Cash Buyers Drive The Housing Market

[Lagarde's Drift]

One would have to ask how a 50 year old teaching assistant has managed to amass over £100k in cash, especially when evidence points towards a lack of earning ability and financial astuteness.

Edit: Money from a divorce...

Edited April 27, 2011 by Cash with Nowhere to Go

[Fully Detached]

you see, I understand your point about no return on cash and not being in negative equity, but my problem (and perhaps that of many like me) is that I don't quite have enough cash to buy a house without a mortgage, I could put 70% down but would have no savings left and still a 30k mortgage. I would feel more comfortable putting 50% to have some savings but still would need a mortgage this time 50%. So I am waiting, putting more money aside each year and hoping for prices to drop in the meantime. Yes I pay a rent but I would otherwise pay a mortgage and importantly, I am not spending anymore money on the house I rent. I could not live in a house like this if it was mine (and would be spending a lot of my money putting it right) but because it isn't my house I am not bothered.

Anyway, it is not a very pleasant situation, I would like to have my own house, I would like my kids to grow up in their own house, but I have been deprived from it by Labour and now the Tories, I am at their mercy but at least I am not a debt slave as well...

I'm in a very similar position to you, and am trying to keep building the pot until I can buy outright. Some simple (probably simplistic) maths:

If the house I want to buy is currently 200k, and I have 150k, then I can either keep saving and hope that prices come down, or I can jump into a 50k mortgage. If I do this, and lose my job or the ability to work, I'm sitting on a debt of 50k with an asset worth 200k (assuming the market is static). Therefore any bank with half a brain would repossess and sell it quick. I know they have a duty to get the best price they can, but in reality I'm likely to lose both the house and a substantial portion of my original equity.

Turn the figures round so I need to borrow 150k and put down 50k deposit. The bank would be much less likely to repossess, as they stand to lose more than I do.

So I think there comes a point where with over 50% deposit, you're almost better off holding out for 100%. In a rising market, obviously things are different, but I don't see much chance of that for a few years yet.

[frenchy]

I'm in a very similar position to you, and am trying to keep building the pot until I can buy outright. Some simple (probably simplistic) maths:

If the house I want to buy is currently 200k, and I have 150k, then I can either keep saving and hope that prices come down, or I can jump into a 50k mortgage. If I do this, and lose my job or the ability to work, I'm sitting on a debt of 50k with an asset worth 200k (assuming the market is static). Therefore any bank with half a brain would repossess and sell it quick. I know they have a duty to get the best price they can, but in reality I'm likely to lose both the house and a substantial portion of my original equity.

Turn the figures round so I need to borrow 150k and put down 50k deposit. The bank would be much less likely to repossess, as they stand to lose more than I do.

So I think there comes a point where with over 50% deposit, you're almost better off holding out for 100%. In a rising market, obviously things are different, but I don't see much chance of that for a few years yet.

fully agree, we would be more likely repossessed with such high level of equity than someone on a 90% LTV mortgage on an overpriced house.

I forgot to mention in my post that indeed like you I would not use all my deposit to buy (even with a mortgage) as I would need to protect myself against losing my job (I am self-employed).

[Bloo Loo]

http://www.bbc.co.uk...siness-13116262

Seems pretty clear to me that this is clear evidence that prices are too high and first time buyers are unable to enter the market.

Adds up with the constantly reducing mortgage approvals data, and HEW figures showing £7bn a quarter spend on paying down mortgages.

Sentiment is terrible and it would seem to be only a matter of time before prices fall to levels that tempt FTB back.

Nice VI spin from "Henry Pryor" though, also "Teresa Taylor". Not sure how the obvious conclusion seems to be totally ignored. House prices are clearly unsustainably high.

so the people downsizing are selling to cash buyers and buying for cash themselves?

[exiges]

Whichever way it is spun, the market requires overleveraged FTBs to support the ponzi.

Agreed, if the average mortgage is held for 40yrs, that's 2.5% turnover (minimum) a year that needs to be supported by fresh blood coming into the market.. and they're not the cash buyers.

This cash-only thing can go on for so long

[Lepista]

This cash-only thing can go on for so long

..unless prices drop in line with cash availablility

[olliegog]

Your housing equity is being eroded by inflation and you have the prospect of increasing negative HPI being compounded onto that loss.

Halifax latest data + RPI, about a 8% loss, plus if HPI falls start to increase with inflation around the same you could be looking at 15%+ YOY falls on your equity. If the FED continue QE 3,4,5 etc then most likely your equity will buy you a tin of beans at the end.

Good luck.

don't quite get the point of that depressing scenario. The thing is I have a home to live in, I do not have a vast mortgage payment to meet, inflation erodes savings, inflation also erodes the value of 'all houses' , so I am happy with my choice. The thing is my total borrowing in all my scramble up the property ladder was a mortgage of 36K in the 80s which was paid off in the 90s. So the cash locked up in my house gets smaller but I LIVE in it so my choice.

[Bear Goggles]

Can it only go on for so long though? Will the cash run out?

Volumes are at record lows, the inheritance tax threshold has been raised (The only real tax-cut I can think of).

Here's a scenario:

Government continues to prop-up the banking sector with QE. Mass repossessions are held off with tax payers' money in the interest of averting another banking crisis. Only those who inherit cash can afford to buy property. There must be enough people inheriting cash to support a low turnover of property transactions.

This might sound like madness, but the majority of £1m+ properties have been bought with cash for a while. Why? Well who earns enough to pay a £1m mortgage? not many people, most either inherit the money or receive a lump sum from a business sale or banker bonus etc. Perhaps this is just an extension of this to the rest of the market.

Is it sustainable in the long term? Probably not, but it could be sustainable for 15-20 years. It was the case during most of the 19th century.

Perhaps the property-owning democracy is over in the UK. Until a critical mass of voters come of age, the baby boomer die-off and government policy changes to reflect the new generation, this could be the way it is for those on the wrong side of the housing divide.

It may make more sense to rent for those not born into wealth for the foreseeable future.

[neil324]

don't quite get the point of that depressing scenario. The thing is I have a home to live in, I do not have a vast mortgage payment to meet, inflation erodes savings, inflation also erodes the value of 'all houses' , so I am happy with my choice. The thing is my total borrowing in all my scramble up the property ladder was a mortgage of 36K in the 80s which was paid off in the 90s. So the cash locked up in my house gets smaller but I LIVE in it so my choice.

Well you was making the point of protecting your cash from inflation by buying property outright with cash. I was merely pointing out your not.

[Lagarde's Drift]

Well you was making the point of protecting your cash from inflation by buying property outright with cash. I was merely pointing out your not.

It's just another opportunity cost that people choose to disregard. Until Tue disposable income squeeze starts getting painful.