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House Prices Will Fall Over Next Five Years, Says Niesr

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House prices will fall over next five years, says Niesr

http://www.telegraph.co.uk/finance/economics/houseprices/7913776/House-prices-will-fall-over-next-five-years-says-Niesr.html

House prices will fall in real terms over the next five years as inflation outstrips meagre rises in property values, one of the country’s most respected forecasting bodies has warned.

The National Institute of Economic and Social Research (NIESR) claims that prices will fall, in real terms, by about eight per cent.

It means that after accounting for inflation, “real” house prices will have collapsed to 2003 levels by 2015

The forecast will add to families’ woes as they face higher taxes and lower wages that even the Treasury predicts will grow more slowly than inflation for the next three years. Capital Economics has estimated that the average household will be £3,000 a year poorer under the measures introduced in last month’s Budget.

NIESR’s figures show that although average house prices are expected to rise from £194,235 last year to £213,091 in 2015, they would need reach £231,000 to keep pace with inflation. As a result, average households will be £28,000 out of pocket.

Simon Kirby, a NIESR research fellow, said: “While we have assumed the housing market remains stable, house prices could decline at a more rapid pace.”

Families have already been hit by falling house prices. They crashed 19.3 per cent during the recession, according to Nationwide and have yet to recover to pre-crisis levels despite a 10 per cent bounce. Mr Kirby said that weak bank lending would restrain house price growth.

NIESR’s housing outlook came as it warned that a double-dip recession is more likely following the coalition’s emergency Budget. The probability of a full year of negative economic growth has risen from 14 per cent to 19 per cent as a result of the extra £40bn of spending cuts and tax rises unveiled by the Chancellor last month, it said.

“The Budget will inevitably reduce growth,” Mr Kirby said. “The major impact will be in 2011, when we believe it will shave off 0.4 percentage points of GDP [roughly £7.5bn].” It is forecasting slightly slower growth than the Treasury’s independent forecaster, the Office for Budget Responsibility, of 1.3pc growth this year, 1.7pc in 2012 and 2.2pc in 2013.

However, Ray Barrell, senior research fellow, said the Chancellor’s plans were “necessary” to get a grip on the country’s £927bn of public debt: “I don’t think we could have grown our way out of this.”

Although the economy is recovering, NIESR does not believe it will get back to pre-recession levels until 2012 – a period of decline matched only by the Great Depression of the 1930s and the recession of 1979-1983.

Edited by Crashman Begins

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Simon Kirby, a NIESR research fellow, said: “While we have assumed the housing market remains stable, house prices could decline at a more rapid pace.”

Big assumption there. All the evidence points to them not being stable, a more rapid decline it is then :D

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whoda thunk it?

with the recovereh well underway, house prices are to fall...unexpectedly, except to the Geneii at Niesr.

course, normally with a recovery, bankers would be recouping their losses with rate rises, tax revenues would start to rise and everyone would be starting to see stability.

instead, we see tax rates and application rises, tax take fall, borrowing up, private sector stagnation, public sector culling, and siren calls for RATE CUTS.

and its having no effect on the economic reality.....its getting worse!.

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whoda thunk it?

with the recovereh well underway, house prices are to fall...unexpectedly, except to the Geneii at Niesr.

course, normally with a recovery, bankers would be recouping their losses with rate rises, tax revenues would start to rise and everyone would be starting to see stability.

instead, we see tax rates and application rises, tax take fall, borrowing up, private sector stagnation, public sector culling, and siren calls for RATE CUTS.

and its having no effect on the economic reality.....its getting worse!.

not in maidstone

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I'm not sure houses failing to rise in 'real terms' would add to families' woes exactly. (Usual journalist overstatement, woes, slump, soar, rocket etc.) Most would be happy with nominal rises or any rises.

I'm not convinced that many people understand the difference between nominal and real, nor care. It's a red herring. Since a family has to live somewhere, their income has to go on rent, or any necessary mortgage if they buy. The idea they will be £28k 'out of pocket' is misleading, dare I say, rubbish.

Even if you own a house outright and STR, the pitiful savings interest rates will be unlikely to cover the rent so then you really are out of pocket in what I call real terms because it was cheaper to stay in the house, even if it is falling in value in "real" terms.

