House price crash?

bandraoi

Gorgeous_George wrote: »

So, what is a reasonable multiple?

In 1985, I was offered 2.75 x joint income or 3 x mine and 1 x 1st Mrs GG. Mortgage interest rates were high at 16.5% but I enjoyed MIRAS making the rate effectively 11%.

Rates are much lower today and I pay 6.24%. Salaries have increased of course so, what is a reasonable multiple.

Of course, we should remember that council tax is huge compared to the old rates. VAT is applied to almost everything. On the other hand, food and consumer goods are cheaper.

I think a 4 x multiple would be reasonable making a 2 bedroom terrace like my first home something around £100K. Today, they sell for nearer £150K. A 30% price drop would address the imbalance.

GG

In 1985 most mortgages were given on the basis of 1 salary or 1 salary and a much smaller second salary for the second half of the couple.
House prices were 3 times the salary.

These days most mortgages are calculated on the basis of 2 salaries.
House prices are 6 times salary.

brit1234

Prices are falling and nothing can stop that now especially as lenders are getting tighter.

Properties have to fall if no one can get mortgages at todays prices as you will never get a chain. Even if people were to get a giant mortgage it no guarantee that other people in the chain will be able to do the same.

HammersFan

Turnbull2000 wrote: »

(slight edit in quotes)



See above.

In additional, typical FTBs are now supposedly in their early 30's. Whether this is true are not (as the figures may include STRs returning, divorcees etc), is it fair to assume most individuals are near or already at their peak earnings potential at this stage?



With the price difference between now and 7 years ago, it's a bit cheeky to tell FTBs not to "pick and choose".

Do you really believe that's what FTBs are hoping for?

I can't agree with your points. Peak earning potential in 30's? No way. I don't have any stats to back up this assertion, but are you arguing that no-one over mid30's gets a promotion or progresses their career? If I am earning the smae as I am now in 10 years time something must have gone badly wrong. By contrast, my mortgage debt will be the same (hopefully much less) than it is now. Barring a wild upswing in interest rates, it will get easier. Of course, when you buy you 'lock in' the price (for better or for worse, but mainly for better as history shows).

Cheeky to tell FTB'ers not to pick and choose? I don't think I ever said that - just that is a first house ever going to be perfect. No, I doubt it will. But as previous posters have pointed out, the outrageous and unaffordable prices in London, mask still decent affordability elsewhere.

A person who never buys has to fund rent in retirement - that would scare the hell out of me a lot more than taking on a strecthing mortgage that is likely to get much easier over the years, and provide a good sized amount of collatoral that can be released if needed.

IveSeenTheLight

Gorgeous_George wrote: »

With 40% taper relief after 10 years they still pay 24% today against 18% in April. Have I missed something?

What the new rules could breed is a new generation of BTL LLs who look for a gain over a shorter term (3 years).

GG

So would a 6% extra saving convince them to sell in April, when they would still get that extra saving whenever they sold?

I'm not convinced "there will be a glut of BTL's for sale in April".

Sounds more like straws being clutched by those calling for a house price crash hoping that there will be much more supply on the market

eco-friendly_2

Originally Posted by TighterThanTwoCoatsOfPain
You can read / believe all you like re: the mortgages people are applying for etc etc.. but fact remains from the land registry, the ACTUAL sold prices is not going down, infact still going up. Oct (up 0.1%) and Nov (up 0.6%)

http://money.aol.co.uk/cheer-for-hom...03085509990011
LR figures usually lag a little, but let's leave that aside. You cannot disregard mortgage approvals and transaction numbers when stating prices rises. Approvals are currently down by 44% year-on-year. Prices are reflected by affordability, and these statisics may only reflect the purchasing power of a dwindling number of higher earners capable or willing to buy.

Turnbull 2000

If you were to exagerate this statistical flaw, you could argue that the average house price has risen to a million pounds if there were only two sales at this value in an entire year. Everybody else is priced out completely.

