Saturday, July 16, 2011

Curious numbers

First time buyers still struggling

"unsecured borrowing, while available, is not cheap. Assuming the first time buyer borrowed the 20 per cent deposit, even at today’s low interest rates, the combined cost of the mortgage and repayment of the unsecured borrowing would lead to monthly repayments that are 20.2 per cent of monthly pre-tax income. If interest rates were to rise by, say, 2 percentage points, the cost would rise to 28.1 per cent of pay." Aside from the desperation of resorting to unsecured borrowing to put down a deposit, the suggestion that a mere 2% interest rate rise could push up repayments costs by 39% says a lot about how much borrowers are relying on ZIRP.

Posted by quiet guy @ 12:53 PM (3052 views)
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15 thoughts on “Curious numbers

  • The number of posts and comments on this forum is steadily dwindling I think.

    We have to ask ourselves, did we win or did the ‘singingpig’-type property pornsters win? Personally, I think we all lost. Singing pig types who only saw property through rose-tinted glasses have overpriced sloppily new-built slaveboxes to try to sell on with minimised losses. We on the other hand never really got our crash, only a gnawing grinding slow decline in prices that will take nearly a decade to run its course.

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  • At this point in time, if the game to win is to be able to afford the cost of a home and have money left over for a life (eg. raising a family without needing to ask for welfare), without a lot of risk involved then it is hard to hide from the fact that the government has assisted and maintained that outcome for people who borrowed unwisely; and, in effect, making the wise look unwise. *At this point in time*.

    Although, a lot of people did join that property party late in the day and I would not say that they are struggle free or safe from repossession in the coming years.

    I remember the suddenness of the American mortgage market going from AAA to suspected junk and the sudden perception that house prices in the UK could drop suddenly as a knock-on effect. That was a massive talking point.

    And there were several times when people said that it was a no-brainer, in such and such situation, that house prices had to be driven down; followed by ‘Oh! Prices are being kept artfically high! … but that’s not logical …..’

    I would say that the American plunge was sudden as a talking point on this forum; and
    the next big pressure might be triggered, again, by something that we are not really tuned into yet:
    a trigger which pushes up interest rates or raises the cost of basic things like food and energy to the point that mortgage repayments become a no-goer; or a pressure on banks to realistically mark-to-market and force repossession.

    I sense that a lot less people refer to the house price crash possee as illogical nowadays since it is perhaps mainstream to think that house prices are either a little shakey now or at risk of becoming so soon.

    Why do you dwell on the present? You make it sound like it’s the endgame.

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  • “Although, a lot of people did join that property party late in the day and I would not say that they are struggle free or safe from repossession in the coming years.”

    Seems somewhat crueler to give people the hope , have them work their nuts off only to possess their house a bit later .

    Better to get it all over and done .

    What a frigging mess this country is in . Totally corrupt and run by the VI’s .

    The only sensible option is to leave .

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  • In relation to the article an awful lot of FTB’s do not understand perccentages and hence interest rates throw in the fact that most of them have only ever experienced falling interest rates and you have a high probability that they do not understand how adversly affected their finances will be should rates rise.

    Therefore it is interest rates that hold the key and as soon as they move it will be game over unless wages drastically rise on the back of a trashed currency as well.

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  • Why do you dwell on the present? You make it sound like it’s the endgame.

    I’ve been here for over six years. We didn’t get our crash then when we thought it would happen and when this website was created (by founders who have long since left and sold it to fubra of course).

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  • europeanbear says:

    What is a crash? It is clear that the one way bet for investment in UK housing has dissapeared, even if many still believe it. The market is of course being manipulated and supported. But despite the lowest ever interest rates and rising inflation (and perceived shortage) house prices are no longer going up. For those of you, like me, who are enjoying life outside the UK, but take an interest in UK houseprices for the simple reason that we may wish to move back, the crash has happened. In my case I am in Switzerland, and since 2007 sterling compared to the Swiss frank has dropped 40%. Add this to the 10-15% real drop in houseprices and the crash for me is now 60%. What I can afford for cash (no mortgage) in the UK has moved up from a 1 bed starter home (flat), to the average priced family house or slightly better in just 4 years. I just cannot see UK house prices ever resuming their upward growth for years and years. Rock bottom interest rates and the lack of mass unemployment are managing to support houseprices as there are still very few forced sellers. I think they will slowly grind downwards for years – they cannot go up because of no one can afford them and there is no credit available….

