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Negative Equity - So What?


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HOLA441
Guest muttley

Good post.

I think what is really scary is that the next few years could be very cruel to savers.

If house prices stagnate (or only fall 10%) in nominal terms over three years (and rates slowly creep up) then it may be worse to wait 3 to 5 years compared to buying today. 'real' inflation is creeping up and the true value of any savings will erode over time.

Then what do you do? keep renting/waiting? It's a tough choice.

Why would it be worse to buy a house at a 10% discount in three years time? Inflation erodes equity as well as savings.

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HOLA442
Guest The_Oldie

No I haven't you really aren't helping the cause by attacking me, the posting we are arguing about was ridiculous but you choose to ignore that and harrass me - strange

I am not attacking you, I merely stated that you have (in fact on more than one occasion) posted from the IP address of a mortgage lender (a bank to be more precise). You have chosen to deny this. Perhaps you have forgotten posting from work, but the IP logs are quite clear. I can, but only with your permission, post the IP evidence.

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HOLA443

Why would it be worse to buy a house at a 10% discount in three years time? Inflation erodes equity as well as savings.

because mortgage rates will almost certainly be higher in that scenario.

you can buy today 160k at 4.7% fixed for 10 yrs. repayments fixed at 907pm for first 10yrs of 30.

or, buy at 144k in three years at maybe 6% IR (27 year loan). Cost per month 984pm.

After 10 yrs from today both would owe about 117k.

Of course, you face NE if you buy today and get made redundant in three years.

Depends how much you want that house.

If I was a FTBer today I would consider buying a 'fixer upper' property and go for the fixed rate loan. This way any NE could be offset by my own grafting to improve the house (if I lost my job in the subsequent years)

But that doesn't mean everyone should do this...

Edited by Without_a_Paddle
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HOLA444

If I was a FTBer today I would consider buying a 'fixer upper' property and go for the fixed rate loan. This way any NE could be offset by my own grafting to improve the house (if I lost my job in the subsequent years)

But that doesn't mean everyone should do this...

You'd be very lucky to find a fixer upper that hasn't already been fixed up, don't you think we'd all do that given the chance ? Complete shells are selling for £200k around here.

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HOLA445

Surely those % of pay figures are crazy?

Even if it is for interest payments it must surely be for 'before tax'?

The interest on a 100k loan will be 5k pa

if this is 16% of salary then salary must be about 31k BEFORE DEDUCTIONS.

More realistic figures would be dual income 46k and a 160k repayment loan.

repayment loan = 907pm

take home pay = 2800pm

% of take home pay = 33% for a couple.

Who takes home £2800 a month..

the average FTB home in Devon would be a minimum of £130,000 for a new build flat..

Average take home would be.. well.. £1200

£120,000 mortage, interest only at 5%

and that is £500..

and carry the one.. multiply by pie and eat some pie..

and

APOM NOW ENDS THE AFFORDABILITY COMMENT ABOUT FTB'S

THEY ARE AT THEIR LOWEST EVER RATE AND THE OLDEST EVER AGE

IF IT WAS JUST AS AFFORDABLE AS A DECADE AGO..

NEVER MIND

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HOLA446
Guest muttley
you can buy today 160k at 4.7% fixed for 10 yrs. repayments fixed at 907pm for first 10yrs of 30.

So at 6% IR you're saying property prices will fall no more than 10%? I think you are being optomistic with your calculations.

Edited by muttley
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HOLA447
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HOLA448

So at 6% IR you're saying property prices will fall no more than 10%? I think you are being optomistic with your calculations.

I dunno. My gut feeling is that 6% IR would not create a huge price drop. I can see HP growth flattening. If IR continued to steadily rise e.g. to say 7% or 8%, then I could envisage a downtrend.

The thing is, even if IR hiked next month, it might not create immediate forced sellers since I expect many will have fixed rates for a few years.

