How Bad Will It Be Allowed To Get Really?

[Eric Blair]

let's assume (for the purposes of argument) that the party is over for UK HPI in the medium-term at least,

i wonder how bad things would be allowed to get given the numbers of people now exposed to

the hardship of unrepayable debt/ losing their homes etc.

my own situation is as follows: good family house in a decent part of N. London worth on

paper £400k upon which i have a 20yr to run 138k SVR mortgage costing currently £902pm

part-repayment along with £118 pm on an underperforming (60k?) £80k endowment maturing

in 9 years.

we now have 2 kids and since my wife no longer works and my IT self-employed-from-home income

is not entirely reliable. i struggle to keep up with approx. £2500 pm outgoings

some of the strain of which has been unloaded recently onto credit cards (yeah, daft, i know).

i could sell up now, pay off the mortgage, clear some debts and walk away with 230-240k

in the bank plus turn the endowment into a savings plan and then either rent where we are now

or buy with a small/ low mortgage in a cheaper part of the country.

or i could stay here and rough it out which would necessitate my wife going back to work

and our youngest child having to go to a childminder for part of the week. even then, we

wouldn't have a lot of spare income left after bils and would be vulnerable to interest rate rises

and/ or recession/ sickness affecting our ability to earn money (i am 49, my wife 42. no pension).

where we live now, while not our absolute ideal, ticks most boxes. good transport/ schools/ services,

plenty of living space, safe neighbourhood, daughter just started primary school at the bottom of the

road. family nearby.

another relevant issue to consider is the encroaching spectre of peak oil and where i would like us

to be when that starts to bite.

the thought of moving from where we are now is causing me great apprehension but i wonder if

change will be enforced on us whether we like it or not in the next few years and whether it

is better to leave now under our own terms and establish a new life that we can afford somewhere

else while we have the chance.

weighing against this, i don't expect that our situation is particularly atypical for london and i'm sure that there

are many, many with less equity in their homes who would be even more vulnerable to a HPC/ economic

downturn than are we which makes me think that somehow the banks and the politicians will have

to engineer some kind of bail-out for the general population along the lines of Dr. Harvey Barnard's

NESARA proposal in USA to avoid the disintegration of this country. or am i being too optimistic?

what would you do in my place? stay or go?

[Ellie]

"my own situation is as follows: good family house in a decent part of N. London worth on

paper £400k upon which i have a 20yr to run 138k SVR mortgage costing currently £902pm

part-repayment along with £118 pm on an underperforming (60k?) £80k endowment maturing

in 9 years."

My friend, I would consider yourself very fortunate. Nuff said.

[South Lorne]

let's assume (for the purposes of argument) that the party is over for UK HPI in the medium-term at least,

i wonder how bad things would be allowed to get given the numbers of people now exposed to

the hardship of unrepayable debt/ losing their homes etc.

my own situation is as follows: good family house in a decent part of N. London worth on

paper £400k upon which i have a 20yr to run 138k SVR mortgage costing currently £902pm

part-repayment along with £118 pm on an underperforming (60k?) £80k endowment maturing

in 9 years.

we now have 2 kids and since my wife no longer works and my IT self-employed-from-home income

is not entirely reliable. i struggle to keep up with approx. £2500 pm outgoings

some of the strain of which has been unloaded recently onto credit cards (yeah, daft, i know).

i could sell up now, pay off the mortgage, clear some debts and walk away with 230-240k

in the bank plus turn the endowment into a savings plan and then either rent where we are now

or buy with a small/ low mortgage in a cheaper part of the country.

or i could stay here and rough it out which would necessitate my wife going back to work

and our youngest child having to go to a childminder for part of the week. even then, we

wouldn't have a lot of spare income left after bils and would be vulnerable to interest rate rises

and/ or recession/ sickness affecting our ability to earn money (i am 49, my wife 42. no pension).

where we live now, while not our absolute ideal, ticks most boxes. good transport/ schools/ services,

plenty of living space, safe neighbourhood, daughter just started primary school at the bottom of the

road. family nearby.

another relevant issue to consider is the encroaching spectre of peak oil and where i would like us

to be when that starts to bite.

the thought of moving from where we are now is causing me great apprehension but i wonder if

change will be enforced on us whether we like it or not in the next few years and whether it

is better to leave now under our own terms and establish a new life that we can afford somewhere

else while we have the chance.

weighing against this, i don't expect that our situation is particularly atypical for london and i'm sure that there

are many, many with less equity in their homes who would be even more vulnerable to a HPC/ economic

downturn than are we which makes me think that somehow the banks and the politicians will have

to engineer some kind of bail-out for the general population along the lines of Dr. Harvey Barnard's

NESARA proposal in USA to avoid the disintegration of this country. or am i being too optimistic?

what would you do in my place? stay or go?

