If there is a crash...

kai1

My thread seems to have disappeared so apologies if you've read this already. I know very little economics so bear with me if this is a stupid question...

If there was a crash, which individuals, if any, would benefit. I'm not referring to organisations, just individuals.

Assuming that interest rates were still relatively low (i.e. less than the rates of the 1990s), wouldn't those people who were frantically saving deposits to get on the first rung of the propery ladder start snapping up the newly low priced homes?

Verbatim

Not if investors got there first.

jonny0

exactly..........

Guy_Montag

It depends everyone has their own point for when they would buy.

Firstly you can say goodbye to 100% mortgages - if prices are dropping that puts you into instant negative equity.

Secondly would you buy a 2 bedroom terraced house, if, by waiting another six months, you think you'll be able to get one a little cheaper or in a better area.

Of course people will keep buying and selling, those that want to settle down, or need to relocate, but the pressure is taken off. The feeling of must get on now or I'll never get on will evaporate.

As to who benefits exactly, everyone who is sensible with money & wants to move up the ladder - the FTB who has been saving, the owner occupier who wants a bigger/better house, anyone who inherits an large house & wants to keep it.

m00m00

one of the whole points about any 'crash' is that it will have a concomitant credit crunch or squeeze. This will make finance much harder to get. The notion of BTL people flooding in on their 85-90% BTL IO mortgages is as realistic as the people thinking that house prices will fall by 40%. Neither option will happen. A few cash rich investors will benefit, but this has always been the way.

homer_j_3

if people started snapping up properties, you would need everybody to withold buying until the prices had dropped far enough to reallign all these stats that keep getting posted on the forum (average earnings etc).

The reality of the situation is that unless homeowners can no longer service their debt, homes will not be sold that lightly in a downward market. We are seeing reports of people having to sell to avoid repossession so it is already happening to those seriously overcommitted.

It will be interesting to follow the swap rates following the stock market nerves of a credit crunch (http://www.swap-rates.com/UKSwap.html) yet they seemed to have dropped earlier this week...

Where I am going with this is that its unlikely to be a crash because those coming out of the mortgage market and entering the renting market, as residential home ownership decreases, investment home ownership will increase and therefore will keep the market bubbling, albeit with property prices at a lower price. You will also get an element of giddy buyers who suddenly get the chance of owning their home and because they have been unable to for so long, they will jump onto the market and keep demand for the supply.

This is obviously a fairly simplistic view and I have not really based these views with any degree of thought for economics and world markets - just the fact that its all about supply and demand.

Clearly if interest rates were to go up so much then I would like to see how people balance mortgage costs to either pay for their home or how investors manage their rent prices.

Guy_Montag

Verbatim wrote: »

Not if investors got there first.

Given that rental yields are below mortgage rates why would anyone be stupid enough to "invest" in a depreciating asset that makes them no money

Think about it:
HPI = -5% pa

You buy a house for £100k on a (90% mortgage @ 6% interest only) & rent it out at about 5k a year (£420 pcm). (Typical figures round me)

You're losing £400 a year on the rent which is fine if you're making money on the capital gains, but in this scenario you're "losing" an additional £5k in the first year on capital loss.

So bearing in mind the bank wants to cover their !!!-ets, are they going to lend an "investor" this money? Perhaps, but my guess is they will tighten up - higher interest rate, lower ltv ratio.

I may be wrong with the op-ed bit, but the figures don't lie.

free4440273

kai1 wrote: »

My thread seems to have disappeared so apologies if you've read this already. I know very little economics so bear with me if this is a stupid question...

If there was a crash, which individuals, if any, would benefit. I'm not referring to organisations, just individuals.

Assuming that interest rates were still relatively low (i.e. less than the rates of the 1990s), wouldn't those people who were frantically saving deposits to get on the first rung of the propery ladder start snapping up the newly low priced homes?

...if the assumpion that "interest rates were relatively low" comes into fruition (i.e the BofE cuts rates, which would be a mistake) then nobody (certainly not the BofE) has learnt anything: rates are indeed still relatively low; rates need to rise so inflation falls, people cut back on some of their spending, and so people actually begin to save some of their monies. And the idea of saving seems to be anathema to many people's way of thinking

oliroe

Are you talking about the economy as a whole (as the FTSE is in freefall today) or specifically the housing market?

movilogo

I don't know what will happen to others but I shall be very happy as I would be able to afford a good house at lower price

Currently I'm struggling to find a good house in my budget in my preferred location.

homer_j_3

people need to start to understand the real cost of life imo.

I heard talk on Radio 5 last night about people campaigning to raise min age for credit cards to 21.

When will anyone just admit that people need financial eductaion - people over 21 are equally as likely to get themselves in debt as someone under 21. Clearly the group suggesting an increase in this age are hoping that they will have learnt to save for things before spending the money. I think its unlikely.

We sadly live in a world where we all "need" new houses, new cars, new flat screen tv's, sky HD, internet, takeaways, eaiting out fund, beer fund. A holiday each year. These are all luxuries. The amount of people I budget with in my job, a lot of them would probably on average knock 30% off their outgoings per year if they actually bought to their real needs! Its a life of keeping up with the jones' If they saved this 30%...

Yes I do have some of those luxuries but I also manage to have money left at the end of the month and some money in the bank for a rainy day.

If anything, rate rises will force people to make the decisions that they know they should make now but don't bother because of pride and just can't quite get their heads out of that big pile of sand!