Cassandra

The point is that 20 years ago inflation and interest rates were relatively high. House price inflation was even higher. Therefore people buying at that time have done well. I include myself in this category, having been in my present house since 1986. However this is not a guide to the future. House prices are at historically high levels and it is difficult to believe that increases of 100's of percent will occur in the future. Inflation is low so wages won't go up much either. The end result is that 30 years on it is possible that with a 90% IO mortgage you will still be owing 50% of the value of the house. This might seem unlikely but look at Japan or Germany. In Japan the majority! of homeowners have negative equity and no realistic way of paying back their mortgages. The next generation will inherit their debt. Just because housing was a good investment in the past doesn't make it good for the future.

Another good article in Today's Times. And HPC.co.uk gets a mention!!! If they weren't minded to visit www.housepricecrash.co.uk then they know now!!

Good article in todays Times: http://business.timesonline.co.uk/article/...1541709,00.html IMHO Interest Only is one reason why prices have reached such ridiculous levels. Not surprisingly many folks taking out IO have no hope of repaying their mortgage. I think there is an assumption that over the lifetime of the mortgage prices will have increased so much that this is not a big issue. However with low inflation and the probability that property will not increase further in value many people will be in deep doo-doo. Could you be living on the edge? THE British obsession with property refuses to fade, despite statistics indicating that the market remains sluggish. After a winter in hibernation, property addicts are expected to come out in force over the next weeks, poring over estate agent details and dreaming of wooden floors and period fireplaces. However, there are growing concerns that millions of homeowners are risking too much to afford the home of their dreams. They are stretching their purchasing power by opting for interest-only mortgages, without putting any money aside in an investment which will help to clear the loan at the end of the term. The attractions of an interest-only loan are easy to see — this option saves you £4,000 a year if you have a £150,000 mortgage. The savings are even more enticing if you are seeking a £500,000 mortgage, amounting to £900 a month, or £10,800 over a year. But when the mortgage becomes due for repayment, you must find the funds to repay the debt. A few fortunate borrowers in generous company pension schemes may be able to use pension lump sums for this purpose, but the very low levels of long-term savings among younger people indicate that they will have to look elsewhere for a solution. Many will be forced to sell their homes in which they had intended to spend their retirement. This looming crisis is seen as a side-effect of the endowment scandal. The sight of other homebuyers facing shortfalls on their policies has caused others to become disenchanted with any species of investment that is designed to repay a home loan. Cath Hearnon, of My Mortgage Direct, a mortgage broker, says: “Many people are prepared to take on larger debt, but do not want to adjust their lifestyle accordingly. Therefore, the interest-only option seems more appealing, allowing a buy-now, pay-later lifestyle. “They could be storing up problems for the future by not repaying their debt and relying solely on capital appreciation. If borrowers repay debt they have more chance of building up the equity in their property, which gives them far greater flexibility should their circumstances change.†Figures from the Council of Mortgage Lenders (CML) show that the proportion of borrowers choosing interest-only deals who cannot tell their lender how they plan to pay back the capital sum has grown since 2002. The CML says that while some of these borrowers may have a repayment vehicle in place of which their lender is unaware, it is likely that some have no plans to set money aside every month. Last year lenders said that they did not know how 11 per cent of borrowers were planning to repay their interest-only mortgage. The Financial Services Authority (FSA), the City watchdog, warns people who are relying on rising house prices or a windfall to repay their mortgage that they are following a risky strategy. A spokesman says: “Not to do anything is a mistake. Borrowers should have plans with regard to meeting the capital repayment, especially in times of low inflation when the capital doesn’t erode in value.†Lenders also caution against relying on cashing in on rising house prices. Jennifer Holloway, of Skipton Building Society, says: “Just as no one foresaw the extent of the housing crash in the 1980s, no one can guarantee we won’t see the return of negative equity. So borrowers can’t rely on an increasing value of their home or the ability to trade down at a later date to pay off the mortgage. If they do, and interest rates go up substantially, or house prices go down, it is feasible that their mortgage will never be cleared in their lifetime.†Traditionally, lenders ensured that all borrowers taking out an interest-only loan had a suitable investment scheme in place to help them repay the capital. In many cases the lender was named as the beneficiary of endowments and other investments to make sure cash from the maturing account was used to pay off the home loan. But in the past ten years the onus has moved away from the lender and on to the borrower. Lenders say the increasingly competitive mortgage market has made it difficult to keep track of borrowers’ repayment vehicles as more homeowners move their loans between rival lenders to take advantage of the best deals. Five years ago Halifax, the UK’s biggest mortgage lender, would grant an interest-only loan only after inspecting the policy documents of an endowment or other investment vehicle. Borrowers who were relying on rising house prices or an inheritance to pay off the loan would not have passed the application process. But Halifax changed its rules in 2000. Now the bank, in line with many other lenders, does not check any paperwork, but regularly reminds borrowers that it is their responsibility to set aside enough cash to repay their loan.

