House Crash

Generali

abaxas wrote: »

You forget that rates went from 10% to 15%. We simple wouldnt have 15% rates now, if we did the majority if homeowners would have to default.

The issue we have now is that we have the same affordability at 5.25% as we did at 10%. If rates went to 7.75% we would have the same effect.

People are having difficulty at 5.25%, 7.75% would destroy almost all FTBs who have bought in the last couple of years. Unless of course we get pay rises to compensate _party_

You seem to be very confident about this. How do you think the MPC would react if the pound started to fall and inflation rise? Would they let the rest of the economy be ruined to prop up the housing market?

I think they'd end up having to increase interest rates even at the cost of deflation - the alternative would be an end to inward investment by car, tech and financial companies which would mean the end for the economy in large parts of the country.

pinkshoes

But if you have a fixed mortgage and don't plan to sell your house, then surely if the market crashes it won't actually affect you?

I know many people that would just let their house out if the market crashed rather than selling it, as property prices will pick up eventually. Currently, they can't build houses fast enough to meet demand/need, so a market crash is surely unlikely?

In any case, you should always have enough money in your account to cover a few mortgage payments in an emergency!

greencat_2

pinkshoes wrote: »

But if you have a fixed mortgage and don't plan to sell your house, then surely if the market crashes it won't actually affect you?

A crash might be accompanied by other problems in the economy - which could mean more unemployment. No job - no paying the mortgage.

pinkshoes wrote: »

I know many people that would just let their house out if the market crashed rather than selling it, as property prices will pick up eventually.

Where would they live? Also you may not get enough rent to cover the mortgage.

pinkshoes wrote: »

Currently, they can't build houses fast enough to meet demand/need, so a market crash is surely unlikely?

Rents are cheap (and decreasing) in my area of London. This suggests there are plenty of places to live (just not enough to buy?). Shelter statistics also suggest there are 100s of thousands of places that are empty.

pinkshoes wrote: »

In any case, you should always have enough money in your account to cover a few mortgage payments in an emergency!

Very good advice. Ideally you'd want up to 9 months worth as I don't think the Government will pay any of your mortgage until you've been unemployed for 9 months.

seven-day-weekend

Although I didn't take much notice of the crash, I remember the 15% interest rates. We actually paid our mortgage off early by continuing to pay at the 15% rate after the rates had come down again.

I think really the moral should be - don't have 100% mortgage, don't have interest-only mortgage, and don't bite off more than you can chew.

If you can't afford to buy at the moment,don't overcommit yourself - rent, and wait for the next crash!

pinkshoes

Wow! It's not often you get your post broken down and analysed :-) I feel honoured!! You should think about a course in english literature...

Renting is still on the increase in some areas, especially in cities where car parking is difficult, and a flat/house comes with a parking space or two! It took me 2 years to find somewhere suitable to buy, because very few properties under £220k came onto the market, and they were often snapped up within days, or before you even got to look round them!

The buy-to-let was referring to some people I know who are planning on moving abroad in the near-ish future, where house prices are cheaper in relation to salaries/cost of living!

9 months??!?! yikes! I can afford about 6 months of my mortgage payment at the moment from money invested in an ISA, although I hope I don't have to! I contemplated using the money to pay off my student loan, but I really have no incentive to pay it any faster than the rate they make me!

Addiscomber

Like others, my memory is decidedly hazy, but I don't think there were as many fixed rate mortgages then. These may well help people to survive interest rate rises, and keep the number of repossessions down, which should mean something for stopping prices plummeting. However it won't help the stagnation caused by negative equity meaning that people cannot afford to move onwards and upwards. I do recall young couples being trapped in one bedroom flats when they had a child.

jenz

I remember the last crash very well, scarey stuff, and from experience you can't rely on the experts views


