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Charles_Darke

Can't Sell, Won't Sell

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A question, what happens if house prices drop a little (let's say 10%). Let's say someone bought a flat last year for £250k. It's market value is now £225k. The buyer has paid of little equity and so has negative equity.

Does this mean that the price can't drop since the seller can't afford to sell at less than his original buying price? Does this imply that prices will be stuck at a certain level?

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well sort of, only eventually interest rates may begin to rise and force them out with a small loss if they cant earn enough to cover the rises. perhaps they may claim bankruptcy and rent elsewhere, or simply pop the keys through the banks door. like last time in 1989.

it depends if they can take the hit or not.

best to wait a year or two. see what happens.

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I think you've got to remember that everything is for sale - at a price.

If people dont want to move and they can afford the mortgage then they will stay put. In any street or apartment development though, there will be forced sellers for whatever reason ( cant pay mortgage, death, divorce,etc, etc ). When each house / flat is sold that sets a price for all similar properties. If the overall trend is downwards, each time a property is sold it effectively revalues the rest.

I can imagine that house prices are sticky on the way down, however if BTL decide en masse that they have to get out of a falling market it could be very interesting indeed.

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A question, what happens if house prices drop a little (let's say 10%). Let's say someone bought a flat last year for £250k. It's market value is now £225k. The buyer has paid of little equity and so has negative equity.

Does this mean that the price can't drop since the seller can't afford to sell at less than his original buying price? Does this imply that prices will be stuck at a certain level?

Builders will keep on having to sell newbuild properties. Companies with unsold inventory have to keep on selling, and a sale even at a loss is better for cashflow than no loss at all.

Owners of BTL/investment properties can always afford to sell as they have their primary residence. If people see prices going down, then they may decide to attempt to lock in their profits or put a limit on their losses. Those that sell will set the market price, not those that hold.

Some people will have to move for jobs, will emigrate, will die, etc. etc. etc. Unless all these people start renting their houses out which would take the BTL market to new levels of unprofitability, then there will be houses for sale.

If you look at the stats for the last house price crash, there were plenty of properties available for sale during the crash and when prices were low.

But there's a very important thing to point out. Let's say that in some area there is downward pressure on prices. As there is in many parts of the country. If prices are slowly going down, then imagine you have a number of sellers who would want to sell their houses. Those who sell their houses first are going to make the biggest profits/smallest loss. Unless all the house sellers in quite a wide area are going to hold together in a unbreakable monopoly, then those who do accept the offers they are getting will get the most ££££. I think that where prices are going down, that's going to be a bit motivation to sell.

Billy Shears

Edited by BillyShears

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A question, what happens if house prices drop a little (let's say 10%). Let's say someone bought a flat last year for £250k. It's market value is now £225k. The buyer has paid of little equity and so has negative equity.

Does this mean that the price can't drop since the seller can't afford to sell at less than his original buying price? Does this imply that prices will be stuck at a certain level?

Basically it'll be stalemate until they are forced to sell by repayments becoming unaffordable, redundancy, etc. Then it will sell for what someone else is prepared to pay for it.

I can imagine that house prices are sticky on the way down, however if BTL decide en masse that they have to get out of a falling market it could be very interesting indeed.

Yep! Very interesting indeed... Property investors, as opposed to homeowners, are basically speculating on a commodity for profit. When that commodity reaches its top there is no sense in holding on to it. They'll sell and take profit just as they would if they were speculating on gold, copper, crude oil, etc. The fact that's it a house means nothing to them. Just look at the last week on the FTSE for an indication of what happens when people who've made a great profit start to get nervous and decide to offload their stock.

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Basically it'll be stalemate until they are forced to sell by repayments becoming unaffordable, redundancy, etc. Then it will sell for what someone else is prepared to pay for it.

Yep! Very interesting indeed... Property investors, as opposed to homeowners, are basically speculating on a commodity for profit. When that commodity reaches its top there is no sense in holding on to it. They'll sell and take profit just as they would if they were speculating on gold, copper, crude oil, etc. The fact that's it a house means nothing to them. Just look at the last week on the FTSE for an indication of what happens when people who've made a great profit start to get nervous and decide to offload their stock.

