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It's Worth X Cos The Owners Paid Y


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Unfortunately your mate bought a house he couldn't afford to buy without the help of his parents. It's rather comical that anyone is greedy enough to take a helping hand when you're approaching such an astronomic figure!

He's delusional and not unique and that is why the reality is going to hurt far more than the last crash. I know more people who have had help with purchases than those that do it on their own. I've heard of parents paying 50% deposits! It makes you sick really. I just hope the parent weren't expecting to get the money back anytime soon! :lol:

600k is like a lottery win. It really does seem absurd to have all that locked up in some bricks.

I am too young to know/remember - did people have six figure negative equity in the last crash? It could well become common this time around. How would you ever make the gap up? At least last time, high inflation could erode debt and make the mortgagae manageable as a proportion of salary. I don't see any wage inflation this time....

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Have noticed something about people in debt :- they lie to themselves and others that they talk to they never fully add up how much they owe as they do not want to come to terms with their plight , if someone tells you they are £20k in cc debt you can bet your life they are more in debt than that , I have seen it many times.

This is the same thing the reality is to painfull.

Yes.....very true. ;)

http://www.youtube.com/watch?v=8T97f2kBzOQ

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I am too young to know/remember - did people have six figure negative equity in the last crash? It could well become common this time around. How would you ever make the gap up? At least last time, high inflation could erode debt and make the mortgagae manageable as a proportion of salary. I don't see any wage inflation this time....

Six figures would have been vanishingly rare. Values were much lower then. A house on my street now advertised at £150,000 changed hands for £35,000 after repo in 1995.

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I've been struggling for years to get my head around how some people just won't accept that house prices are not a one-way bet. I used to think it was because they didn't know the other side of the argument, or haven't lived through previous crashes/recessions etc. However, a conversation last night with an old friend has left me speechless. I don't know whether to laugh or cry. In a nutshell:

Guy bought his house last year with a very large helping hand from the bank of mum & dad for just shy of £600k which set the ceiling price for the street (as well as being 100% of asking price). In my book it was a ridiculous price for what it is. However he's had both feet firmly planted in the "prices only go up in this area" camp for many years - despite my many attempts to open his mind to the possibility that this may be a fallacy.

So in September last year an identi-kit house a few doors down comes on the market for £550k which according to my mate is an effin bargain and will get snapped up before the day's out. The reason it's cheaper than his is because the laminate isn't as good quality and there's no twigs & vases (or something along those trivial lines).

Fast forward to today and it's down to £450k without a buyer in sight. On the phone last night he tells me it's not shifting because there's no conservatory and all the other houses have got one. My response these days is a simple hmm. However the bit that got me was "anyway mines worth £600k cos the previous owners paid £570k in 2007 so I couldn't offer them less cos they'd have no profit."

This guy, in most other situations haggles like his life depends on it. He'll quite happily argue the toss over a few quid in Comet. But it's just dawned on me that if this way of thinking is widespread amongst the sheeple then it really is just the banks closing the mortgage tap that's saving people from themselves - I didn't realise people buy houses at a premium because the seller "deserves" a profit.

Curious to hear if anyone else has encountered similar thinking or is my mate just an extreme case?

It's because you lack an ability to empathise with people.

I will try to help. Imagine this situation. You go out and buy something nice and shiny. You bring it back to your house. You call your mate round to view it. He/she says :

It's crap or

I know where you could get that for 1K less or

That will be worth 50% what it is now in 6 months time.

How would you feel ?

Irrespective of what someones house is actually worth in the marketplace, no one likes to feel they've bought a dud or paid too much money. How would you feel if you thought you just lost a large amount of money, say £50K ? Some (a small minority) would be realistic and admit it, some wouldn't care about your opinion but most are going to do anything they can to try and justify to themselves and to you that that is not the case, even in the hard cold face of reality.

Understand this and you might understand the psychology of selling and buying a bit better and you might end up keeping a few more friends. It's not all about logic and hard facts. People don't always behave in a logical way. Getting frustrated by it is pointless. Be thankful that you have the vision to make purchase decisions on a logical basis and that ultimately this will be to your advantage.

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Fast forward to today and it's down to £450k without a buyer in sight. On the phone last night he tells me it's not shifting because there's no conservatory and all the other houses have got one. My response these days is a simple hmm. However the bit that got me was "anyway mines worth £600k cos the previous owners paid £570k in 2007 so I couldn't offer them less cos they'd have no profit."

Whatever he may say in trying to present a positive face to you, this £450,000 house will be burning away at him like acid. He will be fully aware that if he had waited, he could have bought it himself for £425,000 and then spent £25,000 having a conservatory built.

However, you can't un-ring a bell and it might be an idea to steer clear of the subject in future, lest you come across as gloating at his misfortune in some way (I'm sure you're not).

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I feel for your mate, but anyone that pays the asking price is stupid. First rule is find out what they paid for it and you know you've got room for negotiation from that point, if there house is on the market for more than they've paid.

Rule no. 2 is check what other houses go for in the area. If it really is a sought after development, then pricing won't manouvre much.

But this depends:

If 6 houses are on sale in the development you can play a bidding war. If you really want to live in that location and there aren't many houses for sale, you're in less of a bargaining position. Timing is crucial. If one house is left and there are 6 people wanting to live in that location, expect to pay more than if 6 houses were available and you happened to be the only buyer at that time.

If you're not adament you want to live in a certain development and you can be more flexible, you're more likely to increase your chances of getting a better deal, as you're not stuck on a certain road location or mindset.

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It's because you lack an ability to empathise with people.

I will try to help. Imagine this situation. You go out and buy something nice and shiny. You bring it back to your house. You call your mate round to view it. He/she says :

It's crap or

I know where you could get that for 1K less or

That will be worth 50% what it is now in 6 months time.

