Boom - bust - boom When didn't it ?

slater14

Deemy,

Couldnt agree with you more.

I've been watching house prices with growing interest (and alarm!) over the last 3 years.

I own 12 properties (all bought in the midst of the last recession) and have been staggered to the point of laughter at how much my accountant and agents reckon they're worth today. I have no intentenion of selling them as they provide me with my income.

I remember all this from the last crash and its exactly the same today. As soon as lenders start leaving the old 3.5 times multiples and standard 25 year loan and interest repayments....you know trouble is brewing!
My properties were bought with 30% deposits and 15 year commercial loans to repay Interest and capital...Imagine trying to get them figures to stack up today!

I've been saying it cant go on for the last 2 years and it finally looks like it starting to happen....and these are some of my reasons -

1. 35+ year mortages
2. Interest Only mortages
3. Buy To Let
4. Unbelievabley Low interest rates being considered the "Norm"
5. Self Cert
6. 100%+ mortages!

I dont see a "cooling of the market" I see it looking like a train smashing head on into a wall, its not going to be pretty and as the old addage goes....Dont try and catch a falling knife!

deemy2004

Yeh, there is going to be a big hang over after the election !

Labours done a good pre-election feel good job to get the votes in...

Pal

debpike wrote:

Is that the best move at the moment then? Sell up, get high interest on the cash in the bank, and rent until house prices drop to a reasonable level?

I've always been told that renting is "dead" money, but surely if I sell my house while its at its peak and then house prices fall by £5,000 - £10,000 this would pay for a years rental. Add to that the savings on a bigger house and interest payments it wouldn't need to be much of a drop to make this worthwhile doing? Or have I missed some very important factor that should also be taken into account?

I don't know if it is the best move, but it is the route I have taken for a number of reasons.

Renting is no more "dead" money than interest paid on a mortgage is "dead" money. The only extra cost is the difference between the two. In our case the rent is much higher because we have moved from a 2 bed ex-council flat to a 3 bed detached house. Based on the prices around us, if we had bought our current home the mortgage interest alone would be about the same as the rent we currently pay, and would be after putting down a 35% deposit! At the moment, moving costs and hassle are being nicely offset by the interest we are earning on the equity.

The potential fall in the housing market was a good reason for us to move, do up our ex-council flat and then sell it on before looking to see if buying is now worthwhile. We needed a bigger place anyway and wanted a garden for Pal Junior, so it made sense to move asap and sell up the flat at the top of the market. Also moving to rent a vacant property, and having no mortgage on the flat meant that we could move immediately, something that we wouldn't have been able to do if we were buying.

The big decision we now have is when to buy again. I would guess that the change in the market since we moved (last September) means that we can already knock about £10k (maybe £20k) off the asking prices of most houses in this area. That's enough to pay the rent for a 1-2 years. Any further falls in house prices are just a bonus for us.

Selling to rent doesn't make sense for everyone, especially if you are happy with your home and have a low mortgage, but if you are looking to move soon anyway it might be worth looking into.

Pal

deemy2004 wrote:

Yeh, there is going to be a big hang over after the election !

Labours done a good pre-election feel good job to get the votes in...

I agree. Interest rate rises, massive tax hikes impacting the middle and high income earners whose earnings are supporting current house prices. Watch Gordon Brown jump the treasury ship just after the election when public finances start to look shakey.

frugal_dougal_3

debpike wrote:

Is that the best move at the moment then? Sell up, get high interest on the cash in the bank, and rent until house prices drop to a reasonable level?

I've always been told that renting is "dead" money, but surely if I sell my house while its at its peak and then house prices fall by £5,000 - £10,000 this would pay for a years rental. Add to that the savings on a bigger house and interest payments it wouldn't need to be much of a drop to make this worthwhile doing? Or have I missed some very important factor that should also be taken into account?

I wouldn't blame anyone for selling in order to rent if they really are that frightened of what might happen.

Personally I would rather put my head in the fire than pay SOMEONE ELSES mortgage.

Pal

frugal_dougal wrote:

I wouldn't blame anyone for selling in order to rent if they really are that frightened of what might happen.