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HOLA449

I think we can take it as a given that most people today who are vulnerable are FTB'ser and those who traded up recently, as in the last three years.

Prior to that the average mortgage was around 40k, 150k mortgage today is considered not very much at all.

I would guess that most people are paying around 4% on a fixed deal, the catch is many are locked in on a SVR for five years when the two or three year fix expires.

So on that basis, a 6% rate would be bearable to most, but to think rates are going to top out at 6% is somewhat optomistic.

The average rate is 7%, and look across the world and you will see mortgage rates at 7% in most countries.

When the rates rise in earnest, look at something above 10%, OUCH that has gotta hurt!!.

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HOLA4410
Guest muttley

I dunno. My gut feeling is that 6% IR would not create a huge price drop. I can see HP growth flattening.

Lets say there's a buyer who can afford a £150k mortgage at todays rates. At 6% the same buyer could only afford to borrow £112k without increasing his/her monthly payments.That's more like 25% less purchasing power. So were does the 10% come from?
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HOLA4411

So at 6% IR you're saying property prices will fall no more than 10%? I think you are being optomistic with your calculations.

Well maybe. But there will be three years of wage inflation at 4% yoy to help offset the pain of the higher rates.

People are buying houses today at current affordability levels. So in three years' time with 6% rates you could argue for maybe 12% nominal falls if you ignored the 'bonus' of three years wage inflation. i.e. the same monthly repayments as today's buyer, but in three years time.

If unemployment goes up over 6% then this could increase the falls.

However, I think the present govt will prop up the economy using any tricks they can over the next three years leading up to the next election. Beyond the election there could be big problems. But these problems could be involve currency devaluation and inflation with little or no falls in nominal house prices (a bit like the crashes before the 1990 crash)

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HOLA4412

It is very true that the Gov could put off the inevitable and continue to hold rates down.

However the independence of the Bank of England is currently under question in corridors across the wider world. Gordon Browns preaching on the world stage declaring "This is how you do it" is being scrutinised by the IMF, the World Bank,European Central Bank, and the Federal Reserve, and many other Global Institutions.

They like neither what they are hearing, nor what they are seeing.

We are becoming a Rogue nation, a nation that is steeped in debt, a liability to the worlds economy. A country that cannot pay its debts gets a tough ride from the rest of the world. Forget Globalisation, or BPO, or Offshoring, a labelled Rogue nation would be lucky to get credit to buy a box of matches.

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HOLA4413
Guest muttley

Well maybe. But there will be three years of wage inflation at 4% yoy to help offset the pain of the higher rates.

People are buying houses today at current affordability levels. So in three years' time with 6% rates you could argue for maybe 12% nominal falls if you ignored the 'bonus' of three years wage inflation. i.e. the same monthly repayments as today's buyer, but in three years time.

If unemployment goes up over 6% then this could increase the falls.

However, I think the present govt will prop up the economy using any tricks they can over the next three years leading up to the next election. Beyond the election there could be big problems. But these problems could be involve currency devaluation and inflation with little or no falls in nominal house prices (a bit like the crashes before the 1990 crash)

Whoa!!!! Three years of 4% inflation and interest rates only 6% ? Also, can you explain how currency devaluation helps someone afford to buy a house? Someone on 20k per year who feels unable to buy a house at 100k will still be in the same position, whether the pound is worth 2$ or 1$.( pound in your pocket, and all that)

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HOLA4414

However the independence of the Bank of England is currently under question in corridors across the wider world. Gordon Browns preaching on the world stage declaring "This is how you do it" is being scrutinised by the IMF, the World Bank,European Central Bank, and the Federal Reserve, and many other Global Institutions.

They like neither what they are hearing, nor what they are seeing.

We are becoming a Rogue nation, a nation that is steeped in debt, a liability to the worlds economy. A country that cannot pay its debts gets a tough ride from the rest of the world. Forget Globalisation, or BPO, or Offshoring, a labelled Rogue nation would be lucky to get credit to buy a box of matches.

