If London does have a significant correction it'll knock some people on the backs. Quite a number of my colleagues have substantial mortgages - many over £500k, and including the gang of +/-30ish year olds who've bought flats at £400-500k. They'll be heavily bruised by even a relatively small fall, and even worse hit when interest rates finally start increasing.
Why will their house prices falling 'knock them on their back'?
Yes, I agree interest rates might affect them (unless fixed over a certain time) but house price drops don't make a h'penny of difference to mortgage costs, etc. - unless they we're thinking of buying for a short time then selling up for a cheeky 'profit' then I could see maybe (though various costs/stamp duties would eat significantly into that anyway).
Why will their house prices falling 'knock them on their back'?Yes, I agree interest rates might affect them (unless fixed over a certain time) but house price drops don't make a h'penny of difference to mortgage costs, etc. - unless they we're thinking of buying for a short time then selling up for a cheeky 'profit' then I could see maybe (though various costs/stamp duties would eat significantly into that anyway).
Buy a flat at 80% LTV, wait a few years, price drops by 25%, you now have no equity so the bank won't lend you money. The mortgage then expires and you jump from the 2% rate you did have onto the standard variable which is 5%, doubling your mortgage repayments, so you decide to cut your losses and sell up, only to find that everyone else in the block is in the same position. Liquidity issues then kick in on top of structural price falls and you have a crash.
Can I live in a stock portfolio ?
Does it give me security of not having rent increases or my land lord deciding to sell up or taking exception To my car or having to put up with his godawful wallpaper....
Better paying my own interest than the landlords surely ?
If London does have a significant correction it'll knock some people on the backs. Quite a number of my colleagues have substantial mortgages - many over £500k, and including the gang of +/-30ish year olds who've bought flats at £400-500k. They'll be heavily bruised by even a relatively small fall, and even worse hit when interest rates finally start increasing.
These sorts of statements pretty much sum up the problem with the UK housing economy, this isn't a go at you AP.
In the UK we expect, nay demand that house prices only go up, and we cheer when they go up far beyond the rate of inflation or average wages - what do we all 'win' from this? Well the era of the Single working parent supporting their family is largely over, we all live in smaller, less nice places than our parents did, unless we managed to massively out-do them in the 'getting a job' stakes.
We've reached a point now where the numbers of 'have nots' are catching up with the number of haves, so there’s talk of new housing being built on a grand scale, and not just pokey flats for the 'haves' to buy to rent out to the 'have nots' and heaven forbid, before Brexit ****ed it all up, interest rate increased which might have, shock and horror, slowed the market, or even worse - the unthinkable, let prices fall, a tiny bit...
Well, we can't have that, Mr. London Flat Owner who bought his place for £400k might find it's only worth £390k in 3 years time, maybe he won't be able to get a 0.5% over base mortgage when it's time to renew... well we can't have that can we, it's only his right to 'make' twice his salary in asset appreciation every year. Unthinkable.
On the other hand, generation rent faces a 15% year on year rent increase on top of 3% inflation coupled with a 1% pay rise, if they're lucky - but that's only fair because they're lazy or stupid and didn't jump on the 100% guaranteed, no lose, easy money road to riches UK house market.
Only there's no more cards to play is there? Interest rates are a close to 0% as they can get, 'help to buy' is gone, The Banks, by law, and good business cannot lend more than 95% of value - and most importantly - Lloyds is all but private again, and massive fines and PPI (which is ending) aside RBS is profitable again, so we don't need to prop up the market any more, the correction has already started, don't believe the Nationwide, they couldn't lay straight in bed when it comes to house prices and frankly "asking price" based indicators might as well be plucked from thin air for what they're worth - 2% increase in values based on 'asking price' don't make me laugh - in 2006 people were selling at 110% of asking price simply because of the number of offers, nowadays the only things selling quickly are probate sales when the seller will take 90% for the sake of being free of it - and 2% increase is credible? Yeah, course it is.
Yes, finally, the haves might have to lose some imgainary money they never earned or had in the first place and they won't be happy, especially the sort of ones who acutally care about it, and yes some real people who have real houses and mortages are going to lose for real - there will be a small number of people who will be 'stuck' in negative equity, they'll have to take whatever their mortgage company gives them and most shocking of all, just perhaps live in their home for a few years. A tiny number of people who borrowed too much, will, faced with increased payments thay cannot pay - will lose their homes, which is sad and maybe, just maybe for the first time in decades, the young and the have-nots, might just win, a tiny bit.
Buy a flat at 80% LTV, wait a few years, price drops by 25%, you now have no equity so the bank won't lend you money.
But in those 5(ish) years of your 2% interest rate, you've made repayments on your mortgage and the balance is now £335K.
You now need LTV of 83.8%, which isn't ideal, but you're not in negative equity.
Can I live in a stock portfolio ?Does it give me security of not having rent increases or my land lord deciding to sell up or taking exception To my car or having to put up with his godawful wallpaper....
Better paying my own interest than the landlords surely ?
My point is people don't appreciate the costs of owning, if rent is equal to interest paid (and lost on capital tied up in the property) then there is a zero gain assuming prices don't change. If they go up, as is assumed, then there's a nice profit - not least as most borrow so are heavily geared. But the flip-side to this is it's easy to be wiped out as some BTLers found out following the banking crisis.
Just for the record - I bought in 1996 which was at the bottom of the market following the late 80s/early 90s slump, borrowing heavily as was sure prices would rise, carried on with a move to London and rode that wave pretty well though got of too early 10 years ago, from an financial PoV, as moved out to a nice Surrey village which hasn't done nearly as well since.
Totally see your point
But there are other reasons besides financial why one would want to buy over rent. And there are reasons other than financial why one would want to rent rather than buy.
For me it was about stability. Had enough of moving every year when land lord decided to sell house or wanted to hike 10-15% onto the price.
A very , very hefty overseas buyers tax would help.
When my brother bought his first house back in the 80s as our parents were both Tandridge Council rates payers they got a sizeable discount on the purchase price.
It was a new build.
+1 on pjays comments re asking prices, i know of two local houses on at £775k and £675k when local actual selling prices of similar builds are £450k - seemingly the owners think that one extra bedroom or a log cabin in the garden are worth the extra £225k to £325k 😯
Me I'd be happy with 50% downturn in the market but unlike other "investments" people need their houses to live in so unless interest rates are hiked up massively and selling up is forced people will just sit tight and ride the on paper loss rather than actually sell at a loss.
