I Still Don't Get It

[Jonnybegood]

There are many on this forum who have been posting / lurking for the last 5 years, going on about the imminent crash etc, across the country on average house prices were costing around £130k or around 30% less than what they are today.

This does vary from town to town city to city as the increases in prices seemed to have rippled from London at different stages, however going by the average a property back in 2003 would of cost 30% less to buy than it costs today.

Back then you could of picked up a 5 year fixed rate deal for around 4%, repayments over 25 years with 10% deposit down of £617pm.

Now I don't know of many people paying much less rent than this on an average type property, yes you will get some stating they pay £200pm on a £1m property but in reality unless you have rented from the same landlord for a number of years rent must be at least £500pm for anything decent.

In those 5 years you would of paid over £30k in rent or £15k off your mortgage, by now you would of had a mortgage of £102k (£15k capital paid)

IF prices fall 50% nominal 70-80% real from peak then the average house price is going to bottom around £110k within a few years, (2012 maybe) by which time your rent would of totalled £54k or the mortgage would now be down to £88k (£14k capital paid)

2012

You buy an average property at £110k put down 10% leaves you with a £99k mortgage @ 8% monthly repayments would be £764pm

Have / did many missed the boat in 2003 when I think this forum started, there are many variables to the above argument i.e IR , LTV , fixed rate term , true rental costs , mortgage fees , legal fees etc , any interset gained on money in a savings account , the falls from peak they maybe more than 50% but could also be less, the theme seems to be 30% across the board.

Anyone who eventually wants to buy a property will be faced with fees and a deposit so to include them is pointless unless you intend renting forever.

I expect this will not go down to well with the majority on here but am I right? and do many who had the opportunity to buy back then realise it was a mistake not to.

Are my missing anything obvious from the figures above?

[Guest DissipatedYouthIsValuable]

How low can you go?

[SelfDoIt]

If your crystal ball of future predictions is perfect please let us know. Some people called the 'peak' to early. Some people will also end up calling the bottom too early.

Looking at what happened is much easier than predicting what would happen.

I assume you make alot of money gambling as you are so good a predicting what goes up and what comes down.

[pablopatito]

If your crystal ball of future predictions is perfect please let us know. Some people called the 'peak' to early. Some people will also end up calling the bottom too early.

That's true, but when people like Kirsty Allsop predict prices to rise she gets a load of abuse on here or a VI. A lot of people on this forum got it wrong, continue to get it wrong and will get it wrong again. I don't have a problem with that but I kind of wish they would shy away from abusing others.

[delboypass]

I personally couldnt see house prices rising after 2005...but yes i was shocked..

But now its completely blown my mind..to see major high streets banks going into administration..

At least i know i wasnt high on magic mushrooms when any simpleton could see that the pyramid debt economy couldnt last..

THANK GOD FOR THE MIRACLE ECONOMY DEBT BOOM..YEE HAAA

PS: Whats a house worth when the country has no sustainable economy or fiat currency??

Answer: F**k all...just like in America...

First time i have seen a council nearing bankruptcy (Aberdeen) and a government (labour) and a national bank (Northern rock) (or 5 (B&B, A&L, HBOS, RBOS, BM) and a whole country.

but yes, because my house is 'Valued/Worth/My neighbour says/ A website with more brains than me says/ land registry that hasnt taken into account back handers and freebies say/ X amount, Im rich...

[Guest Mr Parry]

I personally couldnt see house prices rising after 2005...but yes i was shocked..

But now its completely blown my mind..to see major high streets banks going into administration..

At least i know i wasnt high on magic mushrooms when any simpleton could see that the pyramid debt economy couldnt last..

THANK GOD FOR THE MIRACLE ECONOMY DEBT BOOM..YEE HAAA

PS: Whats a house worth when the country has no sustainable economy or fiat currency??

Answer: F**k all...just like in America...

First time i have seen a council nearing bankruptcy (Aberdeen) and a government (labour) and a national bank (Northern rock) (or 5 (B&B, A&L, HBOS, RBOS, BM) and a whole country.

but yes, because my house is 'Valued/Worth/My neighbour says/ A website with more brains than me says/ land registry that hasnt taken into account back handers and freebies say/ X amount, Im rich...

