50% house price falls

boyse7en

>>assume boyse7en bought it for a lot less than 180 and therefore the total return if he was to sell now is very good. he conceeds these figures at the moment don't add up

Correct, mortgage on house is currently £100k so return is more like 6.5%
Not great but we are leveraging more against the BTL property to reduce the mortgage on our home. Rent is due to go up to £580 in November, which will take return up to nearer 7% gross

Running_Horse

We bought our house to bring up our daughter in for the next couple of decades, and don't care what prices do during that period. Our new mortgage is still cheaper than rent. For those that do worry, if prices collapsed by 50% then BTLers and FTBers would pile in and push prices back up.

Generali

Running_Horse wrote: »

...if prices collapsed by 50% then BTLers and FTBers would pile in and push prices back up.

Only if they can obtain the funds to do so. Who's going to lend against a falling asset?

Property prices in Japan have fallen by 50% from the peak. Why is it impossible here? In 1988, Japan was considered to have a model economy. They've had asset price deflation followed by general deflation ever since.

boyse7en

>> my doubts how many 'in it for the long term' BTL LLs really are if prices start to fall

Depends on the LTV and the rental market, I guess. As long as the rent covers the mortgage interest payments you're OK, if subbing it then they'll bail ASAP.

Generali

boyse7en wrote: »

>> my doubts how many 'in it for the long term' BTL LLs really are if prices start to fall

Depends on the LTV and the rental market, I guess. As long as the rent covers the mortgage interest payments you're OK, if subbing it then they'll bail ASAP.

I'm not so sure. A lot of people seem to have gone into BTL with the attitude that property prices never really fall. Not properly. If they do start to fall quickly then you may well find that attitudes to holding on change quickly.

The typical BTL LL is middle aged or approaching retirement. These are people for whom capital losses really hurt.

Austin_Allegro

pinkshoes wrote: »

so if house prices drop by 50%, then there will be very few houses on the market to buy, and most rents will be hiked up to cover the negative equity.

But a lot of properties are BTLs or second homes. The economic conditions leading to a 50% fall in prices (high interest rates, inflation and mass unemployment) would mean many of these would become a liability to their owners, so they would be likely to sell them, leading to a glut on the market and thus lower prices.

Also, you can't just 'hike up rents' to cover negative equity as if people have bottomless pockets - if people in straitened circumstances can't pay, they won't pay - they'll live in flatshares, or guest houses, or with the in-laws, or emigrate, like people did in the 1950s. Lodgers will become popular again as negative equity mortgage holders are forced to rent out rooms to make money, therefore reducing the need for rented property further. Therefore less demand on rental properties, meaning rents have to become lower to attract tenants.

Of course all this is hypothetical - I see a stagnation/slight fall coming, but not 50% unless something like a zombie attack takes place.

Generali

If prices can treble in 10 years why can't they halve in another 10? Why do house prices always have to rise? The price of no other asset is expected to rise constantly and consistantly.

Doozergirl

pinkshoes wrote: »

so if house prices drop by 50%, then there will be very few houses on the market to buy, and most rents will be hiked up to cover the negative equity.

We've had this conversation before, have we not? It doesn't work like that!

dannyboycey

Generali wrote: »

If prices can treble in 10 years why can't they halve in another 10? Why do house prices always have to rise? The price of no other asset is expected to rise constantly and consistantly.

I guess it's because the cycles usually last a good 10 years, so people just get used to them going up and assume they will continue to do so. Those who are a little older and wiser can remember past crashes and can plan their finances accordingly if they have their wits about them.

For what it's worth, Rightmove's September house price data appears to have leaked today. The country as a whole is down 2.6% If confirmed, this is big news and will no doubt hit the headlines. They are of course trying to spin it as usual and say it's down to HIPS, but most people will see through that. In my opinion, the crash has begun. Not a 'correction', not an 'adjustment', a crash.

m00m00

BTL mortgages will virtually disappear and return to the very specialist niche of 10 years ago, if there's a general credit crunch. what will bring down house prices more than anything else, is the banks willingness to lend money, and this will apply equally if not more so to BTL than to residential property.