...if you can get the 'on paper 400K' I would downsize and get rid of the mortgage .....I did that on a much smaller scale in '88 just before the last crash...good luck...

[Mr Nice]

let's assume (for the purposes of argument) that the party is over for UK HPI in the medium-term at least,

i wonder how bad things would be allowed to get given the numbers of people now exposed to

the hardship of unrepayable debt/ losing their homes etc.

my own situation is as follows: good family house in a decent part of N. London worth on

paper £400k upon which i have a 20yr to run 138k SVR mortgage costing currently £902pm

part-repayment along with £118 pm on an underperforming (60k?) £80k endowment maturing

in 9 years.

we now have 2 kids and since my wife no longer works and my IT self-employed-from-home income

is not entirely reliable. i struggle to keep up with approx. £2500 pm outgoings

some of the strain of which has been unloaded recently onto credit cards (yeah, daft, i know).

i could sell up now, pay off the mortgage, clear some debts and walk away with 230-240k

in the bank plus turn the endowment into a savings plan and then either rent where we are now

or buy with a small/ low mortgage in a cheaper part of the country.

or i could stay here and rough it out which would necessitate my wife going back to work

and our youngest child having to go to a childminder for part of the week. even then, we

wouldn't have a lot of spare income left after bils and would be vulnerable to interest rate rises

and/ or recession/ sickness affecting our ability to earn money (i am 49, my wife 42. no pension).

where we live now, while not our absolute ideal, ticks most boxes. good transport/ schools/ services,

plenty of living space, safe neighbourhood, daughter just started primary school at the bottom of the

road. family nearby.

another relevant issue to consider is the encroaching spectre of peak oil and where i would like us

to be when that starts to bite.

the thought of moving from where we are now is causing me great apprehension but i wonder if

change will be enforced on us whether we like it or not in the next few years and whether it

is better to leave now under our own terms and establish a new life that we can afford somewhere

else while we have the chance.

weighing against this, i don't expect that our situation is particularly atypical for london and i'm sure that there

are many, many with less equity in their homes who would be even more vulnerable to a HPC/ economic

downturn than are we which makes me think that somehow the banks and the politicians will have

to engineer some kind of bail-out for the general population along the lines of Dr. Harvey Barnard's

NESARA proposal in USA to avoid the disintegration of this country. or am i being too optimistic?

what would you do in my place? stay or go?

I would leave as fast as possible.

you are in a position where your family could move to a bit smaller lifestyle, but live comfortably happy and well.

or you could stay where you are now, and you could find your family in miserable circumstances fairly easily.

why take that chance, when all signs are pointing to a downturn.

pinning everything on a hope that the government will somehow magickally fix a broken world ec0onomy.

Edited October 23, 2007 by Mr Nice

[levoleurdefruits]

Dude I wouldn't sweat it. If you like where you live, then why leave? There are ways to find a bit of extra cash each month. Think of the expense and upheaval of moving. If you want to live somewhere else though, now is a tricky time to sell for top dollar as everyone here will gleefully tell you. So I'd stay put I think, or possibly rent and let if other reasons to move are strong.

[ruisort7]

Ride it out if it gets tough. Place of your own in a decent part of N London will fall less and recover sooner and stronger than elsewhere. Family nearby and friends for your kids, that's priceless, my friend, priceless.

[karinUS]

Hi OP,

It kind of sounds like you've answered your own question. 1) Stay where you are and "rough it out" with uncertain income and undesirable lifestyle changes (wife going to work, etc.) Or 2) sell for profit and rent and lay low for a while.