Edited by deflation

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I'm not sure houses failing to rise in 'real terms' would add to families' woes exactly. (Usual journalist overstatement, woes, slump, soar, rocket etc.) Most would be happy with nominal rises or any rises.

I'm not convinced that many people understand the difference between nominal and real, nor care. It's a red herring. Since a family has to live somewhere, their income has to go on rent, or any necessary mortgage if they buy. The idea they will be £28k 'out of pocket' is misleading, dare I say, rubbish.

Even if you own a house outright and STR, the pitiful savings interest rates will be unlikely to cover the rent so then you really are out of pocket in what I call real terms because it was cheaper to stay in the house, even if it is falling in value in "real" terms.

Absolutely. If their forecast turns out correct, you should buy now - as you fix the nominal price now. So what if CPI is 10% and HPI 3%, if you've fixed the nominal price at today's level? I'd rather be paying a £194k mortgage in 2015 than taking out one for £213k for the same house. Of course the overall equation is complicated but considering purely the real/nominal inflation issue it's only nominal falls that benefit those shorting the housing market, whatever your shorting strategy. Saving the £19k difference in those five years isn't going to be easy, for most people, and the price of not dealing with phuqing useless greedy t*ss*r letting agents and slumlords - priceless.

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House prices will fall over next five years, says Niesr

http://www.telegraph.co.uk/finance/economics/houseprices/7913776/House-prices-will-fall-over-next-five-years-says-Niesr.html

House prices will fall in real terms over the next five years as inflation outstrips meagre rises in property values, one of the country’s most respected forecasting bodies has warned.

The National Institute of Economic and Social Research (NIESR) claims that prices will fall, in real terms, by about eight per cent.

It means that after accounting for inflation, “real” house prices will have collapsed to 2003 levels by 2015

The forecast will add to families’ woes as they face higher taxes and lower wages that even the Treasury predicts will grow more slowly than inflation for the next three years. Capital Economics has estimated that the average household will be £3,000 a year poorer under the measures introduced in last month’s Budget.

NIESR’s figures show that although average house prices are expected to rise from £194,235 last year to £213,091 in 2015, they would need reach £231,000 to keep pace with inflation. As a result, average households will be £28,000 out of pocket.

Simon Kirby, a NIESR research fellow, said: “While we have assumed the housing market remains stable, house prices could decline at a more rapid pace.”

Families have already been hit by falling house prices. They crashed 19.3 per cent during the recession, according to Nationwide and have yet to recover to pre-crisis levels despite a 10 per cent bounce. Mr Kirby said that weak bank lending would restrain house price growth.

NIESR’s housing outlook came as it warned that a double-dip recession is more likely following the coalition’s emergency Budget. The probability of a full year of negative economic growth has risen from 14 per cent to 19 per cent as a result of the extra £40bn of spending cuts and tax rises unveiled by the Chancellor last month, it said.

“The Budget will inevitably reduce growth,” Mr Kirby said. “The major impact will be in 2011, when we believe it will shave off 0.4 percentage points of GDP [roughly £7.5bn].” It is forecasting slightly slower growth than the Treasury’s independent forecaster, the Office for Budget Responsibility, of 1.3pc growth this year, 1.7pc in 2012 and 2.2pc in 2013.

However, Ray Barrell, senior research fellow, said the Chancellor’s plans were “necessary” to get a grip on the country’s £927bn of public debt: “I don’t think we could have grown our way out of this.”

Although the economy is recovering, NIESR does not believe it will get back to pre-recession levels until 2012 – a period of decline matched only by the Great Depression of the 1930s and the recession of 1979-1983.

This is pretty much what I have been saying will happen ( to much derision from the HPC sheeple brigade who will consider nothing but a massive and rapid crash).

Actually I think it will be a little more severe than this and would be surprised if nominal prices nationally are higher in 2015 than now, but I don't think they'll be lower.

While actaully correct that its real prices that are important NOT nominal prices when judging value in the market, many overlook the importance of nominal prices.... ask jo blogs home owner if in 2015 the pirce of his home is that same as it is now if he feels it has crashed ( it would have a suffered something like a real terms 20% reduction)... and would say no....

