Help to Buy chaos forces first-time buyers to sell up

[Innkeeper]

19 minutes ago, markyh said:

They bought in 2018, in then S/E. They would have seen at least 20% HPI banked in the property the last 5 years. 

But unlike money in the bank, HPI is not available to you until you sell (except perhaps in the form of more debt).  Of course most people think it’s theirs and is ‘banked’ and this is what’s leading to the current market stalemate.  Sellers ‘needing’ the price in their head which is not the price buyers can afford or are prepared to pay.

Edited October 2, 2023 by Innkeeper
Edit

[markyh]

1 minute ago, Innkeeper said:

But unlike money in the bank, HPI is not available to you until you sell.  Of course most people think it’s theirs and is ‘banked’ and this is what’s leading to the current market stalemate.  Sellers ‘needing’ the price in their head which is not the price buyers can afford or are prepared to pay.

It's their final family home. Their eldest kid is starting college, their youngest just starting big school.  They have no need to go anywhere for 20 years+ . 

I assume they reset to a new 25 year term, this i never asked. but all that matters now is they can afford the monthly mortgage payments, it doesn't really matter to them the value of the house unless it drops a lot in the next 5 years and they dont have a good enough LTV to get a good remortgage in 2027.  

That may hit a lot of people. 

[nero120]

2 hours ago, markyh said:

They bought in 2018, in then S/E. They would have seen at least 20% HPI banked in the property the last 5 years. 

Only 20%... ouch! 😬

Edited October 2, 2023 by nero120

[nero120]

9 minutes ago, Innkeeper said:

But unlike money in the bank, HPI is not available to you until you sell (except perhaps in the form of more leverage).

Slight correction to your otherwise fine post. Most people are unable to grasp why taking on debt to buy property is actually leverage, and that is pretty much the worst thing you can do when interest rates are rising and asset prices are plummeting.

Basically, matey boy is f*****.

[70PC]

21 hours ago, henry the king said:

Thousands of homeowners in arrears after purchasing their homes through the scheme

https://www.telegraph.co.uk/money/property/first-time-buyers-forced-sell-up-unaffordable-help-to-buy/

HTB isn't coming back

From the article:

"A couple he worked with recently saw their mortgage repayments rise from £820 to £2,400, which ruled out any prospect of paying off their 20pc equity loan.

Those who do not pay off the Help to Buy loan have to deal with the interest charges, but those who do may find themselves piling funds into an asset that is potentially decreasing in value, Mr Shaw said.

The equity loan is a fixed percentage of the current market value of the home. House prices have slumped by 5.3pc and are expected to drop another 5.2pc, according to Capital  Economics.

Adam Smith, of broker Alfa Mortgages, said some homeowners who bought using Help to Buy are having to sell up because they had never expected interest rates to go up."

[Innkeeper]

26 minutes ago, 70PC said:

From the article:

"A couple he worked with recently saw their mortgage repayments rise from £820 to £2,400, which ruled out any prospect of paying off their 20pc equity loan.

Those who do not pay off the Help to Buy loan have to deal with the interest charges, but those who do may find themselves piling funds into an asset that is potentially decreasing in value, Mr Shaw said.

The equity loan is a fixed percentage of the current market value of the home. House prices have slumped by 5.3pc and are expected to drop another 5.2pc, according to Capital  Economics.

Adam Smith, of broker Alfa Mortgages, said some homeowners who bought using Help to Buy are having to sell up because they had never expected interest rates to go up."

Not surprising really that people took that view - banks, BSs and brokers all effectively pedalled the view for years to punters, that mortgage rates only went down.  The lenders frantically passed around mortgage debt to each other in the form of two year fixes, offering ever lower rates and monthly payments.  This gave mortgage holders a totally inaccurate view of lending and money in general.

Now normality has returned to the market, anyone with less than 10years as a mortgage holder is staring and blinking in disbelief.

[70PC]

Definitely! Offering two year fixed mortgages with interest rates at a 300 year low was suckering people into liabilities that many could not afford. If the stress tests had been remotely realistic, there would not now be 1,000's of help to buy owners being forced to sell. 

8 minutes ago, Innkeeper said:

Not surprising really that people took that view - banks, BSs and brokers all effectively pedalled the view for years to punters, that mortgage rates only went down.  The lenders frantically passed around mortgage debt to each other in the form of two year fixes, offering ever lower rates and monthly payments.  This gave mortgage holders a totally inaccurate view of lending and money in general.

Now normality has returned to the market, anyone with less than 10years as a mortgage holder is staring and blinking in disbelief.

[regprentice]

33 minutes ago, 70PC said:

"Those who do not pay off the Help to Buy loan have to deal with the interest charges, but those who do may find themselves piling funds into an asset that is potentially decreasing in value, Mr Shaw said.