I think the US will bounce back. It's still got major stuff over there. Microsoft, Apple, IBM, CISCO Systems?, still got manufactuing, lots of R&D.

Britains got sweet FA really.

[history repeats]

must be last of the

[delboypass]

That's true, but when people like Kirsty Allsop predict prices to rise she gets a load of abuse on here or a VI. A lot of people on this forum got it wrong, continue to get it wrong and will get it wrong again. I don't have a problem with that but I kind of wish they would shy away from abusing others.

We didnt get it WRONG Pablo, they changed the freaking rules on us. (was very clear how it was all going to end)

Everytime a small leak occured, they put a plaster on it...(self certs, 125%, 30 years Morg+ lifetime lending Morg, lending to those on benefits, huge crippling debts, huge bets in terms of CDOs and Fiat currency pumping, flooding country with immigrants, introducing and falsifying inflation measures)

Well now the goddam Dam has crumbled and unfortunately there is no repair this time

Edited July 9, 2008 by delboypass

[VeryMeanReversion]

Brave post. Worth answering though.

I sold in 2003 after seeing my house go from £185K to £378K in 4 years, needing to move for work after redundancy.

The Motley fool figures show a -26% fall is required to get back to 2003 prices. If your STR fund has managed a 5.8% annual increase, you break even. (ignoring buy/sell costs). If you kept it in cash and paid tax, it's not worth it.

http://www.fool.co.uk/news/property-home/2...erty-clock.aspx

Some advantages for those early sellers:

Rent cheaper than mortgage (£975pcm rent for a £500K house for me), more than covered by STR fund interest, taxed at 20% in wife name, much tax-free in ISAs.

Invest STR fund in something better than cash, money that used to pay the mortgage went into a FTSE100 pension with 40% tax relief from 2003-8 but sold at 6000-6300. I've easily beaten 26% in 5 years.

The landlord pays for building insurance and maintenance (~1% of capital pa?)

I've seen some 20% falls in my village (South Cambs,CB21) for houses I like in the last 6 months so I think the odds are on my side.

If prices drop 40% overall (my guess is 2002 prices), I end up mortgage-free for a better house than I sold in 2003 (£125K mortgage on it) and have built up a decent pension fund. So over £200K up compared to keeping the house in 2003. Set up for life.

2003 was well into bubble territory (W.Sussex, RH10), the last few years have just been insane.

If prices are down by only 10-15% from the peak, I dont think I break even.

VMR.

[interestrateripoff]

http://en.wikipedia.org/wiki/Pyramid_scheme

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. It has been known to come under many guises.

...............

Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking scams.

The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward. A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people, or receive bonuses through other people they refer. Each sale includes a fee to the original seller.

Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers. Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. To embellish the act, most such scams will have fake referrals, testimonials, and information.

http://articles.moneycentral.msn.com/Inves...ket.aspx?page=2

Turning $1 into $20

The liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money rose in value, players could borrow more money against them, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house.

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper -- the short-term borrowings of banks and corporations -- which was purchased by supposedly low-risk money market funds.

According to Das' figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.

Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn't know what they were buying or what any given security was really worth.

Hence the pyramid of debt and why the banks have been operating a massive pyramid scheme and guess which lucky people are at the bottom to pay for this con???

[Tonester]

You're probably right. I bought in end of 2003 and sold last year. The best mortgage I could get without a redemption penalty and fixed for 5 years was 5% though. I certainly benefited from owning a house rather than renting.

I only starting looking at this site from end of 2004, and got it wrong when I thought in 2005 prices would go down. I made the error of thinking prices would have gone down when they should have rather than when they actually did. However, luckily I wasn't strong enough in my convictions to sell at the time.

I fully admit to have made a mistake in my early predictions and with my thinking at the time, but for me it wasn't costly. For many - they can be blamed for not thinking at all and it will be costly.

