how many REALLY think there'll be a crash rather than a stabilisation ?

dougs

Melissa177 wrote: »

You can make that assumption - because you can fix your interest rate.

but not for 25 years!

Melissa177

You can with some lenders.

There isn't much demand for those sorts of products, however.

(source: Today programme on R4 about a month ago were discussing this)

Orion_3

Fixing for a long-term mortgage gets you the rate that banks assume will be the average rate over that period. It'll still get you a similar rate, on average, to the savings rate over that period.

Now, I've got a mortgage on the table from a bank, but the house deal collapsed. We're FTB, looking for a replacement house to buy.

But it's looking like bad financial sense. We're giving up a £45K deposit and taking on a mortgage £350 a month higher than our rent (even with the 5.47% five-year fixed rate we wrangled two rate rises ago). This is to buy a house worth £30,000 LESS than the house we're renting. Any house we buy will have to rise quite substantially in value in that five years to justify:

a) The huge cost of moving house.
b) Moving to a house worth so much less than our rental
c) Missing out on the substantial interest we could get on that £45K deposit. (£15K of that is in ISAs, and we could add another £6K to that each year).
d) Missing out on the money that £350 extra a month could net in high interest savings accounts. And Melissa, even if people aren't likely to actually save this money, it's still cash they can use on practical things.

Anyone in the same situation as us applying for a mortgage now will be even worse off as rates have risen twice since we got ours. I reckon more and more people will be saying to themselves, "why not just continue renting?" Or even if they CAN afford to buy, it'll be for a house substantially worse than they can rent.

franklee

Melissa177 wrote: »

If you think, on the other hand, there is going to be a crash, then your strategy makes more sense. We're both gambling on house prices moving one way or the other effectively

Your whole argument is based on house prices not only continuing to rise but that they will not fall. If I thought that then I would buy, but I don't. The house price rises were driven by low interest rates, IMO, and those days are over. There are many mortgage holders due to come off two year fixes this autumn and they will see all the rate rises (base rate from 4.5% to 5.75%) in one go :eek:

I am better off than the buyer both with stagnating prices and with a price drop. If prices just stagnate I can still save more than the buyer of an equivalent property.

If prices rise then I will lose but at least as a renter I'll have the option to move somewhere cheaper. If prices fall you will be in serious financial difficulty. I know which downside I'd prefer at this point in the house price cycle.

Melissa177 wrote: »

I'm also not entirely sure that rents are that low (in London, anyway). I used to rent a house with a friend that was worth about 250K in Docklands. We paid 1200 a month in rent between us. That's not 825pcm. That said, a 250K house in my home village not far from Hull rents for about 550pcm tops - a definite "saving".

That figure is the actual rental I'm paying now, on the south coast. But you should check the London rents I would not be surprised if they have gone down. I don't think yields are anywhere near 5.75 now. Round here it's nearer 4-4.5%.

Melissa177 wrote: »

Incidentally, my IO strategy is as follows: - pay my IO mortgage - put extra money away (the money I would have put into the repayment mortgage) in a HIGHER interest account than I'm paying on the IO mortgage. I was lucky, I got my mortgage before the past three rate hikes. My flat has also gone up by around 40K in price since I bought it in February (I've put about 5K into it mind).

How much was your flat, without knowing that it's hard to put the 40K price rise in five months in context.

When does your current mortgage deal, presumably a fix, end? Those rate rises will catch up with you then. But if house prices keep going up and interest rates hit 6% or higher then who will by buying flats like yours to keep the market price so high?

If there aren't enough buyers causing the valuation of your flat to fall back then will you still be able to remortgage onto a new discounted or fixed rate? Or will you fail to meet the tighter lending criteria and be stuck on your current lender's standard variable rate. I think once lenders lose the certainty of house price rises to recoup the loan on repossession then they will be stricter about who they will lend money to.

It all sounds very precarious to me.

