Oh Dear House prices set to fall next year

[Hunting 784561]

On an interest only mortgage, a £ 400K house at 12% mortgage rate would cost £ 48,000 pa in interest or £ 4,000 pm.

 

[London Irish]

A house worth £200,00 on mortgage rate of 12%, costs the same each month as a house worth £400,000 on a mortgage rate of 6% ( Ok not exacly, but you take my point).

No, way off. The interest payments might appear the same. But you are forgetting about the £200,000 extra principal you have to pay back when your average wages have only risen modestly.

 

[Yorkie]

According to the radio the fall is only expected to be 5% which won't make a big difference at all.

It won't be enough to help first time buyers.

 

[Chicken Run]

According to the radio the fall is only expected to be 5% which won't make a big difference at all.

It won't be enough to help first time buyers.

Who care's, those that own house's, if careful will continue to own house's, those that dont might get a chance, a possible win/win, the ownly people to lose out are those involved in marital splits and enforced sales!

 

[Lord Bracknell]

A house worth £200,000 on mortgage rate of 12%, costs the same each month as a house worth £400,000 on a mortgage rate of 6% ( Ok not exacly, but you take my point).

[I've corrected the typo - I think you meant to say £200,000.]

I've just looked up the paperwork to get the exact figures that I was talking about.

The year is 1975.

Purchase price of house:- £10,500
Mortgage advance:- £8,500
Interest rate:- 11.75% (repayment mortgage)
Monthly repayment:- £88.90 (over 25 years)

I can't remember exactly what the household income was at the time, but it was something like £3,500 pa.

Income levels have gone up tenfold since then. House prices have gone up by something like 25 times their 1975 value.

This gives us the 2004 figures:-

Purchase price of house:- £262,500
Mortgage advance:- £212,500
Interest rate:- 6.00%
Monthly repayment:- £1,385.26 (over 25 years)

If all this was done on a household income of £35,000 pa, it would mean a deposit of £50,000 (1.4 times annual income, compared with 0.6 times annual income in 1975). And repayments would be 47 per cent of gross income, compared with 30 per cent of gross income in 1975. AND we had mortgage tax relief on repayments in 1975.

As you say, "not exactly, but you get my point".

 

[beorhthelm]

one of the factors that has fuelled the current house price inflation is people moving out of the stock market. After getting burnt in 2000/01, people looked at what they had left and looked around for a "safer" investment. Many saw the new buy to let market as perfect.

Fast forward a few years and no-one can afford to get into the market without already having substantial means - ie highish salary, house equity, or inheritance. This means one of the feeders of hte market has gone. The slack has been taken up by those buy to let punters. But now theres a surplus of rental properties, so rents are static or dropping. Meanwhile interest rate have gone up, so the yield on that rented property is being squeezed to the point where your better off keeping the money in the bank.

Whats all that mean? Well, a couple of percent drop in prices will see thousands of Buy to Let landlords get worried and sell up to lock in the capital gains they've made. so your likly to see a susbstantial fall in prices at the bottom of the market at least, and it depnds on the nerve of those above whether or not the whole market will crash. Hopefully they'll hold, otherwise this country's heading for a nasty recession.

 

[Tom Hark Preston Park]

Excellent news.

Whether they'll fall enough for housing in Sussex to become affordable again remains to be seen.

If people have bought property in the expectation that it will make them a tidy profit, all I have to say is ... TOUGH.

Housing is for living in, not for making money at the expense of rendering a whole generation unable to find a decent home.

Post Of The Day IMHO

 

[Withdean and I]

its a cycle...it was bound to happen

 

[Shropshire Seagull]

Am I one of the guilty ones?

When I moved up to Shropshire, I bought a house to live in, but kept my house in Burgess Hill too. It was a parachute in case things didn't work out. I covered the mortgage cost by renting in out.

After two years, me, wife and two kids agreed we had settled in Shropshire so sold Burgess Hill - which we had bought 6 years earlier. I was happy to continue with a modest mortgage in Shropshire, so with everything else paid off I was left with £130k to play with - what would you have done with that money?

Well one day, me and the missus would like to go back to Sussex (good 10-15 years off yet) so to protect us against property inflation we invested the money in property - I bought two two-bed semis to rent out (buy-to-let) and I've bought a 4 bed villa in Florida which I leave to a managing agent to rent out as a holiday home (10 mins from Disney).

I feel very very lucky to have found myself in this position - but I would expect most other people who found themselves in a similar position to have done something very similar. What better (secure-ish) option for investment was there? Bear in mind this is just over a year ago when top savings rates were 4% and property was going up 15-20%

I openly apologise and sympathise to all first time buyers - but its a market economy we live in - I just got lucky. But please don't slate me for doing it - its a wise investment.

 

[Shropshire Seagull]

The other point about investing in property is that return on investment is leveraged: simple figures.
Buy a house for £150k putting down £30k deposit (20%)
Assume 10% house price inflation so 1 year later the house is now worth £165k but the £15k growth in relation to the £30k deposit is a whopping 50%. The 80% mortgage will be covered by the rent which also needs to cover insurance, maintenance etc. but it's still a very sound investment.

If property inflation fell to just 2% this would still give 10% on the investment (deposit) which is better than any savings ISA rate on offer today.

Captial Gains Tax will come into play once the gain is grater than £8,200 (£16,400 with a joint mortgage/ownership)

 

[Hunting 784561]

No, way off. The interest payments might appear the same. But you are forgetting about the £200,000 extra principal you have to pay back when your average wages have only risen modestly.

Not entirely true.

On an endowment or pension mortgage the original principal borrowed is only paid off at the end of the term, when the endowment or pension vehicle matures.