It concerns me that one of your "reasons" for staying put is that the situation may get so bad that the gov. steps in and fixes everything. I guess anything can happen, but it seems this just may be too big to fix. (Of course, keeping in mind that this is an American speaking here who has first hand knowledge of just how incompetent government can be after witnesing the still- ongoing New Orleans disaster, among other things).

The malinvestments in bad debt/SIV's are starting to hit county and city governments here in the US. This goes far beyond people losing their as yet unpaid for homes. There's too much happening at once for "fixes", IMO.

And it seems like you guys are probably just one step behind us.

Anyway, it sounds like you just need to do whatever will make your family feel the least stressed and most happy in riding out the coming years.

Good luck to you.

[The Ayatollah Buggeri]

It concerns me that one of your "reasons" for staying put is that the situation may get so bad that the gov. steps in and fixes everything.

Not least because if it did so, there'd be an outcry from the priced out at yet another subsidy to prop up those who got on the ladder at our expense. With every year that passes, we're forming a larger proportion of the electorate. Eventually, things will get to the point at which this sort of bailout will become politically unacceptable and electoral suicide. At the moment, the voting power of OOs and BTLs is such that the government will choose to keep them happy at the expense of priced-out, prospective FTBs (there are less of them, and because they're generally younger, they're less likely to vote). But unless there is a crash, that won't be the case forever.

[winkie]

What would you do in my place? Stay or go?

You are in a good financial position, living in a resonable area, all be it overpriced. There are many better places in this country to bring up young children, and you will get far more for your money. The qualilty of life living in Greater London is falling, and I can not see any improvements in the coming years. You are almost 50 years of age with another 20 years left on your mortgage. Why would you want to stay paying for a house and sending your wife out to work full time, putting your children with minders if you don't need to, especially if your wife would prefer to stay at home.

Living close to family and friends is the biggest tie to an area, and for most people their job, but as you work form home you have more feedom than most. Think how free you will be by being mortgage free, you are fortunate to have that choice. Why make life difficult for yourself? Children will make friends wherever you live.

Edited October 23, 2007 by winkie

[vfr]

let's assume (for the purposes of argument) that the party is over for UK HPI in the medium-term at least,

i wonder how bad things would be allowed to get given the numbers of people now exposed to

the hardship of unrepayable debt/ losing their homes etc.

my own situation is as follows: good family house in a decent part of N. London worth on

paper £400k upon which i have a 20yr to run 138k SVR mortgage costing currently £902pm

part-repayment along with £118 pm on an underperforming (60k?) £80k endowment maturing

in 9 years.

we now have 2 kids and since my wife no longer works and my IT self-employed-from-home income

is not entirely reliable. i struggle to keep up with approx. £2500 pm outgoings

some of the strain of which has been unloaded recently onto credit cards (yeah, daft, i know).

i could sell up now, pay off the mortgage, clear some debts and walk away with 230-240k

in the bank plus turn the endowment into a savings plan and then either rent where we are now

or buy with a small/ low mortgage in a cheaper part of the country.

or i could stay here and rough it out which would necessitate my wife going back to work

and our youngest child having to go to a childminder for part of the week. even then, we

wouldn't have a lot of spare income left after bils and would be vulnerable to interest rate rises

and/ or recession/ sickness affecting our ability to earn money (i am 49, my wife 42. no pension).

where we live now, while not our absolute ideal, ticks most boxes. good transport/ schools/ services,

plenty of living space, safe neighbourhood, daughter just started primary school at the bottom of the

road. family nearby.

another relevant issue to consider is the encroaching spectre of peak oil and where i would like us

to be when that starts to bite.

the thought of moving from where we are now is causing me great apprehension but i wonder if

change will be enforced on us whether we like it or not in the next few years and whether it

is better to leave now under our own terms and establish a new life that we can afford somewhere

else while we have the chance.

weighing against this, i don't expect that our situation is particularly atypical for london and i'm sure that there

are many, many with less equity in their homes who would be even more vulnerable to a HPC/ economic

downturn than are we which makes me think that somehow the banks and the politicians will have

to engineer some kind of bail-out for the general population along the lines of Dr. Harvey Barnard's

NESARA proposal in USA to avoid the disintegration of this country. or am i being too optimistic?

what would you do in my place? stay or go?