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  • @Paul

    “We didn’t get our crash then when we thought it would happen”

    Agreed, things didn’t go the way we would have liked but the problems with the UK property market that inspired this site haven’t disappeared but mutated into something that looks a bit vulnerable to another correction thanks to massive moral hazard by our government.

    I recall you saying that you bought a place (10th comment) of your own a while back and I hope you enjoy living in you property but surely it isn’t too much to suggest that you might be slightly biased against a HPC now?

    Due to my personal circumstances, buying a property is not sensible (I must be able to move easily for the next few years) so in a way, I have it easy – I don’t have to even consider buying.

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  • “We didn’t get our crash then when we thought it would happen”

    There wasn’t anything wrong with the thinking, it was perfectly logical to assume that events would be very similar to the early 1990’s.

    No one would could have conceived of the widespread failure of banks – not just the UK but across the world – certainly not to the degree that the UK government would have to support the banks through respective houseprices.

    UK is now staring another recession right in the face, this isn’t over yet – not by a long way.

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  • Paul,

    You sound despondent! – Worry not..

    Remember that bubbles don’t burst when sane people think they should; – they burst when sane people no longer believe there is a bubble.

    – So I take your thoughts as proof that the mantra is correct, and that the UK housing bubble is at last ready to burst!

    enuii,

    – Agree entirely, most people really don’t understand percentages, yet the advertising rules allow financial institutions to bombard consumers with numbers that they know most people will struggle to comprehend..

    Interest rates are unnaturally low at the moment, by historic standards; whilst at the same time, the risks to lenders and investors are elevated. As the eurozone crumbles, laying bare the underpricing of sovereign debt risk, so I expect this anomaly to correct, and possibly over-correct; leading to a string of sovereign defaults, and not just in europe.

    I think the UK can escape this, but only by putting up a strong defensive position, and with a much increased bank rate.

    While everyone watches the contagion in debt markets, UK house prices will quietly implode..

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  • mark wadsworth says:

    Paul: “We… never really got our crash, only a gnawing grinding slow decline in prices that will take nearly a decade to run its course.”

    That seems about right. I am quite amazed that the UK government managed to stave off a big crash in prices, I fully expected the money to run out and them to throw in the towel (like Black Wednesday) or for interest rates to go up or that negative sentiment would set in or that economic fundamentals would somehow kick in.

    But a grinding slow decline will do me, I’m in no hurry to buy as I don’t know where my kids will be going to school when they turn eleven (which is still a few years away), as long as nominal prices are falling by two per cent a year or more, that means what we pay in rent would have been lost in falling prices.

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  • @quiet guy

    Yes I did buy a place. Doesn’t mean I’m not thoroughly hacked off at the injustice of the current situation – I’m making the most of it by ensuring that I’m not the victim of the scam any more. I am despondent. Not for my current situation but for the country’s economic well being.

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  • Bear in mind that the last two house price “crashes” were not especially dramatic – done by inflation in the 70s, and a gradual but unspectacular fall in the 90s (someone will provide the %). This time we’ve had a 20% drop but a bit of a recovery following the unusual economic crisis, and the even more unusual response.

    Prices do return to match incomes, and no doubt will again. Timescales are much harder to predict. But it is a grim business.

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  • MW said: “I am quite amazed that the UK government managed to stave off a big crash in prices”

    a) It hasn’t happened yet, but it will.

    b) The UK government hasn’t really ‘managed’ anything in this regard. The last govt. took some steps to delay events until after the election, since when consumer confidence in residential property has been remarkably slow to wilt.

    – But wilt it currently is doing..

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  • mark wadsworth says:

    Uncle Tom, “the UK government” means Labour until the Lib-Cons took over, but the policies via a vis keeping house prices up as high as possible remained identical throughout. I’m quite impressed by it really, in a horrified sort of way, I didn’t realise that a government could beat the market for this length of time.

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  • “I didn’t realise that a government could beat the market for this length of time”

    They haven’t – don’t give the government illusions of grandeur..

    ..had they designed this outcome, they would be amazed that it had actually happened. The housing market is not too big for the govt to influence in a vague and loose way, but far too big to micro-manage..

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