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The thing that will cause the HPC is when the big investors pull out, selling their BTL's they've deliberately kept empty.

When that 40% of ex-BTL housing comes onto the market that's when the crash will really kick in proper.

It won't happen with your average Joe Bloggs with two BTL's defaulting.

yes and when that happens they'll all be running for the door at the same time, trouble is.... it is to late now!!

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or move as well. if you own a house worth £200,000 and want to trade up to a £300,000 house, your ability to borrow is affected in the same way. you can now only borrow £290,000 and its the same effect all the way through the chain.

Scenario:

2002/2003

I live in a £100k house, want to borrow £225k @ 3.5% to move into £325k mansion in the country

Fast forward:

2007

I live in a £200k house. I can only afford to borrow £140k and the mansion in the country now costs £650k

Im ess-see-arr--screwed.

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The thing that will cause the HPC is when the big investors pull out, selling their BTL's they've deliberately kept empty.

When that 40% of ex-BTL housing comes onto the market that's when the crash will really kick in proper.

It won't happen with your average Joe Bloggs with two BTL's defaulting.

In my opinion, not necessarily.

If the BTL's are of a certain type, i.e the type of property a BTL would buy, then the market may just absorb them without even noticing, especially at the current rate of repossessions.

They will be picked up at a discount, which would no doubt knock similar types of properties, but there may not be a huge affect on the rest of the market e.g family homes. The professional BTLers will have a field day at the expense of the novices.

Now if the family homes start being repossessed in large numbers then the writing is on the wall.

Similarly, if there is a rush for the exit by people of a similar mind, who would be prepared to sell their home at a discount on valuation in order to effect a quick sale, that could also drive prices down. However the assumption here would be that those doing so are nowhere near being in negative equity, just fearful of the gap closing.

They say that you should never put all your eggs in one basket.

The financially astute do the same with their thoughts. They keep their minds, eyes and ears open ready to take advantage of any weakness in the market.

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or move as well. if you own a house worth £200,000 and want to trade up to a £300,000 house, your ability to borrow is affected in the same way. you can now only borrow £290,000 and its the same effect all the way through the chain.

OK.

Assumptions:

1. Base interest rate @ 5.25%

2. Mortgage rate @ 6.25% to borrow

3. Savings rate @ 4.75% to save the principle

4. 15 year term (for "older" person wanting to move "up the ladder")

You have a 200K house (100K is owed).

You sell 200K house, get 100K in bank.

You buy 300K house with 100K+mortgage

You now own 33% of it outright and have to pay 200K back eventually - the principle.

Over 15 years you pay:

Interest @ 1208pcm

Principle @ 800pcm

Total = 2008 pcm = 200K after 15 years

Now HPC happens. 30% off everything.

You now have a 135K house (100K is owed)

You sell 135K house, get 35K in bank.

300K house is now worth 200K.

You buy 200K house with 35K + mortgage. You own 17.5% of it outright and have to pay back 165K eventually - the principle.

Over 15 years you pay:

Interest @ 996pcm

Principle @ 655pcm

Total = 1651 pcm = 165K after 15 years

Saves you 2008-1651=357 per calendar month for 15 years = £64260

Or, put another way, £3000 per year extra income on your pension.

Edited by adren
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No, the value is difficult to quantify, I think you are both referring to price.

well the historical value if you take the country as a whole is 3.5 times earnings. people say house prices always go up, but thats because wages go up too so people can borrow more but still in proportion to their earnings.

so value/worth of houses should be 3.5 times earnings, price is currently 7 times earnings.

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Scenario:

2002/2003

I live in a £100k house, want to borrow £225k @ 3.5% to move into £325k mansion in the country

Fast forward:

2007

I live in a £200k house. I can only afford to borrow £140k and the mansion in the country now costs £650k

Im ess-see-arr--screwed.

Fast forward 2009

You STRd in 2006. Got 100K in the bank.

The guy in the mansion has gone bankrupt has gassed himself in his leased Jag.

You borrow £140k and to buy the mansion in the country which is on at auction for costs £240k

Edited by adren
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No, the value is difficult to quantify, I think you are both referring to price.

No, an asset is only worth what the market values it at. The worth is in the price paid.

I qualify that statement like this:

I may value an asset at £150k but it is only worth, to me, £100k as I need to make a profit and that is the price I intend to pay.

Wholesale/retail.

As long as I can negotiate somewhere close to my valuation then I should be able to realise a profit.

Edited by Nonnamouse
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is anyone else having trouble keeping up with the speed of the board today.

anyone would think something has happened :)

i think many might remember this day in years to come and tell the stories of the day they remembered the crash had started.

or perhaps not

i am past caring much about anything anymore my head hurts with it all.

you can buy a cottage in france or italy for 15-20k you know, so why bother if prices drop from 200k to 100k for the equivelent property in the uk?

its nice wine and healthy food for me.

these prices are what you could get the same in scotland for 6-8 years ago

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No, an asset is only worth what the market values it at. The worth is in the price paid.

I see your point - although the price can be detatched from the value depending how you look at it.

I think, how ever you cut it, houses will be changing hands for sums of money influenced by not only the fiscal impact of today’s move but also the sentiment effect.

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Guest Charlie The Tramp

Ruth Lea said on BBC News 24 that the MPC does not to take action on IRs until they have seen the Inflation Reports, the next one due out in February. IIRC the MPC see these reports well before publication, so are things looking quite bad on the inflation front prompting them to raise rates today. When you consider the shock by the Analysts at this decision, something is definitely brewing. I would look at 6% now around early 2008.

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Guest Yeahbutnocrash
lol at all of you.

came home and just caught all this, after the power came back on.(we got power-cuts a plenty here)

The next few months will be intresting.q1 2007 was my prediction and i think its looking better by the day.

the correction has begun.

ps this wind is realy scary here must be 80mph

The bears are getting excited as they assume rates will keep rising and cause a crash

I'm not saying that's impossible but the rates may just rise enough to weed out those struggling buyers & JC2L's and maybe causing some price falls

But ultimately the result may be that the market consolidates and any major crash is prevented...

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I see your point - although the price can be detatched from the value depending how you look at it.

I think, how ever you cut it, houses will be changing hands for sums of money influenced by not only the fiscal impact of today’s move but also the sentiment effect.

Yes. I think prices became detached from realistic values a long time ago.

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Guest Charlie The Tramp
But ultimately the result may be that the market consolidates and any major crash is prevented...

But Joe Public does not act as a normal market investor. Just look at the 90s, although IRs dropped he refused to dip his feet into the water. Give him a fright and he will hide away.

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The bears are getting excited as they assume rates will keep rising and cause a crash
If this was going to be the last rise, they could have waited for February; they obviously expect at least one more rise at some point.
But ultimately the result may be that the market consolidates and any major crash is prevented...

If a crash begins, banks are going to want much larger deposits for BTL mortgages to cover them against price drops. So who's going to be able to 'consolidate'?

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Guest Yeahbutnocrash
just seen the city report on sky news (news channel of choice for the sheeple). an economist commentator on there was muting possibily of 6% plus - scary stuff

Yeah - That could cause people to think twice before offering full asking price!

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I'm very surprised and slightly smug that I chose a 5 yr fix early last year.

The important thing to my mind is that early last year a significant proportion of the public (and some experts) were expecting further IR reductions. Todays news will cause a massive swing in sentiment.

We could potentially see the Spring bounce halted or at the very least muted. Whether this brings about a crash I don't know but this is definitely good news for anyone hanging out for cheaper prices.

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