Monday, Oct 20, 2008
Always worth repeating ...
Metro: Two million face trap of negative equity
If prices indeed fall by 42%, then there'll be three million in nequity, as it happens. The more times they repeat this story the better, with a bit of luck it will put off the remaining few potential FTBs from buying, thus speeding up the crash.
Posted by mark wadsworth @ 12:13 PM (878 views) Add Comment
18 Comments
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1. george monsoon said...
On topic and enjoyable to read, but for morbid reasons.
The article does mention that 4000 of the 19,000 reposessions were from northern Rock, a bastion of 100%+ mortgages right up until they went bust, so this would explain a lot. I wonder how banks will see repossession, knowing full well that any property they take back and sell, will almost certainly not meet the original loan value.
2. stillthinking said...
Who is actually buying houses in London? This is something I can never understand. Even now, who can actually afford a 2 bedroom flat in London? Even assuming that I wanted to buy now I couldn't, but I earn more than average. I always get the feeling I missed some important aspect of borrowing because I have looked at mortgage calculators and I certainly can't afford to buy anywhere apart from a one bedroom flat 20 miles out of London which would lumber me with huge rail costs apart from the travel time, I seem to earn more than some of my friends (less than others).
Who has been doing all this buying? How on earth did they manage to get into negative equity in the first place? I am amazed basically whenever I think about it.
I would be really interested in how much parental assistance has been coming to buyers over the last 5 years. This seems the only way possible to me. I suppose all this will come clear when the repossessions start.
3. mark wadsworth said...
Stillthinking, I have no idea who's still buying, but there are still far too many of them. From personal experience, parental assistance played a big role.
4. matt_the_hat said...
Trap just about defines it - and who'd want to be trapped here
5. doom&gloom said...
@stillthinking. In a similar position myself. London stopped being affordable for me long before I even moved here. I think the only people who have been able to buy in this crazy market are those who had already built up a lot of equity having lived here a long time. FTBs have long been outpriced (except for ex-LA in stabsville-central)
6. Planetabbs said...
The reason why properties are still being snapped up is because people buy in numbers. For example, it might be a couple who combine their wage or a group or friends. It is almost impossible for people to buy property on their own.
7. titaniccaptain said...
I know im repeating myself but its all very simple...........really it is............work out the average wage (the real one not the one tiped by top earners aswell as the higher wages in london) ....I think you will find its around 15 to 18 thousand a year.........then times it by two and a half of a single income which is where the lending should settle providing that GB doesnt force them back into 100% mortgages.........and hey pesto sauce with black olives...........you have your average house price which is between £37500.00 and £45000.00.........Now if you owe more than that you are in negative equity...........
8. matt_the_hat said...
6. titaniccaptain
You forgot the equal rights factor (1/2), men and women are now equal salves and you double the labour or half the reward. New prices 70-90k. I think the government are reworking the factor by increasing retirement age, i.e. work another 20% longer, but this is being offset by taking our productive young people out of employment from 16-22 to give them more paper, I mean degree certificates.
9. nooneo said...
stillthinking @ 2...
"Who is actually buying houses in London?" - You are not accounting for personal wealth and inheritance. A considerable number of the people I know in West London have a considerable amount of wealth already. One person I know simply borrowed 400k from their perants. There are some seriously wealthy people there. They don't all live in the "badlands" as I have heard them referred to (east london, south london) . London was (and almost certainly still is) awash with money. The streets may not be paved with gold but personal wealth amongst the middle classes is enormous.
If you have to work for a living and cannot rely on your inheritance or other supplimentary income, then yes, it's almost impossible. There are also plenty of people liviing is places like Kensington, who are living in tiny 1 bed apartments, who bought them for 100k 20 years ago and they are now worth (even now) over 750k. They have MEWed and bought BTLs.
10. stillthinking said...
oh b*gger.
11. nooneo said...
"Two million face trap of negative equity"
Where were the headlines in the last ten years like:
"5 million people have absolutely no chance of buying into this pumped up property bubble." or "3 million people have lied their way into extortionate property deals because they want to make a fast buck"
12. need-a-crash said...
@9. Nooneo
I agree the only people I know who've bought in London either had serious parental /inheritance assistance or they live in the 'badlands' of ex-LA flats (which is not ALL of South London by the way!).
Question is: Is that a result of the house price bubble or just the way things will be forever??
13. mark wadsworth said...
@ n-a-c, the whole parental assistance thing only worked because parents were MEWing to finance the deposit - the ultimate pyramid scheme. I think that whole source of funds has pretty much dried up now. That still doesn't answer the Q of who is still stupid enough to buy at all, unless downsizing.
14. titaniccaptain said...
@Matt the hat
I did not forget the equal rights factor..........I dont think the banks of the future will take the dual income their scared sh#tless of lending in a falling market....why do you think their asking such high deposits knowing that only the most stupid will buy a house now (Unless they offer 40%/50% less).........its nothing to do with gender
15. Luckyjim said...
stillthinking
But them there was the article yesterday about the flats in Thamesmead sold for 250-300k a year a go and now going for 120k. Similar stories in Manchester city centre - 100s of flats aimed at the BTL market now going under the hammer. There is hope isn't there ?
16. nooneo said...
need a crash..
I think London will always be a lttle different from the UK as a whole. It is an island of both wealth and possibly stupidity. I think people will always make money there because it has the largest black economy in the country. I suspect that a huge precentage (not sure how much) is moved around without the taxman eve getting a sniff. Rents and property prices are absorbatent. They appear to floating around way above the ability to pay fro them.
Millions of people in London have tiny liitle apartments, have to endure ridiculous and rancid public transport, and pay top dollar for an awful lot of stuff.
I have to disagree slightly with Mark Wordsworth though. I'm sure MEWing by perants has been a serious contributer to the bubble in London but there are still significant sections of the population in our capital, with ooodles of investments and cash. I know of 2 brothers who inherited quite a few properties in west london, they welcome with open arms all the housing benefit claiments and avoid working people. All their properties have been divided into tiny rooms, some with 10 or 15 in only reasonable terraced houses.They charge right at the top of market rents for their rooms and they are always full. They have almost doubled their property empire in the last 10 years. They have a staff of about 10 enforcers and maintenance men. They are seriously (and I do mean seriously) loaded. There are thousands of people in London making a serious amount of money. You just need a nice whack to start with and London is the sort of place where you can acquire a nice, fat wad to start your empire.
I'm sure they are just the tip of the Iceberg
17. uncle tom said...
Nooneo,
Taking you point a little further, for every person who mortgaged their life away, there was a vendor who scooped a jackpot, so yes, there are some seriously rich people out there.
But London's economy looks very vulnerable now. It has become extremely dependant on the financial sector, the more so since many Whitehall jobs were moved out of the capital.
There is virtually no industry in the Greater London area now, so the risk of it becoming depressed is very real. If it ceases to be a fashionable place to live, and the winners from the property bubble move elsewhere, property prices could totally implode there.
Anyone looking to live in the capital should play safe and rent, at least for the next couple of years.
18. doom&gloom said...
UT. Agree - can't underestimate the effect of London's booming financial economy and it's fashionability which has brought in very wealthy people from overseas. It's attracted the cream of the crop, but this inward migration will quickly reverse as the financial sector implodes.