In actual fact I think those who judge the market vs inflation ( the real prices brigade) only look at part of the picture in doing so.. nominal prices are important and equally pricing vs wage inflation is alos important.

Either way its nice to see a decent forcasting body reach the same conclusion long held by some.

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not rising in 'real' terms is fine by me, my wages will probably not go up much in 'real' terms either if inflation munches away happily at 3-4%, therefore I'm glad I bought earlier this year, rather than wait 5 years and have the same sums presented to me in 2015 with 5 years dead rental behind me.

Yeah, yeah, I said 'dead', because the differential between renting and paying a mortgage is mostly down to the interest rates, and in a low interest environment, which we seemed to be locked into now, what I could have saved up renting in those 5 years won't match what I can pay off from my mortgage in that time. Trust me, I did the sums.

http://www.drcalculator.com/mortgage/uk/

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Absolutely. If their forecast turns out correct, you should buy now...

Yes, I can see this is right. I will wait to see if they are right and if so I will buy now.

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House prices will fall over next five years, says Niesr

(...)

Simon Kirby, a NIESR research fellow, said: “While we have assumed the housing market remains stable, house prices could decline at a more rapid pace.”

This news is odd. "Assumed"?! There is something wrong there. We have to find the original report. I'll try.

Edit: I've found the link, but it is still taking visitors to the wrong, older (April) report.

Edit 2: I've found it, but

"This item requires a subscription to National Institute Economic Review."

http://ner.sagepub.com./content/213/1/F3.full.pdf+html

Edit 3: I've found the press release: http://www.niesr.ac.uk/pdf/270710_235955.pdf

But it does not mention house prices! This is all very odd.

Edit 4: A better version of the NIESR report:

"Overnight the NIESR has published its estimates of UK GDP moving through 2012. It has raised its estimate for 2010 to 1.3% from a previous of 1.0% but reduced its figures for 2011 to 1.7% from the 2.0% figure it predicted in May. They also expect inflation on a CPI measure to moderate lower in the coming years from an average of 3% in 2010 to 1.4% in 2012. The news however that is grabbing all the headlines is on the housing market and that house prices are likely 30% overvalued and are likely to fall in ‘real’ terms (accounting for inflation) to levels seen in 2003 by 2015." Source: http://www.worldfirst.com/blog/foreign-exchange-uk-daily-update/world-first-morning-update-28th-july-2010-pound-continues-on-cbi-banking-although-mervyn-looms/

Edited by Tired of Waiting

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I'm not sure houses failing to rise in 'real terms' would add to families' woes exactly. (Usual journalist overstatement, woes, slump, soar, rocket etc.) Most would be happy with nominal rises or any rises.

I'm not convinced that many people understand the difference between nominal and real, nor care. It's a red herring. Since a family has to live somewhere, their income has to go on rent, or any necessary mortgage if they buy. The idea they will be £28k 'out of pocket' is misleading, dare I say, rubbish.

Even if you own a house outright and STR, the pitiful savings interest rates will be unlikely to cover the rent so then you really are out of pocket in what I call real terms because it was cheaper to stay in the house, even if it is falling in value in "real" terms.

Aha ahahahahhaha :D

Say you buy a house now, and in five hears it has halved in value - how much would you have spent on the mortgage, plus the £100,000 loss?

Now compare that to the rent, even assuming you get no interest on your cash pot (If you've STR'd).

That's not even including any house repairs or "improvements" that you might want to carry out.

Think you might be a little surprised - hence why people here are not buying.

After all, a mortgage is only a rent you pay to the bank.

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Aha ahahahahhaha :D

Say you buy a house now, and in five hears it has halved in value - how much would you have spent on the mortgage, plus the £100,000 loss?

Where did I advocate buying now? I don't. It's the pitiful savings rates that p**s me off. A £100k loss would be 100% on a house round here!

With a large fund, you could pay your rent easily, AND as you say, avoid all the maintenance issues, and wait for falls. A £120k mortgage at 3% is £300 per month interest. That'll buy you a 2 bed house round here, which would be £500 p.m. to rent.

We need a base rate rise to provide easy access savings rates of 5% plus to stop subsidising the indebted.

Edited by deflation

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Think you might be a little surprised - hence why people here are not buying.