Where did you get this info from?

The UK pound is a reserve currency with something like 1/30 th of the World's foreign exchange reserve held in UK pounds. The last time I looked the pound was doing OK. ($1.85?)

Surely we are a long way from becoming a rogue nation?

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HOLA4415

Whoa!!!! Three years of 4% inflation and interest rates only 6% ? Also, can you explain how currency devaluation helps someone afford to buy a house? Someone on 20k per year who feels unable to buy a house at 100k will still be in the same position, whether the pound is worth 2$ or 1$.( pound in your pocket, and all that)

I said wage inflation. Wage inflation is currently at 4% YOY and has been for a while. (and interest rates are currently at 4.5%) Check out the official stats for public and private sector wage rises.

BTW I didn't say (or mean too imply) that currency devaluation would make it 'easier' to buy a house.

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HOLA4416
Guest Guy_Montag

Devaluation is a double edged sword. It makes property cheaper for foreigners to buy, on the other hand it will make UK wages less & therefore discourage immigration. Maybe it should be BNP policy - to reduce the UK£ to 1US$.

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HOLA4417

Whoa!!!! Three years of 4% inflation and interest rates only 6% ?

muttley it's the WaP way, you fix the data to support your argument, I thought you would have sussed that one out already ;)........I know you have really.

Today we have inflation @ [cough] 2% and interest rates of 4.5% WaP reckons 4 and 6 because it suits.........simple innit :rolleyes:

Todays house prices are the result of lax lending and speculative investing. People have bought at these frothy prices because they believe they can only go up. But like all speculative bubbles it will invariably burst.

But I suppose all this argueing one way or the other whiles away the time until the inevitability is writ large for all to see. That is market mechanisms dictate speculative bubbles will burst at some point. Otherwise the markets ceases to function for the benifit of the market makers.

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HOLA4418
Guest muttley

I said wage inflation. Wage inflation is currently at 4% YOY and has been for a while. (and interest rates are currently at 4.5%) Check out the official stats for public and private sector wage rises..

If wage inflation really is 4% then that will filter through to RPI and CPI and we've got some pretty major IR rates in the offing.Could someone point me to somewhere where I can check out the official stats for public and private sector wage rises?

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HOLA4419

If wage inflation really is 4% then that will filter through to RPI and CPI and we've got some pretty major IR rates in the offing.Could someone point me to somewhere where I can check out the official stats for public and private sector wage rises?

So that's less than 3% after tax and NI - and most, if not all, of this extra money will be swallowed up by higher energy prices, council tax bills etc - to say nothing of re-paying all the extra borrowing taken on the year before.

THERE IS NO MONEY LEFT FOR EXTRA MORTGAGE PAYMENTS!

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HOLA4420

The original flavour of this post was being happy with your purchase despite it being maybe not the most econically viable option.

There's been a few comments on upgrading, not everybody wishes to or needs to, a lot of us are quite happy where we are & do not consider our homes to be an investment, just somewhere nice to live.

There's been a few comments where you buy a grotty flat, but if you are not happy with buying it then just rent, there is no obligation to buy & have to dwell unhappily on the offchance that one day this will prove to be a 'good investment'. But should you put off buying a house you like because the prices are 'maybe' artificially high, this is after all only an opinion.

Jumping on false bandwagons is the path to bitterness.

A lot has also been made of how better off we were/weren't in 60's/70's/80's.

Another anecdote, these seem to be very regional (midlands by the way, small village), not entitled to council housing despite living with their parents in rented accomodation, after father working 2 jobs for 2 years to save deposit my folks bought in early 60's, carpet square in the front room, bare boards elsewhere. We sat around a stove in the kitchen in the winter to keep warm, broke the ice in the toilets before use, no phone or car, parents wore much the same clothes for 10+ years, no social life & grew own vegetables.