I think that based purely on your figures and more importantly your responsibilites (kids, wife) I would stay. Moving can put alot of stress on you and your wife and leave the kids feeling vulnerable. Your weak spot as you said is your IT employment as ina down turn depending on which aspect of IT it can be switched off rapidly if PR or marketing related. Equally if you have support skills taht people are dipping in and out of if employees are made redundant you could be quids in if your marketing skills are up to it. However if your income from that is unrelaible then what you are saying is that you're not working full time. So if you were working fulltime what would you be earning?. I think you need to boost your income now. It's about consolidating your IT earnings into as small a number of hours as possible. To do this I would divide my day into 2 if you can. Your wife is at home to answer business calls and take messages. If you have good IT skills look for a part time job teaching where the income is steady. OR even a manual job 7-11 am. or 3-7 pm. When do you take the majority of the calls or is it all email?. what response time do you have to give. what would happen if you weren't at your desk or by your phone between particular hours?. Further if you feel you are vulnerable your wife could get a part time job which again would mitigate the risk should loss of earnings occur. I suppose the age of the children is critical.

BTW I admire anybody who posts openly . you sound very genuine and I hope everything works out.

[hellsbells]

I would also swap the SVR mortgage to a fixed rate - Nationwide are offering a five year fixed rate for about 1.5% less than their SVR at the moment with no fees for existing customers - I would have swopped into it already but for Nationwide's on-going shoddy customer service and gross incompetance, come to think of it - why am I still with them anyway?

[The Colour]

Not least because if it did so, there'd be an outcry from the priced out at yet another subsidy to prop up those who got on the ladder at our expense.

I don't believe for one second that we the "priced out" have any policital leverage whatsoever. You can rest assured that the gov will continue to bail out the OOs and BTLs to the maximum extent of their ability. However, that will not be enough to prevent a crash, and they'll just end up wasting huge amounts of our money.

[bomberbrown]

To the OP, I don't understand your initial question?

"How Bad Will It Be Allowed To Get Really?"

By whom?

[tenant447]

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." Ludwig von Mises

So, if you subscribe to this thesis, much depends upon the actions taken by the BoE.

There is now an awful lot of irredeemable Sterling debt in the system which has originated mainly, though by no means entirely, from massive and unprecedented mortgage lending on domestic property. It is not wholly clear who is holding this debt, that is who will hurt most when it defaults, but this will become apparent in due course, and fairly soon now I think. Some possibilities:

(a) If the BoE raises interest rates, then defaults will occur sooner rather than later, and therefore at a lower level than if rates are not raised. Better in this scenario to sell your house asap, and certainly before its diminishing value takes you into negative equity. Save as much money as you can by cutting expenses, and rent a modest home for your family. Keep your job. With some luck and good timing, you might be able, in a few years time, to buy back your old house (or equivalent), mortgage free. You will need to live through a deflationary depression of considerable severity, including a huge HPC, and make do with a much lower standard of living. Vast amounts of debt need to be written off and eradicated before the money supply can be loosened once more with lower interest rates and we can start the next boom/bust cycle. Whoever now holds the defaulting debt will be correspondingly impoverished. Whoever holds cash reserves will be a relative winner.

( The main alternative is that the BoE lowers interest rates repeatedly to try to avoid the economy going into depression. The money supply is progressively loosened, ever more money is borrowed into existence, the economy “booms” and inflation takes off with a vengeance. If this strategy is pursued indefinitely by the BoE, it will lead to hyperinflation and the currency will become worthless. This is the von Mises “Crack-up Boom” scenario. Here you must retain your house. Trade any cash for real assets such as gold or long-term food stocks. Major socio-political changes will inevitably occur and a new currency will have to be introduced. It is impossible to predict more than this.

© If the BoE does a bit of (, then switches to (a), then (a) will play out as above but with a much deeper and longer depression.

(d) None of the above. A massive State bailout and takeover of bankrupt financial institutions, WW3, totalitarian government with a police/surveillance grid, NWO, breakdown of law and order, …. All of these and more are unfortunately non-vanishing possibilities. We live in interesting times. Keep alert to ongoing developments. Stay healthy and look after your loved ones.

