House Price Crash Discussion Thread

John_Pierpoint

More fool them. That is why it was wise to STR in 06/07.

YES you have lost the 55K (Less perhaps 5 - 10 K in dealing costs to get out and get back in 4 years later)
your net worth has gone down by 55K. Obviously if you are in serious negative equity, you have only two options.
1. Stay there, stuck and paying considerably more than the rental value for the privilege.
2. Go bankrupt and try to start again.

greenwheels007

Here's an even more interesting situation!
Person A lives in that house, so they paid £200K and now it's worth £144.5K.
Person A put a 10% deposit on their house so they now have negative equity of 44.5K.
Person A is happy that the cost of the mortgage repayments have come down a bit and they love living where they are, in fact if they ever moved they feel smug because everyone's houses will have dropped in price so 'it's all relative'.
Person A gets a letter from the bank saying 'Mr/Ms A we feel a bit nervous about the £45.5 K negative equity that you have in your house and that it is not secured against anything, it's sort of like a tent with no pegs!, no problem Mr/Ms A as long as you can tell me what you propose to secure the 45.5K with, some insurance perhaps?'.
Person A then gets a bit panicky for a bit and buys the insurance, borrows money from family or gets a better paying job to pay for it....phew sorted!

Person B is in the same situation but doesn't get that letter as the bank have decided not to do anything for a year or two. In the third year (year 3 in the story (late 2010?)) the house prices are no longer crashing, the drop is slowing, it is only 10%.
The house is now worth £130K. Then it flattens out for a year. So at the end of 2012 it is still worth 130K ish.
Person B is smug as they can sell in the same market (as timberford suggests) but then actually gets the calculator out and thinks!
He then realises that he has been paying mortgage repayments for a 190K mortgage for the past 4 years. The house is now worth £130K.
He then sells his house and realises that before he can buy another house he has to satisfy the bank that he can afford the mortgage. He sells his house for £130, and....oops he owes 190K, 190 minus 130 equals 60K.
So where exactly get the deposit from for the new house.
We are using positive equity, house price and inflation booming theory but in the wrong context.
There are two options, in this very likely scenario....
1) Sell up and rent. I think this is the wisest option.
2) Stay where you are for a long time, until your house value again exceeds your mortgage amount, it probably will, but who knows when?

The concept of moving house does not work when you are in negative equity, as well as the fees the bank will also want assurances that the loan is secure. There is protection in place at the moment (no-one will be reposessed by the big banks) but when that ends you must have a plan to manage the situation.

Hope that all makes sense but I think we need to think things through

thg

We are in this situation greenwheels. We were ignorant about the coming crash and bought in May 2007 a flat, albeit a nice one, for £194k. We got a few months of slow growth which is now tanking. Haven`t got it valued but it must be around the 170-175 mark. We put down a fat 50k deposit. So we either,

1) Sell up and rent, pocketing about 20k or,
2) Stick it out and wait until house price recovers.

I've done a quick calculation. Assuming House prices reduce by 18% in 2009, and grow 2,3,5 and 5% respectively in the following years we'd still be up over 10k renting. Assuming my figures are reasonable it looks like theres only one sensible option.

greenwheels007

thg wrote: »

We are in this situation greenwheels. We were ignorant about the coming crash and bought in May 2007 a flat, albeit a nice one, for £194k. We got a few months of slow growth which is now tanking. Haven`t got it valued but it must be around the 170-175 mark. We put down a fat 50k deposit. So we either,

1) Sell up and rent, pocketing about 20k or,
2) Stick it out and wait until house price recovers.

I've done a quick calculation. Assuming House prices reduce by 18% in 2009, and grow 2,3,5 and 5% respectively in the following years we'd still be up over 10k renting. Assuming my figures are reasonable it looks like theres only one sensible option.

It is such a tricky one to call. I dislike paying a monthly rent but if anything goes wrong in the house then it's not my house, I just phone the landlord. That is a finacial variable that home owners sometimes do not budget for.

If you pocket the 20K you are 30K down, but secure.

If your flat is worth £170K and house prices dip by 15% next year then the flat will be worth £145K at the end of 2009. So you then buy it back (obviously not the exact same but a comparible one). Your mortgage is £125K.

I assume your mortgage is currently something like £150K at presnet, so in a years time you have dropped 25K from your mortgage, you are still 5K (plus any house sale fees) down.

This is where you need to consider what YOU think will happen in subsequent years. Will they drop by more or less than 15% next year (some suggest 30% others suggest nil). Then what about the year after.

The motivation should always be to minimise your mortgage.

I believe that so many people are at the threshold of having options.

If your flat does reduce by 15% next year then you will be in negative equity by £5K, not a big problem as long as you have job security.

