getdoon_weebobby Posted March 31, 2009 Share Posted March 31, 2009 remember inflation will erode peoples deposits as they will dip into deposits to survive hindering house price rises even more not until eventually we get wage rises will house price inflation kick off again come inflation we will have plenty of time to jump in until then chillax and save if you can Quote Link to comment Share on other sites More sharing options...
Guest DissipatedYouthIsValuable Posted March 31, 2009 Share Posted March 31, 2009 When we start to get REAL WAGE INFLATION, then it might be worth having a sniff at a house. Quote Link to comment Share on other sites More sharing options...
ccc Posted March 31, 2009 Share Posted March 31, 2009 My response was directed at the OP. The OP was worried that the £25k savings would be eroded by inflation.The answer is simple. Inflation means his/her money will buy fewer chocolate bars, units of gas/electricity, tv's etc, but will not have any bearing on size of deposit for a future house purchase. The price of houses is what the OP needs to concentrate on. If they increase then the deposit is eroding. If house prices fall then the deposit is strengthening. There are of course many other factors to consider over the term of a mortgage, but on this occasion the OP was woreried about deposit erosion - my response was a direct answer on this subject. Indeed. I was just looking at the bigger picture. I have tried to get Hamish's response to this but he has not bitten yet. Will keep on trying !! As you say the price of a house is what you should be thinking about if your savings are there to buy a house. As long as inflation in other things doesn't mean you have to dip into these savings. As has been discussed on here numerous times wage inflation could be the most important factor. You don't pay your debts with the price of tomatoes. You pay your debts with your wages. Quote Link to comment Share on other sites More sharing options...
Maddog21 Posted March 31, 2009 Author Share Posted March 31, 2009 Just sneaking on to check my thread (monitored internet usuage at work) boo!! Thanks everyone for your responses Agree Q3 2010-Q2 2011 at the earliest will keep monitoring the market(and HPC) There's a lot that can happen between now and then!!! Once again thanks Quote Link to comment Share on other sites More sharing options...
spivT Posted March 31, 2009 Share Posted March 31, 2009 Anyone telling you they know roughly when the bottom will be is lying. It could be in 6 months as well as could be in 20 years. The bottom could be 25% from peak or it could be 70% nobody knows. If I was you I would keep an eye on the market and decide for yourself. Anything is possible over the next few years. that's not important. the bottom will be somewhat protracted, the important thing is to look at the cost of borrowing, which will invariably act as stopper on hpi, becuase it's harder to see fixed rate deals getting much cheaper from here on out. also another poster mentioned wage inflation, which i think is also important, and the lack thereof points to prices bouncing around along the bottom for quite some time. Quote Link to comment Share on other sites More sharing options...
HAMISH_MCTAVISH Posted March 31, 2009 Share Posted March 31, 2009 Indeed. I was just looking at the bigger picture. I have tried to get Hamish's response to this but he has not bitten yet. Will keep on trying !!As you say the price of a house is what you should be thinking about if your savings are there to buy a house. As long as inflation in other things doesn't mean you have to dip into these savings. As has been discussed on here numerous times wage inflation could be the most important factor. You don't pay your debts with the price of tomatoes. You pay your debts with your wages. Agreed to a point, but mortgage IR's are just as important when calculating the actual cost of a house as the price is. For example, a person with a small but reasonable deposit (10% or so) buying before the crash could have got a lifetime tracker at BOEBR + 0.5%. Today, that same person would be lucky to get a tracker of BOEBR plus 5%. In fact, the worst case scenario for bears would be for house prices to stay restrained for decades, accompanied by restraints in mortgage funding as exist today, where banks charge huge margins above base. If we assume an average base rate of 5% for the next 30 years (the actual base rate is irrelevant, the point of the example is the margin difference), then a person buying at peak on a tracker of base rate plus 0.5% would pay the following..... 200K property. 25 year repayment mortgage, £151,608 in interest costs on a 90% loan, plus £200,000 for the house, for a total of £351,608. If we then assume a tracker for the same house, but discounted to a post crash price of £140,000, (30% discount from peak) but paying a rate of BOEBR + 5%, they would pay the following...... 140K property. 25 year repayment mortgage, interest costs for 90% loan = £217,492, plus £140,000 cost for house, total cost of £357,492. (plus several years of additional lifetime housing costs by paying rent in the meantime of course, another 20K or so at least) Showing quite clearly how it is entirely possible for a person buying a 200K house at peak to pay less for that house than the person buying after a crash at a 60K discount from peak, UNLESS banks stop charging userous margins above BOEBR as they are doing today. Which is why I keep banging on about interest rates, and why it's often more important to get a lower rate before the market turns than try to squeeze the last few percent of price falls but risk paying far more as rates rise. Quote Link to comment Share on other sites More sharing options...