Most people on here are not buying now because they can't afford to, not because they choose not to.

Most people are not in the position to meaningfully do the maths and come to a decision about whether it's better to rent for 5 years or buy now. They don't have the income or deposit to buy now, you might as well ask them to ponder about moon dust.

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Most people on here are not buying now because they can't afford to, not because they choose not to.

Most people are not in the position to meaningfully do the maths and come to a decision about whether it's better to rent for 5 years or buy now. They don't have the income or deposit to buy now, you might as well ask them to ponder about moon dust.

I am not sure about "most people" in this site. You may be right. But in our case we can afford to "buy" (deposit and income for mortgage) what we need - a simple 2 bedroom terrace. What we can't afford is to lose 20% of "value" there, and then still have to pay the (very real) debt. And get trapped in negative equity for years to come.

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I am not sure about "most people" in this site. You may be right. But in our case we can afford to "buy" (deposit and income for mortgage) what we need - a simple 2 bedroom terrace. What we can't afford is to lose 20% of "value" there, and then still have to pay the (very real) debt. And get trapped in negative equity for years to come.

Depends how long you want to wait and your personal circumstances.

How much deposit do you have, how much do you earn, what size mortgage do you want, what are you currently paying now in rent etc..

If you wish to share details then we could discuss, but I understand if you don't want to give these details.

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Depends how long you want to wait and your personal circumstances.

How much deposit do you have, how much do you earn, what size mortgage do you want, what are you currently paying now in rent etc..

If you wish to share details then we could discuss, but I understand if you don't want to give these details.

No problem. We are a couple on near (just above) average income. And we have enough for a 20% deposit on a simple but decent terrace in our area.

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I am not sure about "most people" in this site. You may be right. But in our case we can afford to "buy" (deposit and income for mortgage) what we need - a simple 2 bedroom terrace. What we can't afford is to lose 20% of "value" there, and then still have to pay the (very real) debt. And get trapped in negative equity for years to come.

I can understand your reasoning for not buying now....but it all depends on where and what your housing costs are at the moment, does it suit your needs, also you need to look at your future job security.......if you can afford a repayment loan, you have a decent deposit and can get a good long-term fixed rate and most importantly buy a home that you would be happy living in for a few years negative equity is irrelevant.....between the years of 1988 and 1992 many were living in a home with negative equity and didn't even know it... ;)

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This is pretty much what I have been saying will happen ( to much derision from the HPC sheeple brigade who will consider nothing but a massive and rapid crash).

Actually I think it will be a little more severe than this and would be surprised if nominal prices nationally are higher in 2015 than now, but I don't think they'll be lower.

While actaully correct that its real prices that are important NOT nominal prices when judging value in the market, many overlook the importance of nominal prices.... ask jo blogs home owner if in 2015 the pirce of his home is that same as it is now if he feels it has crashed ( it would have a suffered something like a real terms 20% reduction)... and would say no....

In actual fact I think those who judge the market vs inflation ( the real prices brigade) only look at part of the picture in doing so.. nominal prices are important and equally pricing vs wage inflation is alos important.

Either way its nice to see a decent forcasting body reach the same conclusion long held by some.

From the Guardian, Oct 2008:

The NIESR said property prices would drop 9% in 2009 but would pick up in 2010.

Linky

Hmmm...

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This is pretty much what I have been saying will happen ( to much derision from the HPC sheeple brigade who will consider nothing but a massive and rapid crash).

Actually I think it will be a little more severe than this and would be surprised if nominal prices nationally are higher in 2015 than now, but I don't think they'll be lower.

While actaully correct that its real prices that are important NOT nominal prices when judging value in the market, many overlook the importance of nominal prices.... ask jo blogs home owner if in 2015 the pirce of his home is that same as it is now if he feels it has crashed ( it would have a suffered something like a real terms 20% reduction)... and would say no....

In actual fact I think those who judge the market vs inflation ( the real prices brigade) only look at part of the picture in doing so.. nominal prices are important and equally pricing vs wage inflation is alos important.

Either way its nice to see a decent forcasting body reach the same conclusion long held by some.

I quite agree. I expect nominal prices to be higher than now, maybe not as much as £18.8k the article says.

