House Price Crash Discussion Thread

pickledtink

pickledpink wrote: »

I'm interested to know how all you renters insist that the interest on your savings pays your rent?!

What sort of interest rates are you getting on your savings? And what sort of amounts are we talking about?:rolleyes: Round my way the average rent on an ordinary 2-bed flat is about £1000 pm = so you'd need some hefty savings to earn that sort of money each month. Not forgetting, with inflation your savings are worth less, and as you aren't earning compound interest (all that dead rent your paying) how long would it be until you'd be out of the rental market as you wouldn't be able to afford the ever increasing rents?

My house purchase fell through last minute in December 2007.

Rented quickly as a stop gap a nice large seafront one bedroom for £450.00 pm. Interest on equity from sale of my previous flat is approx £520.00 pm.

I can pay the rent with the mortgage payments I'd be making anyway and interest is mounting up towards future purchase which will definitely buy me more for my money than just 6 months ago. We're seeing drops of 5-15% on last Summers asking prices here.
I didn't plan it but the math seems pretty simple to me and certainly works in my favour.

John_Pierpoint

In which county is that sea front? Can I move in next door for 6 months?

RIP:

http://www.timesonline.co.uk/tol/comment/obituaries/article3104632.ece

pickledtink

Sussex. Plenty of bargain rentals here at the moment. all those London would be property magnates now desperate to claw back some rental on their BTL daft buys last summer.

John_Pierpoint wrote: »

In which county is that sea front? Can I move in next door for 6 months?

RIP:

http://www.timesonline.co.uk/tol/comment/obituaries/article3104632.ece

dweeby

neverdespairgirl wrote: »

In our case, we are getting an average of just under 7% on our savings, before tax. Our rent is just shy of £1000 a month, including water. Post tax, our savings do cover our rent, but we are saving extra, so don't rely on that at all.

Back-calculating, that would mean you have ~£210k in savings.

Accounting for your rent and inflation eating at your stash, even with ~6.7% (pre-tax) interest you need to be saving £600/m to stand still. Under this scenario, you're gaining by any decrease in property prices. Different figures, but this is sort of where we're at.

The problems I have with this (and bear in mind we're currently the same), is:

1.Living in rented accomodation, which I don't like.
- There is no chance to increase the value over time by little improvements.
- There's little point spending money to re-decorate, so the place isn't as nice as your own place.
- You're at the mercy of the landlord to increase rent.
- The rented place probably wasn't chosen with the same criteria of buying a house, hence it probably doesn't match your needs as well.
- You pay rent forever.

2. If (if) house prices were to increase by even 1%/year, you're loosing out (or have to save more to stand still).

3. Bank interest rates are reducing, so your savings interest might go south.

The renting vs buying argument (as a home not an investment) doesn't have a simple answer, even in the current climate.

merlinthehappypig

[FONT=Verdana, Arial, Helvetica, sans-serif]Yet another well written forecast of doom for house prices.[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif][/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Anyone still clinging to the notion that the latest slump in house price growth was just a ‘blip’, like the 2004/05 slowdown, would have had their faith badly shaken in the past few days.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Nationwide building society reported last week that annual house price growth fell to just 1.1%. The group warned that it expects house prices to fall this year. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]That was just the start of it. Recent moves by banks and building societies to pull good mortgage deals off the market as rapidly as they can, have catapulted the credit crunch into the evening news. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]What was a fairly obscure financial crisis is now making itself felt in the everyday lives of the man and woman in the street. For a large chunk of the population, house prices have been a barometer to measure both their personal wealth, and the health of the economy at large. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Sadly, they’re about to find out that much of that wealth – and the apparent health of the UK – were entirely illusory…[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]The UK housing market is undeniably in a bad way. In less than a year, annual average house price growth has practically flat-lined. The latest house price survey from Hometrack found that house prices fell for the sixth month in a row in March, down 0.2% during the month, to an average of £174,100. That’s a fall of £2,200 since the summer.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]It’s becoming very clear that, despite constant protestations about “our over-crowded island”, and a lack of housing supply, the real driver of soaring prices was out-of-control lending. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]After all, we haven’t seen a massive construction boom in the past nine months. What we have seen is a collapse in the availability of funds for buying property. It’s old news now, but to recap briefly, banks have realised they’ve been too careless about who they lend to, and what they’ve been investing in, in recent years. Now they are worried about their own solvency, and the solvency of their fellow banks. If you’re worried about someone’s creditworthiness, you demand stricter terms when you lend to them. That’s what’s happened to the banks. And as their cost of borrowing goes up, they then have to raise the cost of borrowing in turn for consumers.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Buyers simply can't get the funding [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]In the past week or so alone, says The Telegraph, the interest rate on the average two-year fixed mortgage deal has risen to 6.29% from 6.15%. And it’s rising all the time. Cheltenham & Gloucester last week replaced its 6.23% lifetime tracker rate with a 6.53% deal. But just 24 hours later it had pulled the deal entirely, saying that it had been swamped with applications. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]As Melanie Bien of Savills told the newspaper: “There are simply too many borrowers chasing too few deals.” Overall, the number of mortgages available out there has fallen from about 15,000 to around 5,500 since last summer. That’s a staggering collapse, and more than explains why the number of sales is going through the floor – buyers simply can’t get the funding.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]This is only the first stage. As those who are already homeowners come to the end of various deals taken out pre-credit crunch, they’ll find getting decent replacement deals much harder, and much more expensive. Some of them won’t be able to afford the extra costs, and will end up having their homes repossessed, or selling at what price they can achieve. Quite apart from the massive human cost involved, rising repossessions will hammer prices even harder.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]The future looks bleak [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]How bad could things get? Ed Stansfield at Capital Economics (who have been long-term bears on the UK property market) reckons that a fall of 25% by mid-2010 is “entirely plausible”. Economist and stockbroker for Pali and regular MoneyWeek contributor James Ferguson, believes that from peak to trough, the falls could be even worse. You can read James’s predictions for the housing market in this piece originally published just before Christmas: Here comes the house price crash[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif](http://www.moneyweek.com/file/39767/here-comes-the-house-price-crash.html).[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]By the way, as I mentioned last week, amid the outcry for more banking regulation and general revulsion at these irresponsible ‘fat cats’, we must not forget that this was only made possible by central banks setting interest rates too low. As Roger Bootle puts it, “rampant lending was not an accident. It was a direct result of a deliberate policy of boosting domestic demand via low interest rates”.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]It was this interference from the authorities which encouraged the mispricing of risk. If the false hope of central bank bail-outs had never existed, then bankers would have been a lot more careful about who they gave money to. Perhaps rather than more regulation, what we need to is to allow the market to set interest rates, free from central bank distortions. After all, as the Bank of England has found, that’s pretty much what’s happening now.[/FONT]

