 200%-300% rise in prices since the mid-90s. The vast majority of that demand is speculative.

The question surely is what form the house price correction takes - whether it is by a long period of stagnating actual prices or a shorter period of declining actual prices. Either way, a real terms drop seems inevitable - at least compared to wage inflation anyway.