time 2 raise interest rates Posted March 31, 2009 Share Posted March 31, 2009 The bottom will be when the banks start doing 95-100% mortgages again, at the moment they want a 30-40% deposit or 60-70% LTVs, stay out of the market until LTV rise if you need to keep out of NE. Quote Link to comment Share on other sites More sharing options...
ccc Posted March 31, 2009 Share Posted March 31, 2009 Hamish, Sort of see what you are saying, however how many people a few years ago were looking at getting a lifetime tracker or fixed deal ? Not many !! The majority is what will affect the market. If we do get proper rate rises, as you agree is possible, then this will simply push prices down even further. Due to the fact that the majority will be able not be able to afford these newly 'cheaper' houses due to their 2 year fixes coming to an end etc... There is nothing much to worry about if you are sitting on the sidelines building up your deposit. Rates are hiked ? House prices fall even further. Your deposit becomes even larger. The amount you pay back in interest falls even further. Yes you may have to pay a higher rate - but it will be on a smaller capital amount. You will also be in the group of people with a large deposit who get the best rates. At present the difference between 90% LTV and 50% LTV is a few percent ? Over the course of a mortgage that is a huge difference. Of course if rates go really high, like the early 90's - and it is possible , then prices may be forced down so low that you can become a cash buyer and not even worry about mortgages. My only real worry, and I imagine this is the same for most in my situation, is the complete collapse of the financial system/the UK. No point worrying about that IMO though. Quote Link to comment Share on other sites More sharing options...
19 year mortgage 8itch Posted March 31, 2009 Share Posted March 31, 2009 Bottom? I am attempting to sell my home, so by rights, the bottom and therefore the absolute worst time ever in the history of humankind to sell a home purchased in 2005 and not buy another property will be the very day I sell. I'll keep you updated. hope that helps. Quote Link to comment Share on other sites More sharing options...
worzel Posted March 31, 2009 Share Posted March 31, 2009 So realistically, whether they let the world crash now, or crash in slow motion (like it's doing now), prices will get back to the place they were before the artficially cheap money was flooding the market after 2001. That means a 1 bedroom flat in Walthamstow should cost about £80-100k, and a house about £170K + etc.. When prices reach those levels I think the bottom will have been reached. It looks like jumping in before that could mean you lose a lot of money.2001 prices dude... I would be surprised if a one bed flat or the house you metion in Walthamstow did not get considerably cheaper than that. Sounds like a lot of money to the avergae Walthamstow resident. Taken a walk down the market recently? Quote Link to comment Share on other sites More sharing options...
Bubble&Squeak Posted March 31, 2009 Share Posted March 31, 2009 I would be surprised if a one bed flat or the house you metion in Walthamstow did not get considerably cheaper than that. Sounds like a lot of money to the avergae Walthamstow resident. Taken a walk down the market recently? Longest in Europe aparently.... full of Chinese tat, and half rotten veg for pand-a-big-tub The main difference between now and the 90's is interest rates. [sNIP] Last time rates briefly touched 15%, and were in double digits for years, because they started from a much higher level, in fact they were so high, they probably caused the recession to begin with. Thats why the recovery this time should be much quicker than last time, and why I don't expect housing to bump along the bottom for a decade. . [sNIP] I completely and utterly disagree. We should have had a period of high interest rates to deflate this bubble before it imploded into a credit deflation. The very FACT that house price inflation was not on the MPC radar resulting in low interest rates has caused this current f-up... if interest rates had been higher, think how much mal-investment in the housing market and way-way beyond could have been avoided. It is the fact that rates have been low for so long that means this bust is so much much worse and will take so much much longer to get over. Quote Link to comment Share on other sites More sharing options...
