ProperCharlie

it was in crouch end, london. to be fair, the price was lower than it should have been as the place was a heap, and had sitting tenants on the top floor. i think they got paid a couple of grand to f**k off. The place had been converted into bedsits, so it needed a fair bit of work over the years to put in back to a "house". even so, it was still a brilliant investment - even if it was mainly an accident that we ended up living tere.

salsa-king

always remember.. much makes more!

jjones

that phrase always makes me laugh. when the guy stood in front of you with the keys to his shiney new car utters this phrase i cringe to think how much it will be costing him over the term of the mortgage. coupled with this uncertainty with interest rates and that car could work out mighty expensive. but as the dumb *** has spread the payments over 15 years they think they are on to a good thing.

Gordo

2 misconceptions worth flagging:

1) Interest rates

People who are comparing today's 4.25% with c12% in the early 90s and therefore drawing the conclusion that there's still loads of room before a crash are kidding themselves. The real stat to compare is the percentage of income spent servicing household debt. We are now slightly above where it was in the ealry 90s (higher borrowing multiples, enormous consumer debt (credit and store cards) such that a 1% increase today has more of an impact than a 1% increase did in the early 90s - i.e. people are already coughing a high percentage of their income on the house - an increase of 1% means more now because the underlying debt is higher.

The other difference this time is that there is a higher percentage of home owners today with a massive over-investment in buy to let. Gearing yourself to the max on a couple of properties is fine whilst the underlying value secures the debt - a slight increase in interest rates and a drop in house prices will have a domino effect.

The government has mis-called the economic growth rate - every economic report I read is now forecasting higher taxes to cover the shortfall after the next election - another driver of house prices as even a slight tax increase has a more marked effect on the percentage of disposable income covering the house debt.

I don't think there'll be a massive crash but expect prices to soften into next year with drops of 10-20% in some areas and static pricing for several years in others.

2) Don't be too pleased by your house going up in price - for most people with their house as their main asset, it's illiquid (i.e. it's funny money which you'll never realise) - you might be chuffed your 3 bed semi has gone up 25%, it just makes the gap to that bigger house you've always wanted 25% bigger too - i.e. you still can't afford it! I'd love the market to collapse in the next few months before we head South looking for a bigger property - we'll lose equity on ours but net we'll need to borrow less to trade up.

Let's face it, just as with the tech bubble in 99/2000, it cannot be sustainable at current levels of borrowing.

Gordon

imlach

There's still loads of room for those who aren't nutters in LALA land.

Those who have remortgaged themselves to the hilt, taken out low variable rate personal loans, AND maxed out on their credit cards, not to mention investing in BTLs they can only just afford to service, only have themselves to blame.

Meanwhile, those of us who still kept a tight fiscal belt, kept their borrowing to sensible levels (maybe borrowed a tad more than normal, but nothing wrong with defying a bit of risk aversion), and MOST OF ALL see that all markets are cyclical should have no problems whatsoever.

As witht the early 90's, the people getting repossessed were the ones who were stretching too far. Credit will bite if you abuse it.

imlach

...however, if you have several BTLs bought at sensible levels, you can't help but be pleased by rising house prices.

It's also not all bad news.....if you mortgaged your own home at 95%, rising prices mean you may well get under a 75% LTV which means lower rates. House price deflation is therefore only a problem when you come to sell assuming you could afford the rate you mortgaged at.

It's all quite simple really. Those who get caught out are just being a bit daft with their money.

P1Fanatic

Can you honestly see house prices dropping 20-30%? If anything I would expect the growth to plateau as more and more people just cant afford to buy.

At present there is just not enough supply to meet demand hence why people are paying fulling asking price and anything good or selling at a good price goes very quickly.

If interest rates do keep rising which appears to be the case, then the jump on the bandwagon BTL mob will be the first to suffer and I sure dont have a problem with that.

Im just glad I decided to up my 2yr fixed to a 3yr fixed at that last minute.

Simon.

imlach

ie, if you're living beyond (or at) your means in times of low interest, you're playing a very dangerous game unless you can realise some assets quickly if interest rates begin to rise...

imlach

I'm going to get a 5 yr fixed next. Yes, may not work out the cheapest option, but who knows - no-one can predict the markets with any certainty, only a reasoned guess. Can still fix at just over 5% for 5 years, which is less than I was paying on a fixed rate back in 1998.

If it goes down to 4% again over the next 2-3 years, then fair enough, I've lost out on a bit of cash, but the downside risk is small. The upside risk is, however, quite large.

Besides, if the interest rate goes down again, we'd be looking at house prices rising fast again, so it's a win-win being on a 5yr 5.5% fixed rate.

ie, interest rate goes down, lose out on lower repayment, but assets & BTLs rise again.
interest rate goes up, I'm happy enough on a 5 yr fixed at 5.5%. Easily affordable.

Faire D'Income

You mean I can't just make up figures and pass them off as fact?

OK. I'll have to find the articles and post the links and whilst I take on board some of the spectacular price increases I'm talking about a national average, not just isolated houses.

In the same way that the FTSE has averaged 7% per annum, in the last 12 months its performed way above that after a period of decline in a bear market. These cycles have to be taken into account when viewing the housing market - its not a one way street.

imlach

Of course they do. Which is why I was using figures over 30 years which encompassed many boom-bust cycles for both equities and housing.

I'd still be astonished to see 2-3% average for house price growth over 30 years though. Post those links as soon as you can

imlach

OK, goverment report here - 2nd link

http://www.odpm.gov.uk/stellent/grou...cst?n=1575&l=3

1973 average price = £9942.
2003 average price = £155627

That's about 9% year-on-year compounded.
Hmm....

I admit that, yes, we are at the top of the cycle, so perhaps best doing 1970 to 2000 to catch the FTSE at its highest too....

Oops...worked out 1970 to 2000, and the figure is EVEN higher! Way above 10% year on year growth.

Oh dear. So where is this 2-3%?

Faire D'Income

I bet you're loving this. Can't find it online but after racking my brains I recall reading it in either the Mail on Sunday or The Times, the gist of it being that since 1950 house price increases have risen modestly (2-3%) once inflation and crashes/corrections are taken into account.

I can't even remember what started this off, suffice to say that in the long term you can't go wrong with property as an investment but short term (5-10 years) you need to be very careful not to get your fingers burned.

imlach

You can't NOT take crashes into account though!!! If so, you'd also have to disregard the peaks surely?!

We both agree though that property is a safe investment long term (past performance is not a guide to future performance mind!)

Dan J

Interesting topic this and good to see so many people clued up and taking an interest in being on the best mortgage rate for them and keeping one step ahead of everything - so many people don't!

Just like to add that as an Independent Financial Adviser if anyone wants to potentially save themselves some money from their current mortgage, insurances etc just give me a shout and I'd happily look into things for you as I always have access to the best deals. Bit of a sales tout I know but hey if if I can save people money then why not!

To the people making the valid point earlier about FTB's not being able to get on to the ladder due to income multiples not being anywhere near enough to getting the loan they require this is true but with the right deposit (say 10%) the lenders have been happy to throw their money at pretty much anyone it seems with no real questions asked. Ok so this helps people on lower salaries obtain the mortgage they need but they're seriously overstretching in doing so. All it would take is a few rises in the interest rate and all of a sudden they're unable to make ends meet. Not a good scenario...

Anyway feel free to give me a shout if anyone wants any advice etc...

Dan.

Ps: Perhaps I'll arrange a Group Buy on mortgages and associated insurances...!