I haven't done it because I am "frightened" of anything. People who are "frightened" should buy for the long term, because they know their purchase price and can predict their outgoings, and can pay off the mortgage over the set period. Any house price drops will not impact them unless they are forced to sell.

I have sold to rent because I needed a larger house and it is almost impossible for me to lose financially from it. While I may be paying off someone else's mortgage, it is costing me less than the interest payments had I bought the place myself at its current market value, even taking into account the equity in my old property. I would have paid money each month anyway to live in this house: it doesn't matter who I pay the money to, the landlord or the mortgage company.

I also earn interest on a very healthy savings account balance that pays a large chunk of the rent anyway. With house prices falling my money is better off in a savings account earning 5% than potentially reducing in value, especially when gearing through a mortgage is taken into account.

Personally I would rather put my head in the fire than pay SOMEONE ELSES mortgage.

That makes no sense. It is like refusing to buy clothes because the clothes shop might profit from your purchase. Renting is a business transaction. They get money to pay their mortgage and costs and I get a house to live in. We both win. In my case, renting costs me the same as buying on an interest only mortgage would have done, so I can't lose financially on a month to month basis.

The worst case scenario for me is that house prices go up 20% or so, in which case I will make a decision on buying back into the market. If I do that, then I lose a chunk of the equity I have in the bank. This is money that I never earned in the first place - I received it for free. While a house price rise like that would sting a bit, it wouldn't make a significant difference and I doubt that prices are going to increase anyway.

At "best" house prices are static for a few years, in which the best place for my equity is in a savings account earning interest, rather than geared up in an asset that is very likely to depreciate, possibly very rapidly.

frugal_dougal_3

Pal wrote:

I would have paid money each month anyway to live in this house: it doesn't matter who I pay the money to, the landlord or the mortgage company.

Pal wrote:

With the former you don't get a house, with the latter you do.

Pal wrote:

That makes no sense.

I'm afraid it does. If I had rented for the last 25 years I would still be doing so.

As it is I own a house, and the mortgage is paid.

MY mortgage that is. Not someone elses house paid for.

dougk_2

I agree F_D and from the nationwide figures although the headline is "House prices Fall" they actually went up by £1k on average as the figures were seasonally adjusted.....

To me fall means a house that was £100k is now worth less than £100k (eg £99k) and a rise is a house that was worth £100k is now worth more than £100k (eg £101k) as I have said elsewhere!

How do they get to seasonally adjusted figures - what formula do you use? You can only do it by using historical data, which do not reflect the current time so they become more misleading......

Pal

frugal_dougal wrote:

Pal wrote:

I would have paid money each month anyway to live in this house: it doesn't matter who I pay the money to, the landlord or the mortgage company.

With the former you don't get a house, with the latter you do.

I'm afraid it does. If I had rented for the last 25 years I would still be doing so.

As it is I own a house, and the mortgage is paid.

MY mortgage that is. Not someone elses house paid for.

No you missed my point. The rent I currently pay costs LESS than the INTEREST ONLY mortgage I would cost if I bought the house I currently live in. As a result, without paying more (about £300k more over 25 years!) I would not own the house I currently live in after 25 years. My landlords mortgage might be paid but mine would not be. There is no difference to me in paying mortgage interest or rent, although in some ways I would rather line the pockets of an individual landlord who is having a go at life, than marginally increase the profits of a large bank or building soc.

This is why renting makes financial sense for me at the moment. Without a significant increase in house values it is almost impossible for me to lose money, and even a large house price increase only takes away some of the equity that I never earned in the first place.

I appreciate that my position is uncommon, but the renting/buying argument is something that a lot of people should be looking into at the moment, if only to discount it as being wrong for them.

Pal

dougk wrote:

I agree F_D and from the nationwide figures although the headline is "House prices Fall" they actually went up by £1k on average as the figures were seasonally adjusted.....

To me fall means a house that was £100k is now worth less than £100k (eg £99k) and a rise is a house that was worth £100k is now worth more than £100k (eg £101k) as I have said elsewhere!

How do they get to seasonally adjusted figures - what formula do you use? You can only do it by using historical data, which do not reflect the current time so they become more misleading......

So you were happy to believe seasonally adjusted figures based on historical data when they showed an increase, but are not happy now that they show a decrease?

You seem almost as desperate as Nationwide to talk up the market.