How far will house prices fall [volume 4]

[p1stonhead]

tannhauser said:

Scootersp said:

p1stonhead said:

Because he cant fathom that people earn enough to be able to comfortably afford it.

I think it was a bit more on the more principle whereby it might be beneficial to society as a whole (certainly the majority) if the lending was capped for houses and that a consequence of not lending the money at this level would perhaps stop the runaway prices and everyone being on a mortgage treadmill for longer and longer? The ones that could comfortably afford it, then would have far more chance to move/upgrade easily, as prices might hold down better at the top end and they could save for retirement easier, or change their lifestyle, or spend their money elsewhere? Perhaps stop/reduce lots of speculation where the view is you can't lose so just borrow the most you can and sit tight to make money?

Imagine a (semi communist!?) scenario where the houses in the 90's were all valued and from that point on their value only rose by RPI or if extended etc a fixed sum was added (perhaps the exact build costs?) and then if you wanted to sell that was the price, no ambiguity? so take out market forces effectively, what would that world look like now? would it have panned out better? The only thing I can think of this effecting is lots of exceptionally rich people today would only be very rich?

Agree with this completely - however we don't need any communism: simply restrict lending to sensible levels, and house values will find their own, sensible levels.

£500k mortgage is sensible to a LOT of people particularly in the South East.

If you limit to say 2x gross salary then yes someone earning £100k can only borow £200k, but that means someone on £20k can only borrow £40k which will get them precisely nothing pretty much anywhere.

Someone on £120k spending £2k a month on a mortgage has £5k left each month.
Someone on £30k spending £750 a month on a mortgage only has £1250 left each month.

Which one is more easily affordable and able to suffer a rate rise?

Edit - Timberwolf beat me to it on the last bit.

Edited by p1stonhead on Thursday 15th March 15:36

[Scootersp]

tannhauser said:

Agree with this completely - however we don't need any communism: simply restrict lending to sensible levels, and house values will find their own, sensible levels.

I don't advocate communism I just mentioned it as I thought it might be thrown at me given it would be a restriction on the free market :-)

[Scootersp]

MX6 said:

Okay but to what end? Do you think that there will then be cheap houses for all, including you? If lending was restricted you would still have the same pecking order whereby those on higher incomes will be able to afford to buy houses, nicer bigger houses, and those on low incomes won't.

I don't think he's trying to stop people earning lots of money and those then having the better stuff, no one is trying to push an idea where all get everything regardless of effort, skill or talent.

However if lending had been restricted and speculation dampened years ago then we may have avoided a family in the south east having to find a sum of money equal to what their whole home was worth X years ago to just get an extra bedroom? It would have needed other legislation perhaps to stop multiple ownership/buy to lets, but the facilitating of debt, with the overriding (age old) views of put your money into property and rent is dead money (true) has done nothing to slow the increases.

Unless you have more than one property I don't really see how individuals/families have benefitted from the march upwards?

It's all gone too far and as a previous poster said it's pretty set in it's boom and bust cycle just seems we've avoided any bust trigger(s) and have just got, amble along/stagnation for who knows how long?

[Harry Flashman]

Croutons said:

£875,000 for a decidedly average house and thread gets a semi itself??? WTAF???

People from other countries must look at us and piss themselves laughing.

Not if they live in NYC and surrounds, Paris, Hong Kong, Singapore or the California Bay Area, Sydney or any other number of global prime locations.

For all of the bellyaching about how expensive London is and how it should cost a third of what it does, people forget that in terms of global cities, it is prime. The housing market (fortunately or unfortunately, depending on your viewpoint) reflects that, at least in Prime Central London.

Edited by Harry Flashman on Thursday 15th March 16:05

[MX6]

Another way at looking at things is, would we rather have:

1. A mortgage for let's say £270k at 1.5% interest rate, paying £1k a month in repayments.

2. Have a mortgage for £175k at 5% and pay..... £1k a month.

Personally I'd rather the larger debt and pay much less in interest to the bank, as ultimately in terms of a financial investment you are making more money (presuming price rises), but obviously you are more leveraged and exposed to rate rises...

I think that lower rates are here to stay now, I don't see us getting back to historical levels. A small rise would be all that was needed to put the brakes on lending and inflation if needs be...

[Scootersp]

p1stonhead said:

If you limit to say 2x gross salary then yes someone earning £100k can only borow £200k, but that means someone on £20k can only borrow £40k which will get them precisely nothing pretty much anywhere.