Turnbull, brilliant distortion of the FACTS :T your wasted on here, why don't you become a politician ?

PasturesNew

HammersFan wrote: »

If I am earning the smae as I am now in 10 years time something must have gone badly wrong.

But it does happen.

In 1997 I wasn't earning a great wage. Today I can't seem to even earn that much.

I've recently been doing exactly the same job as I used to do 17 years ago - quoted rate was less than I was on 17 years ago, I finally managed to scrape my 1990 salary for a 3 month booking.

For many people now jobs are: start, finish, start, finish - I've not been in a job for more than 15 months ... well, forever really. Companies I have worked for have had lay offs, downsized, relocated, sold up, gone under. The whole set.

I am now late 40s and never reached any peak of earnings.

When you're laid off you don't have the luxury of picking/choosing your next job, you have to take the first thing anybody offers you that you can do. Then you're stuck as you're new so can't take time off to keep looking as you would need time off for interviews. And before you know it that job's finished too.

People only mix with people like themselves, so tend to only see what's going on in their own back garden.

More and more jobs are being outsourced and squeezed on salaries. New people being taken on at the lowest the employer can get away with.

Many jobs are being deskilled. Put anybody in front of a PC and they're suddenly having to do every role possible using various software. This means many specialist and slightly better paid jobs have disappeared.

How many people here have "designed" leaflets for work? Or written adverts? How many have put together websites for their companies? Oh I'm sure everybody did the best they could, but realistically these are actual skills. A skilled person could have done it in 1/5th of the time at double the rate. Hence really better/cheaper and they'd have still had a job. Instead everybody's being asked to do everything - resulting in additional work stress as they are undertaking tasks they have no knowledge of, that eats into the time when they should be using THEIR specialist skill.

I even saw a letter typed the other day after a patient had seen a private doctor. The price for a proper Medical Secretary to have typed that letter would have been, say, £3-5, with the Secretary being paid a decent £20-25k. Instead what I saw was that the Doctor had clearly typed it and it looked rubbish. The Doctor probably spent 30-45 minutes or more typing it, when he was paid £300 for the consultation.

So a perfectly good Medical Secretary was deprived of working for about 20 such Doctors and earning a good salary. She's probably sat somewhere in a call centre on minimum wage. Meanwhile, the Doctor on £100k/year, doing his on the side private work for £300/45 minute consultation, is fiddling about at a PC typing up his own reports.

I could name loads of jobs that have been dropped like this.

More jobs than you can possibly imagine are paying no more than 10-20 years ago. As minimum wage went up, the wage for the next layer of jobs stayed still.

Turnbull2000

eco-friendly wrote: »

Turnbull, brilliant distortion of the FACTS :T your wasted on here, why don't you become a politician ?

Why don't you just refute what I'm saying properly then, instead of talking b*llcocks yourself. I'm sure a poster of your calibre can do that, right?

Turnbull2000

TighterThanTwoCoatsOfPain wrote: »

In all seriousness, could you explain.. I accept you're more exposed to smaller increases etc but interested in all others etc.. My arguement for fixing if the rate is sensible, they do still exist.

Refreshing to read from someone who can back up with facts etc rather than "there will be a crash because i want one"

My personal feeling is you can get a house for 100k, on 18k salary, and can also get a 25 year fixed rate mortgage at 5.5% if you want. I just cant accept people cant buy a FTB house if they want one.... most people i know have unrealistic expectations

The average FTB pays over 50% more than your 100K and there are no towns left with prices at or below that figure. But with a good deposit, this is of course achievable. So that's would remain 5.5 times income for your first house and over 50% of take home pay. You know what the exit/remortgage fee on this fixed rate would be before the 10 year limit? Such high borrowings on such modest incomes have helped fuel this bubble.

Alternative investments, saving and pensions are all suffering due to current housing costs. Artificially low interest rates have continued to fuel this - rates which are influenced by a flawed CPI rating. This policy has caused a huge imbalance and contributed to the credit crunch. When rates were higher, borrowings lower and inflation figures more honest, mortgage debt was eradicated quicker than is now possible.