carolt

What are the chances of a pickledtink replying to a post from a pickledpink?

Amazing. tickledpink and tickledtink, where are you?

carolt

dweeby wrote: »

Back-calculating, that would mean you have ~£210k in savings.

Accounting for your rent and inflation eating at your stash, even with ~6.7% (pre-tax) interest you need to be saving £600/m to stand still. Under this scenario, you're gaining by any decrease in property prices. Different figures, but this is sort of where we're at.

The problems I have with this (and bear in mind we're currently the same), is:

1.Living in rented accomodation, which I don't like.
- There is no chance to increase the value over time by little improvements.
- There's little point spending money to re-decorate, so the place isn't as nice as your own place.
- You're at the mercy of the landlord to increase rent.
- The rented place probably wasn't chosen with the same criteria of buying a house, hence it probably doesn't match your needs as well.
- You pay rent forever.

2. If (if) house prices were to increase by even 1%/year, you're loosing out (or have to save more to stand still).

3. Bank interest rates are reducing, so your savings interest might go south.

The renting vs buying argument (as a home not an investment) doesn't have a simple answer, even in the current climate.

BUT:

1. You can live in a much nicer place than you could afford to buy, with the landlord very kindly subsidizing the rent every month out of his own pocket, and bearing the full risk of any falls in the value of the property. You don't have to look forward to paying off the debts forever after the house has been repossessed.

2. If house prices were to fall by 1% (Nationwide, don't forget - not usually the most pessimistic of forecasters on the housing front, is forecasting a 5% drop this year, let's not forget) you'd be much better off.

3. On the contrary, desperate banks are raising savings rates as it's still a cheaper way for them to get their hands on some desperately needed cash, during the credit crunch, than borrowing from the Bank of England at punitive rates (eg bank that borrowed wodges at 9.5% last week - anyone remind me of the precise details?). It's a great time to be a saver but a lousy time to be a borrower.

And a really, really pants time to be an over-mortgaged house owner.

The renting v buying question has an extremely clear answer: DON'T DO IT, unless you're trading down, are able to buy well below current market value, and are absolutely sure you can afford it if the worst comes to the worst.

If you're a FTB, don't buy at all.

pickledtink

carolt wrote: »

What are the chances of a pickledtink replying to a post from a pickledpink?

Amazing. tickledpink and tickledtink, where are you?

I know I know. Invent a good handle and the herds will follow.:rolleyes:
Happens to me all the time......

SouthCoast

SouthCoast wrote: »

The history of a BTL West Sussex (coast) property.

Bought new £220k Feb 2004

Sold £285k Nov 2004

Sold at auction 26/3/08 £200k.

P.S. The owner went bankrupt in October.

dweeby

carolt wrote: »

On the contrary, desperate banks are raising savings rates as it's still a cheaper way for them to get their hands on some desperately needed cash, during the credit crunch, than borrowing from the Bank of England at punitive rates (eg bank that borrowed wodges at 9.5% last week - anyone remind me of the precise details?). It's a great time to be a saver but a lousy time to be a borrower.

We can speculate about many things, but your point above is simply wrong.

For example:

The best buy cash ISA on this website used to be NSI - this has just reduced its interest rate.

Best bank accounts used to be ICICI and Icesave, they've both just reduced their interest rates.

I have a Lloyds TSB on-line saver, they've just reduced the interest rate.

With the BOE predicted to lower the base rate again in April, savings rates are downwards not upwards at the moment.

Your comment about buying a home at the moment "DON'T DO IT" is a reasonable point of view, but the picture is not clear and peoples circumstances are different.

A simple "DON'T DO IT" is totally over-simplistic, it may be good advice for some - but not all. For example, what area would you target these comments at? I think even on this thread, most would acknowledge that not everywhere will be affected equally by any crash. And peoples circumstances are different.