This outcome would probably be the best overall. It would be cheaper for FTBs, and home owners wouldn't lose out (only the feckless).

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No problem. We are a couple on near (just above) average income. And we have enough for a 20% deposit on a simple but decent terrace in our area.

It's difficult to generalise, but here's an example.

If you have a 20% deposit you can get a 5 year fix at 4.5%. A 108K mortgage at 4.5%, would be £600 PCM on a 25 year repayment mortgage. Many people are paying £600 PCM on rent. If you living at home for nowt, then fair enough.

You could easily negotiate a 10-15% reduction in price if you were to buy now under these conditions. As a FTBer you can pick and choose and take advantage of your no-chain status.

Over the 5 years, even without overpayments you will have paid off 12% of your mortgage giving you a total of 32% equity as a margin. I am not convinced we will see an additional 32% nominal fall in addition to what we have already seen. So I doubt there would be much risk of negative equity.

Over 5 years you would have paid £36k in rent or £36k on a mortgage. The mortgage debt would have reduced by 13K. £22k would be interest.

Do you think the house will be 13k cheaper by then?

Just depends how much further you expect prices to fall and over what time period. If you are looking at a slow long-drawn out affair, with stubborn nominal prices and falls only by inflation-adjusted real prices, then waiting 5 years isn't such a hot idea. Especially if you have a big deposit and are only getting a relatively small mortgage. You could pay off your mortgage in 5-10 years anyway.

If you're expecting 30% nominal falls in the space of a couple of years, then go for it.

(I hope I haven't messed up the maths, it was done in a hurry :P .)

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It's difficult to generalise, but here's an example.

If you have a 20% deposit you can get a 5 year fix at 4.5%. A 108K mortgage at 4.5%, would be £600 PCM on a 25 year repayment mortgage. Many people are paying £600 PCM on rent. If you living at home for nowt, then fair enough.

You could easily negotiate a 10-15% reduction in price if you were to buy now under these conditions. As a FTBer you can pick and choose and take advantage of your no-chain status.

Over the 5 years, even without overpayments you will have paid off 12% of your mortgage giving you a total of 32% equity as a margin. I am not convinced we will see an additional 32% nominal fall in addition to what we have already seen. So I doubt there would be much risk of negative equity.

Over 5 years you would have paid £36k in rent or £36k on a mortgage. The mortgage debt would have reduced by 13K. £22k would be interest.

Do you think the house will be 13k cheaper by then?

Just depends how much further you expect prices to fall and over what time period. If you are looking at a slow long-drawn out affair, with stubborn nominal prices and falls only by inflation-adjusted real prices, then waiting 5 years isn't such a hot idea. Especially if you have a big deposit and are only getting a relatively small mortgage. You could pay off your mortgage in 5-10 years anyway.

If you're expecting 30% nominal falls in the space of a couple of years, then go for it.

(I hope I haven't messed up the maths, it was done in a hurry :P .)

Thanks for that twatmangle.

(Before going into the issue, I just want to register here that it is exidingly difficult to read your message with that moving avatar there. )

I understand the logic of it, and I agree with you that if you can fix interest rates cheaper than a rent, it would compensate some of the capital losses. The question is how much of it. And that will depend on rent/buying price, interest rates, buying price/selling price, yield from the invested deposit. In our area that logic doesn't work, because rents are much cheaper than prices. See:

Yes, we are paying around £650 for rent now, in this 1.5 bedroom flat (the 2nd "single" is more like a box room). But a similar flat was sold at peak for £155k, and this flat's owner would probably ask for 150k now, would not sell for less than 140k, but would probably have to lower it to 130k or even 120k to actually sell it.

A minimally decent terrace house around here cost near 200k. And you can rent them for around £850.

In this area, as in many "average to good" areas, rental yields are very low now. That makes rents much more affordable than buying. Even if one would go interest only (just to facilitate comparison) the rent one would pay for the mortgage ("interest") would be higher than renting the house.

Besides, as 90% of chances are that prices will go down in the next few years, why buy now?

The only reason could be if we foresee interest rates going very high very soon. But 90% of chances that they will not. They may go up by 0.25 or at most 0.5 at the end of this year, and perhaps 1 or 2% more next year. But I agree that timing here will be crucial. Of course the ideal would be to buy after the crash, and before interest rates go too high up. But these 2 may overlap.

