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Why Should House Prices Come Down?


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I don't write here much and I myself don't own a property. Went to see a property today and after that the estate agent ringed me back for mortgages. He had a self certification mortgage offer of 4.94% fixed for 2 years and after that no tie in. Deposit required 5% minimum. For a 170000 flat (typical of my area), monthly interest only mortgage comes out to be £685. Rents are around £700 in my area. Also £685 is quite affordable (Typical wage for FTBs in my area is £25,000 -- after tax monthly disposable income of approx. £1500). I can't see how property prices can come down in my area. If property prices do come down, it will suddenly make BTL attractive again. For property prices to fall, something has to given in badly e.g. job losses or massive rate rise (7%). I can't see either happenning. Therefore I can't understand how house prices can come down. What do you lot think?

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You're totally correct. Prives are not going to come down much, we may see a minor ripple and then most likely an upwards surge next year. All this talk is nothing more than a doom mongers fantasy.

You'll find Elvis on the moon before you see another crash like that of the 90's.

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For a 170000 flat (typical of my area), monthly interest only mortgage comes out to be £685. Rents are around £700 in my area. Also £685 is quite affordable (Typical wage for FTBs in my area is £25,000 -- after tax monthly disposable income of approx. £1500).

So how do you plan to pay for your property? You do realise don't you that an interest only mortgage is effectively the same as renting.

As a previous house owner and now somebody who rents I can tell you of plenty of things I had to pay for which I don't now. Take for example a new boiler which cost me £700, using you example buy buying it would take you 4 years before that cost was paid for.

If any thing your example proves what a waste of money buying a property would be at that price.

When it costs less than £600 on a capital repayment mortgage and £700 on rent then I might agree but £15 difference for interest only is madness.

You do realise also the using self-cert and declaring a false salary is fraud. I'd be suprised if you got one these days.

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You're totally correct.  Prives are not going to come down much, we may see a minor ripple and then most likely an upwards surge next year.  All this talk is nothing more than a doom mongers fantasy.

You'll find Elvis on the moon before you see another crash like that of the 90's.

10 years ago average house was 50K - 60K, avegage wage was 20K.

Today average wage is 25K, average house is 170K.

RIPPLE MY AR*E THIS MOTHER GOING TO GO LIKE A ****ING MUSHROOM CLOUD

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I think the idea that £685pcm out of a £1,500 tax home income is "affordable" is somewhat mistaken.

In the olden days (before the "new paradigm" in the housing market) it was considered incautious to spend more than one third of your take-home income on housing.

That would be £500 - about 30% below the current level.

You'll also note that (by coincidence?) the rent on this flat yields 4.94% - exactly the same as the mortgage.

Presumably it is an attractive deal for BTLs who don't need any positive return from the rent (because they won't suffer voids or maintenance costs etc and they can make it all on capital growth anyway) or for FTBs who want to spend six times their income on property.

Now, at three-and-a-half times your £25k average earnings plus 5% deposit that would make this place "fair value" at just over £92k (or £145k at 2.75 times two incomes of £25k).

A BTL might want to see that 4.94% yield (0% after 95% mortgage, before other costs and expenses) rise to maybe 7-8%, which again suggests the house is notably overvalued.

And this is a case where the rent is apparently ABOVE the interest-only mortgage. Many places around the country are even less attractive than this (so rent will not even cover the interest on a mortgage).

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According to your survey post, you earn £75k p.a, which is probably why you thin a 2-bed flat is affordable. It's not for someone on 25k or less. You've suggested they take in a lodger, well if they do, the lodger isn't going to be buying a propoerty are they? so demand will fall, as will prices. Obvious really....

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I also don't own a property, not because of not being able to afford one (I'm on above average national wage even here in north wales), but because I am against paying over inflated values for houses.

In my area they have gone up by around 40% in around 4/5 years, this without the owners doing anything to the property itself. Based on past data house prices go up and down in a cycle and hopefully in around 2/3 years time I can grab a £200k house here for £140k.

What is the point of really stretching my finances only to regret it in a few years time when I will still be able to afford a holiday, nice car and some luxuries. Interest rates are historically low at the moment but it doesn't mean to say they will be in the future.

