people want house prices to fall

TheCountofNowhere

The people will get what they want in 2016.

westernpromise

Anyone who imagines they want a house price crash is seriously misled. House price crashes make houses less affordable.

Say you're on £20k and have an £11k deposit. You can currently borrow 5x salary if you've got a 10% deposit. So your house budget is £111k: 10% down (your £11k deposit), and a £100k mortgage.

Now let's suppose prices fall 30%. The £111k house now costs only £78k. Great! But lenders now demand a 30% deposit, in case that happens again. They don't want to own your negative equity, thanks. Plus they now limit their lending to 2.5x your salary, in case mortgage rates double.

So you now need a £23k deposit but you've only got £11k. And you need a £55k mortgage but you can only have £50k. So your budget has shrunk to £61k, i.e. by more than house prices.

That's not the end of your bad news. Because buying is now harder and riskier, obviously more people want to rent than buy. Have a guess what happens to your rent when demand to rent rises? That's right - your rent goes up. As demand racks up, you have to trade down to a smaller rental flat for the same rent. Your £11k deposit gets raided to help with the rent. Eventually it's all gone. No deposit - no mortgage. So your budget isn't even £61k any more; It's £0. You can't buy, full stop.

All because of the house price crash that so many crash trolls / moral incompetents over on HPC think they want, for their own selfish advantage.

None of our crash trolls have thought of any of this through, but the above is not made up; it's exactly what actually happened in 1989 - 1995, and it is why it took 10 years for the market to recover. It is also where BTL came from - by 1995 you could let a house to risk-averse crash trolls for a rent higher than the BTL mortgage was costing. BTL was caused by the last house price crash.

So they need to be careful what they wish for unless they think this time it's different.

Thrugelmir

westernpromise wrote: »

You can currently borrow 5x salary if you've got a 10% deposit.

In the current mortgage market not so likely. Days of reckless lending have passed. Affordability being the key.

westernpromise

MARTYM8` wrote: »

But that house now costs only £200k. So you now need an awful less money to buy that home you need for your family.

Just some basic maths!

Unfortunately, in the wake of that situation you'll need a much bigger deposit and you'll be able to borrow a much smaller salary multiple, so the house may be more affordable to you at £800k than £200k. Your maximum buy price may fall by more than houses do.

westernpromise

Thrugelmir wrote: »

In the current mortgage market not so likely. Days of reckless lending have passed. Affordability being the key.

It's still doable but the actual numbers are irrelevant. The point is that whatever multiples are at now, they'll be lower post-crash, for obvious reasons.

CLAPTON

westernpromise wrote: »

Anyone who imagines they want a house price crash is seriously misled. House price crashes make houses less affordable.

Say you're on £20k and have an £11k deposit. You can currently borrow 5x salary if you've got a 10% deposit. So your house budget is £111k: 10% down (your £11k deposit), and a £100k mortgage.

Now let's suppose prices fall 30%. The £111k house now costs only £78k. Great! But lenders now demand a 30% deposit, in case that happens again. They don't want to own your negative equity, thanks. Plus they now limit their lending to 2.5x your salary, in case mortgage rates double.

So you now need a £23k deposit but you've only got £11k. And you need a £55k mortgage but you can only have £50k. So your budget has shrunk to £61k, i.e. by more than house prices.

That's not the end of your bad news. Because buying is now harder and riskier, obviously more people want to rent than buy. Have a guess what happens to your rent when demand to rent rises? That's right - your rent goes up. As demand racks up, you have to trade down to a smaller rental flat for the same rent. Your £11k deposit gets raided to help with the rent. Eventually it's all gone. No deposit - no mortgage. So your budget isn't even £61k any more; It's £0. You can't buy, full stop.

All because of the house price crash that so many crash trolls / moral incompetents over on HPC think they want, for their own selfish advantage.

None of our crash trolls have thought of any of this through, but the above is not made up; it's exactly what actually happened in 1989 - 1995, and it is why it took 10 years for the market to recover. It is also where BTL came from - by 1995 you could let a house to risk-averse crash trolls for a rent higher than the BTL mortgage was costing. BTL was caused by the last house price crash.

So they need to be careful what they wish for unless they think this time it's different.

makes no sense


as everyone already knows this, the lenders are already demanding 30% deposits for when the crash comes


once is comes they can safely demand only 5-10% deposits as the damage is behind them.

Mistermeaner

TheCountofNowhere wrote: »

The people will get what they want in 2016.

Which people and what do they want?

westernpromise

CLAPTON wrote: »

lenders are already demanding 30% deposits for when the crash comes


once is comes they can safely demand only 5-10% deposits as the damage is behind them.

How will they know when that is?

chucknorris

The-Joker wrote: »

Its only the perm prob bulls who still try to claim that property will never go down.

Everybody else knows that what goes up WILL come down at some point.

It isn't about 'will prices ever come down', of course they will, that is almost as certain as death and taxes, everyone knows or should know that, due to the cyclical nature of the economy. But prices have always eventually recovered and reached new peaks, and are likely to eventually to continue to do so, nominally, not necessarily 'real term'. Unless some significant event becomes a 'game changer'.

Jason74

TheCountofNowhere wrote: »

The people will get what they want in 2016.

But I suspect you would have said that about 2015, and 2014 and. . . . . . .well we get the idea. And yet, in the more popular parts of the country at least, prices have kept going up.

Don't get me wrong, I'd love to see some meaningful price falls. I think in London especially, the high cost of housing is a big and growing social problem that can only be properly solved by prices correcting significantly downwards, and the fact that more people are coming to realise this is encouraging for the longer term. But that doesn't change my view that current conditions are a long way from anything that will create major falls .