I think your analogy to the gold price is a good one.

Gold has gone down in price recently. Let's say that some people decide that the market will recover and that gold will go back up in price again. So they hold onto their gold. Does this mean that the gold price will stop falling and stick at the current price? No, because someone somewhere will sell gold, and that will set the new price for everyone.

Billy Shears

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A question, what happens if house prices drop a little (let's say 10%). Let's say someone bought a flat last year for £250k. It's market value is now £225k. The buyer has paid of little equity and so has negative equity.

Does this mean that the price can't drop since the seller can't afford to sell at less than his original buying price? Does this imply that prices will be stuck at a certain level?

Ultimately, houses will sell for what they are worth.

Having a property in a falling market is more like being in a prison cage than having a foot on a ladder. Many people simply can't afford to sell and remain stuck in a first time property for years. Meawhile new first time buyers start skipping first time properties and buy bigger homes. Lenders tried to aleviate this problem by allowing homeowners to transfer their negative equity. This however adds considerably to the individuals debt burden.

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Just look at the last week on the FTSE for an indication of what happens when people who've made a great profit start to get nervous and decide to offload their stock.

No one has mentioned the herding instinct, most of the less astute BTL, MEWers and those who are in way over their heads will have changed in recent weeks from denial to fear (have you noticed we have had virtually no bullish "prices will never come down" posts for the last 2 weeks)

As soon as the sheeple realise that the VI's have been lying about HPI for the last 2 years they will offload in a hurry - the VI spin machine is still turning fast but how long will people keep believing it?

CS

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well sort of, only eventually interest rates may begin to rise and force them out with a small loss if they cant earn enough to cover the rises. perhaps they may claim bankruptcy and rent elsewhere, or simply pop the keys through the banks door. like last time in 1989.

it depends if they can take the hit or not.

best to wait a year or two. see what happens.

Popping your keys through the banks letterbox is not the answer. I know of two people who did this, one I know had only a £27.000 mortgage. Sometime later the house was sold for about £54.000, until a few years ago he was still being persued by the lender for outstanding debts of about £14.000

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Basically it'll be stalemate until they are forced to sell by repayments becoming unaffordable, redundancy, etc. Then it will sell for what someone else is prepared to pay for it.

That's what I thought. If they can't meet their repayments, then the house could be repossessed and sold by the lender. Fine.

If they can afford the repayments, they will be forced to repay since if they sold, they would go bankrupt.

So if prices do go down, then all the recent entrants would be the worst off since they have made so little capital repayment as to be worthless and they cannot sell for less than the price they bought (since they have no equity).

While some who have repayments or can sustain the loss can sell and get out, for the rest, they will be stuck and the sale price will be fixed at the original buy price less any capital repayments.

But then doesn't mean that there cannot be a HPC since nobody could/would sell at a lower price unless there is a wave of repossessions?

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Ultimately, houses will sell for what they are worth.

Having a property in a falling market is more like being in a prison cage than having a foot on a ladder. Many people simply can't afford to sell and remain stuck in a first time property for years. Meawhile new first time buyers start skipping first time properties and buy bigger homes. Lenders tried to aleviate this problem by allowing homeowners to transfer their negative equity. This however adds considerably to the individuals debt burden.

Very good point Dog.

In the last crash new-build flats collapsed in price as FTBs skipped this 'first-rung' and went for second-rung houses instead.

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A question, what happens if house prices drop a little (let's say 10%). Let's say someone bought a flat last year for £250k. It's market value is now £225k. The buyer has paid of little equity and so has negative equity.

Does this mean that the price can't drop since the seller can't afford to sell at less than his original buying price? Does this imply that prices will be stuck at a certain level?

The prices will be set by the people who can sell their houses, not by those who can't sell their houses. So anybody unable to sell will have to sit there watching their negative equity grow.

Billy Shears

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A question, what happens if house prices drop a little (let's say 10%). Let's say someone bought a flat last year for £250k. It's market value is now £225k. The buyer has paid of little equity and so has negative equity.

