Fear of a HPC

mayonnaise

What's the point of a HPC website anyway?
It's akin to a forum discussing the Y2K bug in 2015.

Graham_Devon

mayonnaise wrote: »

What's the point of a HPC website anyway?
It's akin to a forum discussing the Y2K bug in 2015.

I dunno - all I do know is that for a pointless forum were seemingly always talking about it!

cells

I think many of you are missing my point.

If you think house prices are going to be flat or go up this is not advice for you. This is what I posted on hpc ten years ago for people who think a HPC "might" happen.

If you think a HPC might happen you have two choices.


1: Buy and take the risk of a HPC (you can do this while minimising your risk aka buying with a 0-5% down mortgage)

2: Do not buy and take the risk of HPI (you cant really do much to mitigate this)

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Buy or don't buy you are taking a risk. You could lose £100k if a 50% HPC happens or you could lose £100k if house prices go up 50% both are a risk.

What I said back then was, why not buy with a 0-5% down mortgage? That way you eliminate the risk of HPI hurting you and you minimise very much the risk of a HPC hurting you.

I think that was a wise insight ten years ago, and tbh I think its probably wise now too. It eliminates one risk totally (HPI) and minimises another risk (HPC)

mwpt

cells wrote: »

I think many of you are missing my point.

...

What I said back then was, why not buy with a 0-5% down mortgage? That way you eliminate the risk of HPI hurting you and you minimise very much the risk of a HPC hurting you.

I think that was a wise insight ten years ago, and tbh I think its probably wise now too. It eliminates one risk totally (HPI) and minimises another risk (HPC)

I get what you are saying, so I don't think I'm missing the point, but for who is this strategy viable? The only people it could be viable for are those with no equity at all anywhere else for the bank to seize in the event of a foreclosure. Who lives like that?

You might mention that it seems the impetus is for banks (and presumably government) to avoid repossession of homes at almost any cost.

cells

I didn't spend much time trying to explain it to the hpc crew ten years ago but let me try to explain it a bit better now.

If you buy a house you are long housing
If you do not buy a house you are effectively shorting housing

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Now lets forget houses for a moment and pretend we are talking about shares instead.

If a bank is willing to lend you £200,000 to buy shares in say....apple with 5% down and no margin call. All you need to do is pay 4% interest on the loan but get 6% dividends.

What I am saying is that, that is probably a wise bet to take

There are only two outcomes.

Apple shares go up in price (for arguments sake lets say they go up 50%) in which case you are up £100,000 tax free (pretend its in an ISA) plus you are getting more in dividends than paying in interest

Apple shares go down in price (for arguments sake lets say they crash 50%) in which case you are down £100,000.......but you can walk away and go bankrupt. The very worse case is that they tank 50% the day after you buy them and you lost £10k. If they tank two years later you lost your £10k part of the investment but received £24k in dividends and paid £16k in inteerest = lost only £2k overall


So with such terms on shares I think I would be tempted to take it. The reward if share prices go up is very high (potentially £100,000 profit for just a 50% share price inflation). The risk if they go down is by contrast lower (<£10k original investment lost)

cells

mwpt wrote: »

I get what you are saying, so I don't think I'm missing the point, but for who is this strategy viable? The only people it could be viable for are those with no equity at all anywhere else for the bank to seize in the event of a foreclosure. Who lives like that?

You might mention that it seems the impetus is for banks (and presumably government) to avoid repossession of homes at almost any cost.

So what you are saying is that the idea is good but so few people have just 5% deposit that they would risk more than that 5%

well, just gift anything else you have to your mother before you do it.

If HPC does not happen and prices go up 50% instead, ask your mother for a return gift

Graham_Devon

cells wrote: »

well, just gift anything else you have to your mother before you do it.

Which, dependant on the timeframes of the gift and any bankruptcy, could be deemed as a fraudulent transfer.

One which your own mother could well be implicated in.

Grand stuff.

Not only do you risk a bankruptcy, but now you are risking a criminal record for yourself and your mother to boot.

Easier (and far less stressful I may add) to simply live within your means I would have thought?

Landofwood

Please stop trying to explain, you are only hurting yourself.

Bankruptcy is devastating to the family involved.

Graham_Devon

cells wrote: »

I didn't spend much time trying to explain it to the hpc crew ten years ago but let me try to explain it a bit better now.

The problem isn't the explanation. I think most understand what you are suggesting.

The problem is the risk which your suggestions carry.

As Landofwood suggests, bankruptcy can be devastating to a family, especially now you have dragged other family members in.

Maybe less devastating if you are a single person (at that point in time, but it's hanging over you for the next few years stopping you from doing stuff), but if theres a family involved it can cause all manner of issues down the line all which impact upon the family.

You only need to look at the amount of suicides after bankruptcy to note that it's not something to gamble flipantly on.

michaels

As everyone needs a house the way I see it is that if you buy a house you are neutral housing, if you rent you are short, if you buy two houses you are long.