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The Masked Tulip

The Mortgage Doomsday Scenario

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Homeowners are facing a doomsday scenario of property prices diving by up to a quarter by the end of 2012.

This huge plunge could wipe more than £42,000 off the value of the average home. For the 3.3m who bought in the high-cost years of 2006 and 2007, as well as those who have bought this year, the spectre of negative equity and repossession could loom again.

Even those who put down larger deposits could find themselves stranded as their equity is eroded. If they try to borrow with depleted equity they could face massive fees and high interest rates. The devastating prediction comes from consultancy Capital

Economics, which believes house prices could be down 5% by the end of this year and continue to fall another 10% next year and, a further 10% in 2012.

Encouraged by better prices, more owners have put their homes up for sale this year. The abolition of the failed Home Information Packs — which cost more than £275 — has released a further raft of properties.

Now, a glut of homes being put up for sale is helping to push down prices. Figures from Halifax show they have fallen for the past three months, making a small overall loss in the second quarter of 0.1%. Nationwide is still reporting increases of 1.9% over the same three months with an average price of £168,719.

Data from the Land Registry, which lags behind these two mortgage lenders, shows slight falls of 0.2% in May. Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS), says: 'Demand has remained stable while supply has increased.

'This will mean prices will slip back a bit, by 1% to 2%. We expect that to continue into the early part of next year.

'When prices slip, vendors become reluctant to sell. We're in for a challenging couple of years.'

And there are further shocks to come. The Council of Mortgage Lenders has warned of a £300bn black hole in money available for mortgages could stall the property market again.

This threatens to push up fees and interest rates, mean tougher credit scores, and force lenders to withdraw loans for buyers with a small deposit.

Estate agent Savills expects the year to end with all the recent house price increases being eaten away, putting them back to where they were 12 months ago.

The North and Wales are likely to be worst hit, while the South and East could see increases of 2% to 3%. Halifax also expects prices to finish the year unchanged. Confidence in the housing market is fragile.

Public sector job cuts and caution among employers could lead to rising unemployment. The other problem is that mortgages are in short supply.

A recent Bank of England survey suggested loans will be hard to come by in the next three months.

David Hollingworth, of brokers London & Country, says: 'The black hole the mortgage market faces next year will raise fears that mortgages will only get more sparse and expensive.' And watchdog, the Financial Services Authority (FSA) is aiming to impose stricter rules on lenders to reduce the risk of buyers being unable to meet their mortgage repayments.

The main reason for the gloom-mongers predicting huge falls is down to the cost of housing when compared with average earnings.

House prices are now about five times the average household income, far higher than the historic average of 3.7 times income.

'We just don't think this is sustainable,' says Paul Diggle of Capital Economics. 'Mortgages are taking 35% of owners' pay, which shows you just how expensive houses are.'

Its forecasts suggest that the North, the Midlands and Wales could be hit hard. In London, the huge gains of 13% in the past 12 months may be wiped out, as prices plummet by a massive £68,000 by the end of 2012.

Even though housing in the North and Wales is cheaper, the predictions show prices could fall by nearly £38,500 in the North West and £36,000 in Wales.

With unemployment expected to rise, particularly in the public sector, and cutbacks in salaries, the situation is unlikely to improve any time soon.

Read more: http://www.thisismoney.co.uk/mortgages-and-homes/article.html?in_article_id=510276&in_page_id=8&position=moretopstories#ixzz0uvJzPF3n

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Guest sillybear2

Ok, people :-

Expensive food & energy = bad

Expensive housing = good.

M'kay?

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It's a bit, erm... like well, how you tell bad news to a 3 year old. :huh:

Homeowners ... up to a quarter ... huge ... high... larger deposits ... massive ... high ...

Encouraged by better prices, ... up ... glut ... helping ... increases of 1.9% ... stable ... increased.

... push up ... house price increases ...increases of 2% to 3%... Confidence... rising ... raise ... expensive...

... far higher ... expensive ... huge gains of 13%... massive ... rise

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Factor in

http://www.telegraph...on-in-2012.html

The MSM has WOKEN UP & SMELT THE COFFEE !

