Will there be a correction?

fwog

I've been keeping an eye on the house prices of late. Im finding some tempting offers locally,one with a 85k mortgage and a rental pull of £700 PCM.
I know the Eurozone is still up in the air, the can has been firmly kicked down the road by Barroso and they're looking at a 'lost decade'
So what of the UK? Will there be a house price correction? I've seen a few pundits come up with 15-20% drop to revalue houses in line with wages.
There again, as we are the only ship afloat financially ,in Europe, is this a mute point as demand will still be fierce for our property?
I keep thinking abouit taking advantage of a BTL, but Im not sure of what the market holds.
So whats MSE's consensus on the current climate?

DpchMd

Prices aren't wrong, so they can't be corrected.

fwog

DpchMd wrote: »

Prices aren't wrong, so they can't be corrected.

The banks are pulling their 'deposit loans' (financial suicide I know), some 5% deals and some 10%deals, gravitating towards the 25% + LTV. So if the 'prices aren't wrong' why are they doing this? It looks like ,when negative equity rears its head, a sizable chunk of your deposit is eaten up ,not the banks equity.

Just a thought like.

ess0two

fwog wrote: »

The banks are pulling their 'deposit loans' (financial suicide I know), some 5% deals and some 10%deals, gravitating towards the 25% + LTV. So if the 'prices aren't wrong' why are they doing this? It looks like ,when negative equity rears its head, a sizable chunk of your deposit is eaten up ,not the banks equity.

Just a thought like.

Other way round innit,used to be asking 25% deposit,seeing more 5% and 10% deals coming to the market lately.

Generali

Forecasting asset prices is impossible.

History tells us that nominal house prices tend to stagnate rather than fall particularly quickly but anything could happen in future.

Loughton_Monkey

fwog wrote: »

......Im finding some tempting offers locally.....
......I keep thinking abouit taking advantage of a BTL, but Im not sure of what the market holds.

If you are not sure of what the market holds, then it's a bit strange to call the opportunity "tempting".?

fwog wrote: »

So whats MSE's consensus on the current climate?

Please read a few more threads. Then you will discover that there is no such thing as "consensus" here. All you will glean is that house prices are imminently going to zoom up again, but at the same time, will fall by 70%.

fwog wrote: »

The banks are pulling their 'deposit loans' (financial suicide I know), some 5% deals and some 10%deals, gravitating towards the 25% + LTV. So if the 'prices aren't wrong' why are they doing this?

Ever heard of Basle III?

Basically, they are doing it for sensible reasons. So that if things go wrong, a sizeable chunk of the owner's deposit is eaten up, and not the bank's equity.

fwog wrote: »

It looks like ,when negative equity rears its head, a sizable chunk of your deposit is eaten up ,not the banks equity.

Really?

fwog

Loughton_Monkey wrote: »

If you are not sure of what the market holds, then it's a bit strange to call the opportunity "tempting".?
On the face of it, tempting. Not knowing isnt


Please read a few more threads. Then you will discover that there is no such thing as "consensus" here. All you will glean is that house prices are imminently going to zoom up again, but at the same time, will fall by 70%.

Point taken

Ever heard of Basle III?

Yes, bit late for that now, 18 months till 'doomsday'

Basically, they are doing it for sensible reasons. So that if things go wrong, a sizeable chunk of the owner's deposit is eaten up, and not the bank's equity.

I said that :rotfl:

The rate of return of the rental is attractive, but losing 15% isnt, so,not knowing the future, I thought I'd have a straw poll.

IKWYM with differing opinions, but as 'things have changed' significantly, I was trying to gauge opinion on 'what now' ,with the new outlook.

HAMISH_MCTAVISH

fwog wrote: »

The rate of return of the rental is attractive, but losing 15% isnt, so,not knowing the future, I thought I'd have a straw poll.

If I buy a house, the only two prices that are relevant is the price on the day I buy and the price on the day I sell.

The fluctuations over the course of ownership are of no relevance, and do not result in either a "loss" or a "gain".

Given that the duration of ownership for a house is more likely to be measured in decades rather than days, short term fluctuations should be of little concern. The long term trajectory for UK housing can only go one way, and it isn't down....

as 'things have changed' significantly, I was trying to gauge opinion on 'what now' ,with the new outlook.

Nothing has changed.

We are still building less than half the houses we need to.

We are still about to have the biggest generation of house buying aged people in history, bigger than the boomers even, reach FTB age.

We still have a massive housing shortage.

We still have record high (and rising) rents.

We still have an economy and a housing market being artificially suppressed by the ongoing lending famine, and a government facing electoral oblivion if they don't get it fixed in the next 2 years.

Those are the fundamentals, and they haven't changed at all.

N1AK

fwog wrote: »

The banks are pulling their 'deposit loans' (financial suicide I know), some 5% deals and some 10%deals, gravitating towards the 25% + LTV. So if the 'prices aren't wrong' why are they doing this?

Although I think we could see further nominal drops, and believe we will see further real falls in house prices, there are other explanations.

If the banks have £y to lend, but demand for mortgages is 5x£y then they will rationally become more picky about who they lend to (increasing return by decreased defaults etc) or increase prices until there is equilibrium. Raising mortgage rates is a very risky business politically so most have instead chosen to be selective about what they will lend instead.

I'm not saying that they aren't also protecting themselves from price falls

N1AK

HAMISH_MCTAVISH wrote: »

should be of little concern. The long term trajectory for UK housing can only go one way, and it isn't down....

If property was a guaranteed bet then you wouldn't be the first person to work it out, and the people who'd have gotten there first would be in big and early.

There is plenty of risk that property price returns will be poor over the mid-long term; though I'm not saying that they will be. In fact, I'm considering 'investing' in a 2nd property as we have the capital to leverage a decent sized loan but I'm basing my decision on the basis of nominal, if any, real price increase.

Loughton_Monkey

N1AK wrote: »

If property was a guaranteed bet then you wouldn't be the first person to work it out, and the people who'd have gotten there first would be in big and early.....

I see where you're coming from, but I don't think that's what Hamish is saying.

To buy a property for, say, BTL is like any other business. It is a 'bet' and it is fraught with uncertainties.

But if we are talking of a younger person (couple) wondering whether to buy now, then he is spot on. Mainly because we are talking of 40+ years. Over such a period, it is inconceivable there could be a 'loss' [compared to renting]. I have stated on another thread how over 40 years my current house is worth 120 times what I paid for my first [admittedly helped by 7 or 8 upsizings so that my borrowing kept more proportional to earnings than would be the case if I stayed there]. So the 'bottom line' is that if I had paid 30% more (or 30% less) 40 years ago, that difference is absolutely irrelevant.

I set you, and anyone else for that matter a challenge.

Fire up a spreadsheet. Put in, say, a 30 year old, and assume average life expectancy to, say 80.

Now take any house you like (realistically) and put in its cost to buy, and its rental value. Now feed in any reasonable inflation rate you want to project. Feed in any reasonable mortgage interest rate you want to project. Feed in any reasonable House Price Inflation you want to project.

Then calculate the cash flow for the renter, and project an overall cost (at today's values). Do the same for the buyer for his cost over the 25 year mortgage. Continue to adjust the actual house value over the 50 years.

Now, having done that, your challenge is to adjust the assumed HPI figure to one in which the overall cost - at today's values - is exactly the same for both renter and buyer.

Come back to us with that figure [plus all the other assumptions you made, to prove that they were 'reasonable']. Then we can have a poll to see if that HPI figure you have calulated is in anyway 'reasonable' without total worldwide meltdown, war, and famine (in which case house prices will not be at the top of anyone's agenda)