House Price Crash Discussion Thread

cakey

I have to agree that renting right now is the way forward. i stupidly bought a house for 205K 3 years ago. the mortgage is 178K the redemption 10K. paying interest only at £1131 a month. we didn't mind paying interest only at first in the hope that prices will rise, unfortunately the house is up for sale now for 199K after 3 price reductions. the amount we have spent in interest payments only adds to the loss of equity. the house is now rented out until a sale, but after teh sale i will not be buying until i have saved a substantial amount, and have a better mortgage deal.

merlinthehappypig

Let's put this in perspective.

We are renting and have approximately £370000 accessible in savings accounts. At current rates this gives us a gross income of around £22000 a year. For a standard taxpayer this would be a net income of around £17600 or £1466 a month. This is low risk, instant access saving. If I wanted to take risks I could potentially do a lot better.

If I bought a house outright using that £370000 I would save £900 a month rent, but I would lose that £1466 a month interest. Bear in mind that, for us, as my wife doesn't work and because some is in ISA's we actually get to keep nearer £1600 a month, so we would lose out by £700 a month by buying. In addition we would be responsible for all the maintenance costs and have to pay buildings insurance so we can easily add another £100 a month to that figure.

No-one is saying that we should never buy. If we had never bought we would have nothing in the bank.

What everyone with an ounce of sense is saying is that now is not the time to be buying if it can be avoided.

If I can be at least £800 a month better off by renting than owning a house outright without a mortgage, how on earth can anyone else benefit from buying? Add in a mortgage and the figures just get worse. The house we are renting is probably worth about £430000.

If that doesn't illustrate the complete farce that UK house prices are then I don't know what does.

Vincenzo

merlinthehappypig wrote: »

If I can be at least £800 a month better off by renting than owning a house outright without a mortgage, how on earth can anyone else benefit from buying? Add in a mortgage and the figures just get worse. The house we are renting is probably worth about £430000.

If that doesn't illustrate the complete farce that UK house prices are then I don't know what does.

Because most people do not have £370k in cash to earn interest on.

The average person starting out will have a monthly budget to put towards living costs. If it is a choice between renting and paying off a mortgage over 25 years, at least they will own their house outright at the end of the term.

If someone could rent a home for say £800 per month or buy with a repayment mortgage and other regular costs at £1,200 a month, the 'saving' monthly by renting would be £400. Over 25 years they will have put away £120,000 (assuming they are disciplined!). Factor in compund interest and offset that against inflation (yes - including HPI!) and do you think they would be able to buy the equivalent property then?

To work this out properly would be quite complex as you would have to factor in potential house moves, rental inflation and so on (anyone fancy having a go???).

neverdespairgirl

merlinthehappypig wrote: »

Right, we've pulled out.

I feel a mixture of an overwhelming sense of relief and a certain amount of shame. I was absolutely shaking when I had to give the agent the news, but there was no alternative.

I think you've done the rigth thing, both objectively in view of market conditions, and subjectively in view of your relief.

neverdespairgirl

pickledpink wrote: »

In 10 years from now all property will be at least double (if ot more) than what it's worth now.

HA HA HA!!

It will certainly not, in real terms, be worth double. It might well be worth less (as was the case from 1989 to 1999).

neverdespairgirl

!!!!!!? wrote: »

Anecdotal evidence would suggest that if you bought around the peak of the late 80s boom it was around 10 years before the house was valued at what you paid for it.....

Not just anecdotal terms, the hard figures also show this.

neverdespairgirl

Vincenzo wrote: »

If someone could rent a home for say £800 per month or buy with a repayment mortgage and other regular costs at £1,200 a month, the 'saving' monthly by renting would be £400. Over 25 years they will have put away £120,000 (assuming they are disciplined!)..

But you wouldn't necessarily take that stance for 25 years.

OH and I are vastly better off renting at the moment. We pay a lot less in rent than we would on the interest-only section of a mortgage, and get nice interest on our savings as well.

The fact that this is true now does not mean we will do this for 25 years, however. At the moment, we are paying our rent, stashing money away monthly in our savings account, and are very happy about this.

Should the situation change, we will reconsider buying. I doubt very much we will still be renting in 25 years' time.

VFR-Rider

Yep, I'm a renter to... The place I rent costs me so much less than the interest only mortgage would be that it takes the mick.
I am however in a position where I have savings and can save a decent amount each month, if I was not able to make these savings each month then in all likelihood I too would be looking to buy much sooner rather than later... which is really just my way of saying (as most here have), that for each person it may be better to rent or it may be better to buy.

I think I've decided that I do not want a mortgage greater than 100k (quality of life/ savings ). When people (sorry I don't have the source) start saying the average house price may come down from 200k to 160k... I like the sound of it as in truth I DO want my own place, but at the moment my head is very much in charge.

Vincenzo

neverdespairgirl wrote: »

But you wouldn't necessarily take that stance for 25 years.

OH and I are vastly better off renting at the moment. We pay a lot less in rent than we would on the interest-only section of a mortgage, and get nice interest on our savings as well.

The fact that this is true now does not mean we will do this for 25 years, however. At the moment, we are paying our rent, stashing money away monthly in our savings account, and are very happy about this.

Should the situation change, we will reconsider buying. I doubt very much we will still be renting in 25 years' time.

I am not disagreeing with what you are doing and I fully understand your reasoning.

I was simply pointing out that it can still make perfect sense to buy now. I think a lot of people on here forget that the average person does not spend as much time as us considering their finances and working out the best long term strategy. If you were not so disciplined with your money, your strategy could well become a disadvantage to you in the long term.

WTF?_2

Vincenzo wrote: »

Because most people do not have £370k in cash to earn interest on.

The average person starting out will have a monthly budget to put towards living costs. If it is a choice between renting and paying off a mortgage over 25 years, at least they will own their house outright at the end of the term.

If someone could rent a home for say £800 per month or buy with a repayment mortgage and other regular costs at £1,200 a month, the 'saving' monthly by renting would be £400. Over 25 years they will have put away £120,000 (assuming they are disciplined!). Factor in compund interest and offset that against inflation (yes - including HPI!) and do you think they would be able to buy the equivalent property then?

To work this out properly would be quite complex as you would have to factor in potential house moves, rental inflation and so on (anyone fancy having a go???).

You assume that the typical model is that someone buys a house and then lives in it for 25 years. That isn't the case for most people today.

You will almost certainly find yourself moving through 2 or more properties on your trip up the ladder. In that case, you should look very carefully at the current state of the market before buying. If you buy at or near the peak then you potentially face a medium-term period of negative equity, effectively turning your house into a ball and chain for anything from 5 to 10 years.

Renting may not only prove cheaper but puts you into a better position for buying later on - you can enter the market when prices are at the bottom of the cycle and you have a lot of cash for the deposit and are chain free. This puts you into a great position later on when it comes time to trade up to a bigger/ better house.