Mike

It's almost as though some gumment agency has summoned all the editors and told them "right, this is the way sentiment is going to go...." and they all ran back to their journos and dictated the right message..... :rolleyes:

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+1

What to do about these bloody gloom-mongers and their predictions though?!

How about we make a website with a forum and dump them all there?

Oh wait... :lol:

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The average house price is 5 times the average salary?

that makes the average salary £34000 taking Nationwide average house price.

perhaps a strawpoll of journos in the city revealed this astonishing fact.

Edited by Bloo Loo

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The average house price is 5 times the average salary?

that makes the average salary £34000 taking Nationwide average house price.

perhaps a strawpoll of journos in the city revealed this astonishing fact.

The article said "five times average household income". That would make sense with figures such as a man earning £20,000 and a woman earning £14,000.

The nearest figures I can find in a hurry are on ONS for the year to April 2009 - median male full-time salary £27,612, median female full-time salary £22.125. That doesn't take into account part-time earnings, of course. The large number of people in part-time jobs (whether from choice or necessity) must bring down the median and the average income quite a bit.

Remember, very few houses are bought on a mortgage with a single salary.

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The article said "five times average household income". That would make sense with figures such as a man earning £20,000 and a woman earning £14,000.

The nearest figures I can find in a hurry are on ONS for the year to April 2009 - median male full-time salary £27,612, median female full-time salary £22.125. That doesn't take into account part-time earnings, of course. The large number of people in part-time jobs (whether from choice or necessity) must bring down the median and the average income quite a bit.

Remember, very few houses are bought on a mortgage with a single salary.

Also, it's an 'average.' There are millions of households economically inactive where the income is either benefits or zero, living off interest on savings etc where they aren't entitled. I expect the average of 'household income' of £34k is the average income of working people.

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The article said "five times average household income". That would make sense with figures such as a man earning £20,000 and a woman earning £14,000.

The nearest figures I can find in a hurry are on ONS for the year to April 2009 - median male full-time salary £27,612, median female full-time salary £22.125. That doesn't take into account part-time earnings, of course. The large number of people in part-time jobs (whether from choice or necessity) must bring down the median and the average income quite a bit.

Remember, very few houses are bought on a mortgage with a single salary.

I would hazzard a guess that their definition of household income does not mean merely the cumulative total of salaries.

There is a huge raft of households where the salaries total much less but are made up with Tax credits. Its possibly more accurate to suggest something like the following

Bloke earns £22k

Missus (p/t) £8k

Tax Credits £4k

Edited by Caveat Mortgagor

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The article said "five times average household income". That would make sense with figures such as a man earning £20,000 and a woman earning £14,000.

The nearest figures I can find in a hurry are on ONS for the year to April 2009 - median male full-time salary £27,612, median female full-time salary £22.125. That doesn't take into account part-time earnings, of course. The large number of people in part-time jobs (whether from choice or necessity) must bring down the median and the average income quite a bit.

Remember, very few houses are bought on a mortgage with a single salary.

….because they’re too fecking expensive

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The article said "five times average household income". That would make sense with figures such as a man earning £20,000 and a woman earning £14,000.

The nearest figures I can find in a hurry are on ONS for the year to April 2009 - median male full-time salary £27,612, median female full-time salary £22.125. That doesn't take into account part-time earnings, of course. The large number of people in part-time jobs (whether from choice or necessity) must bring down the median and the average income quite a bit.

Remember, very few houses are bought on a mortgage with a single salary.

sure it does.

and historicly ( what a horrible spelling historically?) there was a breadwinner and a pin money earner. ie a single earner. now its 5 times joint.

I deal with many clients, and few earners fall any where near those median figures...most earn less than 25, and the women, which frequent many of these offices are on way less.

I look at Mrs Loos firm, and they are paying and advertising around £7 to £7.50 per hour. course, the boss, his wife and the favoured nepotised managers have the X5, the sports car and the 9-5 lifestyle with 2 hour lunches.

course, in the public sector, the salaries are probably nearer and beyond those medians....this is where the lending market is going to suffer as those overpaid jobs are culled.

and the tax take will fall.

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The article said "five times average household income". That would make sense with figures such as a man earning £20,000 and a woman earning £14,000.