(So many people are misty eyed over big back gardens & allotments like they were a blessing, they were there because people could not afford to buy food & had to grow it themselves).

Our bookcases were fruit boxes with curtains over them. We were typical of everybody else in the village, council or private.

This was normal, thus acceptable.

Were we all today to only use disposable income on house purchase & food, I'd guess houses are still about as affordable as they were, but again I'd guess there may be a wave of unemployment?

Bit of a dilemma eh?

As I understand it from my parents there were quite a few bitter houseowners that were envious of the low cost of social housing & were aggrieved that their only option was to pay high private rent or buy as for whatever reason they were denied council housing.

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HOLA4421

What rubbish!

If that were the case, why did people live in council houses and rented property, much of it barely habitable in the 50s and 60s?

I'm sick to death of younsters on this forum telling me that the average milkman went out and bought a 5 bed detached property out of their loose change.

Only the wealthy middle classes bought property in the 50s and 60s.

If you don't believe me , check out the percentage of owner occupation, now and in the 50s. It is far far higher now.

You're overgeneralising (as usual) - no-one has suggested that "the average milkman went out and bought a 5 bed detached property out of their loose change".

And you're also wrong that "Only the wealthy middle classes bought property in the 50s and 60s". The milkman might not have been able to buy a 5-bed detached house, but he could almost certainly afford a small terrace. My grandparents were able to buy modest terraced properties and ultimately a reasonable, paid-off early semi in a decent area: and my grandfather was a bus conductor (my grandmother didn't work, and they had 4 children.) I suggest that most manual and factory workers didn't own property: but anyone with a clerical or service job was more than able to aspire to home ownership, and a family as well. What you're forgetting is the social distribution of labour and wealth in the 50s and 60s: there were many more labouring and manual jobs than there are now, so the proportion of the working classes was much greater: and social housing was much more widely available, and we were in a transition from a pre-war and wartime to a postwar boom economy. Yes, there was a lower percentage of owner-occupiers, but much of this can largely be accounted for by the decline in social housing provision and the right to buy. Since the sixties, too, we have been getting wealthier - as a result of extremely favourable postwar economic conditions. Why do you think that 60 percent of housebuyers in the sixties were FTBs? Compare today's percentage....

Look at what you're saying, though! Ultimately, we could end up saying "only the wealthy middle classes owned property prewar and in the nineteenth century, heck, let's go back to pre-Industrial Revolution and say that we would all have been cotton workers or agricultural serfs, who didn't expect to own property"! But what purpose does that serve?? :unsure: What you're saying is that young people now should expect to return to a Fifties economy? Well, why the heck should we want to do that?? It wouldn't do YOU any good if we all suddenly reverted to the Fifties - no more nice modern NHS, modern welfare state, modern pension provision, etc., for you either. Heck, let's have rationing back! We'll be poor but healthy :lol::blink: Seriously, though, we should collectively be WORRIED that it is getting harder again to own property, not saying "we had it harder, so squish to you". It IS getting more difficult to buy than it was: but that should be a focus for economic anxiety, not a kind of sour grapes about the young. If young people are struggling, and not reaching the same economic and life milestones at the same rate they were even ten years ago (in the context of a dramatically falling birthrate and a looming pensions crisis) then ultimately that is going to drag our economy DOWN, not teach the young how they should be grateful (or whatever you're implying.) To return to Fifties rates, or even Seventies rates of homeownership would be an utter economic disaster. Who the heck wishes for things to be WORSE for the generation following theirs? It just doesn't make sense....

If you're talking about Lancashire, why keep on about the 60s and 70s? Houses were still cheap in the 90s. Over the border in Leeds you could buy a house for £25K near the city centre as recently as the late 90s.

I just worry that you're portraying this as some sort of golden age for the 'boomers'. I know a couple who bought after graduating in Leeds in 99 who are now sitting very pretty indeed. Their ages? 28 and 29. They did what everyone at the time advised them not to do, but they took a risk and have managed to trade up very nicely. They have Kirsty and Phil to thank for that, I suspect.