[right_freds_dead]

because right now when the SHTF all those mortgage payments will be in vain as its repoed' leaving you with nothing.

try paying for your 2003 house with tomorrows rancid interest rates.

[Guest Mr Parry]

because right now when the SHTF all those mortgage payments will be in vain as its repoed' leaving you with nothing.

try paying for your 2003 house with tomorrows rancid interest rates.

Less than nothing Fred. Remember these houses will go to fire sales and the bank will still come looking for the difference.

Edited July 9, 2008 by Mr Parry

[interestrateripoff]

They won't get the difference, the money simply isn't there.

Bankruptcy.

[bomberbrown]

http://www.fool.co.uk/news/property-home/2...erty-clock.aspx

I really liked this bit from that table:

2008 - 172,415 -

2007 - 184,070 - +7

2006 - 165,730 - -4

2005 - 157,791 - -8

Only another 8% fall and I'm gonna party like it's 2005!!!!

[gilf]

I expect this will not go down to well with the majority on here but am I right? and do many who had the opportunity to buy back then realise it was a mistake not to.

Are my missing anything obvious from the figures above?

Not from the figures but from the make up of a fair proportion of this site, STR. Your figures are based on somebody starting with nothing and working from there, however many of us, myself included did own property at one time. When we sold we effectively locked in the equity at that stage. Some of us were a little early but essentially what we did was play the bong game, press the buzzer at a fixed point on the assumption that prices would go down at some point and any equity would go with it.

When it all plays out and I own a house again it may well be that if I look at the figures that I might not been much better off financially than had I stayed put.

However my personal life would no doubt have suffered greatly had I not made the decision to STR, my wife and I lived in Ashford in Kent, first off we had a 4 hour round trip to work to deal with 5 days a week, therefore week days were a right off. Weekends were not much fun either as they were basically filled with doing all the things other people get to do while we were sitting on a train. I only lasted a year before I move to a job closer to home, however the pay was less than I was earning in London. We also had debts, not massive but enough to mean we didn't have money spare to save or over pay on the mortgage, we also had credit cards which again while modest were not getting paid off due to a general lack of money. We were basically in a debt trap, not earning enough to pay them off, just to keep them ticking over.

Selling to Rent allowed us to do a number of things, firstly we could move back to London, we paid off all our debts and also freed up £400 or so in travel costs. This of course meant that not only could we afford the rent easily there was plenty left over to save. We were also able to live in some fantastic places we would never have been able to afford to buy.

To be debt free let alone able to save is a fantastic feeling one which we would never been able to do had we still owned a house. My wife suffered a lot because of her long commute and I have little doubt she would have had a full scale breakdown had it gone on too much longer (she had deeper problems but they would never had been a problem had she has a nice simple life as we do now).

As a pure financial decision I agree I might not be better off in the longer run, but the knock on benefits have been well worth it.

[Jonnybegood]

because right now when the SHTF all those mortgage payments will be in vain as its repoed' leaving you with nothing.

try paying for your 2003 house with tomorrows rancid interest rates.

Surely though that was another good reason for buying back 5 years ago, you would of either already re mortgaged or be looking to do so pretty soon, for now at least there should be quite a bit of equity in the property and a long term 10+ year fixed rate around 6 / 6.5%.

If this was done in the last couple of years you may of been able to grab a rate around 5% fixed for 10 to 25 years, unlike buying in the next few years were as you mention rates could be far higher and house prices not that much lower than what they were in 2003.

But then i suppose interest on any savings is going to benefit as long as inflation has not already taken a chunk out of it.

[pablopatito]

If Kirty Allsop predicts house prices will rise by 5% this year, and they fall. And she then predicts houses will rise by 5% next year, and they fall. And she then predicts houses will rise by 5% the year after, and they fall. And she then predicts houses will rise by 5% the year after, and they do, is she

[a] wrong and an idiot.

right but she just got her timing wrong.