The nearest figures I can find in a hurry are on ONS for the year to April 2009 - median male full-time salary £27,612, median female full-time salary £22.125. That doesn't take into account part-time earnings, of course. The large number of people in part-time jobs (whether from choice or necessity) must bring down the median and the average income quite a bit.

Remember, very few houses are bought on a mortgage with a single salary.

No but they used to be. This makes the nationwide adffordability figures not comparable with the figures from 10 or 20 years ago. So saying that in 1990 it was 4x (for example) is not the same affordability as today would be if they figure was 4x.

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"This huge plunge could wipe more than £42,000 off the value of the average home. For the 3.3m who bought in the high-cost years of 2006 and 2007, as well as those who have bought this year, the spectre of negative equity and repossession could loom again."

The 3.3 million......Were they all FTBs? NO. Anyone selling to trade up is less threatened by NE, assuming they are taking equity into their new property.

Where does the 3.3 mill figure come from: very misleading.......How many were BTL speculators buying multiple properties? How many were developers flipping properties? If the average monthly number of Mortgage approvals was 100,000, that is only 2.4 million new mortgages in 2006/2007. Add in less than 600,000 this year and their sums do not add up. My Daily Mail ******** detector is twitching hard.

Obviously in this VI article there is no mention of those on IO mortgages who are putting themselves at more risk of NE.

The HUGE PLUNGE WIPING more than £42,000 OFF the value of the average home.......sure it is a big fall...what about the 280% increase over 15 years.....I see that that does not get a mention!

THE SPECTRE OF NEGATIVE EQUITY AND REPOSSESSION COULD LOOM AGAIN.... Sure NE is a factor, but repossesion If a householder has taken out a home loan that he can afford to repay and he keeps making payments, then there is no risk of repossesion.

Overall....what a crap article!

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Also, it's an 'average.' There are millions of households economically inactive where the income is either benefits or zero, living off interest on savings etc where they aren't entitled. I expect the average of 'household income' of £34k is the average income of working people.

The average working family is on benefits. These benefits will fall under the present government.

Mortgages are paid out of post-tax income. Taxes have fallen (direct income taxes that is) over the years and things like child benefits have risen. People have over stretched themselves as their income has increased. At the same time over the last 30 years or so other expenses have diminished. Globalisation and technology have made many things cheaper, therefore the proportion of income "spent" on mortgages/housing has risen.

This process is reversing and (IMHO) will now run in the opposite direction for 30 years or so. Food and consumer durables will increase in price as developing economies seek higher standards of living and/or the pound falls in value relative to the currencies of producing nations. Taxes will increase, beginning with VAT in January. Carbon taxes will soon be reality and increase the cost of energy, travel and add to a general increase in the price of manufactured goods and the output of modern industrial farming. Against this backdrop the returns on pensions are falling as the demographic time-bomb goes off and the need to save more for you old age increases. Likewise we who are paying tax must pay more to support the mushrooming numbers of oldies that are spending our money.

The above trends are inescapable and are happening here and now. Money for mortgages/housing is in decline, the current market is buoyed up by cash savings and MEW from parents to provide deposits etc. That process cannot continue much longer and will (IMO) stop if the sentiment turns against property as an "investment".

The mortgage lenders need to recapitalise and employers generally are looking to push down wage pressure. However you look at it buying on a mortgage is getting tougher and looking forward is likely to get tougher. Those people expecting massive inflation to inflate their debt away might well be disappointed (or euphoric - time will tell). If the third or so of mortgagees that are in trouble eventually are possessed and the lenders take that hit rates will go even higher as borrowers have even less money. That will start a feedback loop into a full blown housing crash together with a financial crisis as lenders are forced to write off massive amounts of money.

This scenario exists across the developed world, not just the UK. I don't know if this constitutes "doomsday" but it looks a bit grim from where I'm sitting.

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Guest Steve Cook

It's almost as though some gumment agency has summoned all the editors and told them "right, this is the way sentiment is going to go...." and they all ran back to their journos and dictated the right message..... :rolleyes:

You know what, in my darker moments, I can almost beleive it's as Orwellian as that.

What I would really like to know is the precise editorial chain of command from what the newsreader reads on the evening news right up to the person making the final editorial decisions. Precisely how high and in what direction does that chain of command go?

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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