But instead, the nation squeals when a mere quarter point rise is announced. Millions are on short-term fixes and may feel a lot of pain when their obscenely low rates reset to moderately low rates. The rule on allowing for 8% seems to have gone out the window, and the BOE's hands are tied in their fight against real inflation and a weakening pound.

I think you should elaborate on what you mean by "expectations". If you're talking about expectations in relation to an overvalued market e.g. have to start with 1 bedroom flat instead of two or a mid-terrace, don't expect to upsize after a few years, then I'd agree. Otherwise, you make it sound like a near 70% rise since 2002 over historic 'norms' is a minor obstacle.

You're also not considering the secondary effects. Fertility rates are likely to fall further (already low), consumption levels amongst a generation will fall (even the BOE are realise this), savings rates will reduce further (already at an all time low), and pension contributions will be inadequate (again, already suffering). Traditional earning multiples served a useful purpose in helping avoid this.

TighterThanTwoCoatsOfPain wrote: »

Apolgoies if it came over like that, not lecturing anyone.. at the time i bought my house i was warned by many that the House price bubble was just peaking and coulda got my house 10% cheaper 6 months ago and to consider waiting..... Mortgage rates were the same, perhaps a little higher than they are now.....well look how that turned out!

LR are considerably in arrears agreed, point was that whilst Lenders were saying in Oct and Nov that prices were falling, they werent? I cant suss where the apparant gap in the rise / fall appears?

Fine, thanks for acknowledging that. But don't tar all first-time-buyers with the same brush. I agree, calling the top of the market in 2000 is beyond reason. I imagine very few believed this too with prices still below historic averages. Maybe you should be grateful rather than annoyed?

Turnbull2000

HammersFan wrote: »

I can't agree with your points. Peak earning potential in 30's? No way. I don't have any stats to back up this assertion, but are you arguing that no-one over mid30's gets a promotion or progresses their career? If I am earning the smae as I am now in 10 years time something must have gone badly wrong. By contrast, my mortgage debt will be the same (hopefully much less) than it is now. Barring a wild upswing in interest rates, it will get easier. Of course, when you buy you 'lock in' the price (for better or for worse, but mainly for better as history shows).

No, I'm not arguing that no-one over 30 get promotion or progress. But excluding inflationary rises, it seems fair to assume that most people in their early 30's have generally established their natural level of capabilities and hence chances of promotion to more seniors posts. But yes, stats would be nice.

Combined with low income growth, rising living costs and the chances of being bailed out by a huge career step now slim, the prospect of waiting until your 40 before considering children is real. Fertility rates for native British couples on middle-incomes is already falling. The hopes for a good disposable income or setting aside reasonable sums for savings or retirement are much reduced.

HammersFan wrote: »

Cheeky to tell FTB'ers not to pick and choose? I don't think I ever said that - just that is a first house ever going to be perfect. No, I doubt it will. But as previous posters have pointed out, the outrageous and unaffordable prices in London, mask still decent affordability elsewhere.

I wasn't quoting you.

HammersFan wrote: »

A person who never buys has to fund rent in retirement - that would scare the hell out of me a lot more than taking on a strecthing mortgage that is likely to get much easier over the years, and provide a good sized amount of collatoral that can be released if needed.

Without an alternative investment vehicle, I've never implied that renting is the long-term solution.

It seems there's not many left on MSE who agree with my view and all this typing to answer those who disagree is tiring! Think it's time to call it a day.

Generali

Turnbull2000 wrote: »

Think it's time to call it a day.

At 5.41am! I should coco

Interesting item in the Times today about the credit crunch - 31.2% of lenders have tightened the criteria for lending. 0.1% have losened. That's since the summer.

That's the cut in demand that will lead to reduced prices unless credit terms loosen again. Note that is despite the BoE cutting rates.

No link, sorry.