Does this mean that the price can't drop since the seller can't afford to sell at less than his original buying price? Does this imply that prices will be stuck at a certain level?

They can sell if they take a loss. Otehrwise they will have to stay put for a VERY long time, such as waht happened to a load of dummies at the beginning of the 90s.

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They can sell if they take a loss. Otehrwise they will have to stay put for a VERY long time, such as waht happened to a load of dummies at the beginning of the 90s.

So could house values have actually dropped, but that the selling prices haven't trickled down yet?

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Consider that a lot of people have mortgaged to the hilt with I/O and it gets even more worrying. The market will grind to a halt as people can't move unless they can move their negative equity to another property. Also as people have MEWed away what gains that their property has made and you can see a large percentage of home owners will be affected.

Cheers,

Tim.

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They can sell if they take a loss. Otehrwise they will have to stay put for a VERY long time, such as waht happened to a load of dummies at the beginning of the 90s.

It's not too bad unless it's a BTL, because if you are selling to move home then the place you are buying will have dropped by a similar amount (generally speaking). If you are moving 'up' 'the ladder' you could actually gain. It's the BTL brigade who will lose out. :lol:

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It's not too bad unless it's a BTL, because if you are selling to move home then the place you are buying will have dropped by a similar amount (generally speaking). If you are moving 'up' 'the ladder' you could actually gain. It's the BTL brigade who will lose out. :lol:

You shouldn't tar all LL's with the same brush. For every amateur that has bought an overpriced new build, there will be plenty more - builders for instance- that have bought BMV and simply can't lose out.

The longer people wait to buy the more they may realise that they are the ones losing out.

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Guest grumpy-old-man

Consider that a lot of people have mortgaged to the hilt with I/O and it gets even more worrying. The market will grind to a halt as people can't move unless they can move their negative equity to another property. Also as people have MEWed away what gains that their property has made and you can see a large percentage of home owners will be affected.

Cheers,

Tim.

my 16 year old son & I were talking about cars (as we both have a keen interest) & he commented on how many new cars he sees now as opposed to a couple of years ago.

The estate we rent on is a new build, 2,3 & 4 bed paper boxes ;), ranging from 120k to 190k, well over priced but some stupid idiots are buying them, some of them have gardens that arn't even attached to the house :o & yet the range of cars & 4x4 with private plates on would be more at home on detached 4 beds, if you understand me.

we went to view a 3 bed victorian semi with a loft conversion + ensuite for 199k....been on the market for 4 months at least. Very well done inside, quality fitments. They are a couple in the mid 20's with a baby. He tells me they are downsizing to a 2/3 bed terrace. I asked him why he had converted the loft to give a 4th room & he didn't really know why :lol:

checked the property out to see what he had paid & found 2 charges on the house, obviously 2 re-mortgages to pay for it all. He tells me that his wife has cut down to a part-time job & they are struggling to meet the payments.

+ 2 new cars parked outside the house (both under 3 years old). He didn't strike me as the type of guy who would be on more than 18k if he is lucky.

these are the types who will loose their house when it all goes wrong.

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Consider that a lot of people have mortgaged to the hilt with I/O and it gets even more worrying. The market will grind to a halt as people can't move unless they can move their negative equity to another property. Also as people have MEWed away what gains that their property has made and you can see a large percentage of home owners will be affected.

Cheers,

Tim.

memories of the last crash..lenders were doing this. So if you had say, a £100,000 loan on a house worth £90,000 and needed to move (say for relocation) the lender would let you take the £100,000 loan to another property worth £90,000. Provided the borrower was solvent (had enough income to service the loan).

But it might take the lenders a while to remember that they've done it before.

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... there will be plenty more - builders for instance- that have bought BMV and simply can't lose out.

If by 'BMV' you mean 'below market value', then you're living in cloud-cuckoo land. There's hardly ever a deal done at 'below market value'. The simple reason is that, if there is a deal between a willing seller and a willing buyer, the price agreed is the _actual_ market value. Why would the vendor sell 'below market value' in an open market?

Anyone who believes that he's bought an asset such as a residential property at BMV is a fool. BMV really does not exist.

p

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  • 333 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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