"oh you're far better off buying"

[Iguana]

It's not exactly a tricky prediction. The only people predicting a crash are tabloid headline writers and a few people on here. It's a simple matter of supply and demand.

Interest rates would have to rise lethally to lead to a crash and I can't see this happening in the next 5 years.

I'm predicting a crash. I'm a property owner, bought last year seen the prices where I live rise about 30% since I bought but I believe that we are at the peak or will peak soon. I'm about 90% sure the crash is starting to happen.

Economically the world is experiencing a credit crunch, while central banks may be holding off on rising interest rates the rates that the banks are willing to lend to each other are getting higher and higher. This will lead to a tightening in mortgage lending. What the central banks do now is becoming less and less relevant to mortgage borrowing.

People say that a house is only worth what someone is willing to pay for it. In actual fact a house is only worth what a bank is willing to lend a buyer for it. Somebody may believe a house is worth £400k and be willing to pay that for it, but if the bank will only give them £300k then that is all they can pay. And if the bank won't give anyone more than £300k then that house will either sell for £300k or stay on the market.

And while some people might feel they are better off owning I have worked out that if I sell my house at today's rate and banked what I have left over after I pay off my mortgage I would get nearly as much in interest as I do in my salary. If I sell now I can afford not to work, I'm very sorely tempted. I wonder what happens if everyone else come to the same conclusion?

 

[g force]

How'd you figure that? Even with the 30% percent rise, interest rates and early repayment costs would give you about 10% left.

I reckon prices will start to receed slowly...nothing massive month-by-month but a slow decline of about 10-15% over the next 2 years, regardless of the economy and what's happening in London.

I'm a home owner and I don't care TBH...it still costs me less than renting and rents are climbing at their fastest rate in 5 years.

The credit crucnh will actualkly affect the poorest and the poor areas as banks will shy away from risk for a year or so and take stock of what's happening with interest rates. Thankfully, the UK mortgage industry, messed up as it is, isn't as bad as the US.

 

[ChrisFilter]

I reckon prices will start to receed slowly...nothing massive month-by-month but a slow decline of about 10-15% over the next 2 years, regardless of the economy and what's happening in London.

I think this is as bad as it well get.

 

[JoMo1953]

The credit crucnh will actualkly affect the poorest and the poor areas as banks will shy away from risk for a year or so and take stock of what's happening with interest rates. Thankfully, the UK mortgage industry, messed up as it is, isn't as bad as the US.

Here in Southern California we await the crash.....just a matter of time really. The sub-prime mortgage industry is gone, three large companies have gone belly up in the past 2 months. Countrywide (largest US mortgage corp) just announced 13,000 workers in the LA area are being laid off. It's going to get really ugly here.

 

[zenie]

Depends on why and how you were living 'way above your means', and what makes you happy at different times. Some mansion dwellers have a big plan y'know - it was good while it lasted, and now I'm in paradise.

Oooh I know

I'm just pulling Paolo's leg - he's got an even nicer place now damn him

As for a big crash, never gonna happen.

Without having a time machine that's a silly statement to make

 

[Xanadu]

People say that a house is only worth what someone is willing to pay for it. In actual fact a house is only worth what a bank is willing to lend a buyer for it. Somebody may believe a house is worth £400k and be willing to pay that for it, but if the bank will only give them £300k then that is all they can pay. And if the bank won't give anyone more than £300k then that house will either sell for £300k or stay on the market.

Bit more complicated than that though isn't it? Cos if the bank's won't loan £400,000 to someone on a £50k salary, they'll lend it to someone with a £75k salary.

 

[g force]

Here in Southern California we await the crash.....just a matter of time really. The sub-prime mortgage industry is gone, three large companies have gone belly up in the past 2 months. Countrywide (largest US mortgage corp) just announced 13,000 workers in the LA area are being laid off. It's going to get really ugly here.

Yeah, it's gettign nasty. But the US has a massive housing surplus the UK doesn't have enough!

 

[zenie]

Bit more complicated than that though isn't it? Cos if the bank's won't loan £400,000 to someone on a £50k salary, they'll lend it to someone with a £75k salary.

No they won't that's not how it works.

When you get a mortgage it's based on LTV (Loan to Value) when the valuer from the lender comes to look at the house, if it's not worth 400k they wont lend it end of...

 

[Xanadu]

No they won't that's not how it works.

When you get a mortgage it's based on LTV (Loan to Value) when the valuer from the lender comes to look at the house, if it's not worth 400k they wont lend it end of...

So it's actually the lenders that decide how much houses are worth?

 

[aqua]

a bloke from the bank goes round and decides if they agree with the amount that has been agreed between the buyer and seller

if the bank doesn't agree the house is worth x amount then they won't lend the full amount applied for, only upto the value they think its worth

 

[8den]

posted in wrong account

 

[Iguana]

How'd you figure that? Even with the 30% percent rise, interest rates and early repayment costs would give you about 10% left.

After sales costs and re-paying the mortgage I'll have about £165k left. In a savings account paying 6.7% that's nearly £750pm after tax. And I'd get my tax credits back if I wasn't working. Add on the fact that I'd save £200pm on renting rather than mortgage and another £125pm on my insurance and ppi and that's pretty much my entire salary.

 

[Iguana]

So it's actually the lenders that decide how much houses are worth?

Of course. And if they suspect prices are falling they will tighten their lending practices. With or without a credit crunch.

 

[ChrisFilter]

Without having a time machine that's a silly statement to make

I already corrected myself, I meant a big crash is never going to happen in the next 5 years.

 

[onemonkey]

"The UK housing market is in trouble. 6 out of the 9 regions in England registered falls this month, with asking prices for homes in Greater London falling fastest of all, by 1.2%, the Home Asking Price Index report revealed today...The overall drop for England and Wales was 0.4%, which equates to a loss of £1,030 in a single month for the average homeowner, while the average London property lost £4,208."
firstrung.co.uk

 

[Poi E]

So it's actually the lenders that decide how much houses are worth?

They provide much of the liquidity in the market that enables people to buy. That dries up and fewer people can afford to buy. So, regardless of the amount of housing stock available, you can see a slump.

 

[g force]

But they went up by an ave of 11.5% in the last year, so in fact a house is worth the same as it was 8 weeks ago. All these percentages are useless because it's never clear what figure they're based on.

That site is also clearly arse. "may trigger a sell off by property speculators". How insightful and also doubtful as many are long-term investments and rents are rising at a fast rate.

 

[hipipol]

If it follows the.... classic pattern

you will a slow softening over the next 10 months/1 year, with any big slide following that. Seems that Abbey and some other big lender have whacked 20 basis (0.2%) points on new borrowers. Libor (London Interbank Offer rate) is now matching the discount rate of the BoE - the lender of last resort, this does not bode well
Goldmans, Lemand, Merrills and Bear Stearns report their qurterly earnings later this month - should give some idea of the depth of losses by the big boys - this will have a knock on effect to all spheres
Standard and Poors claimed last week that 30% of all US Alt-A mortgages are now defaulting. The Alt-A were regarded as safer than the sub-prime, so many more UK and Eurpean banks hold them - they were also used as collateral in many large corporate loan situations
I suspect a trimming in house prices in the middle and lower market band over the next 2-4 years