The Next Nail in the Coffin

economic

westernpromise wrote: »

I don't really think of it in exactly that way. I'm 2 years into a 10-year fix, so all I have to care about is the equity position in 8 years' time, when I can sell or remortgage without penalty. In 8 years I'll have paid off 2/3rds of the mortgage. What I still owe on it will be about 14% of my house's current value. So as long any correction is less than 86% from the current value, I'll still have equity in the house in 2024, which will mean I can move house if I want or need to.

I am pretty sure we won't see an 86% fall from here by 2024.

I'd counsel you to think about it more that way, because decisionwise, what's done is done; you can't buy a different house, you can't un-buy and then re-buy at a different time, so you are where you are. I think you said you were on a 5-year fix? If so, you'll have paid off ~15% of the mortgage at the end of that fix. If you put down say a 10% deposit as well, then you can withstand a 25% nominal fall by 2021, from whatever you paid in 2016.

Yes you'd lose your equity if that happened, but equity's just inflation, so if your house is deflating, so is the one you want to buy.

The longer it takes for this correction to arrive, the bigger it can be. If your place inflates by another 5% this year, then you can withstand a 30% correction from the 2017 price. If it inflates by 10% over the next 3 years then you'll be able to withstand a fall of 35% from the 2019 price. And so on.

The huge, huge difference between now and past times re negative equity is that in 1990, you had people on fixed mortgage rates of 12%, 15% and even more. These meant that over 5 years, you paid off a pitiful two per cent of the mortgage. So if you paid £100k for a London flat in 1989, which was right at the top, then by 1994 it was worth £65k - but you still owed £98k on it.

If you missed just two monthly payments out of the first sixty, those two months' arrears would be more than what you had repaid.

Part of why it took the market so long to turn around from 1989 to 1995 was that many people couldn't sell until 1999. They were standing still in terms of paying down their mortgage, so they needed prices to rise to get them out of the hole. But prices couldn't rise, because that requires a surge in demand, and there wasn't any surge because everyone who would have been the surge was in negative equity and couldn't sell.

Because fixed rate debt can be paid down so fast, I'd expect any price dips to be shorter-lived than before. If price topped out in 2019 and there were a 35% fall, you would still be able to go bargain-hunting again in 2021.

thank you for this excellent explanation.

i have a 2 year fixed (ported from my previous property i sold) and a 2 year tracker, split 50-50. i have also put down half my money as a deposit so my ltv is 40% simply because i want to reduce my monthly mortgage payments to a controllable level. given what you say i feel a lot more comfortable about having so much tied into my property and buying it a tthe highs.

wotsthat

In my experience the fear of prices falling is greater than prices actually falling. I spent most of the nineties blissfully oblivious to the fact I was in negative equity.

As per comments by WP what's done is done. Once a house is purchased there's nothing can be done about the price so the focus should shift to keeping earnings up and costs down.

Crashy_Time

mwpt wrote: »

Doesn't it make you question your logic, though?

The 'turkeys' are the ones living in and amongst this supposed mass immigration problem and you're right, they will most likely to vote remain. Surely that tells you that on balance, the people who are most exposed to what you consider a major EU problem, don't consider it a problem? Or at the very least, think on balance the problem is worth the benefits?

How do we know how most Londoners will vote in the referendum? More than a few IMO will be mightily peed off with how the city has changed over the last few decades.

westernpromise

Meanwhile Crashy's BCR has gone up to 130%...

Crashy_Time

westernpromise wrote: »

Meanwhile Crashy's BCR has gone up to 130%...

Meanwhile westernpromise, who gave up listening to Crash Trolls "years ago" just can`t leave it alone. :rotfl:

chucknorris

wotsthat wrote: »

In my experience the fear of prices falling is greater than prices actually falling. I spent most of the nineties blissfully oblivious to the fact I was in negative equity.

As per comments by WP what's done is done. Once a house is purchased there's nothing can be done about the price so the focus should shift to keeping earnings up and costs down.

I don't need to worry about our property values falling, Crashy does my worrying for me. It isn't impossible that they will fall, but if they do, it isn't the end of world, it will simply mean a revised exit strategy. If they do fall, I won't give myself a hard time about it either, because I am satisfied that I have analysed my situation correctly, and come up with a sound logical exit strategy, but if they do happen to fall, I will still think that I played it correctly. But (going back to a subject that we were recently debating) luck/chance intervened, but just because that could happen, it doesn't mean that I am not going to play my hand out in the best way that I think I can, I am not going to be ruled by fear.

chucknorris

Crashy_Time wrote: »

Meanwhile westernpromise, who gave up listening to Crash Trolls "years ago" just can`t leave it alone. :rotfl:

I think that he probably now considers what they have to say as entertainment, from a comedy point of view, rather than listens to them from a potential educational point of view.

Crashy_Time

chucknorris wrote: »

I think that he probably now considers what they have to say as entertainment, from a comedy point of view, rather than listens to them from a potential educational point of view.

The length of his posts says otherwise, he needs to be right.

westernpromise

On a site for people looking for assistance with managing money, it's important to keep reminding people of how little credibility you have on the matter, Crashy.

The site's not called "Incompetent Property Speculation Expert", is it?

Cakeguts

Rinoa wrote: »

I can see why they don't like BTL. Housing benefit is out of control. The long term effect of more people renting is an ever increasing cost to the exchequer.

Why does everyone always assume wrongly that only people who are claiming housing benefit rent from private landlords?