There are loads of views on here. I chewed the numbers in August 2007 and do not regret jumping off of the ladder. In your situation I think I would jump off. There is an inbuilt fear of the insecurity that comes from not owning a castle, it is hard to get away from. It still worries me sometimes but I am gald I did it.

Why don't you get a couple of E.A's to value your flat then crunch those numbers again?

All the best

MiserlyMartin

greenwheels007 wrote: »

What a strange post!
Typical of many who believed the hype about the ladder, let me guess, negative equity...?

Come on keep it nice and let the guy have his moment in the sun.

I would like to have a moment in the sun but I don't feel too positive when I see:
interest rates so low
my carefully earnt savings losing money with inflation still so high
the pound so weak
the reckless being bailed out - that includes people who overstretched themselves, banks who in part caused this and now car manufacturers!
job uncertainty
a general feeling that nobody wants to take any responsibility for anything anymore and expect us as taxpayers to bail them out, encouraged by a government desperate to stay in power

Being careful and prudent should be rewarded, but it seems you are rewarded for excess and failure these days.

harryhound

1,600.000 Sales in 2007
...700,000 Sales in 2009 forecast of which
......75,000 will be repossessions.

Any body know if there are figures for "time on the market" from instructing the agent to completing? Historically 12 weeks used to be bandied about.

Not to mention the number of sellers who simply give up trying to sell..

mikelivingstone

neverdespairgirl wrote: »

#

They only made money if they actually sold in August 2007.

Actually I managed that trick, deal in agreed in August 2007, moved out in January 2008.

abinanthanb

greenwheels007 wrote: »

It is such a tricky one to call. I dislike paying a monthly rent but if anything goes wrong in the house then it's not my house, I just phone the landlord. That is a finacial variable that home owners sometimes do not budget for.

If you pocket the 20K you are 30K down, but secure.

If your flat is worth £170K and house prices dip by 15% next year then the flat will be worth £145K at the end of 2009. So you then buy it back (obviously not the exact same but a comparible one). Your mortgage is £125K.

I assume your mortgage is currently something like £150K at presnet, so in a years time you have dropped 25K from your mortgage, you are still 5K (plus any house sale fees) down.

This is where you need to consider what YOU think will happen in subsequent years. Will they drop by more or less than 15% next year (some suggest 30% others suggest nil). Then what about the year after.

The motivation should always be to minimise your mortgage.

I believe that so many people are at the threshold of having options.

If your flat does reduce by 15% next year then you will be in negative equity by £5K, not a big problem as long as you have job security.

There are loads of views on here. I chewed the numbers in August 2007 and do not regret jumping off of the ladder. In your situation I think I would jump off. There is an inbuilt fear of the insecurity that comes from not owning a castle, it is hard to get away from. It still worries me sometimes but I am gald I did it.

Why don't you get a couple of E.A's to value your flat then crunch those numbers again?

All the best

If only you manage to sell the property now!! AFAIK, a property of 170K value is a slow mover.

whathavewedone

We traded up in August 2007 (I know, I know!)

Property valued at 440k, paid 436k (on basis that it needed a new boiler)

To avoid redemption penalties we took our existing mortgage with us and then arranged a new one with the Halifax at the end of October 08. Value had dropped by 16k according to bank's surveyor. To get a decent rate we had to put 16k in to maintain 75% LTV which we did and we fixed for 3 years.

Am not crying about the fact that we didn't get a tracker but wish we had fixed for 5 years as I bet interest rates will start flying up by 2011.

We have 30k in savings and the option to pay lumps off our mortgage. I'm minded to keep the money in the bank as an insurance policy against future interest rises or in case we have to put equity back in three years down the line rather than chucking it into the house now.

Work wise my oh's job is secure. I've been at home for the last couple of years looking after children (aged 1 and 2) but am looking at going back to work part time next year (am fortunate in that there is a lot of work around for litigation lawyers in recessions) and have a couple of interviews lined up early in the new year. To begin with I will just be working to pay childcare but my thinking is that in three years time when my eldest is at school and my youngest will get 12.5 hours at nursery free it will be better if I have been employed for some time rather than looking for a job after 5 years at home.

Although we've been spectacularly stupid in that rather than selling our last home at the top of the market and then renting we traded up, we are otherwise pretty cautious people. No credit cards, no loans, no overdrafts.

The house we currently live in is "the" house that we plan to live in until the kids leave home so not particularly keen to try to sell it now.

Sorry for rambling post, just wondered if anyone had some advice on how we can minimise our exposure to risk, given that we are where we are.

Thanks

IveSeenTheLight

What is the point of this thread now that we have a whole forum.

This should be de-stickyfied and allows to move with the rest of the discussions