Edited July 9, 2008 by pablopatito

[Guest An Bearin Bui]

An interesting post as I have a direct comparison that I generally use in the dark hours when I wonder whether I would have been better off buying:

The owner of the flat we rent bought it for £177k at the end of 2003 with a mortgage of about 90%. In the five years of his ownership, the flat peaked in value at about £225k but would do very well to sell for £200k now, in fact the neighbours put theirs on for £200k recently and had to take it off the market as it didn't sell. The owner's mortgage repayments were about £1100 and he had it on repayment for 3 years but switched to interest-only after that so has only had 3 years of capital repayments so let's say he's paid off about 15k (generous estimate because as far as I know with most mortgages interest payments are front-loaded so you actually pay off only tiny amounts of capital for the first half of the mortgage-term). That means he still owes about 145k and if he sold up now would get 55k back in the very best case scenario (more realistically the flat just wouldn't sell).

We actually weren't in a position to buy in late 2003 for a variety of reasons (owned another place elsewhere already and didn't want to overload ourselves with 2 mortgages etc) but just pretending all things were equal, are we any worse off than the owner of the property? Well, we have been paying about £600 per month in rent (averaged) so that's about £36,000 over five years but we would have easily spent the same amount on interest payments on a mortgage, not to mention the capital repayments, so the saved money has been invested by us or spent on necessary things we would otherwise have struggled to afford. We now have a considerable amount of money in the bank, a chunk invested, no debts (apart from the outstanding small mortgage on the place elsewhere that we still own) and more importantly house prices are dropping month by month so every month we leave our money where it is we benefit. By contrast, a flat in our street sold about a year ago for £340k - similar flats are now for sale at £295k (not selling even at that) so even in five years of renting we have still not lost as much money as the person who bought that flat has lost in one year.

So, for the area I'm in and the type of property we rent, we are quids in. Moreover, the property we rent is not one we would ever want to own as it is quite small and is a traditional Edinburgh tenement so needs a lot of maintenance, another cost the owner will have had that we haven't had to cover. Instead we can use the cash we've saved and other investments to buy the kind of property we'll be happy to own for the long-term, if we ever buy in the UK that is. Hope this illuminates for you why many of us chose to rent in 2003 and don't regret it but as always personal circumstances are different for everyone so you have to do what suits you as an individual.

[gilf]

If Kirty Allsop predicts house prices will rise by 5% this year, and they fall. And she then predicts houses will rise by 5% next year, and they fall. And she then predicts houses will rise by 5% the year after, and they fall. And she then predicts houses will rise by 5% the year after, and they do, is she

[a] wrong and an idiot.

right but she just got her timing wrong.

She'd be an idiot, however if she predicts today that prices will start to rise again in 2010 and they don't rise until 2012 then she would have got her timing wrong.

To be frank you have been here less than 5 months, having been here from the start I can assure you we haven't been predicting things were going to change next year then then next. Almost all of us had longer term predictions than next year.

[dances with sheeple]

There are many on this forum who have been posting / lurking for the last 5 years, going on about the imminent crash etc, across the country on average house prices were costing around £130k or around 30% less than what they are today.

This does vary from town to town city to city as the increases in prices seemed to have rippled from London at different stages, however going by the average a property back in 2003 would of cost 30% less to buy than it costs today.

Back then you could of picked up a 5 year fixed rate deal for around 4%, repayments over 25 years with 10% deposit down of £617pm.

Now I don't know of many people paying much less rent than this on an average type property, yes you will get some stating they pay £200pm on a £1m property but in reality unless you have rented from the same landlord for a number of years rent must be at least £500pm for anything decent.

In those 5 years you would of paid over £30k in rent or £15k off your mortgage, by now you would of had a mortgage of £102k (£15k capital paid)

IF prices fall 50% nominal 70-80% real from peak then the average house price is going to bottom around £110k within a few years, (2012 maybe) by which time your rent would of totalled £54k or the mortgage would now be down to £88k (£14k capital paid)

2012

You buy an average property at £110k put down 10% leaves you with a £99k mortgage @ 8% monthly repayments would be £764pm

Have / did many missed the boat in 2003 when I think this forum started, there are many variables to the above argument i.e IR , LTV , fixed rate term , true rental costs , mortgage fees , legal fees etc , any interset gained on money in a savings account , the falls from peak they maybe more than 50% but could also be less, the theme seems to be 30% across the board.

