House price fall "accelerating"

Paul_N_4

There was an interesting report on Working Lunch last Wednesday (which can still be viewed on their website) about the number and type of mortgage products on the market according to Moneyfacts. They focused on the sub-prime mortgage products vs the prime mortgage products from Jul '07 and now. It was like this:

Mortgage products on the market in July 07:
Sub Prime: 8148
Prime: 3803

Mortgage products on the market now:
Sub Prime: 2961
Prime: 3500

So you can see that since the credit crunch, the number of sub-prime mortgage products out there have dropped by almost two thirds whilst the prime based mortgage products have held up.

This is UK based mortgages so anyone thinking sub-prime is a US only dilemma are sorely mistaken. The UK mortgage market looked heavily dependant on sub-prime lending right up to July of this year, and only now has prime based lending taken back the lead.

So three things:

1. Where does this leave demand for housing (those that can actually get a mortgage)?

In July of this year there were 11951 mortgage products on the market. Now there are just 6461. Thats a reduction of almost 50%.

2. Where does this leave those who were given a sub-prime mortgage product over the last 2/3 years when coming to remortgage?

They'll find the mortgage products available to them have dropped by almost two thirds, leaving (I suspect) some very high LVR products out there?

3. Will the ease of getting credit ever recover to the point it was at up til July of this year?

If not, there are going to be a lot of people coming off their 2 year fixed rates/introductory offers over the next couple of years to find themselves unworthy of a mortgage.

DreamBreaker

pamaris wrote: »

There is no way the housing market is going to survive this. I personally see a large-ish initial drop- maybe 15% by next year, then several years of slow decline.

I don't disagree that there may well be a slight decline, that is possible, I persoanlly still think house prices will see a small rise next year no more than 3%. BUT I would say dreaming of 15% falls by next year is exactly that, A DREAM!

I simply do not agree that that will happen in the space of a year, too many factors that I have mentioned in previous posts will come into play to make sure that does not happen.....even if one of those factors happens to be govenment or BOE intervention in some shape or form, and especially as many anaylysts are saying, the interest rate is lowered by at least 0.50% in the first half of next year with the possibility of a further 0.50% in the second half of the year! We shall just have to wait and see who is correct.

As a home owner and landlord house prices going down does not really bother me in the short term (although it obviously would in the long term) my hope is that interest rates stay low as I am sure many FTB'ers, Home owners and anyone wanting to move up the ladder hope too! Interest rate rises at too higher rate are not in anyones interest!

I do agree that there is a massive personal debt problem in this country and how that affects the property market remains to be seen but I also want to say how much it angers me that people do not take responsiablity for their own debt and try to blame banks for offering them money they cannot afford to pay. If a bank suggested you jump off a cliff would you???? It appears than many people would, and when they break both legs would try to say, well the bank suggested it would be a good idea! But I suppose I am on the wrong forum for that little rant, please point me in the right direction

DreamBreaker

Paul_N wrote: »

3. Will the ease of getting credit ever recover to the point it was at up til July of this year?

If not, there are going to be a lot of people coming off their 2 year fixed rates/introductory offers over the next couple of years to find themselves unworthy of a mortgage.

I agree with everything you said up until the last point, are you suggesting that a bank will simply say,
"oh, you have come to the end of your term with us, but we do not want to renew your mortage, go find yourself another foolish bank",
"oh, but please mr bank my credit is soooooo poor no one else will lend me and money",
"well mr uncredit-worthy, hard luck we are not going to lend you any money either, your repossessed!!!".

Sorry if i misunderstood your point but if that is what you are suggesting, no that will not happen! The current bank will contiune to honour the current mortgage and assist the person as best it can, even extending the term of the mortgage to lower the payments. They will continue to do this as it is in their interest to do so, rather than incur possible losses through reposession and until there comes a point where the person obviously will never be able to afford to pay the mortgage!

DaveyDave_3

paintpot wrote: »

I am a buy to let landlord and I feel no panic whatsoever.

Firstly, I bought them as a long term investment and have no intention of selling them for many years to come.

Secondly, the rent more than covers the mortgage and the rental market is strong, where I am anyway. I have (hopefully) rented a house this week, it's only been on the market for two weeks and the tenant wants to be in before Xmas. I will have a void of maybe a couple of days!

I'd love to see your figures.
Let's do some maths. Where I live (SE), a relatively grim 2 bedroom rental property costs rougly £200k. So in mortgage terms, that' s about £1300 per month whlist the typical rental for that property is say £700 per month. How is this a good deal for a landlord?!!.

Well, I'm sure you will counter this argument by saying that actually you wouldn't need to borrow £200k as you would buy at least some of property outright (hence reducing the mortgage payments). Well, have you tried putting that equity into a decent savings account instead and get say 4% after tax?.

Personally, the sums just don't add up to me at the moment. If the current crash turns out to be anything like the last one, then prices will not recover to 9-10 years.

Paul_N_4

DreamBreaker wrote: »

I agree with everything you said up until the last point, are you suggesting that a bank will simply say,
"oh, you have come to the end of your term with us, but we do not want to renew your mortage, go find yourself another foolish bank",
"oh, but please mr bank my credit is soooooo poor no one else will lend me and money",
"well mr uncredit-worthy, hard luck we are not going to lend you any money either, your repossessed!!!".

Sorry if i misunderstood your point but if that is what you are suggesting, no that will not happen! The current bank will contiune to honour the current mortgage and assist the person as best it can, even extending the term of the mortgage to lower the payments. They will continue to do this as it is in their interest to do so, rather than incur possible losses through reposession and until there comes a point where the person obviously will never be able to afford to pay the mortgage!