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By the way, I do not have multiple usernames on this site. I am being honest. Iy previous post few weeks back, I made a strong case for price falls. At that point in time, I did not know that it was that easy to get a mortgage i.e. self certification. I do not know much about self cerification, so please enlighten me if possible. The agent said that he would require a P60. If my P60 says 25000 on it, do you think I can get a self certification mortgage for 161000. If so, I don't believe prices will come down.

Other point being that of no repayment vehicle in place. I agree ABSOLUTELY. But the problem is that people do not think like this. they think of minimum mortgage payment versus rent. Also if you choose interest only payment, the capital borrowed remains the same with respect to time i.e. in 25 years time you will still owe to the bank 161000. Lets say prices double in 25 years. Borrowing still outstanding, 161000. Price in 25 years 322000. In effect you have paid 50% of the property.

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Guest Charlie The Tramp
Therefore I can't understand how house prices can come down

Tell that to Tony and Cherie, according to the Daily Mail they have just lost 300k since they bought it. Want 15k rent and told 8k is more in line for that type of property. Just got a 3 million mortgage, so nothing to worry about. :lol:

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Tell that to Tony and Cherie, according to the Daily Mail they have just lost 300k since they bought it. Want 15k rent and told 8k is more in line for that type of property.  Just got a 3 million mortgage, so nothing to worry about. :lol:

Read somewhere that Gordan Brown had to lend Tony his Janet and John book of Economics afew months ago.

God help us!!

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Lets say prices double in 25 years. Borrowing still outstanding, 161000. Price in 25 years 322000. In effect you have paid 50% of the property.

This is a complete gamble and you have no idea what prices will be in 25 years time. If you want to gamble with the roof over your head, so be it.

DO NOT FEED THE TROLL!

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Oh that curve of 3.5 times average wage.

History only repeats itself when the attributes of the past are same as the attributes of today.

One major event that has happened is that BoE is independent of the goverment. Previously it wasn't. It is because of that the interest rates are at 4.75. Which is NORMAL because the ratio of interest rates to inflation is the highest its ever been. Most people do not realise that the game has changed. We are now in an arena of low inflation. IF the BoE was not independent of the goverment, I would have thought that house prices will drop. It seems to me that interest rates will be between 5-7% for most of the time for the next 10 years or so.

It also means that once you are on the property ladder, after a while you can trade up, is not applicable anymore. You have to repay the real cost of the house to trade up.

Furthermore, I don't think that prices will rise or fall. you might get a +/- 5% at times but thats about it. This is because the market has reached an equilibirium. So if you don't want to buy today and would like to wait and see how things will be like in 2 years time, please do so, you will not loose or gain. Take your time and relax, there is no rush.

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Quote "This is a complete gamble and you have no idea what prices will be in 25 years time".

True.

A home is a neccesity. An investment is an oppurtunity.

You see no one knows how things will be like in the future. What we can do is to make an educated guess about the future to decide in the present tense. Since a home is a neccesity, I would say people should buy or wait and see for a couple of years for the reasons explained in earlier posts ( an educated guess).

For investment purposes (BTL) and especially long term investments, if I was a BTLer, I won't hold on to my property and sell up now. For precisely for the reason that what IR would be like in the longer run or how the economy will be like in the longer run. BTLers who are holding on to their property, if they bought more that 2 years and are thinking of a long term investment are going to lose out!.

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Don't mention the demographics! Want to play a game? Ok - get all the data you can on numbers of people in each 5year age group in the country, make a lovely bar chart like we did at school, you will see not a normal curve ie few youngsters, slightly more older people and then less very old... What you will see is massive amounts of 35-45 year olds and here's the rub - so few people aged 0 - 30 it's frightening. What does this mean? It means that all those in the big age bracket wanted houses at the same time about 7 years ago... got it now? Yes, that's right, there was a fight to buy houses and so they shot up in price. They all have houses now but need first time buyers to refuel the fire. Trouble is there are statistically so few youngsters that the rug is going to be pulled. And the youngsters that are willing to buy are now saddled with student debts etc. Now, look at the bar chart in the mirror. See anything? Yes, it follows the house price rise! But look at the catastophic drop from the age group I mention to the younger ones.

This is I believe the major underpinning reason for the boom- and as such will be the major reason for a bust. Wait till the election's over then get out onto the streets with a placard saying 'I told you so!'

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Oh that curve of 3.5 times average wage.

.....