Really...?? I remember 1999 (I had just graduated) and everyone was advising us to buy property as soon as we could. I went on to further study, after working in London, so I didn't get the chance. But it was definitely not the case that property was seen as a risky buy in 1999: it was seen as a good time to buy (and many of my friends did just that).

Edited by Zaranna
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HOLA4422

You're overgeneralising (as usual) - no-one has suggested that "the average milkman went out and bought a 5 bed detached property out of their loose change".

And you're also wrong that "Only the wealthy middle classes bought property in the 50s and 60s". The milkman might not have been able to buy a 5-bed detached house, but he could almost certainly afford a small terrace. My grandparents were able to buy modest terraced properties and ultimately a reasonable, paid-off early semi in a decent area: and my grandfather was a bus conductor (my grandmother didn't work, and they had 4 children.) I suggest that most manual and factory workers didn't own property: but anyone with a clerical or service job was more than able to aspire to home ownership, and a family as well. What you're forgetting is the social distribution of labour and wealth in the 50s and 60s: there were many more labouring and manual jobs than there are now, so the proportion of the working classes was much greater: and social housing was much more widely available, and we were in a transition from a pre-war and wartime to a postwar boom economy. Yes, there was a lower percentage of owner-occupiers, but much of this can largely be accounted for by the decline in social housing provision and the right to buy. Since the sixties, too, we have been getting wealthier - as a result of extremely favourable postwar economic conditions. Why do you think that 60 percent of housebuyers in the sixties were FTBs? Compare today's percentage....

Look at what you're saying, though! Ultimately, we could end up saying "only the wealthy middle classes owned property prewar and in the nineteenth century, heck, let's go back to pre-Industrial Revolution and say that we would all have been cotton workers or agricultural serfs, who didn't expect to own property"! But what purpose does that serve?? :unsure: What you're saying is that young people now should expect to return to a Fifties economy? Well, why the heck should we want to do that?? It wouldn't do YOU any good if we all suddenly reverted to the Fifties - no more nice modern NHS, modern welfare state, modern pension provision, etc., for you either. Heck, let's have rationing back! We'll be poor but healthy :lol::blink: Seriously, though, we should collectively be WORRIED that it is getting harder again to own property, not saying "we had it harder, so squish to you". It IS getting more difficult to buy than it was: but that should be a focus for economic anxiety, not a kind of sour grapes about the young. If young people are struggling, and not reaching the same economic and life milestones at the same rate they were even ten years ago (in the context of a dramatically falling birthrate and a looming pensions crisis) then ultimately that is going to drag our economy DOWN, not teach the young how they should be grateful (or whatever you're implying.) To return to Fifties rates, or even Seventies rates of homeownership would be an utter economic disaster. Who the heck wishes for things to be WORSE for the generation following theirs? It just doesn't make sense....

I suggest you read the thread more carefully, and understand my point better, before you post such a lengthy reply. You've missed the point, big time.

I was responding to a poster who suggested that it was dead easy for modestly paid people to buy houses in the 50's and 60s. I pointed out that if it was, why did we have such a huge housing problem back then, with long council house lists, slum landlordism, homelessness, squatting and low levels of owner occupation.

Nowhere did I say it was easy now (it's not) or that I wanted to go back to such low levels of OO.

Today's very high levels of OO are a good thing, IMO.

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HOLA4423

Someone help me out here.

I seem to remember that there was, in 1975 + until around early 1980s - tax relief on mortgage for the first 30k of property price. Maggie's govt took that out.

Is that factored in the calculations here?

Anyone know when that was introduced and why and the year it was actually withdrawn?

Also, local govt for the last 2 years has had a wage increase cap at 3% over the last two years - and Gordon has is just enforcing 2% for the next two years on local govt.

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