For now, I'll just wait and see. Mervyn just sent signals that he is against increasing interest rates. (Downplaying the high GDP numbers.)

Edited by Tired of Waiting

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Thanks for that twatmangle.

(Before going into the issue, I just want to register here that it is exidingly difficult to read your message with that moving avatar there. )

I understand the logic of it, and I agree with you that if you can fix interest rates cheaper than a rent, it would compensate some of the capital losses. The question is how much of it. And that will depend on rent/buying price, interest rates, buying price/selling price, yield from the invested deposit. In our area that logic doesn't work, because rents are much cheaper than prices. See:

Yes, we are paying around £650 for rent now, in this 1.5 bedroom flat (the 2nd "single" is more like a box room). But a similar flat was sold at peak for £155k, and this flat's owner would probably ask for 150k now, would not sell for less than 140k, but would probably have to lower it to 130k or even 120k to actually sell it.

A minimally decent terrace house around here cost near 200k. And you can rent them for around £850.

In this area, as in many "average to good" areas, rental yields are very low now. That makes rents much more affordable than buying. Even if one would go interest only (just to facilitate comparison) the rent one would pay for the mortgage ("interest") would be higher than renting the house.

Besides, as 90% of chances are that prices will go down in the next few years, why buy now?

The only reason could be if we foresee interest rates going very high very soon. But 90% of chances that they will not. They may go up by 0.25 or at most 0.5 at the end of this year, and perhaps 1 or 2% more next year. But I agree that timing here will be crucial. Of course the ideal would be to buy after the crash, and before interest rates go too high up. But these 2 may overlap.

For now, I'll just wait and see. Mervyn just sent signals that he is against increasing interest rates. (Downplaying the high GDP numbers.)

this is the problem the bulls fail to see.

You CAN get on the ladder.

but why? when an equivalent house is so much cheaper renting.

We are in a £400K house....rent sub £1000. its having new double glazing... we have had the plumber in twice and the gasman in twice too. One piece of floor caved in...carpenters round for half a day.

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this is the problem the bulls fail to see.

You CAN get on the ladder.

but why? when an equivalent house is so much cheaper renting.

We are in a £400K house....rent sub £1000. its having new double glazing... we have had the plumber in twice and the gasman in twice too. One piece of floor caved in...carpenters round for half a day.

Exactly!

The "ladder" is going down now! It is an escalator going down! It is better NOT to get on it now.

And re. rents, it would be the same in our area - large £400k houses renting for just under £1,000. Yields get lower as one goes up market.

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I am not sure about "most people" in this site. You may be right. But in our case we can afford to "buy" (deposit and income for mortgage) what we need - a simple 2 bedroom terrace. What we can't afford is to lose 20% of "value" there, and then still have to pay the (very real) debt. And get trapped in negative equity for years to come.

Surely if you can afford the deposit and afford the mortgage of a home you want to live in whether the price goes down after buying is somewhat irrelevant it doesn't matter in terms of "affordability"... the only time it does is when you sell. So if you are looking to buy a home now to saty in and have the deposit and have the earnings to support the mortgage where house prices go to while you live there is irrelevant and doesn't effect affordability necessarilly at all ( unless re-mortgaging which is unlikely)..... I don't worry about falling prices at all... nor do I get excited when they go up... I have a home , I like it , I plan to stay in it, the mortgage is being paid off.... house prices could drop by 50% and I wouldn't be overly concerned.

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Surely if you can afford the deposit and afford the mortgage of a home you want to live in whether the price goes down after buying is somewhat irrelevant it doesn't matter in terms of "affordability"... the only time it does is when you sell. So if you are looking to buy a home now to saty in and have the deposit and have the earnings to support the mortgage where house prices go to while you live there is irrelevant and doesn't effect affordability necessarilly at all ( unless re-mortgaging which is unlikely)..... I don't worry about falling prices at all... nor do I get excited when they go up... I have a home , I like it , I plan to stay in it, the mortgage is being paid off.... house prices could drop by 50% and I wouldn't be overly concerned.

he has a home. its rented.

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  • 140 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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