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Should Vendors Drop Their Price, Sell And Get On With Their Lives?

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Feb Inflation figure is 5.5% for the year. In the budget they said inflation would be about 5% this year so we can only expect it to be more, so lets say 5.5%

For every £300,000 tied up in a house after two years inflation at 5.5% it's purchasing power drops to £283,500 then £267,907

Even with base rates at 0.5% you still get a 5% fix so that £300,000 after 20% tax could be earning 4% a year for two years, so it's rises to £312,000 then £324,480

The net loss per £300,000 is £324,480 - £267,907 = £56,573

Those people who are determined not to drop their price don't seem to realise it is being dropped for them.

If they are downsizing aren't they throwing money away not dropping their price? On the differential between their sale and next purchase price.

If they had rented for 2 years at say £10k a year it leaves £36,573 and no repair bills to worry about.

That £36,573 would fund a 12% price reduction on their £300k house and then they can stop losing money and get on with their lives.

I know a house that has been on the market at £325,000 since early 2008 when inflation was 5.1%!!! Doh!! They think it's worth every penny but what about the worth of those pennies?

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Feb Inflation figure is 5.5% for the year. In the budget they said inflation would be about 5% this year so we can only expect it to be more, so lets say 5.5%

For every £300,000 tied up in a house after two years inflation at 5.5% it's purchasing power drops to £283,500 then £267,907

Even with base rates at 0.5% you still get a 5% fix so that £300,000 after 20% tax could be earning 4% a year for two years, so it's rises to £312,000 then £324,480

The net loss per £300,000 is £324,480 - £267,907 = £56,573

Those people who are determined not to drop their price don't seem to realise it is being dropped for them.

If they are downsizing aren't they throwing money away not dropping their price? On the differential between their sale and next purchase price.

If they had rented for 2 years at say £10k a year it leaves £36,573 and no repair bills to worry about.

That £36,573 would fund a 12% price reduction on their £300k house and then they can stop losing money and get on with their lives.

I know a house that has been on the market at £325,000 since early 2008 when inflation was 5.1%!!! Doh!! They think it's worth every penny but what about the worth of those pennies?

Most people don't understand economics to this level.

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Feb Inflation figure is 5.5% for the year. In the budget they said inflation would be about 5% this year so we can only expect it to be more, so lets say 5.5%

For every £300,000 tied up in a house after two years inflation at 5.5% it's purchasing power drops to £283,500 then £267,907

Even with base rates at 0.5% you still get a 5% fix so that £300,000 after 20% tax could be earning 4% a year for two years, so it's rises to £312,000 then £324,480

The net loss per £300,000 is £324,480 - £267,907 = £56,573

Those people who are determined not to drop their price don't seem to realise it is being dropped for them.

If they are downsizing aren't they throwing money away not dropping their price? On the differential between their sale and next purchase price.

If they had rented for 2 years at say £10k a year it leaves £36,573 and no repair bills to worry about.

That £36,573 would fund a 12% price reduction on their £300k house and then they can stop losing money and get on with their lives.

I know a house that has been on the market at £325,000 since early 2008 when inflation was 5.1%!!! Doh!! They think it's worth every penny but what about the worth of those pennies?

I see you logic from a purely financial perspective. However, if sterling collapses or a second banking crisis that can't be bailed out occurs (not unlikely), how will that 5 year fixed containing all of someone's capital be looking then?

Your example seems to apply to someone who owns outright. I happen to be lucky enough to be in that position (thanks to a couple of timely inheritances that I spent wisely), although not to the tune of 300k. Personally I reckon I've saved 30k on rent over the last 3 years by owning outright, which more than offsets any nominal drop in prices that have occured since 2007 (BTW prices have been very resilient where I live due to proximity to London and rampant Nimbyism that has prevented too many new developments in the area).

I fully get the argument about losing capital in real terms, but then I'd need to make gains of 10k a year to cover rent I would have to pay if renting an equivalent property. So if I sold my house for around the 200k it is supposed to be worth at the moment and dumped it in a 5% fixed, I would only break even with regards to covering rent and so my capital would not be protected from inflation as a result.

Not that I hadn't considered selling up, renting and ploughing the lot into gold/silver bullion (I currently have a small position relative to the value of my house). Such a move would have paid off had I done so, and would have the potential to make we vast wealth if the financial landscape stays on the path it seems destined to follow. But still, eggs all in one basket and all that. Plus one of the main reasons for expanding ones wealth is having a place to live and I already have that, so why gamble with what you have already secured?

BTW, when I say gamble it is more because I do not trust the machinations of government with regard to private citizens holding precious metals or the manipulation of markets, rather than doubts about the bullish case for gold/silver investments, hence me hedging my bets by keeping my bought and paid for house rather than going 'all in'.

Edited by General Congreve

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I fully get the argument about losing capital in real terms, but then I'd need to make gains of 10k a year to cover rent I would have to pay if renting an equivalent property. So if I sold my house for around the 200k it is supposed to be worth at the moment and dumped it in a 5% fixed, I would only break even with regards to covering rent and so my capital would not be protected from inflation as a result.

Not that I hadn't considered selling up, renting and ploughing the lot into gold/silver bullion (I currently have a small position relative to the value of my house). Such a move would have paid off had I done so, and would have the potential to make we vast wealth if the financial landscape stays on the path it seems destined to follow. But still, eggs all in one basket and all that. Plus one of the main reasons for expanding ones wealth is having a place to live and I already have that, so why gamble with what you have already secured?