How would you feel ?

Irrespective of what someones house is actually worth in the marketplace, no one likes to feel they've bought a dud or paid too much money. How would you feel if you thought you just lost a large amount of money, say £50K ? Some (a small minority) would be realistic and admit it, some wouldn't care about your opinion but most are going to do anything they can to try and justify to themselves and to you that that is not the case, even in the hard cold face of reality.

Understand this and you might understand the psychology of selling and buying a bit better and you might end up keeping a few more friends. It's not all about logic and hard facts. People don't always behave in a logical way. Getting frustrated by it is pointless. Be thankful that you have the vision to make purchase decisions on a logical basis and that ultimately this will be to your advantage.

The problem is that behaviour such as his mate's is damaging other people by boosting a bubble. It has been remarked time and again that people react differently to the housing market than any other market.

You never see headlines 'Petrol price joy' announcing another rise in fuel costs. For most of us here, people's behaviour regarding house prices is bizarre, and its damaging us.

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Fast forward to today and it's down to £450k without a buyer in sight. On the phone last night he tells me it's not shifting because there's no conservatory and all the other houses have got one. My response these days is a simple hmm. However the bit that got me was "anyway mines worth £600k cos the previous owners paid £570k in 2007 so I couldn't offer them less cos they'd have no profit."

He's panicking. If you're a true friend I guess you haven't have asked him at what stage in history a conservatory cost / added value of £150k?

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I have a friend who is very bullish about HPs, although he rarely seems to know about falls being announced (nice job MSM). In order to keep the friendship, I have decided not to bring the subject up again. He is slowly starting to realise that they are not the ticket to riches he thought...

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I have a friend who is very bullish about HPs, although he rarely seems to know about falls being announced (nice job MSM). In order to keep the friendship, I have decided not to bring the subject up again. He is slowly starting to realise that they are not the ticket to riches he thought...

The majority of people I know who have bought have done so because it felt right to them. House owning is seen as the natural thing to do in this country. They also tended to find houses they wanted and paid to ensure they got it, rather than risking losing it.

By my viewpoint they were wrong to do so. I consider a house to be a critical investment, as well as a roof and walls to live in. I'm prioritising long term financial stability and wealth over short term pleasure. I'm starting to see that sometimes I take it too far, and there are times where enjoying NOW justifies some optional expenditure.

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By my viewpoint they were wrong to do so. I consider a house to be a critical investment, as well as a roof and walls to live in. I'm prioritising long term financial stability and wealth over short term pleasure. I'm starting to see that sometimes I take it too far, and there are times where enjoying NOW justifies some optional expenditure.

I totally sympathise with that point of view, but as another post somebody made a few days ago, stewarding money until you have lost the energy to really enjoy it is a bit daft.

On a major tangent, the world's most travelled person, Charles Veley, made a fortune in the dotcom boom. He then went on a massive travel bender, clocking up every country and in some cases every state that he could. On his website - http://mosttraveledpeople.com/ - he's just announced that he's had to go back to work! Still, he'll have more than a few memories to help him through a 9 to 5.

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It's because you lack an ability to empathise with people.

I will try to help. Imagine this situation. You go out and buy something nice and shiny. You bring it back to your house. You call your mate round to view it. He/she says :

It's crap or

I know where you could get that for 1K less or

That will be worth 50% what it is now in 6 months time.

How would you feel ?

Irrespective of what someones house is actually worth in the marketplace, no one likes to feel they've bought a dud or paid too much money. How would you feel if you thought you just lost a large amount of money, say £50K ? Some (a small minority) would be realistic and admit it, some wouldn't care about your opinion but most are going to do anything they can to try and justify to themselves and to you that that is not the case, even in the hard cold face of reality.

Understand this and you might understand the psychology of selling and buying a bit better and you might end up keeping a few more friends. It's not all about logic and hard facts. People don't always behave in a logical way. Getting frustrated by it is pointless. Be thankful that you have the vision to make purchase decisions on a logical basis and that ultimately this will be to your advantage.

that's fine unless said tw*t is your (elder more favoured) brother and is burning away at your familiy's savings to cover his costs

Edited by Si1
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The majority of people I know who have bought have done so because it felt right to them. House owning is seen as the natural thing to do in this country. They also tended to find houses they wanted and paid to ensure they got it, rather than risking losing it.

I would disagree - this was the view of the middle classes in the south of england prior to the bubble, owing to HPI in the home counties since the war, and has spread to ALL classes and outlooks during the bubble, I think this latter effect is temporary

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I am too young to know/remember - did people have six figure negative equity in the last crash? It could well become common this time around. How would you ever make the gap up? At least last time, high inflation could erode debt and make the mortgagae manageable as a proportion of salary. I don't see any wage inflation this time....

Yes, the last crash did involve many 6 figure losses!!!! I suspect people are already sitting on 6 and 7 figure losses this time. It's easy to make the gap up! You continue to pay the mortgage, stay in work and wait for 7 years! :blink: The South came out of the crash around 1995/96 but many homes were still in negative equity in 1999/2000. Then it all started to rise again. Those that lost their houses were rightly worried about losing money again. Many re-entered the market only after big gains had been made. This compounded their poor financial position.

It's happening again. I think it will get brutal.

Edited by Xurbia
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He knows that he has just blown £150,000,

That's only the half of it, assuming he's taken on a typical 25yr mortgage, he'll be £300,000 down by the time he's paid it of...

It annoys me that people never consider the actual cost of the house+mortgage rather than the actual cost.

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That's only the half of it, assuming he's taken on a typical 25yr mortgage, he'll be £300,000 down by the time he's paid it of...

It annoys me that people never consider the actual cost of the house+mortgage rather than the actual cost.

oh yes. nothing quite like mis-allocated leveraged capital

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