If Houses Were To Half Tomorrow They Would Still Be Expensive!

[Confounded]

If houses were to half tomorrow they would still be expensive!

I live in a rented 4 bed standard estate detached. It is currently valued at £345,000, if it halved it would be £172,500

At current mortgage rates of approx 6.5% for a 25 year repayment mortgage on the full amount is £1178 and the interest only is £934. I rent for £800 although I got a good deal because I know the owner and it would normally be £950.

I know these figures are simplistic but they don’t even stack up at half current value, puts NR excellent mortgage book into question!!!

[Confounded]

Bump, any comments from the “it will stagnate” or “only drop 10%” guys?

[Justice]

If houses were to half tomorrow they would still be expensive!

Yes and thast why as prices under shoot 3.5X income they will drop below half price.

we have only just turned the corner and look at how the banks are doing so wait for a years time and then go and ask for a 4 X income loan and see where they tell you to go.

Our masters that have pushed prices up now want them down as it's not easy to make real money in a flat market so it may get as bad as pence in the pound if needs be.

[carseller]

I am thinking a 80% drop is realistic in real terms. Or prices down to 1/5, I agree it's till expensive even at 50% off, but it's not going to be a disaster to buy at that level.

[Levy process]

If houses were to half tomorrow they would still be expensive!

I live in a rented 4 bed standard estate detached. It is currently valued at £345,000, if it halved it would be £172,500

At current mortgage rates of approx 6.5% for a 25 year repayment mortgage on the full amount is £1178 and the interest only is £934. I rent for £800 although I got a good deal because I know the owner and it would normally be £950.

I know these figures are simplistic but they don’t even stack up at half current value, puts NR excellent mortgage book into question!!!

IMO, if house prices halved tomorrow, they would still be expensive yes. Or indeed if they fell 90% they'd still be expensive. Why? Because whatever it was that caused them to fall that much would have made buying them a lot harder, hence the drop in price. Basically, houses are always "expensive" in the general sense, because "expensive" in the general sense means "difficult for most people to buy". People like buying houses, and so they will generally push themselves financially to do it, hence by definition, they are usually "expensive".

[Levy process]

I am thinking a 80% drop is realistic in real terms. Or prices down to 1/5, I agree it's till expensive even at 50% off, but it's not going to be a disaster to buy at that level.

Think what you like. If houses fall 80% then it will mean that the UK will have been and will be further wrecked. Whatever fun life holds after that won't be related to the economy, or stability of family finances.

[starsign]

If houses were to half tomorrow they would still be expensive!

I live in a rented 4 bed standard estate detached. It is currently valued at £345,000, if it halved it would be £172,500

At current mortgage rates of approx 6.5% for a 25 year repayment mortgage on the full amount is £1178 and the interest only is £934. I rent for £800 although I got a good deal because I know the owner and it would normally be £950.

I know these figures are simplistic but they don’t even stack up at half current value, puts NR excellent mortgage book into question!!!

are you assuming that rent will remain stable? There has been a lot written on here about landlords subsidising their tennants, assuming BTLers leave the mkt if there is a HPC there will be less properties to rent, so rent may well increase.

[Confounded]

IMO, if house prices halved tomorrow, they would still be expensive yes. Or indeed if they fell 90% they'd still be expensive. Why? Because whatever it was that caused them to fall that much would have made buying them a lot harder, hence the drop in price. Basically, houses are always "expensive" in the general sense, because "expensive" in the general sense means "difficult for most people to buy". People like buying houses, and so they will generally push themselves financially to do it, hence by definition, they are usually "expensive".

I don't disagree but I had anticipated that response. I understand houses are always expensive relative to different prosperity situation the country faces, but my comparison is to renting and even in the current financial situation now without things deteriorating baring just the removal of lax lending!

[Orbital]

god expectations are really funny sometimes. A 4 bed detached house? Yes. Yes it will be expensive. Its actually normal for most working Brits to live in eg terraced houses etc - geesh you ever watched Corrie lol! And yes the middle class wealthy members of society can afford nicer bigger places. Well good for them.