Edited by p1stonhead on Thursday 15th March 15:36

I think he was talking about a lending cap, so multipliers could be the same but only up to a max figure can be lent. I think something like that would have had a stifling effect, like the stamp duty thresholds can now?

So those earning 200K between them could only borrow the max say 300K
But the couple earning 100K between them could also borrow 300K

But there hasn't ever been much pressure for stifling has there?

[tannhauser]

Scootersp said:

MX6 said:

Okay but to what end? Do you think that there will then be cheap houses for all, including you? If lending was restricted you would still have the same pecking order whereby those on higher incomes will be able to afford to buy houses, nicer bigger houses, and those on low incomes won't.

I don't think he's trying to stop people earning lots of money and those then having the better stuff, no one is trying to push an idea where all get everything regardless of effort, skill or talent.

However if lending had been restricted and speculation dampened years ago then we may have avoided a family in the south east having to find a sum of money equal to what their whole home was worth X years ago to just get an extra bedroom? It would have needed other legislation perhaps to stop multiple ownership/buy to lets, but the facilitating of debt, with the overriding (age old) views of put your money into property and rent is dead money (true) has done nothing to slow the increases.

Unless you have more than one property I don't really see how individuals/families have benefitted from the march upwards?

It's all gone too far and as a previous poster said it's pretty set in it's boom and bust cycle just seems we've avoided any bust trigger(s) and have just got, amble along/stagnation for who knows how long?

Correct with the bold bit. Also I agree with pretty much everything else you've said in this post.

[MX6]

Scootersp said:

MX6 said:

Okay but to what end? Do you think that there will then be cheap houses for all, including you? If lending was restricted you would still have the same pecking order whereby those on higher incomes will be able to afford to buy houses, nicer bigger houses, and those on low incomes won't.

I don't think he's trying to stop people earning lots of money and those then having the better stuff, no one is trying to push an idea where all get everything regardless of effort, skill or talent.

However if lending had been restricted and speculation dampened years ago then we may have avoided a family in the south east having to find a sum of money equal to what their whole home was worth X years ago to just get an extra bedroom? It would have needed other legislation perhaps to stop multiple ownership/buy to lets, but the facilitating of debt, with the overriding (age old) views of put your money into property and rent is dead money (true) has done nothing to slow the increases.

Unless you have more than one property I don't really see how individuals/families have benefitted from the march upwards?

It's all gone too far and as a previous poster said it's pretty set in it's boom and bust cycle just seems we've avoided any bust trigger(s) and have just got, amble along/stagnation for who knows how long?

I see what you are saying here but what sort of government intervention would you suggest would dampened the London market? There's a supply and demand at work there, and a substanial number of high earners to inflate prices.

Let's say the government interfered and bank lending was artificially suppressed for London buyers, then you'd possibly have even more foreign buyers in the market, or make it easier for those with inherited wealth. Or you could maybe limit earnings by having a higher top tax rate, but that would seem unreasonable.

[Timberwolf]

p1stonhead said:

Timberwolf beat me to it on the last bit.

You had the worked examples with actual figures, though. There's "done fast" and there's "done right"

[dom9]

Yeah, the road/ rail/ dog issues don't bother us as it's basically our road already but I think you're right on the appreciation ceiling in this market.

Looks like they paid £750k for it 3yrs back or something (without going back and checking) and they did all the extensions and refurbing!

Guessing they're already 'losing money' so might stay put if they don't get asking... I'll sniff around!

[p1stonhead]

Scootersp said:

p1stonhead said:

If you limit to say 2x gross salary then yes someone earning £100k can only borow £200k, but that means someone on £20k can only borrow £40k which will get them precisely nothing pretty much anywhere.

Edited by p1stonhead on Thursday 15th March 15:36

I think he was talking about a lending cap, so multipliers could be the same but only up to a max figure can be lent. I think something like that would have had a stifling effect, like the stamp duty thresholds can now?

So those earning 200K between them could only borrow the max say 300K
But the couple earning 100K between them could also borrow 300K

But there hasn't ever been much pressure for stifling has there?

And it’s a ludicrous notion because people earn all sorts of money. make the cap a billion quid then to cover it off?

Otherwise a cap will never be high enough for some earners.

[Matt p]

anonymous said:

[redacted]

The owners gets the service charges back as a deduction from HMRC.

[AyBee]

anonymous said:

[redacted]

Your ex got her eye on it then?