...but then again it might not if you're with Norwich Union.

 

[Pevenseagull]

random, tipsy unstructured waffling alert


modest flat in Hove


£170000

10% deposit

at least £3K for fees - stamp duty etc.

so............ somehow manage to put £20K aside

borrow £153 over 25 years capital and interest - fixed rate - best rate without an overhang penalty gives monthly repayments of £722.67 add on £1K per year council tax other bills etc and the fixed cost of the roof over your head is in the region of £1K per month which I'm guestimating is about the take home for someone on about £15-£16K gross per annum - no pension, no savings - average wage in Brighton is in the region of £17K (as a median/ mode of full time earnings rather than the mean which exagerates the figure)

so, young couple, say both 25 - (remember, they've somehow managed to scrape £20K in savings), a bit ahead of the game, both on 18K have about £1,300 a month to 'live' on.

From which they should ideally be putting at least 12.5% of their total earnings into a pension each (old rule of thumb 1/2 your age as a percentage if you're under 35) leaving about £725 net, add a bit of 'fudge factor' for misc fixed expenses (e.g. bus tickets) and they've got less than a tenner each a day to live on and to fund life's little luxuries - food, clothes, holidays, cost of bringing up a kid etc. etc.

I don't know how people do it, I really don't

mind you, same sort of money to rent....so you have got to get on that ladder if you can haven't you??

I started working in the mortgage industry in London in the mid 90s and saw plenty of people who'd been in negative equity for the best part of 5 years

by the end of the 90s there were a good few of them remortgaging to invest in technology UTs just as they chased property at the end of a boom





#Common sense doesn't seem to be prevailing in the buy-to-let market locally. There are a lot of small property portfolio holders sitting on significant capital gains. The rental yields are such that, for many property investors, there's an opportunity to save themselves a lot of hassle and obtain a better return by selling and putting the money on deposit.


#There are a helluva lot of people out their who, even with significant equity in their homes, are net in the red because they've been 'spending like Beckham' - "there's 50K in the house so 50K in car loans and credit cards isn't a problem" DANGER DANGER DANGER

still, at least LIBOR's not going to go up much ... is it

 

[Uncle Spielberg]

For heavens sake, why, because you read it in the Daily Express. The Daily Express have been predicting house price falls for 3 years now. About 2 years ago, the did headline after headline saying prices will crash. Now if a first time buyer had believed that and not brought a flat for say 100000 pounds , that same flat would be worth 140000 now. The Daily Express has cost them 40000 pounds. What really gets me is that newspapers can write any old shit they like about the economy or financial products without ever having to pass an exam of any discription in the field they are reporting on.

House prices have stabilised and will edge up slowly next year. Interest rates have peaked and will start to fall in the 2nd half of new year. This means housing will become more attractive again. Prices crashes are precipitated by high interest rates and unaffordability. Housing is affordable in terms on the monthly amount people pay on thier mortgages. The things stopping first time buyers is hte lenders income multiples not the monthly costs.

This is the opinion of GG and not fact.

 

[Uncle Spielberg]

The problem in Brighton & Hove is down to Londoners buying and moving en masse down here. A very expensive flat in Hove for them is a cheap flat. The average wage in the City is 53000 pounds per annum, in Brighton & Hove it is less than 20000. This is because Brighton & Hove has average wages less than the national average ! due to very poor wages in the leisure industry. Also landlord will portfolios have brought en masse again in the area.

The average first time buyer on 17k per annum could get a mortgage of top 70K. Now either they need to get a big deposit from mum and day to even get a studio flat or rent. Ironically it would be cheaper to buy than rent but lenders will restrict to around 4 x income.

 

[Barnet Seagull]

The problem is that it makes financial sense to own more than a single property. Couple this with the rise in single occupancy and one parent families and it's obvious where the problem is. Simple economics, demand and supply.

I can't think of a solution off hand but I don't see why the government can't legislate to make purchasing additional property above and beyond your needs less financially viable.

 

[Uncle Spielberg]

Also the fact that over the last 5 years, the stock market has been an absolute dog and this in turn means the endowments and pensions have gone pete tong, many people are looking to build up a buy to let portfolio as a pension incomend will this being able to be done through pension schemes in 2006 this is only going to become more attractive to 40, 50, 60 somethings. Pensions need to be overhauled, the 25% max tax free cash rule is ridiculous and people don;t want to pay into a pension for 40 years to get 1 year in they die at 66 and the rest stays in the pot of the company. At least with a property you have control over it and can sell it at anytime.

 

[Pevenseagull]

I can't think of a solution off hand but I don't see why the government can't legislate to make purchasing additional property above and beyond your needs less financially viable.

hows about announce that for purchases 12 months hence all rental income (bar rent-a-room) will be taxed as earned income and that a few years after that existing rental properties will be treated likewise
i.e. interest payments will not be deductable - it would certainly put investors off of gearing

obviously not going to happen, probably a silly idea


although not as silly as allowing landlords to get tax RELIEF by wrapping the property in a self invested pension

 

[Hunting 784561]

They do already. If you sell your 2nd property, you are liable to pay Capital Gains Tax.

 

[Hunting 784561]

Being a bit slow here. My post was in response to Barnet's.

 

[The Clown of Pevensey Bay]

House prices have stabilised and will edge up slowly next year. Interest rates have peaked and will start to fall in the 2nd half of new year. This means housing will become more attractive again. Prices crashes are precipitated by high interest rates and unaffordability. Housing is affordable in terms on the monthly amount people pay on thier mortgages. The things stopping first time buyers is hte lenders income multiples not the monthly costs.

This is the opinion of GG and not fact.

Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.

Your home WILL be at risk if you stake it on one of Gareth Glover's dead certs.