Kyoto Posted March 31, 2009 Share Posted March 31, 2009 Average salary of actual house buyers is markedly higher than average salary among the general population. Effectively, it is an average salary of only the top 70% or so of earners, not the total 100% of people.Therefore the average loan to income ratio's of actual house buyers (as reported by CML) was never 6-1, or 7-1 etc. It was somewhere in the 4-ish to 1 ratio at peak, and has now dropped to closer to 3 - 1. (I don't have the numbers to hand, but look them up) A quick point. Historical prices have been 3-3.5 the average salary of the entire population and it is that measurement which has moved towards 6+ times. You are comparing apples to oranges above. Quote Link to comment Share on other sites More sharing options...
HAMISH_MCTAVISH Posted March 31, 2009 Share Posted March 31, 2009 A quick point. Historical prices have been 3-3.5 the average salary of the entire population and it is that measurement which has moved towards 6+ times. No, I am aware of that and am comparing apples with apples, but this was in response to a poster that had confused the two measurements, and was therefore comparing apples with oranges. Quote Link to comment Share on other sites More sharing options...
Guest X-QUORK Posted March 31, 2009 Share Posted March 31, 2009 19th August 2016 at 3.45pm. Next! Quote Link to comment Share on other sites More sharing options...
HAMISH_MCTAVISH Posted March 31, 2009 Share Posted March 31, 2009 I completely and utterly disagree.We should have had a period of high interest rates to deflate this bubble before it imploded into a credit deflation. The very FACT that house price inflation was not on the MPC radar resulting in low interest rates has caused this current f-up... if interest rates had been higher, think how much mal-investment in the housing market and way-way beyond could have been avoided. It is the fact that rates have been low for so long that means this bust is so much much worse and will take so much much longer to get over. If your point was that rates should have been higher in 2005 to prevent the bubble expanding further, then maybe so. However equally, they should have have been lowered much earlier in 2007 or 2008 to soften the deflation of the bubble, as Blanchflower stated and was proven right. However, this point does nothing to address my original point, which is that in the last recession, rates were so high (10% plus) that they substantially inhibited the recovery. This time, we will most likely not have that problem. Therefore this time, a recovery could well be much faster than last time. Quote Link to comment Share on other sites More sharing options...
worzel Posted March 31, 2009 Share Posted March 31, 2009 If your point was that rates should have been higher in 2005 to prevent the bubble expanding further, then maybe so. However equally, they should have have been lowered much earlier in 2007 or 2008 to soften the deflation of the bubble, as Blanchflower stated and was proven right.However, this point does nothing to address my original point, which is that in the last recession, rates were so high (10% plus) that they substantially inhibited the recovery. This time, we will most likely not have that problem. Therefore this time, a recovery could well be much faster than last time. The debt is much higher this time though so 5% rates will hurt as much as 10% rates back then.Add in all the extra taxes sucking money out of peoplles pockets. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted March 31, 2009 Share Posted March 31, 2009 If your point was that rates should have been higher in 2005 to prevent the bubble expanding further, then maybe so. However equally, they should have have been lowered much earlier in 2007 or 2008 to soften the deflation of the bubble, as Blanchflower stated and was proven right.However, this point does nothing to address my original point, which is that in the last recession, rates were so high (10% plus) that they substantially inhibited the recovery. This time, we will most likely not have that problem. Therefore this time, a recovery could well be much faster than last time. you forget inflation was starting to run away, in fact more than trebling. Rates were not high at 10% as most people bought their homes on rates of 8-9%, so a rise to 10% was not much of a problem. Quote Link to comment Share on other sites More sharing options...
Guest X-QUORK Posted March 31, 2009 Share Posted March 31, 2009 This time, we will most likely not have that problem. Therefore this time, a recovery could well be much faster than last time. Only if credit becomes as easy to come by as it was in 2007. One would hope we might learn something and restrict such stupid lending in future, but I'm not 100% confident that we will. Quote Link to comment Share on other sites More sharing options...