Orion_3

Rents do NOT seem to be rising in London. I pay less now than I did 6 years ago! I live in a 'cheaper' area than I did then, but that just shows the advantage of renting - one can always move to somewhere cheaper. My house is nicer here than then anyway.

Anyway, given that house prices in Lewisham have almost doubled in the past few years, one cannot really refer to it as a 'cheap' area any more. And yet RENTAL prices haven't really risen here at all. As Franklee points out - something doesn't add up. A buy to letter around here could not come close to paying off a mortgage on the rental yield.

The whole pyramind is predicated on continually increasing prices. Why else would anyone buy rather than rent? There's a risk that as soon as people start to doubt a purchase willl yield big bucks in the future, it'll collapse like a house of cards.

franklee

Melissa177 wrote: »

Incidentally, do you think it's realistic for a renter to save 700pcm per month? I doubt any renter is putting away the difference between their rent and a repayment mortgage, which is why I went with the IO example.

The figures were a comparison of renting vs buying for that 250K property. If the renter cannot afford the extra 724pcm per month (and I would agree many cannot) then they cannot afford to buy the property with a repayment mortgage. For them the rent vs buy comparison doesn't matter as they are not in a position to buy!

Of course the tenants who cannot afford to buy do have an impact on market rents as they can't afford much in the way of rent rises either, so the part they play is in keeping rents down

What's more if many renters can't afford to buy even now and house prices and interest rates go up even more then who is going to be buying? BTL will slow as the monthly losses mount up, FTB and renters will be priced out

franklee

m00m00 wrote: »

and you make the assumption that interest rates on mortgages remain constant too.

Actually I think rates are going up and I did say that pushes things more in my favour. I don't think they'll be going down soon.

globalds

Where I live (Telford) there is a huge ammount of new development going on .Here are the two biggest projects http://www.tmc-eastketley.info/site_qa.htm & http://www.building.co.uk/story.asp?sectioncode=284&storycode=3091475&c=1
This will be a good opportunity to see if ,even locally ,Development will outstrip supply . And what affect this will have on other properties in the area
The total for just these two projects is around 9,000 dwellings .And I can see lots more building work at the usual 20 - 30 house developments going on .
I think this development will lead to a bigger diference between the nice and not so nice areas. And yes in the really unpleasant areas maybe even a fall into negative equity .
If my predictions are close to the reality .Then I would say that unless the government choses to go down the road of building maybe a million council homes ,Any price crash will be limited to those properties that are classed as a risk either because the area is bad or they are a certain type that is not popular .

m00m00

franklee wrote: »

Actually I think rates are going up and I did say that pushes things more in my favour. I don't think they'll be going down soon.

I was making that comment at Keeperbear, and Melissa not you.

I actually agree with the vast majority of your comments.

What a lot of the bullish posters don't seem to understand is a lot of the people who are bearish on house prices, are bearish on the situation NOW, and think it's madness to buy at these inflated prices, not that it's insane to buy at all.

in my own case, we made the decision to rent here while my girlfriend did her PhD as it would give us flexibility when she finished.
we could have bought one of the flats we live in for 92k when we arrived here in Nov 04.
there is one of the flats up for sale at the moment (and has been since april for 95k) so assuming it sells at asking price that's 3k inflation over almost 3 years. So taking in real world variables such as legal costs, product fees when buying, and legal fees, estate agent fees when selling, I'd have actually made a loss. As things stand my rent is currently 200 a month LESS than an interest only mortgage would be on these properties.


do i feel I've missed out by not jumping on the ladder ? not in the slightest. Prices in this city are now starting to decline, quite rapidly in some areas, so I will be considering buying at some point in the future, when I feel the conditions are right.

Lavendyr

Melissa177 wrote: »

Incidentally, do you think it's realistic for a renter to save 700pcm per month? I doubt any renter is putting away the difference between their rent and a repayment mortgage.

Between us (two of us), we are - in fact, we're putting away more than the difference.