1. phdinbubbles said...

Luv, a property slump would be good if you wanted to buy a nicer house in a nicer area with even more gastro-pubs, restaurants and nice schools, because it would be cheaper to upgrade. I could explain that concept to a 10 year old child in a minute and they would fully understand what I was saying.

3. little professor said...

A year ago this week, I began paying off the biggest debt I've ever had. I'd borrowed five and a half times my salary over 30 years to buy the small terrace house in North London I now share with my partner.

Back then, a whole 12 months ago, I felt lucky. Our house had been on the market for only two hours when 10 couples bid for it. Somehow we scraped in ahead of them. And even though the price was astronomical - nearly £200,000 more than friends had paid for one round the corner 18 months earlier - I was grateful to my mortgage broker for bagging me the deal he did.

What a difference a year makes. High-risk mortgage packages like mine are history and new loans are down 70 per cent. The London property market's slumped, too, by about 10 per cent according to the most realistic estimates and yesterday the warnings were of a further 17 per cent fall in the value of our homes. The outlook could hardly be bleaker. Yet here's the funny thing: I still feel lucky. And not just because I love the house that cost me my shirt (and trousers) to buy. There are concrete reasons for my optimism.

For one thing, my home's value hasn't yet declined. Despite a year of ferociously negative hype, a lesser house in my street has just sold for more than we paid - even though they had to slash the asking price by £50,000 to tempt a buyer. The slump is real but we are still ahead.

And thanks to the recession, I'm paying back £300 a month less to Alliance and Leicester. My tracker mortgage follows the interest rate - when it falls, so does my repayment. Now trackers-have all but vanished and mortgages are costing around a grand more to take out. I'd never be able to afford my own house now.

Of course, they say the worst is yet to come. But I've done my sums. If the doomsayers are correct and I end up with a property worth £50,000 less than I paid for it, I still break even, because my only alternative was to continue renting.

That would have meant forking out the same amount for a smaller house with a dank basement, gloomy garden and a dangerously wonky boiler. Ask any Londoner struggling to get a foot on the property ladder - that's money down the toilet. So, in the worst case, I'll have lost no more money and gained a lot more quality of life.

The pessimists will call me crazy but as far as I'm concerned, my money's as safe as houses.

5. drewster said...

Wow, such refreshing honesty!

@phdinbubbles,
It's not good for her if she's stuck in negative equity for the next ten years. As far as I know, once you're below the waterline the bank basically won't let you move house.

7. brian t said...

"But I've done my sums. If the doomsayers are correct and I end up with a property worth £50,000 less than I paid for it, I still break even, because my only alternative was to continue renting."

I would like to see those sums. Do they include, for example, the effect of Compound Interest on the total cost? Over 30 years, the total outlay can be 3X the mortgage value. Fire up Excel and learn to use the PMT function, for an idea of how bad it can get.

9. drewster said...

Brian T,

As someone (matt_the_hat?) pointed out on another post, this attitude is partly the result of our wonderful education system. People also have a strong psychological bias to attempt to justify their own decisions, especially when there are sunk costs and irreversible actions.