What I think too many people forget is that you need to consider what you can really afford!!. As one other poster said the banks are no better than drug pushers. Sure, they will lend you the money. All they are interested in is that there is a reasonable chance that they get their money back. If you are screwed as a result: TOUGH SH**. Some folks have fantastic careers: great earning prospects with fantastic pay rises and bonuses. If you are in this group I say go for it! You can afford to borrow more than 3.5x. (Although if you are at all financially astute please consider why you would want to borrow this much in a falling market.) For the rest of us it is SIMPLY MAD to borrow anything like 3.5x salary at the moment. OK you can (just) afford it. But what about next year? Or the year after? Or the year after that? What if interest rates go up (they will)? Please don't screw up your lives.

I seem to remember that when we first bought in 1982 the maximum mortgage was 2.5x salary#1 + 1.0xsalary#2. Can't remember the interest rate but probably around 7-8%. However we had Miras which provided tax relief on I think the 1st 30k. Since our mortgage was 32k then only the top 2000 pounds was at the full rate. With income tax at (again I think!!) about 27% this reduced our mortgage payments by almost 100 pounds a month. Even still it was a stretch to cover our bills the first couple of years. For instance our car packed in so we did without, relying on friends for lifts and public transport. For holidays we found a cheap car hire place that would let us have a Ford Escort for 100 quid a week. Comparing our experience in the 80's with now: 1). No more Miras. OK this didn't reduce the mortgage dramatically but until the late 80's most mortgages were below the limit and it reduced the effective interest rate a couple of percent. This is often forgotten in comparing costs now with those 20+ years ago. 9I have not seen this point raised previousy in this forum. It isn't a major effect but should be included in comparing historic trends.) 2). Higher inflation really helped. Although interest rates were higher salaries also increased dramatically so that within 3 years the mortgage wasn't so bad. In the present situation most folks are lucky to get an extra 2% per year. Relative poverty can be managed for a year or two but after that it can get very tiresome (to say the least)!! This time round lower (wage) inflation means that anyone buying now will be stuck with their mistake for 10 years or more. 3). Both then and now there were people that were able to borrow more than was good for them. These were usually the folks that came unstuck first. Just because you can get a loan it doesn't mean that it is sensible to take it. 4). What I heard in 1982 when we first bought was that previously (not sure when but probably mid 70's) wifes income could be included for the first time (the 1.0x salary). This of course meant that within about a year house prices had increased by this amount. I don't think 3.5x is universal and I would be wary about borrowing the maximum possible. If that means renting another year or two then so be it. If you are a potential FTB please wait!!! Don't borrow more than you can really afford. What if interest rates go up 2%??. What if you lose you job?? What if house prices crash?? Don't be influenced by fools!!!

Anyone have any idea what interest rate they are charging. Couldn't find any mention so I assume it was very high!

As far as I can see the prices were also pretty meaningless in 2003.

Just goes to show that houses are a factor 2 too dear!! Also, in calculating earnings have you included all the extra costs involved in being a landlord: maintenance, <100% occupancy etc. This would make the P/E ratio even higher if these are taken into account.

Would think that a deposit of at least 30% is in order. Prices are set to come down by at least this percentage so that if you buy now with a smaller deposit you will be in negative equity within the next 2-3 years. Buying a house now with only 10% deposit is a recipe for disaster. For any FTBer it is important to realize that the value of their deposit will probably disappear. Think of all the effort taken to save up this amount. Think also what else you could do with the money. If possible wait 2 or 3 years until prices become more realistic.

Wonder whether his paracute will open?

IMHO the BBC programme did not go anything near far enough in showing where this could lead. The so-called expert Roger Bootle stuch his neck out and forecast a possible 20% fall in prices. I think it could be much, much worse. What if prices drop by around 50%? This would only bring them back to their historic average and put UK prices in line with those elsewhere in Europe such as France or Germany. A 50% fall would put many people in negative equity. Lots more bankruptcies.