Nothing wrong with that at all.

Since interest rates fell a lot of young professionals have told me "never buy a depreciating asset". i think they get it from books like "rich dad poor dad" and then on the "young entrepreneurs" social media its become a mantra. Theyre blind to the fact that its only the low interest rate environment thats made it worthwhile leasing everything. 

It makes sense for a company for tax reasons but not for a person. This is because a company can control how it spends its money to minimise tax in that year, but a person can't, they've paid their tax before they've spent a penny  

If youre willing to maintain something then you save in the long run, because you will eventually hit a period of time where you have an asset that you own outright . Whether its a house, a car , an iphone, a computer many young people will never be in this position - owning something and thinking "there is no compelling reason for me to spend my money to replace this for the foreseeable future".

[msi]

21 hours ago, hotblack42 said:

A friend who works for a waste disposal firm that pays good, but not great, money told me yesterday that some younger colleagues have downsized as their 2nd step having previously used an FTB 'scheme'.

1. Never heard if this before despite a huge amount of time reading about property over many years.  Don't recall this in 89-92.

2. This is a huge red flag.  A sign of a mangled housing market.

3. What does this do to a young person's mental health?

1) Agree, but we didn't have this level of market manipulation being played out by the 'Free Market' Tories

2) Agree, but we haven't really had a true 'market' from 2007.

3) Agree it will f*** up people's mental health and their attitude to the market and wider politics, but the same throbbing temple brigade will just laugh at them and call them weak - see the usual threads here

[nero120]

30 minutes ago, regprentice said:

Nothing wrong with that at all.

Since interest rates fell a lot of young professionals have told me "never buy a depreciating asset". i think they get it from books like "rich dad poor dad" and then on the "young entrepreneurs" social media its become a mantra. Theyre blind to the fact that its only the low interest rate environment thats made it worthwhile leasing everything. 

It makes sense for a company for tax reasons but not for a person. This is because a company can control how it spends its money to minimise tax in that year, but a person can't, they've paid their tax before they've spent a penny  

If youre willing to maintain something then you save in the long run, because you will eventually hit a period of time where you have an asset that you own outright . Whether its a house, a car , an iphone, a computer many young people will never be in this position - owning something and thinking "there is no compelling reason for me to spend my money to replace this for the foreseeable future".

Ah another person who has no concept of the danger of leverage.

Honestly it would be really helpful if, in order to qualify for a mortgage you are required to open a CFD account and trade it for a year first. Once they've lost all their money (and more), then the bank will judge whether they are a suitable candidate for having access to much larger leverage in order to buy a far more illiquid asset...

Edited October 2, 2023 by nero120

[nero120]

dupe

Edited October 2, 2023 by nero120

[regprentice]

35 minutes ago, nero120 said:

Ah another person who has no concept of the danger of leverage.

Honestly it would be really helpful if, in order to qualify for a mortgage you are required to open a CFD account and trade it for a year first. Once they've lost all their money (and more), then the bank will judge whether they are a suitable candidate for having access to much larger leverage in order to buy a far more illiquid asset...

If you want to limit the concept of "leverage" to a small proportion of people how do you propose 99% of the population own any sizable asset?

I have written previously that any political party promising that they will create a britain where a working class person could get through life without taking any debt at all would get my vote. That requires secure lifetime social tenancies - effectively freely available council housing  as a choice for anyone. 

As a side note - If you want to expose every potential mortgage holder to gambling (CFDs) then what will happen to the 10% of the population predisposed to gambling addiction? (at any given time almost 4% of people are gambling at "at risk levels" link)

[markyh]

9 hours ago, nero120 said:

Slight correction to your otherwise fine post. Most people are unable to grasp why taking on debt to buy property is actually leverage, and that is pretty much the worst thing you can do when interest rates are rising and asset prices are plummeting.

Basically, matey boy is f*****.

Why? They had equity in a 2 bed terraced they bought in 2008 and transferred into a 4 bed estate end terraced in 2013 with HTB pre price gouging.  Then in 2018 the sold that with even more equity and went in a new bigger 4 bed detached with HTB ,  late last year they mortgaged the 20% HTB equity loan to own 100% of the house and fixed under 3% for 5 years. 

Lets remember before i told them about HTB they could not afford any local 2nd hand or new 4 beds at 100% of their asking price, the 2nd step was way to big for them. They easily made £100k+ in extra equity AFTER paying back the 20% equity loan on the middle 4 bed HTB house and the mania and overpricing of new more affordable HTB houses took hold by 2014-2018.  

They will be fine.  It's very very unlikely and downturn in the market will last more than 5 years, they will be cutting IR big time by then due to recession. Even if not they have plenty of time to plan their finances ready for 5 years time. 

If prices fall 50% in Nominal terms over the next 5 years i will eat my hat.