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Greenstuff_2

I have been watching the market for a few months, I think the debates on here are amazing, people are so knowlegeable and put points accross that are well put and interesting.
I know nothing of economics I'm afraid, but from a Joe public point of view a lot of points that are put accross by the media and so called experts miss a few vital points.
IMO, the main reason for the boom/bubble whatever you want to call it is that people can still afford to buy, and that's due to lower interest rates.
The problem is, if they go up of course, I know a lot of people say they wont go to the 15% they were (I don't know why not), but mortgages were so much smaller, look at the examples on here, people were loosing houses at 30k odd.
We are looking at around 10 times that now, so IR only have to go up that much less for the same effect.
Interest only mortgages seem to be the norm now, I'd never heard of them till a couple of years ago, so before if people had their mortgages for a while they had paid a bit off so had equity there as well as HP rises, IO is reliant on HPI only of course.
Also, people are getting cold feet, they are wary of buying now so are holding off and being a little more careful.
A lot of houses are being re marketed where the chain has collapsed as it only takes one person when the excitement wears off to get cold feet or realise just how much debt they will be in and back out.
Massess of people are waiting to pick up a bargain at the next crash that people believe will keep the market boyant, trouble is they may not be able to afford them even with massive deposits, if IR go up and lenders go back to the 3x salary rule how many will really be able to buy?
When we applied for our last Mortgage we were told debts were no longer taken into account, historically they always were, if IR go up not only will mortgages go up but also other debts that account for a large part of outgoings.
The average 4 bed home where I live is being marketed at 400k plus, (although the same properties have been on for weeks and weeks) even if they fell by a massive 50% how many people could pay cash, or earn enough for a 3x mortgage?
Also people have 'unlocked equity' in their homes by remortgaging, all they are doing is taking out a loan against their property.
Fees too, 1% stamp duty is not too bad but 3% is a huge chunk of wonga to find.
A big question I have is about rent v buy, it has always been cheaper to buy than rent, now is not the case, its several hundred pounds a month cheaper to rent now than buy, surely thats a big factor?
New builds are popping up all over (and I mean popping up, how quick do they get built?) and with 30% (and now I believe 40%) social housing, people don't want to pay half a million quid to be next to god knows who.
And lets face it they don't go to 'key workers' (although I believe everyone is a key worker)
A huge development near me has loads of houses that the developer knocked 100k off the asking price and a year on people are selling at 10% less to get off there as it's so rough.
My brother is a carpenter/builder and has never been unemployed in his life (apart from when he fell of a roof) but has real trouble getting work in London now due to overseas workers undercutting him, he simply can't charge what they do as he has a..... Mortgage to pay of course.
I do know people who did really well in the 80's by selling at the right time and or investing in property, one put her 3 children through private school and has travelled, a couple started up businesses that did really well, so even then people had a bit or foresight or at least saw an opportunity.
I think that things can get over complicated, what it boils down to is how the average person - the majority of the population lives.

eamon

It certainly wasn't fun paying a mortgage with rates at 15%. But that was before the crash. I sold my first house in 1996 at end of the crash. I lost about £6000 over the 7 years that I owned the house. I think I just about managed to avoid being in negative equity, but it was close £50-£100 rings a bell.
That was the scary thing! The reasons for the crash are aslo important to understand and the snowballing effect. Numerous factors come into people memories of that period. For me my neighbourhood went downhill very rapidly after some of the private houses were rented out to not nice people. For instance on my street alone, the house two doors down became a "crack" den and the house behind became infested with junkies. The associated crime wave whilst in itself not the cause of a price crash put people off the neighbourhood. In fact thats why I sold up. At one stage mine was the only car parked on the street and many houses were boarded up, the owners/nice renters having fled. I felt fortunate that I managed to sell the house, but I needed my sanity.
I know that I experienced an unfortunate set of coincidences (the junkies and the people running the "crack" den had previously been evicted from council flats, an already fragile housing market). Incidently I wouldn't have even noticed the price crash if I hadn't needed to move.

yours

Eamon

Sisyphus

Greenstuff,

For someone who 'knows nothing of economics' you've pretty much hit the nail on the head.