Basically agree with what you've said.

I too (almost) own my house outright.

About 18 months ago I had a long discussion with my wife about selling the house (should net about £200k) and buying either Yen, Norweignen K or Gold. Obviously all those moves would have paid off greatly but in other ways we are happy living where we do, have a young baby and like the idea of owning what we have outright giving us the freedom to rent it out and use the income to rent somewhere aborad for a few years.

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Economics for the masses:

Renting is dead money

House prices only ever go up. Even when they don't they will do soon.

House prices going up is a good thing as it's free money.

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I see you logic from a purely financial perspective. However, if sterling collapses or a second banking crisis that can't be bailed out occurs (not unlikely), how will that 5 year fixed containing all of someone's capital be looking then?

Your example seems to apply to someone who owns outright. I happen to be lucky enough to be in that position (thanks to a couple of timely inheritances that I spent wisely), although not to the tune of 300k. Personally I reckon I've saved 30k on rent over the last 3 years by owning outright, which more than offsets any nominal drop in prices that have occured since 2007 (BTW prices have been very resilient where I live due to proximity to London and rampant Nimbyism that has prevented too many new developments in the area).

I fully get the argument about losing capital in real terms, but then I'd need to make gains of 10k a year to cover rent I would have to pay if renting an equivalent property. So if I sold my house for around the 200k it is supposed to be worth at the moment and dumped it in a 5% fixed, I would only break even with regards to covering rent and so my capital would not be protected from inflation as a result.

Not that I hadn't considered selling up, renting and ploughing the lot into gold/silver bullion (I currently have a small position relative to the value of my house). Such a move would have paid off had I done so, and would have the potential to make we vast wealth if the financial landscape stays on the path it seems destined to follow. But still, eggs all in one basket and all that. Plus one of the main reasons for expanding ones wealth is having a place to live and I already have that, so why gamble with what you have already secured?

BTW, when I say gamble it is more because I do not trust the machinations of government with regard to private citizens holding precious metals or the manipulation of markets, rather than doubts about the bullish case for gold/silver investments, hence me hedging my bets by keeping my bought and paid for house rather than going 'all in'.

Not all fixed rates have no withdrawal options some just have a loss of interest penalty. Obviously if rates go up it becomes cost effective to pay that penalty to shift to a better rate.

I see the figures I quoted as a minimum loss. For one thing you have to believe their inflation figure and for another you could have invested the money in other things have gone up a lot more than the interest payments, as you say.

I was thinking about this in relation to people who are downsizing. Your baby boomers determined to not drop a penny because that's what they think their house is worth. By owning the house and nothing else aren't they going all in? They could downsize and spread the difference between their sale and new purchase price across other investments.

My next-door neighbour is 67 and just taken his house off the market rather than drop the price. He said people around here have set a trend and are selling their houses too cheaply. He could put his house back on in 5 or 10 years and get the price he wanted now - but would he be better off financially? He lives in a 4 bed detached wants to move to a one or two bed bungalow - but isn't getting on with his life because he wants a few thousand more that will be taken from him via inflation anyway! Add in the larger council tax and heating bills and he is burning money.

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Not all fixed rates have no withdrawal options some just have a loss of interest penalty. Obviously if rates go up it becomes cost effective to pay that penalty to shift to a better rate.

I see the figures I quoted as a minimum loss. For one thing you have to believe their inflation figure and for another you could have invested the money in other things have gone up a lot more than the interest payments, as you say.

I was thinking about this in relation to people who are downsizing. Your baby boomers determined to not drop a penny because that's what they think their house is worth. By owning the house and nothing else aren't they going all in? They could downsize and spread the difference between their sale and new purchase price across other investments.

My next-door neighbour is 67 and just taken his house off the market rather than drop the price. He said people around here have set a trend and are selling their houses too cheaply. He could put his house back on in 5 or 10 years and get the price he wanted now - but would he be better off financially? He lives in a 4 bed detached wants to move to a one or two bed bungalow - but isn't getting on with his life because he wants a few thousand more that will be taken from him via inflation anyway! Add in the larger council tax and heating bills and he is burning money.

Totally agree downsizers should take the hit now, especially if they can get the proceeds of downsizing into the next issue of NS&I Index linkers (not that I believe govt. inflation stats), they will be better off for it. Plus why f4ck about over a few quid when you're going to be dead soon, enjoy your life while you still have it! However, you didn't specify downsizers in the original post ;)

As for upsizers with full equity like me, bring on a 75% crash for all I care. I'll happily sell my 2-bed for 50k (a 150k nominal loss), if it only takes an extra 50k to buy a 4-bed that was formerly 400k. :D

Edited by General Congreve

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Totally agree downsizers should take the hit now, especially if they can get the proceeds of downsizing into the next issue of NS&I Index linkers (not that I believe govt. inflation stats), they will be better off for it. Plus why f4ck about over a few quid when you're going to be dead soon, enjoy your life while you still have it! However, you didn't specify downsizers in the original post ;)

As for upsizers with full equity like me, bring on a 75% crash for all I care. I'll happily sell my 2-bed for 50k (a 150k nominal loss), if it only takes an extra 50k to buy a 4-bed that was formerly 400k. :D

I accept your apology.... in advance.

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  • 311 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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