Anyone who eventually wants to buy a property will be faced with fees and a deposit so to include them is pointless unless you intend renting forever.

I expect this will not go down to well with the majority on here but am I right? and do many who had the opportunity to buy back then realise it was a mistake not to.

Are my missing anything obvious from the figures above?

What`s missing is that in 2003 130k would have got you f*ck all worth living in, and if you bought then and have not sold by now you are going to get a dose of NE. When the market turns down people are just stuck, they can`t sell, as we are seeing now. Renters can do what they like. Getting in 2003 and OUT in 2007 would have made you some money, as would in 1997 out 2007. Timing was important though, and I imagine most people plugged in to this site felt the crash would come any day, so staying out is the sensible strategy in my opinion based on what people knew or thought they knew. Taking a massive mortgage you couldn`t afford, as "houses only go up", was the non-sensible option favoured by most sheeple about to get their arses singed. The idea of this site seems to be that there should be no need to pay an excessive premium for something as basic as housing, and as we are reaching the phase where people will soon not touch property with a barge pole, I`d think most people (bears) on here feel quite pleased with themselves. Houses bought in 2003 are about to lose a lot of "value", and I wouldn`t want a liability like that round my neck at the moment.

Edited July 9, 2008 by dances with sheeple

[Guest The_Oldie]

Now I don't know of many people paying much less rent than this on an average type property, yes you will get some stating they pay £200pm on a £1m property but in reality unless you have rented from the same landlord for a number of years rent must be at least £500pm for anything decent.

In those 5 years you would of have paid over £30k in rent or £15k off your mortgage, by now you would of had a mortgage of £102k (£15k capital paid)

Not as good as that, but I do pay £900pm on a £400K property. Interest received on £400K in the bank is currently £1,766pm after basic rate tax deducted.

[FernandoMorientes]

It's rather early in this game to be making assumptions of when one should have brought and comparing prices to 2003. Your assuming property prices will fall a mere 30% for starters, I think it will be more like 50%, will you still say then people should have purchased property in 2003?

Surely though that was another good reason for buying back 5 years ago, you would of either already re mortgaged or be looking to do so pretty soon, for now at least there should be quite a bit of equity in the property and a long term 10+ year fixed rate around 6 / 6.5%.

If this was done in the last couple of years you may of been able to grab a rate around 5% fixed for 10 to 25 years, unlike buying in the next few years were as you mention rates could be far higher and house prices not that much lower than what they were in 2003.

But then i suppose interest on any savings is going to benefit as long as inflation has not already taken a chunk out of it.

[Justice]

Are my missing anything obvious from the figures above?

You seem to sugest that money paid on a loan is paying off capital when in fact most is just paying interest on the loan.

You will get it when prices are down back or below 2000 levels and the pound is worth a lot les than it is today

[Chimpy]

In those 5 years you would of paid over £30k in rent or £15k off your mortgage, by now you would of had a mortgage of £102k (£15k capital paid)

Are my missing anything obvious from the figures above?

Yes, you would also have paid around 22k interest to the banks over 5 years. Interest is the effectively same as rent. You get a roof over your head for x amount per month. So yes you would have been 8k better off by buying. But then what if house prices drop further than 2003 levels. Then you have also lost all the money you have invested.

The way i look at all this is far more simple. I rent a flat for £650/ month. To buy the same flat would cost me 180K. If i had 80% INTEREST ONLY mortgage with 5% interest rate then this would work out at £600/month.

So therefore buying (on interest only) and renting are nearly the same, in terms of how much it cost per month

Also, by renting, i get to choose where to invest my spare cash. Where as with buying a house on a REPAYMENT MORTGAGE all your spare cash goes into an asset which is getting devalued by the day.

IMO renting is far the better option in the current market and also was 5 years ago. However, go back 8 years and buying may have been a better option. But i was only 18 then and not really into buying houses !!