How far will house prices fall [volume 4]

[walm]

YMMV!

[battered]

Jockman said:

walm said:

Also I just took out a 5 year fix so I am extremely bitter.

Ah...that explains a lot....

And you expect me to follow your (usually solid) economics?

I dunno, with rates being as low as they are I can see the sense in getting a 5 year fix because of disproportionate effects of a rise or fall. This will result in skewing of the risk & reward.

What do I mean?
I mean that if you are paying back £500 a month in interest, halving the rate goes to £250 whereas doubling it goes to £1k. If both are equally likely and I'm offered a fix, I'll take it. If I guess wrong, so be it. I'm out £250 which is the lesser loss against £1k.

That's a statistician's wager.

[walm]

battered said:

What do I mean?
I mean that if you are paying back £500 a month in interest, halving the rate goes to £250 whereas doubling it goes to £1k. If both are equally likely and I'm offered a fix, I'll take it. If I guess wrong, so be it. I'm out £250 which is the lesser loss against £1k.

That's a statistician's wager.

That isn't how it works though.
A halving of the rate on a 1.99% floating rate would take your £500 to £440 - because the bank is still taking their 1.49% spread.
And likewise a doubling of the rate would take it to £625.

And the likelihood will be even not between a HALVING vs a DOUBLING but between a 25bps rise and a 25bps fall.
Which will have an equal and opposite impact on your interest payment.

-50% is not the same as +100% if you see what I mean.
If it were then the bet would be obvious.

I took the fix because the payable rate was the same 5yr fix vs. lifetime variable so even ONE 25bps move UP would make me better off on the fix. I figured AT LEAST ONE of those was likely over the next 5 years.
I just did not expect a 25bps move DOWN!!!

[battered]

It's still the same statistician's wager though, even if you change the numbers and the way it works. There;s a lot to be said for knowing what you are letting yourself in for in uncertain times. Things are just a tad uncertain right now.

[walm]

battered said:

It's still the same statistician's wager though, even if you change the numbers and the way it works. There;s a lot to be said for knowing what you are letting yourself in for in uncertain times. Things are just a tad uncertain right now.

The point is that +/-25bps was the "equally likely" wager.
NOT -25bps/+50bps.

[Jockman]

I can afford the hit so I stayed on the lifetime tracker.

Over the life of the mortgage I hope I call it right more than I call it wrong :crosses fingers:

[avinalarf]

walm said:

Also I just took out a 5 year fix so I am extremely bitter.

Six months ago I advised my daughter to take a 5 year fix.
Being a cautious type I considered that a safe bet was the wiser option.
Having lived through the 15% interest rate era I thought it the wiser option.
I am very pleased to be with such esteemed company as yourself,albeit you now regret your decision.
p.s. may I borrow your crystal ball ?

Edited by avinalarf on Wednesday 6th July 12:07

[jonah35]

I used to follow what text books and economists said about inflation and the boe 2% target etc etc but the past 10 years or so have proven it all to be rubbish.

The underlying issue is for the government to keep house prices propped up forever. If they fall in any big way, say 30% plus then it will be a disaster so i truly cant see rates going up any time soon, 10 years plus really, unless theres a black swan event.

[jonah35]

I used to follow what text books and economists said about inflation and the boe 2% target etc etc but the past 10 years or so have proven it all to be rubbish.

The underlying issue is for the government to keep house prices propped up forever. If they fall in any big way, say 30% plus then it will be a disaster so i truly cant see rates going up any time soon, 10 years plus really, unless theres a black swan event.

[V6Alfisti]

jonah35 said:

A 0.25% drop will make a big difference on a 1.99% mortgage.

The governement has shown it will do everything it can, including measures we havent even thought of to prop up property prices.

Can you imagine if they put interest rates up to 7%?! I cant see ot ever happening again - it simply cant.

The govt jave got us into a sticky mess where rates need to keep coming down to keep things going. Eventually i feel rates will go negative to keep the roundabout spinning

How would it result in a big difference? I think I read somewhere that a 0.25% drop is equiv to £20 a month on a £600/month mortgage. Use that as a ratio to reflect more expensive mortgage payments.

Apparently some banks are already increasing their rates, amazingly by 0.25% so that when the BOE announce their change....ta da it's the same as today. Therefore increasing the banks margins.

[jdw1234]

The BOE won't want to significantly increase rates unless the decision is taken out of their hands due to external market shock (bond strike or other "black swan" event).

No one can predict if/when that could happen.

Therefore, I am happy to pay a few K premium over 5 years to lock my rate in (especially as I can overpay 10% of opening balance per annum).

For me, it is an insurance policy against an unforeseen event rather than a play to "come out on top" over the 5 year period.

[XJ40]

Yes I don't see rates going up any time soon if ever really. And if they do at some point only a very small rise will likely be all it takes to reign in any inflation, given the extent of mortgage borrowings these days. It seems like we need ever increasing debt to keep the show on the road, the current paradigm is next to zero rates and ever more QE, are the powers that be running out of levers to pull? Is now late capitalism as it were??

It's looking like some kind of recession is starting to be priced in at the moment and it seems there could be some downward pressure on house prices... I personally don't see any significant falls though, given the supply and demand and loose money conditions. The population continues to rise and quality houses particularly period ones in primes areas are limited, plus builders aren't likely to be churning out significant numbers of new properties in a downturn...

[Timmy40]

XJ40 said:

I personally don't see any significant falls though, given the supply and demand and loose money conditions. The population continues to rise and quality houses particularly period ones in primes areas are limited, plus builders aren't likely to be churning out significant numbers of new properties in a downturn...

