A question for potential FTB's

Rave

socks_uk wrote:

We all know what happened in the eighties with people having negative equity on their property but how many of those people still have negative equity now?? None I would say.

No, and that's because plenty of people had their homes repossessed when they were unable to meet their mortgage payments after overextending themselves. Unless you have a guaranteed job for life, or some other guaranteed means of bailing yourself out (like rich and generous parents), then borrowing up to the hilt is risky- there is a chance that you could lose absolutely everything, even go bankrupt. If a FTB has saved up a 25% deposit on the house they want to buy and/or are borrowing at a fairly low mortgage:earnings multiplier they can almost certainly weather even a fairly severe drop in prices or rise in interest rates- and if they're not bothered about the chance of losing some or all of their equity they can buy with relative impunity. It's the people who are taking out 95% mortgages at 5x or more their earnings who are really at risk in the current climate, and sadly I'm sure there are still plenty of people like that out there.

thaylock

charlotte664 wrote:

Prices will rise again in about 8 months to a years time after the pension laws change.

Don't be silly - even estate agents don't expect the market to recover until 2008.

FaTB

Thanks everybody for your replies, and I am pleasantly suprised that most have given perfectly sensible reasons for them to buy now.

If you really want / need a "home" you have a large deposit and are not borrowing large multiples of your salary, then why not, as long as you accept much of this hard earned deposit may be absorbed by price drops.

The people who worry me are the ones with no deposit to speak of and 100 % Interest only mortgages.

Many of these people have been badly misled, and scared into buying at ridiculously inflated prices. These people will be the worst affected, and these debts will hang over them for many years to come.

I for one came so close to being lured into this trap, Im so glad I did that bit extra research, and didn't just take the advice of so called "experts" who are really just trying to sell a financial product, or make a commission.

margaretclare

Interesting discussion. I'm not planning to buy or sell for the foreseeable future, but it's interesting because I do remember what happened 15 or so years ago. Yes, a lot of people WERE repossessed! I had a struggle myself because of widowhood coincidental with redundancy in 1992. I had to re-home several pets so that I could do residential work, and I remember the cat shelter woman telling me that she was snowed under with pets that had to be re-homed because their owners were losing their homes.

I'm always coming across messages from people who say things like 'I'm £10K in debt but I want to "get on the property ladder".' They use this phrase - 'must get on the property ladder'. You can see the disasters looming, not only that, but taking on a mortgage at those levels with a girl-friend - a likely relationship crisis looming with those stresses and strains, what chance does a relationship like that stand?

Aunty Margaret

wibble68_2

John_M_Business wrote:

The boom has settled, true. House prices have reached a new plateau, but it is possible that they will start rising when they make their next move. It may be a year or so before this occurs... we shall see...

Confident words.

But answer me this.

When was the last time that any housing market boomed, stagnated for 2 years and then took off again?

As far as I'm aware every housing market bubble has ended in a crash or produced a long drawn out recession.

The damage has already been done.

Wishful thinking will not be enough to prop up the housing market.

FaTB

John_M_Business wrote:

The boom has settled, true. House prices have reached a new plateau, but it is possible that they will start rising when they make their next move. It may be a year or so before this occurs... we shall see...

I agree with wibble68, what possible evidence do you have to suggest that prices will just level, then start rising again ?

How often does this happen when sentiment has changed in a market ?

I think you are getting mixed up with what most likely will happen, and what you want / need to happen !!

trevbob

Pretty much this thread as most develops into two camps - the "why should I be the last sucker in before the crash" non-owners and those with a vested interest in talking up the market being industry types and/or homeowners keen to preserve their "net worth". Obviously buyers in the last couple of years have most to be concerned about.

For a fairly articulate view on why renting isn't necessarily dead money see this weeks Sunday Times Money section. For the opposite view talk to numerous people in your local pub - the real point as in any market is timing.

For me one sure sign that something is overheated is when it moves from the business pages to the average man in the pub - dot com shares, buy to let property etc

People can obviously be in a different positions - I know of hard-headed people who have sold to rent in the past year and FTBs for whom the desire for a "home" outweighs mere financial considerations.

Pal

twogoodtwo wrote:

Can you possibly explain your rational why a more expensive house will fall less in percentage terms than a cheaper house. Experince in London has shown that it is often exactly the opposite. If you are talking about moving to different part of the country then that is a completely different argument.

It seems pretty obvious to me that the link between earnings and higher-end house prices has been lost for some time now. People no longer value expensive houses based on three times their high earnings. (If they did hardly anyone could afford to buy at the higher price end).

Instead the market values higher end houses based on the amount of money the purchaser could expect to sell their "beginner" house for, plus the same (or higher) amount of mortgage that they might be able to obtain in the current lax, low interest rate environment. As a result it seems more likely to me that two houses in a chain will tend to fall by the same absolute value (i.e. £10000) instead of falling by a percentage.

Example - if your £200000 house could only be sold for £180000, would you knock £20k off the £400k house you are buying, or try and knock off 10% (£40k)? Good luck to you if you can do it!

Also, bear in mind that I said that it was a fairly simplistic argument. Obviously, people's circumstances will vary and you need to balance this into consideration when making any decision.

Agreed. But remember that percentage house price falls and rises are just statistics. They do not influence the housing market, they just report what is happening overall within it. Houses are not priced based on what they sold for 10 years ago plus the percentage increase in average prices since then. They are based on local market knowledge and what people are actually selling and buying for.

Finally, it has nothing to do with the length of time you stay in your house. a 30% drop is a 30% drop no matter if it is over 1 year or 5 years (and yes I understand the time value of money, DCF analysis etc). As long as you are moving up in the ladder (and have the deposit), I still maintain that as a buyer you want house prices to fall, not rise.

I think you missed my point. If someone has a large deposit then negative equity is less likely to be a problem if they have to move in a hurry. If they are not planning to move for a long time, then they have even less reason to worry about negative equity. Eventually they will pay off their mortgage for the amount that they agreed at the start and were willing to pay. This is the group of FTBs who I think might want to consider buying at the moment.

For anyone else i.e. buying with girlfriend/partner as Margaret points out, anyone looking to upgrade within a few years to a larger house, anyone who might move with their job etc etc should not be looking to buy at the moment, especially if they do not have a large deposit. IMHO the financial risks are simply too great.

meanmachine_2

A very preditcable thread.

Those who work in the industry, those who have recently bought and those with property to sell (you all know who you are) argue one thing till they're blue in the face, while everyone out of the market takes more of an overview, as in "house prices are stupid...how and why did they ever get so high?"

Anyway, I thought this was for potential FTBers. Why the usual suspects have piled in I've no idea.

Unless they're starting to brick it....

The EAs worst nightmare is an unmotivated FTBer - someone who isn't gripped by fear. That's exactly where we are now. Can't buy and won't buy. No amount of spin, or propaganda about SIPPS is going to change that.

I mean really, how pathetic. Is SIPPS and the Olympics the best agents can do in their efforts to scare people into buying their massively overpriced stock? You'll have to try much harder than that.

jb478914

hear hear, just read through this thread, love it!