If you want one of the bigger places, make sure you get a proper professional job. Make sure you save hard. By the time you have risen in your career, and you have a partner to share the bills with. Yeah then it will be affordable.

If you are a single guy in your first job then why on Earth would you expect to buy a 4 bed detached house (why would you want one anyway?)!

If prices halved tomorrow, there are plenty of people who would be able to afford property, not only that but the yields would look attractive. If I were in your position Id look at getting more productive because the next wave of BTLers arent just gonna let you jump in under them...

Good luck

Edited September 17, 2007 by Orbital

[Confounded]

are you assuming that rent will remain stable? There has been a lot written on here about landlords subsidising their tennants, assuming BTLers leave the mkt if there is a HPC there will be less properties to rent, so rent may well increase.

Very hard to judge rents, I currently think they are quite high with the chance of declining. Depending on how inflation goes clearly in the long term they could go up and in the very long term certain to go up, but in out and out deflation we could see drops in rents with drops in house prices.

[Knut]

There has been a lot written on here about landlords subsidising their tennants, assuming BTLers leave the mkt if there is a HPC there will be less properties to rent, so rent may well increase.

I don't think it is at all likely that rent will rise. Apart from issue of rent controls being a distinct possibility there is so much choice of rental property about that tenants will simply leave to live somewhere else on the merest chance of rent increases. I always suggest the tenants keep an alternative property ready and waiting so they can jump ship if a landlord gets greedy. On top of all this as property prices fall more of the rental sector will move to owner occupation.

It's not a good time to be a landlord.

[starsign]

I don't think it is at all likely that rent will rise. Apart from issue of rent controls being a distinct possibility there is so much choice of rental property about that tenants will simply leave to live somewhere else on the merest chance of rent increases. I always suggest the tenants keep an alternative property ready and waiting so they can jump ship if a landlord gets greedy. On top of all this as property prices fall more of the rental sector will move to owner occupation.

It's not a good time to be a landlord.

i think you missed my point about a decline in supply due to BTLers selling up.

As for rent controls, a typical rental agreement can be cancelled with 2 months notice any time after 4 months, if that property then goes on the mkt at a higher price does that break any rent control?

[Confounded]

god expectations are really funny sometimes. A 4 bed detached house? Yes. Yes it will be expensive. Its actually normal for most working Brits to live in eg terraced houses etc - geesh you ever watched Corrie lol! And yes the middle class wealthy members of society can afford nicer bigger places. Well good for them.

If you want one of the bigger places, make sure you get a proper professional job. Make sure you save hard. By the time you have risen in your career, and you have a partner to share the bills with. Yeah then it will be affordable.

If you are a single guy in your first job then why on Earth would you expect to buy a 4 bed detached house (why would you want one anyway?)!

If prices halved tomorrow, there are plenty of people who would be able to afford property, not only that but the yields would look attractive. If I were in your position Id look at getting more productive because the next wave of BTLers arent just gonna let you jump in under them...

Good luck

Orbital, I enjoy your posts but that seemed a bit of a mess!

When property does halve it will be only because plenty other people won't be able to buy. This is the whole point. If the world of easy credit continues then there will be no crashes. When this is removed and most of peoples equity is removed £175,000 will seem a fair chunk of money, and if rents don't rise (or possibly fall) the yield will still not be that attractive at 6.5% with no voids.

I just wanted to make a thought provoking post, if you can't remove yourself from this current financial madness and imagine other possibilities I guess you will always disagree.

[Confounded]

i think you missed my point about a decline in supply due to BTLers selling up.

As for rent controls, a typical rental agreement can be cancelled with 2 months notice any time after 4 months, if that property then goes on the mkt at a higher price does that break any rent control?

Just ignore the issue of rents because that is impossible to predict and they could go down equally as much as go up.

If rents do rise significantly it is unlikely to be in the face of a property crash described in my scenario (deflationary). When times get tough people change their renting habits and can even move back with family meaning that rents can and do drop when house prices drop.

[Van]

I agree. A 50% fall is NEEDED to bring house prices back to their fundamental values. Of course, this will vary from region to region and house to house, and we will probably get some sort of overshoot.

