Negative Equity -v- Renting

bukup

There seems to be a lot of rumours flowing today about house price crashes etc.

I myself am in the process of looking to buy and wont be put off. I currently pay £750 pcm renting which = £9k pa. New property will cost £140k. If by chance the property decreases by 10% this will equate to £14k so within approx 18/19 months I would have paid more than this amount in rental payments. I know it may not be any consoliation but this may just put some peoples minds at rest.

jaype

Can you really work it out like that? For a start, half of what you pay off over the length of a mortgage is interest. We can't decide whether to buy (though there are about 4 houses available in our area presently, so the choice has been made for us) - but there is more to it than what you have calculated for!

lypsey

Bukup
It is very simple really:-
Average person in the UK earns 24k , average house 200k , that means the average ratio is now over 8 times salary

If you look back over the last 30-40 years you will see the moving average is closer to the conventional 3.5 times salary. Only one thing will happen because wage inflation cannot make that difference.. that is a crash . If you asked me to wager I would be on 50% falls.

Now before you all attack me if houses have risen 250% over the last decade they sure as hell can drop 50% . That still won't bring us back to normal levels.

I have posted it here before when I was young I was in negative equity for 9 years . It makes it almost impossible to move up the ladder.

bukup

The 9k will be lost in rental payments no matter what. So it doesnt matter what the market does i.e. goes up or down (you only lose because you are the one paying the rent) If you lose £9k in your property then you have to weigh this against the fact that you would have lost this in rent any way. So what I am saying is it is 6 of one and half a dozen of the other but at least at the end of the day if there are any gains you will get them by owning and not renting.

bukup

lypsey wrote: »

Bukup
It is very simple really:-
Average person in the UK earns 24k , average house 200k , that means the average ratio is now over 8 times salary

If you look back over the last 30-40 years you will see the moving average is closer to the conventional 3.5 times salary. Only one thing will happen because wage inflation cannot make that difference.. that is a crash . If you asked me to wager I would be on 50% falls.

Now before you all attack me if houses have risen 250% over the last decade they sure as hell can drop 50% . That still won't bring us back to normal levels.

I have posted it here before when I was young I was in negative equity for 9 years . It makes it almost impossible to move up the ladder.

If house prices do fall by 50% and I didnt buy I've still paid out £90k in rent !!

Generali

bukup wrote: »

There seems to be a lot of rumours flowing today about house price crashes etc.

I myself am in the process of looking to buy and wont be put off. I currently pay £750 pcm renting which = £9k pa. New property will cost £140k. If by chance the property decreases by 10% this will equate to £14k so within approx 18/19 months I would have paid more than this amount in rental payments. I know it may not be any consoliation but this may just put some peoples minds at rest.

Negative equity is only a problem if you want to move or refinance. The biggest problem with the housing market in the UK, IMHO, is that people treat their PPR as an investment not as a home. If you find a nice place you can afford and won't want to move in the next 10 years then go ahead and buy it. If house prices drop, rise or stay the same, it's all the same to you until you move.

If house prices drop it'll shut up all the dinner party bores that don't understand that their house hasn't changed in price until the day they get the fivers in their back pocket for it. If they rise you can become a dinner party bore!

bristol_pilot

Although I am a believer that there will be a significant house price correction within the next five years, on the figures posted by the OP I would buy. £750 pcm rent seems high to me to rent a property worth £140k, the repayemts would be less than the rent so go for it.

I, however, am renting a place worth £350k for £550 pcm due to intense competition for reliable tenants in this area. You cannot buy a studio around here for £140k (although you could get TWO parking spaces). I will continue to rent.

bukup

Generali wrote: »

Negative equity is only a problem if you want to move or refinance. The biggest problem with the housing market in the UK, IMHO, is that people treat their PPR as an investment not as a home. If you find a nice place you can afford and won't want to move in the next 10 years then go ahead and buy it. If house prices drop, rise or stay the same, it's all the same to you until you move.

If house prices drop it'll shut up all the dinner party bores that don't understand that their house hasn't changed in price until the day they get the fivers in their back pocket for it. If they rise you can become a dinner party bore!

Here, here - I quite agree.

roswell

Back to the Ops original post lets change the picture a bit,

Today I earn XYZ, I am renting at £750 PCM this is 9 K a year,

Tomorrow I am Buying I will borrow £140 000 and in a year I wont have paid much if anything off the capital, .. next week I get made redundant but my house now has a mortgage of £140 000 but is only worth £ 126 000 .. its been on the market 6 months and no one is interested ... i might have to lower the price ... Im getting in debt of £950 a month .. I cant find a way out.

Now what do you do ?

I can see how you have looked at the math but there is more than one way to make the sums work.

Im not saying dont buy but in your original post you come across a little nieve. As is said negative equtiy isnt a problem if you dont have to sell ... But its not normal for house prices to fall on there own ... its normaly a case of greater financial problems that causes house prices to fall eg recession.

bukup

bristol_pilot wrote: »

Although I am a believer that there will be a significant house price correction within the next five years, on the figures posted by the OP I would buy. £750 pcm rent seems high to me to rent a property work £140k, the repayemts would be less than the rent so go for it.

I, however, am renting a place worth £350k for £550 pcm due to intense competition for reliable tenants in this area. You cannot buy a studio around here for £140k (although you could get TWO parking spaces). I will continue to rent.

Yours is a completely different scenario and if I was you, then I would continue to rent as the rent is remarkedly cheaper than here. £750 pcm is quite cheap in Christchurch, Dorset which is why buying is attracting me. A beach hut in Mudeford which is a mile down the road has rental for £600 pcm.

bukup

roswell wrote: »

Back to the Ops original post lets change the picture a bit,

Today I earn XYZ, I am renting at £750 PCM this is 9 K a year,

Tomorrow I am Buying I will borrow £140 000 and in a year I wont have paid much if anything off the capital, .. next week I get made redundant but my house now has a mortgage of £140 000 but is only worth £ 126 000 .. its been on the market 6 months and no one is interested ... i might have to lower the price ... Im getting in debt of £950 a month .. I cant find a way out.

Now what do you do ?

I can see how you have looked at the math but there is more than one way to make the sums work.

Im not saying dont buy but in your original post you come across a little nieve. As is said negative equtiy isnt a problem if you dont have to sell ... But its not normal for house prices to fall on there own ... its normaly a case of greater financial problems that causes house prices to fall eg recession.

I can't live on what if's - I'm living for today and the fact I have been renting for the past 5 years and nothing has happened yet - apart from me wasting £45k in rent. I am purchasing with my husband and we are keeping well below what we could borrow. Saying this my fingers and toes will be permanently crossed !!