[dom9]

AyBee said:

Your ex got her eye on it then?

I believe she is sorted, so to speak

I reckon our rent is about 2.3% of the believed value of our property...

[AyBee]

dom9 said:

AyBee said:

Your ex got her eye on it then?

I believe she is sorted, so to speak

I reckon our rent is about 2.3% of the believed value of our property...

Think mine is about 2.8%. Would have to stretch myself to buy in the local area and don't feel like I'm worse off just sitting on my deposit for now.

[V6Alfisti]

anonymous said:

[redacted]

Totally in sync

It is clearly obvious to anyone that looks at this market objectively

[stuckmojo]

MX6 said:

Another way at looking at things is, would we rather have:

1. A mortgage for let's say £270k at 1.5% interest rate, paying £1k a month in repayments.

2. Have a mortgage for £175k at 5% and pay..... £1k a month.

Personally I'd rather the larger debt and pay much less in interest to the bank, as ultimately in terms of a financial investment you are making more money (presuming price rises), but obviously you are more leveraged and exposed to rate rises...

I think that lower rates are here to stay now, I don't see us getting back to historical levels. A small rise would be all that was needed to put the brakes on lending and inflation if needs be...

I view it the other way around. With a small mortgage at high interest rates if you have capital anywhere else it will be at a similar if not higher interest rate and earning and eroding debt much faster than a millstone around your neck with very little chance of either capital appreciation or wage inflation. No thanks.

[Harry Flashman]

A big mortgage is nothing to be scared of if you can manage the payments and have enough to use spare cash elsewhere. For example, my ISAs are maxed rather than paying down the mortgage with that money every year, as over the life of the mortgage that tax free income in various long term funds should do a lot better than the 1.8% interest I pay on the mortgage debt.

Non ISA investments need to make double that over the time as I get taxed at 45% +NI on that income, but that is still very likely long term, so with my mortgage debt cheap, I invest rather than overpaying the mortgage. And the mortgage is obviously still getting paid down, just not overpaid.

If Interest rates on the debt change significantly, and the balance of income on £ invested vs interest on £ owed changes, I'll adjust.

In small emergency (job loss by both earners), can cash the investments and pay down mortgage debt or fund the mortgage until I find a new job - I should still be in a better position than having paid down the mortgage but having no reserves to access.

Or if financial Armageddon happens and I am in negative equity after a crash and we can't make our mortgage payments even if cashing savings to pay down debt (hopefully not likely as we are not hugely leveraged, although the mortgage is sizeable), I hand the keys to the bank and walk away. I then still have funds elsewhere. If everything were all in the house, I'd be in trouble in this situation.

Not risk free - stock and bond markets are volatile, and you have to take a long view. But while we are both earning enough to comfortably pay the mortgage, it's a risk worth taking.

it also depends on your view on risk/diversification. If I pay down the mortgage with all my spare cash and don't have any other assets, I am totally undiversified. My only asset is in London property - and if London tanks as many of you think it will, I am stuffed. I can't cash the house in if the market is screwed, and after repossession by the bank I am penniless. But if I have other assets in other asset classes (diversified stocks, bonds, gold - whatever) that the bank has no claim on, I live to fight another day.

Edited by Harry Flashman on Thursday 15th March 22:47

[Harry Flashman]

I just re-read that and wonder if it makes any sense. Précis: it is possible, mid to long term, to earn more on your money if invested than you pay on the money you owe (using leverage for investment, in effect). But it involves risk, and you should be able to comfortably manage your debt repayments in the meantime (cash flow). Changes like job situation or massive change in outgoings means you should have a Plan B (flexibility/planning) or be willing to walk away from your home if you have to.

[Venturist]

anonymous said:

[redacted]

I’m also renting such a place, paying about 3% of the value per year in rent maybe less. If I was to buy it the stamp duty alone would equate to a year’s rent, I’d have to find about 3 years’ rent upfront to put down as the mortgage deposit, and the mortgage payment would be equivalent to my current rent payment anyway. I’ve never stayed anywhere longer than a handful of years, by my own choice, so if I picked my sale time poorly (or was forced) could very easily wipe out the savings made vs renting anyway. I’d be heavily invested into that one asset and banking hugely on values staying stable or increasing.

I’m quite happy renting and putting money aside into investments for the future, enjoying the house in exactly the same way as I would if I owned it, whilst also awaiting my new Aston with the cash that would instead have been ploughed into mortgage deposit