Furthermore, I don't think that prices will rise or fall. you might get a +/- 5% at times but thats about it. This is because the market has reached an equilibirium. So if you don't want to buy today and would like to wait and see how things will be like in 2 years time, please do so, you will not loose or gain. Take your time and relax, there is no rush.

Utter guff, I'm afraid.

When has the market EVER found 'equilibrium' before? It obeys the same laws as any other financial market and is subject to rises and falls.

If you want somewhere safe to put your money with 'equilibrium', try a bank; I urge you to read the following excellent link posted yesterday...

http://www.econ.ox.ac.uk/members/andrew.fa...t2UKHousing.pdf

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thanks for replying davidjgay.

I couldn't agree more.

Quality in thought defines an attribute. Quantity in thought defines the ultimate direction.

what I mean by above is that how much does demographics plays a role in all this.

Yes, young people population is decreasing, on the other hand people are living longer, couples are seperated more often etc. etc.

Net effect....drum roll.........INCONCLUSIVE.

Why?

Don't have numbers on all this so can't figure out net effect.

A clue.......drum roll..... SPAIN. Population of spain has been decreasing like no tommorow. Young people form lesser and lesser proportion of the overall population. YET prices have risen 150% in the last 3/4 years. Why?

LOW EURO INTEREST RATES.

The point I am trying to make is that IR is one heck of a big player in the game of property markets. Other attributes like demographics etc.. have a small effect. Although they certainly will have more of an impact in the longer run. (My point of BTLers in the longer run will lose out does take this into account).

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I might come across as a poster that thinks prices will rise. Let me be very clear about my position here. I think prices will drop in the long run i.e. 10/15 years plus. Therefore anyone who is in the housing market for the next 10/15 years because of investments is going to loose out big time (BTLers in for the long run). Now if you are an FTB and can wait for 10 years plus before buying, you are in for a real treat. I personally can't wait that long.

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Guest muttley
thanks for replying davidjgay.

I couldn't agree more.

Quality in thought defines an attribute. Quantity in thought defines the ultimate direction.

what I mean by above is that how much does demographics plays a role in all this.

Yes, young people population is decreasing, on the other hand people are living longer, couples are seperated more often etc. etc.

Net effect....drum roll.........INCONCLUSIVE.

Why?

Don't have numbers on all this so can't figure out net effect.

A clue.......drum roll..... SPAIN. Population of spain has been decreasing like no tommorow. Young people form lesser and lesser proportion of the overall population. YET prices have risen 150% in the last 3/4 years. Why?

LOW EURO INTEREST RATES.

The point I am trying to make is that IR is one heck of a big player in the game of property markets. Other attributes like demographics etc.. have a small effect. Although they certainly will have more of an impact in the longer run. (My point of BTLers in the longer run will lose out does take this into account).

But you're not taking into account.....cymbal crash.......sentiment.

Sentiment drove the market up,and sentiment will bring it back down.The questions are how far,and how soon.I don't believe we will have a Bruno style scenario,but as a STR I feel I can't lose by waiting.I certainly wouldn't swap places with my landlord!!

As for your £685 mortgage v £700 rent......

How many STR's does it take to change a lightbulb?

Two.

One to make the cocktails and one to phone the landlord.

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but as a STR I feel I can't lose by waiting

Try telling that to those that STR'erd in 2001 or 02 or 03.

They will have to fall a hell of a long way for them to even get back to square one. And the worst thing is, many STR's have actually eaten into the savings with a new car, or holiday.

Plus there is nothing like the independence of living in your own home, nice and cosy, just how you like it. Living in your own home and having it the way you like it puts you in a good frame of mind for work.

I dont mind doing overtime when I am getting more nice things for my house out of it. I dont think I would feel like that living in someone elses idea of decoration.

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Living in your own home and having it the way you like it puts you in a good frame of mind for work.

Yeah, right, which you will have to be in a good frame of mind for work, because you're going yo be doing a lot of it with the enormous mortgage that you will have to service! What a good little worker rat you are laurejon.

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Guest muttley
Plus there is nothing like the independence of living in your own home, nice and cosy, just how you like it. Living in your own home and having it the way you like it puts you in a good frame of mind for work.

So should I jump back in at these over-inflated prices? Nah, I don't want to be a mortgage slave for the rest of my life. I have a great frame of mind for work and everything else,knowing that my equity is protected,whatever happens to the market.Unless you're predicting an upturn.

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