I know the obligations a bank has when it comes to this issue, but your post makes it sound like they engage some sort of moral brain in the process.
You can be sure the banks will do whatever suits them at the time. And if the current write-offs are anything to go by, it appears to be a choice between losing money, and losing a lot of money.

Repossessing can get a big chunk of money back much sooner than extending a mortgage, or giving a life saver repayment rate. And we all know how much banks need cash right now.

DreamBreaker

DaveyDave wrote: »

I'd love to see your figures.
Let's do some maths. Where I live (SE), a relatively grim 2 bedroom rental property costs rougly £200k. So in mortgage terms, that' s about £1300 per month whlist the typical rental for that property is say £700 per month. How is this a good deal for a landlord?!!.

Well, I'm sure you will counter this argument by saying that actually you wouldn't need to borrow £200k as you would buy at least some of property outright (hence reducing the mortgage payments). Well, have you tried putting that equity into a decent savings account instead and get say 4% after tax?.

Personally, the sums just don't add up to me at the moment. If the current crash turns out to be anything like the last one, then prices will not recover to 9-10 years.

I can safely say that I am a buy to let landlord and thus far I have no reason to panic. One of my properties I only bought approximately 1 and a half years ago. Off the top of my head my interest rate is something like 5% on that property. On 100,000k mortgage. Again, without checking, I know on that particular property I have easily been making £100 quid a month as the rent I charge is approx £505 a month.

In the 1 and a half years I have owned the property it has risen by approximately 15k. I obviously also had to put some money in the form of a deposit into this property (approximately 15K). Again, I would have to check for exact figures as I have a few properties and can't remember off the top of my head. All I know is that I have been making a nice profit monthly and yearly so far.

Yes, if rates continue to rise as they are I could find that I am not making a profit at all, BUT rates are unlikely to rise at the moment and infact are likely to fall. SO I am not in any panic to say the least.

I must also point out that rents in my part of the country are rising. The reason is : I have had 2 tenants in the last year and a half and guess why they have been renting....yes, in order to wait for the market to fall. My last tenants were of the same opinion as many of you, unfortunately for me, they caved in too and as soon as prices began to falter (or look like they were) and they could afford a mortgage for a property they wanted, they handed in their notice!

Landlords since day dot have never paid off more than the interest on the mortgage of a property. It makes no sense to pay off capital on a rental property when that money could be put towards another rental property. Thus borrowing someone elses money (i.e. the banks) to make a nice profit in a rising market.

Unfortunately DaveyDave your figures do not add up. No "sensible" landlord would be paying £1300 on the property you state, in fact at current rates, I cannot get to that figure even when paying capital on a mortgage, which no landlord would be doing? Landlords make their money from the appreciation of the property and not from capital repayments, this has been the case since people ever began to rent out any property, land, offices, cars, etc, etc. It's common business sence and those on the worlds top rich list would agree! Borrow money to make money!

Here is why I can't get your figure to add up:

£200K property (Using the current interest rate of 5.5%)

Neccesary deposit (at minimum) 15% = £30,000 deposit
Mortgaged amount = £200k - £30K = 170k to be mortgaged
Interest only at 5.5%= £779.16
Even if a landlord payed off the capital on that property there is no way they would be paying £1300. The repayment is £1056.11.

Therefore it all depends on what rent they can actually achieve on this property and what happens to interest rates. I would say if property prices are £22k for a 2 bed house you are being slighly negative about the rental potential of that property and I have no doubt it is likely to achive £800 a month plus, and not £700.

Feel free to argue against, but please do your sums first and don't quote "lets do some maths" before you have done your own :P

DaveyDave_3

DreamBreaker wrote: »

I can safely say that I am a buy to let landlord and thus far I have no reason to panic. One of my properties I only bought approximately 1 and a half years ago. Off the top of my head my interest rate is something like 5% on that property. On 100,000k mortgage. Again, without checking, I know on that particular property I have easily been making £100 quid a month as the rent I charge is approx £505 a month.

Well if you've really been making money on the property (without considering the price increase over the last 18 months) then it's not going to last long in the current credit market. Again, some more maths:

Current £100k mortgage with the Woolwich (25year offset mortgage) is about £650 per month. Also, a 15k deposit at 4% is for 18months gives roughly £1k interest, so that property is really costing you say £750 per month. So with the rental, that's a loss of £150 per month.
And then there's the maintenance and general tenant hassle. Probably worth it in a property boom and marginal in a property crash I'd think.

I'd certainly agree that rents are bound to rise.

m00m00

ah we get to the heart of dreambreakers points

he's a VI who's extrapolating his own position to form a universal whole, which should be employed by all

or muppet, to sum up.

DreamBreaker

m00m00 wrote: »

ah we get to the heart of dreambreakers points

he's a VI who's extrapolating his own position to form a universal whole, which should be employed by all

or muppet, to sum up.

Once again the agression begins. Please keep this debate as it should be and don't as always start aggresivley attacking those in disagreement. I don't attack you infact look overthe forum and on many points I am in agreement. Lets keep this as a debate and not a slagging match... please

DreamBreaker

DaveyDave wrote: »

Well if you've really been making money on the property (without considering the price increase over the last 18 months) then it's not going to last long in the current credit market. Again, some more maths:

Current £100k mortgage with the Woolwich (25year offset mortgage) is about £650 per month. Also, a 15k deposit at 4% is for 18months gives roughly £1k interest, so that property is really costing you say £750 per month. So with the rental, that's a loss of £150 per month.
And then there's the maintenance and general tenant hassle. Probably worth it in a property boom and marginal in a property crash I'd think.

I'd certainly agree that rents are bound to rise.

Try your sums again. You are making too many assumptions. Maths is not about assumptions it's about accuracy. Your not accurate unfortunately.