Caveat Mortgagor Posted March 31, 2009 Share Posted March 31, 2009 No, I am aware of that and am comparing apples with apples, but this was in response to a poster that had confused the two measurements, and was therefore comparing apples with oranges. ORANGES! You picked up on a comment which made reference to the historical ratio of house prices and mean avge male earnings, you now want to imagine that we are back at the 3:1 ratio of 1995 by using a new denominator - the earnings of house buyers. You are not comapring apples with apples! I need to get myself a signature - beware the bull who lists status as 'Neither' Quote Link to comment Share on other sites More sharing options...
HAMISH_MCTAVISH Posted March 31, 2009 Share Posted March 31, 2009 The debt is much higher this time though so 5% rates will hurt as much as 10% rates back then.Add in all the extra taxes sucking money out of peoplles pockets. The debt is higher in nominal terms, yes, but is it really that much higher in terms of percentage of income, from actual house buyers, as of course, these are the ones who will be impacted by it. I doubt very much that debt service is now such a high percentage of household income that 5% rates today would equate to 10% rates in 1992. As for taxes, I am sure someone must have a handy chart showing average household discretionary income stats for the last 20 years, this will give as good a picture as anything as to the impact of higher taxes (and housing costs for that matter) on household budgets. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted March 31, 2009 Share Posted March 31, 2009 2:17 PM' [/size]post='1779856']The debt is higher in nominal terms, yes, but is it really that much higher in terms of percentage of income, from actual house buyers, as of course, these are the ones who will be impacted by it. I doubt very much that debt service is now such a high percentage of household income that 5% rates today would equate to 10% rates in 1992. As for taxes, I am sure someone must have a handy chart showing average household discretionary income stats for the last 20 years, this will give as good a picture as anything as to the impact of higher taxes (and housing costs for that matter) on household budgets. there are no LIAR LOANS in the UK....HAMISH MCTAVISH DECLARES Quote Link to comment Share on other sites More sharing options...
HAMISH_MCTAVISH Posted March 31, 2009 Share Posted March 31, 2009 (edited) ORANGES!You picked up on a comment which made reference to the historical ratio of house prices and mean avge male earnings, you now want to imagine that we are back at the 3:1 ratio of 1995 by using a new denominator - the earnings of house buyers. You are not comapring apples with apples! I need to get myself a signature - beware the bull who lists status as 'Neither' APPLES!!!!!!! My point was that she had compared a ratio of 6-1 at peak with a current ratio of 3-1, and therefore assumed prices had already dropped by 50%. I pointed out that this was not the case, by explaining to her the difference between the two indexes, average total population multiples versus average actual house buyer ratios. READ THE EXCHANGE AGAIN. THEN READ IT AGAIN, AND AGAIN, UNTIL YOU UNDERSTAND. I need to get myself a signature, beware the bears who can't read.... Edited March 31, 2009 by HAMISH_MCTAVISH Quote Link to comment Share on other sites More sharing options...
worzel Posted March 31, 2009 Share Posted March 31, 2009 The debt is higher in nominal terms, yes, but is it really that much higher in terms of percentage of income, from actual house buyers, as of course, these are the ones who will be impacted by it. I doubt very much that debt service is now such a high percentage of household income that 5% rates today would equate to 10% rates in 1992. As for taxes, I am sure someone must have a handy chart showing average household discretionary income stats for the last 20 years, this will give as good a picture as anything as to the impact of higher taxes (and housing costs for that matter) on household budgets. The problem with looking at actual house buyers is that the mix of poeple that this includes has been massiely distorted over recent years, with a much higher proportion of BTLers, liar loan applicants, and high rolling city folk (soon to be unemployed), with an under respresentation of genuine run of the mill FTBs. The existing house buyers, or rather mortgage holders will be the ones affected by rates, but it will be the FTBs appetite for debt and that debts availability that will drive prices. Some people could comfortably live with 5% base rates, others would find it a real struggle equivalent to much higher rates in the old days. Quote Link to comment Share on other sites More sharing options...
starsky Posted March 31, 2009 Share Posted March 31, 2009 House price/wage ratio was about 5:1 in 2008. Quote Link to comment Share on other sites More sharing options...
Bloo Loo Posted March 31, 2009 Share Posted March 31, 2009 House price/wage ratio was about 5:1 in 2008. what? £125000 for a house???, in 2008? Quote Link to comment Share on other sites More sharing options...
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