Finally got to see the prog (thanks to this site I was able to download the programme). Fascinating. However, am I the only person who found the whole tone in today's climate unbearably BULLISH!!! Roger Bootle: maybe 20% drop in prices over 4-5 years!!! Come on!!! No mention of the worldwide situation: USA economy completely unstuck, credit boom in many countries etc. The impression that I got from the programme was that we will all have a slight slap on the wrist. We will be told that we are naughty boys and girls for letting things get a little over-exuberant and then everything will be OK. I don't believe this. The current boom is the longest and biggest in UK history. When it crashes it won't be a soft landing (and the 20% fall Mr. Roger B**tle is predicting looks very, very soft). Extrapolating from previous crashes we can expect a much bigger dip up to maybe 50% or more. Also, what the programme failed to point out is that maybe this could have a teensy-weensy effect on other things such as unemployment and inflation so that when it all goes pear shaped (or mango or pineapple shaped) we might all have to worry about a bit more than just house prices.

Would love to see the prog but I'm afraid I can't help regarding space on the web.

Article also includes a nice cartoon for Dogbox!!!

Brilliant, IMHO this is the best article yet from the mainstream press on the perils of buying now (and the virtues of STR). Can't fault any of it.

It's not a shed...It's a CHALET!!!

A good change might be to levy duty at the rate applicable to the whole portfolio owned by someone so e.g. if you already have 500k's worth of property and you want to buy a 100K flat then SORRY BUT THAT'LL BE 4% (ie 4k in this example). This would hurt second home owners and the BTL brigade sufficiently without making it worse for FTB's. Any money gained by changing the system in this way could be used to help FTB's by increasing the current 1% threshold. IMHO one purpose of stamp duty should be to discourage speculation. Therefore those owning more than one property should be penalised the most.

As a bear I am quite happy to make investments when there is a reasonable prospect of a decent return. For this reason I have money stashed away in a variety of shares and mutual funds. However in the UK (and for that matter in many other areas of the world) property is simply not a good invetment at present. Even the most bullish predictions show that it will hardly show any capital appreciation over the next few years. More likely property prices will drop by the 30-50% necessary for them to return to historic values. It is precisely because I look 10-20 years that I will stay well away from property as an investment until prices return to more reasonable levels. If you ask me it is the BTL community that have their collective heads in the sand!!

Intererstingly the Co-op even ended up in Japan. It is a good range of supermarkets there. They even pay a divi!!

The bigger the bubble the more people get screwed. I for one take no pleasure in this and hope that at a least a few folks can be persuaded before it is too late of the folly of housebuying at the moment.

Methinks there are maybe more fools in the country than we thought. Wonder who the last one is. If all the spin from the VI's does succeed in creating a spring bounce this will I think have two effects: (i) Only postpone the inevitable. And if prices have increased then the fall will of course be even bigger and more prolonged. (ii) Create even more bitterness, resentment etc towards the VI's. The proles will want scapegoats and the lynch mob won't be very far away. This will mean that after the crash the recovery will take longer as memories of the 2005 HPC will be etched indelibly into people's brains. (It does however still seem surprising how the boom/bust cycle of the early 90's has been forgotten by many).

Shares can crash suddenly in value (black Monday/Friday or whatever). Property takes much longer for prices to re-adjust. Therefore the question is not what day (never mind the minute or hour!) but what year will the crash occur??

My own take (FWIW) is that some posters (Dr Bubb, Charlie the Tramp come to mind) have been round long enough to have the wisdom to see what can go wrong and how much misery this can cause. Heed their warnings. It is about wisdom, not intelligence This site is not primarily about making millions. If that is you goal I think you will find lots of interesting information on eg Motley Fool. However it hopefully provides some useful information that can rebut a lot of the BULLSIHT spewed out by the VI's. I don't have any animosity to anyone who has benefitted through the increase in value of their house (at least if they've been honest). However I DON'T want people, particularly FTB's, falling into the trap of thinking buying property is a one way bet. Basically being conned out of hard earned money. Stuck in poverty for many years to come. This WILL all end in tears.

This time round this won't happen. At least for a generation (say 20 years or more). The reason is that interest rates are low, and unemployment is low. OH, the HPC WILL happen, and it will be big only it might take several years to reach the bottom point. And since so much new property has been built, since so many have been suckered into the crash it will take YEARS for the recovery to take place. You are sadly misguided if you think property is a one way bet. Your history is based only on the UK for the last 30-50 years. Elsewhere Japan, Germany property prices have declined in value for many years. In the UK this has also happened although admittedly it was probably 100 or so years ago. Judas: you are another example of what I think is a bullish bear. You think that prices will fall but the next boom will be just round the corner. I personally don't see any reason this will happen. The previous crash/boom occurred under very different economic circumstances. If the spring bounce actually happens I think the doomsday scenario (ie property nuclear winter) will be even more likely as the economic effects will be greater.

If they do that they should realize immediately they are better off renting. No way will it be cheaper to buy. However I think most people want something they can buy, want to paint the walls a different colour and are therefore prepared to pay a little more per month. The word LEMMINGS comes to mind.