I'd agree with this. I do think some of the froth will come off the more insane valuations in London, but I really don't see that as a bad thing.

[jdw1234]

I get the feeling the uk property market is like Wile E Coyote and has run off a cliff, but hasn't looked down yet and noticed!

[NerveAgent]

Loads of reductions in my search area today, 4 of which I have viewed over the last couple of weeks. Mostly seem to be chain free and empty so presumably investors wanting to get rid sharpish.

[V6Alfisti]

XJ40 said:

I personally don't see any significant falls though, given the supply and demand and loose money conditions. The population continues to rise and quality houses particularly period ones in primes areas are limited, plus builders aren't likely to be churning out significant numbers of new properties in a downturn...

Entirely logical but there are more drivers at play and is exactly what was said about Hong Kong, it also had/has demand far surpassing supply, cheap money (mortgages currently at similar rates to ours from a quick google search), lots of talk of reducing transactions (like ours), lots of people were feeling confident on that basis (like ours).

Yet according to bloomberg it fell 12% in about 6 months after hitting a peak http://www.bloomberg.com/news/articles/2016-05-11/...

HK was listed as the number 2 global bubble, and you can see who is in prime position.


My inbox has been flooded with property this week, in one day alone I received notifications of about 25-30 new properties in my search areas, I normally get about 4-5 on average.

Another reasonably large reduction today on a 3 bed house in Zone 3
06/07/2016,
Price changed: from '£850,000' to '£775,000'
13/05/2016,
Initial entry found.

Edited by V6Alfisti on Wednesday 6th July 19:06

[Welshbeef]

I have to say my decision to pause on the big extension is now very much more likely.

Sit tight get planning permissions sorted and wait to see how things start to play out then make the decision.




Also I'd say hopefully most people over the last what 8 years have been paying down debts be it unsecured or mortgage debt or building up savings it should put the vast majority in a comfortable position to weather any headwind.
The other fact that is key is the % of homes which are mortgage free - the "fk you money" position is what 65% of all properties so then of he remaining 35% mortgaged homes some have one month payment left while another is just starting a 25year run.

Don't worry don't panic play the long game always - when others are fearful be bold when others are greedy be fearful

[Derek Chevalier]

Welshbeef said:

Also I'd say hopefully most people over the last what 8 years have been paying down debts be it unsecured or mortgage debt or building up savings it should put the vast majority in a comfortable position to weather any headwind.

http://www.telegraph.co.uk/business/2016/07/05/here-are-the-five-biggest-risks-facing-the-uk-economy/

"While household debt has come down from its pre-crisis peak of 150pc of disposable income to around 132pc in the first quarter of 2016, the Bank warned that ratios remained “high by historical and international standards”"

[Welshbeef]

Derek Chevalier said:

Welshbeef said:

Also I'd say hopefully most people over the last what 8 years have been paying down debts be it unsecured or mortgage debt or building up savings it should put the vast majority in a comfortable position to weather any headwind.

http://www.telegraph.co.uk/business/2016/07/05/here-are-the-five-biggest-risks-facing-the-uk-economy/

"While household debt has come down from its pre-crisis peak of 150pc of disposable income to around 132pc in the first quarter of 2016, the Bank warned that ratios remained “high by historical and international standards”"

But for house prices unless you HAVE to move or sell then just like the last downward blip people sat tight rode it out and were not willing to take a hit/happy to wait and wait years for movement. In my area during that downturn there was literally no houses for sale/the same crap houses for months/a year plus with nothing new coming on - I predict the same if that happens again.

Personally unless I could manifest a much cheaper step up the ladder I'd sit tight and hold. As years go by debt vanishes and in time as always prices will go back up again so when that happens you've even more equity and much less absolute debt.
Sure there will always be those who lose out - but if a house is possessed I'd hope the bank then holds it and turns into a landlord itself and maybe allow those previous owners to rent the property from them. This way the bank doesn't take a bath on fire auction sale and the previous owners can carry on refund their feet and in time properly take back the house.

[Derek Chevalier]

Welshbeef said:

Derek Chevalier said:

Welshbeef said:

Also I'd say hopefully most people over the last what 8 years have been paying down debts be it unsecured or mortgage debt or building up savings it should put the vast majority in a comfortable position to weather any headwind.

http://www.telegraph.co.uk/business/2016/07/05/here-are-the-five-biggest-risks-facing-the-uk-economy/

"While household debt has come down from its pre-crisis peak of 150pc of disposable income to around 132pc in the first quarter of 2016, the Bank warned that ratios remained “high by historical and international standards”"

But for house prices unless you HAVE to move or sell then just like the last downward blip people sat tight rode it out and were not willing to take a hit/happy to wait and wait years for movement. In my area during that downturn there was literally no houses for sale/the same crap houses for months/a year plus with nothing new coming on - I predict the same if that happens again.

Personally unless I could manifest a much cheaper step up the ladder I'd sit tight and hold. As years go by debt vanishes and in time as always prices will go back up again so when that happens you've even more equity and much less absolute debt.
Sure there will always be those who lose out - but if a house is possessed I'd hope the bank then holds it and turns into a landlord itself and maybe allow those previous owners to rent the property from them. This way the bank doesn't take a bath on fire auction sale and the previous owners can carry on refund their feet and in time properly take back the house.

In the last downturn repossessions weren't insignificant IIRC - one would expect this unwind to be a lot worse based upon the >15 year unprecedented bubble, but who knows when it will pop.....