[starsign]

Just ignore the issue of rents because that is impossible to predict and they could go down equally as much as go up.

If rents do rise significantly it is unlikely to be in the face of a property crash described in my scenario (deflationary). When times get tough people change their renting habits and can even move back with family meaning that rents can and do drop when house prices drop.

but the original post was relating mortgage to rents to suggest that they would still be over-valued if prices halved...

[Justice]

I'm not sure that rents will go down as the UK continues to be flooded with immigrants and as income tax recipts fall during the pending recession/depression then gov will increase council rents by inflation busting amounts.

[Austin Allegro]

i think you missed my point about a decline in supply due to BTLers selling up.

As for rent controls, a typical rental agreement can be cancelled with 2 months notice any time after 4 months, if that property then goes on the mkt at a higher price does that break any rent control?

But if BTLers sell up, that will mean more properties for sale = lower prices = more people buying = fewer renting = rents driven down, no?

Also the rise in interest rates and negative equity could mean more people will take in lodgers on the government rent a room scheme, meaning still less demand for rental properties.

[starsign]

But if BTLers sell up, that will mean more properties for sale = lower prices = more people buying = fewer renting = rents driven down, no?

Also the rise in interest rates and negative equity could mean more people will take in lodgers on the government rent a room scheme, meaning still less demand for rental properties.

i think we could argue it whatever way suited out points of view. House prices falling, more people looking to get out of property and into rented accomodation at the same time as less rental properties.

I think this is not going to get us anywhere, time will tell.

[Knut]

i think you missed my point about a decline in supply due to BTLers selling up.

No, I don't think I missed your point.

If BTL's sell their properties they are likely to go to those already renting so there is little change in the rental market's property/tenant ratio.

As for rent controls, a typical rental agreement can be cancelled with 2 months notice any time after 4 months, if that property then goes on the mkt at a higher price does that break any rent control?

That's not rent control. I am in Germany and here the rent is dictated by the town hall and set at a fair level and controlled alongside state of repair and tenure etc. I think the UK is well overdue for a much more fair deal for the tenant and the German model is one that works.

I should add that protected tenancies in the UK are also at state controlled levels. It would only take a change of scope to widen the role of the rent officer to private letting arangements. i.e. a system is already in place.

Edited September 17, 2007 by Knut

[OzzMosiz]

god expectations are really funny sometimes. A 4 bed detached house? Yes. Yes it will be expensive. Its actually normal for most working Brits to live in eg terraced houses etc - geesh you ever watched Corrie lol! And yes the middle class wealthy members of society can afford nicer bigger places. Well good for them.

I am one of the top 3% of earners in the UK - I couldn't afford a 4 bedroom detached at 4 times my wage if I only had a 10% deposit.

[Darkman]

i think you missed my point about a decline in supply due to BTLers selling up.

But who will they sell to anyway? No one will be buying. The BTLers will be saddled with a burden and desperate to avoid empty periods. See it from their panic point of view.

[Confounded]

I am one of the top 3% of earners in the UK - I couldn't afford a 4 bedroom detached at 4 times my wage if I only had a 10% deposit.

Exactly!

If you want one of the bigger places, make sure you get a proper professional job. Make sure you save hard. By the time you have risen in your career, and you have a partner to share the bills with. Yeah then it will be affordable.

Good luck

I am a professional with Chartered status, I have a professional wife who works and because of this we can afford the house we live in, but I am not a great fan of new build cardboard and I am quite happy to sit this one out.

Of my two nearest neighbors one is an electrician and the other delivers snacks to offices. Both undoubtedly hard working but both are driving BMW's and live in £350,000 houses, being a professional has nothing to do with it, being 5 years older is the best qualification that would have helped me in this housing debacle.

[Guest d23]

Very hard to judge rents, I currently think they are quite high with the chance of declining.

Do you really?

according to most on here they haven't risen for many years; as has also been discussed here previously rents rose during the last crash, is it different this time?

[Scarecrow]

I think a 50% cut in houseprices in Glasgow would be fair enough - a 1 bed in the Southside would be about £60,000 which I think is fair enough. They were £45,000 10 years ago, so that seems a reasonable sort of increase.