Edited October 23, 2007 by love Mises to pieces

[Bloo Loo]

To the OP

I guess the wife wont want to move from her nest.

If you can barely afford to pay your bills now, you need to get your crystal ball out and see how you think your income is going to pan out.

Competition is likely to rise inyour game as IT staff from the city are reduced.

If you truly beleive your business wont support you, then Im afraid you have no choice.

If you delay, beleive me, debts rise much faster than you think, £100 here, £100 there can very soon turn into another £10,000 high interest nightmare

[Guest KingCharles1st]

To the OP

I guess the wife won't want to move from her nest.

If you can barely afford to pay your bills now, you need to get your crystal ball out and see how you think your income is going to pan out.

Competition is likely to rise inyour game as IT staff from the city are reduced.

If you truly beleive your business wont support you, then Im afraid you have no choice.

If you delay, beleive me, debts rise much faster than you think, £100 here, £100 there can very soon turn into another £10,000 high interest nightmare

You are pretty much right there- the WIFE rarely wants to move from her nest- unless of course it is HER idea, and for HER ends.

IF- you can openly discuss this with her- then good luck- you have a good marriage. IF you can't, there may be other factors at work, and normally they tend to come from her parents outdated thoughts and ideals.

Anyhow, to get my baggage out of the way, Yes, you would be CORRECT to downsize- but do it quick- DONT chase the market down, and then unbeleivably you could buy your place back at less cost a few years down the line.

In a few years you will be able to pick up Mercs and BMW's for 500 quid, flat screens for 50, and get coffee machines free with magazines.

But you won't be able to relive this time in your life- EVER.

Get the missus- shove her in front of this thread, and make her READ and UNDERSTAND what is being said here. Women tend to make decisions based on what their entire support group feels/thinks/says, and doubtless most will have little clue of what is happening out there until after the daily's report it HAS happened. BTW- the Childminder route is fraught with disaster if the missus doesn't want to do it- and it 700-1000 down the pan every month.

Let us know how you get on

Edited October 23, 2007 by KingCharles1st

[lordofcolchester]

EB,

If you really love your house, the area and want to stay there are various things you should do.

1. Remortgage, look round for a fixed rate at a lower rate than you are currently paying with no extended tie-in periods.

2. Trim your budget! You are spending GBP1,500 per month on non mortgage payments. Surely you can save some cash.

3. Does your job let you look after your youngest child during the day? Even if it is only for a couple of hours it would let your wife get a part time job.

4. How active are you in trying to grow your business? Are you happy just to rely on a few customers? Can you fit another part time job in (if you would prefer this to your wife working)?

If you have no real attachment to the area I would sell now, even if it is for say GBP370,000-380,000. This will still leave you with over GBP200,000. If you can do your job from home it does not matter where you live. There are far better places to live than North London.

[Fergie]

I know what I'd do in your situation...given that your wife currently doesn't work, and you work in a job that can be done from anywhere, I'd sell up, take the profit, and move to somewhere cheaper. Rent for 6 months-a year to get a feel for the place and see if you like it, plus see which way the market is headed. If you're lucky, prices will come down and you'll be very comfortably off, if not, you still get a cheaper place. But everyone's different. Depends, I guess how settled the kids are and how much you like the area you're in. That said, we moved three times as kids and you adapt.

I don't believe for one second that we the "priced out" have any policital leverage whatsoever. You can rest assured that the gov will continue to bail out the OOs and BTLs to the maximum extent of their ability.

I don't think it's a question of political leverage on a group scale, either for the baby-boomers or the priced out. It's more a question of the economy. For the past ten years, the debt boom, MEWing, 125% mortgages and HPI has created a "miracle" economy and no amount of pain for those at the bottom was too much to pay for that. However, now we're moving into a slightly different territory, an acceptance that there's too much debt around, an unwillingness to trade that debt as "investment products." As that happens, and credit tightens, suddenly HPI doesn't look so great. If people can no longer MEW, then the paper value of a house becomes just that - it's not real cash or wealth, and never was: that was the debts and mortgages. Meanwhile, at the bottom end, the young and FTBers, you end up with a situation where lots of people are not only priced out, but - if they are in, they're struggling, being re-possessed or - the nightmare scenario for the economy - not able to spend anything because they have no disposable income.

So when you hit that point where the economy is suffering because prices are too high, that's when the political power will turn to it being best to let whatever helps that go ahead. I can't see bail-outs for suffering homeowners because how would that be achieved? Why them and not, say, nurses and teachers now who can't afford to live? Who would qualify for assistance and on what basis? No, I think the more likely thing is that, despite all the pressure around now to "get on the ladder" and pressure from the lenders salespeople to lie, and all the hype and hysteria regarding the property ladder, when prices fall, the blame will be placed squarely with "stupid" lending and "stupid" borrowing. And it's not as is they'll end up in debtors prisons or the workhouses anymore. There are options when everything goes tits up, such as bankrupcy, benefits etc. So I'm not sure what the government could be expected to do, really. It'll be allowed to get as bad as it gets, just as HPI has been allowed to get as bad as it has got because there isn't much choice in the matter.

[Fergie]

Also, ironically, I think those who predicted a return to a more rentier society were probably correct. Over the long-run, I reckon renting will become much more socially acceptable. But I think it'll be a large housing crash that brings it about, not continuing HPI. There are undoubtably large, corporate scale, professional companies waiting in the wings to buy portfolios and, finally, we have the first signs of some large building/renting companies springing up. That's started in the student market with Unite, and they're beginning to branch out into studios for professionals.

So as regards the BTL brigade...it's a passing phase, imo. The tide is already turning against them, the priced out despise them. If/when the crash comes, those who lose out will probably blame them too and, in reality, they're not a big or powerful group. In fact they look like a very easy scape goat. The small, non-professional ones will likely end up whipping boys for the whole boom/bust. Well, someone has to and it won't be the government or the banks. I'd bet on that happening rather than any kind of attempt at bail outs for them - they were just investing/gambling, and investors tend never to get sympathy or bail-outs when that goes wrong, especially if, with hindsight, it looked utterly doomed to go wrong.

[AteMoose]

move out of London into the countryside, commute/work from home

[OnlyMe]

How bad?

How much debt and inflation can the average consumer have stuffed down their throats before choking?

From now on in the markets I think are going to test the central banks, monetary inflation is going to be matched step for step (and some) with investors increasingly moving to the commodities market to insulate them from the paper storm.

[Get A Grip]

It seems to me you are in the perfect position to cash in and move somewhere cheaper, your work is portable, your wife does not work and your children are young and will easily settle somewhere new.

If you moved to my town (East Anglia, 20 miles from Cambridge) you could buy a nice family home for 200k so you would be mortgage and debt free.

[Razzle Dazzle]

At the end of the day its about which option will give you the best quality of life.

Have you considered cashing in your endowment in order to pay off your debts? This could possibly leave you several hundred pounds better off a month. You could then remortgage and use some of the extra cash to overpay or re-invest. All depends on the numbers of course.

[dstars]

i wonder how bad things would be allowed to get given the numbers of people now exposed to

the hardship of unrepayable debt/ losing their homes etc.

Your presumption is flawed. There is no 'they' to allow it or otherwise. Indeed 'they' caused this by their insatiable greed but 'they' cannot now switch it off. (And 'they' includes most of us.)

What is currently underway is more like a natural phenomenon than a man-made artifice. The Bank of England and many others indeed believe they can 'control' this but they cannot. What they can do is prolong it or run it to different places in the economy in a different order but they cannot control it.

We all have to make our decisions and you have plenty of equity. If you wish to get 'rich' (as in free money that may disappear from the table soon) you still have a chance. The people who will get rich are people such as yourself who rush to the market and offer discounts. But the time is past when the 'value' of your house is what you thought it might have been given a bigger fool. The fools are disappearing fast.

Your house could easily be worth 50% of its value or less in two or three years; difficult as this seems to grasp now (strange how we can all grasp looney gains for our wee abodes as they rise from 70 grand to 400 grand but a cut of a few thousand is so hard to imagine?) such losses will be commonplace and are not avoidable.

(I should add that if you're happy where you are then that has value.)

Edited October 23, 2007 by dstars

[Disillusioned]

It sounds like you'd be better off financially by selling. What does your wife think about this idea? Don't do it if she's not on board.