Is it a good time to buy a property?

[imi]

Wondering whether its a good time to buy a property; whats the feeling in regards to the market at the moment, interest rates for mortgages and the impending election.

[SteveR]

House prices will drop another 25%~35% in the next 2 years, in real terms.

[imi]

House prices will drop another 25%~35% in the next 2 years, in real terms.

 

Do you believe that will also apply to premium locations in london (which almost always tend to be an anomaly).

[SteveR]

Ater a quick Google - Moneyweek agrees:

 

http://www.moneyweek.com/investments/property/uk-house-prices-will-plummet-look-at-this-scary-chart-14664.aspx

[The Raven]

Depends what you are buying,

 

If its cheap enough then its a good time to buy, no way IMO are they going to fall 35% in two years, they are on the rise now slowly but dont expect huge gains. Supply and demand will keep the house market on a level. Even in the deepest darkest of this climate they never dropped that much. So to claim a 1/4 will be wiped off is again IMO crazy talk.

 

 

Are you buying a house to live in? rent?

[SteveR]

Do you believe that will also apply to premium locations in london (which almost always tend to be an anomaly).

I think prices will drop, certainly. By how much I'm not so sure, I'd expect broadly the same drop as the rest of the country, but recoveries always seem to start in London so any increases that may come years from now ill almost certainly start in London.

Watch the city/FTSE reaction as that has a large influence on the city's job market and by extension, property rental/purchase prices.

[SteveR]

Depends what you are buying,

 

If its cheap enough then its a good time to buy, no way IMO are they going to fall 35% in two years, they are on the rise now slowly but dont expect huge gains. Supply and demand will keep the house market on a level. Even in the deepest darkest of this climate they never dropped that much. So to claim a 1/4 will be wiped off is again IMO crazy talk.

 

 

Are you buying a house to live in? rent?

25% was wiped off in many areas of the country in the first drop. Don't forget to take inflation into account.

Recent house price data as released by the Halifax showed that UK house prices have plunged by more than 20% from the peak of August 2007

 

The second stage of a correction is always bigger than the first.

 

There is oversupply at the moment. When prices drop further, and interest rates rise there will be even more supply as the masses catch on to the fact property is still massively overpriced.

 

The above quote and lots and lots of analysis can be found here.

[monsween]

I'm quite interested in properties buy to let and peoples opinions on them in the next few years (wee bit of a hijack lol)

[imi]

Ater a quick Google - Moneyweek agrees:

 

http://www.moneyweek.com/investments/property/uk-house-prices-will-plummet-look-at-this-scary-chart-14664.aspx

 

Good article with some science to it, although many ways to skin a cat. Not sure whether I agree with the 25-30% slash across the board, high end properties more like it which are and have always been over-priced anyway.

 

my gut feeling is that this is an artificial low due to the elections and all will change within the next 6 months. I do think that mortgage rates will double; question is - what are the implications of that on the UK economy; is this where the double dip kicks in?

 

Moreover, the UK is no longer attracting foreign investors and this I believe is not going to change for the next 3-5 years.....all makes it an even more tough decision (cause I have found a property that I really like but certainly dont want 30% wiped off its value and the monthly premium to double)

[The Raven]

25% was wiped off in many areas of the country in the first drop. Don't forget to take inflation into account.

 

The second stage of a correction is always bigger than the first.

 

There is oversupply at the moment. When prices drop further, and interest rates rise there will be even more supply as the masses catch on to the fact property is still massively overpriced.

 

Lots and lots of analysis, here.

 

 

So if 25% is wiped off now, and a by all accounts from what you are saying another atleast 25% is coming off, then house prices will be in half from 4 years ago?

 

120k first time buyer house will be worth 60k? a flat thats worth 60k will be worth 30k?

 

I think is to much of a sweeping comment to claim another 25-30% will come off of houses in the next two years. Maybe as you said from the massively over priced homes, but IMO for the average type of home they wont see anywhere near that correction.

 

If your right the fall out would finish the uk off, 50% of people would be in neg ec.

 

Your also reading things from a year ago when the big bad credit crunch was kicking in, the interest rates are now so low that burrowing the money costs less.

[imi]

 

Are you buying a house to live in? rent?

 

House to live in.

[The Raven]

House to live in.

 

Look at in the worst case, are you going to live there for 6 years?

If yes you shouldnt lose money on the house.

 

If the interest rates went to 6% could you still afford to live?

If yes you wont lose the house.

 

Are you renting now? how much do you pay vs how much the morgage is?

[SteveR]

my gut feeling is that this is an artificial low due to the elections and all will change within the next 6 months.

It's an artificial high. All the nasty decisions that have to be made to bring this country back into the black (which incidentally will take many years) have been put off until after the election and none of the major parties are being too candid about the lengths they know they will have to go to. Whoever gets in will slash Government spending - they have to. Jobs will go.

 

I do think that mortgage rates will double; question is - what are the implications of that on the UK economy; is this where the double dip kicks in?

If interest rates doubled it would be game over for a significant number of UK mortage holders: those with low amounts of equity and not great pay. Look into how many mortgages are currently on a bank's SVR (Standard Variable Rate) and compare that rate with the lowest fixed price mortages you can find for those with >80% LTV (Loan to Value). There is nowhere for these peope to go, once interest rates rise, rising defaults are inevitable.

 

So if 25% is wiped off now, and a by all accounts from what you are saying another atleast 25% is coming off, then house prices will be in half from 4 years ago?

No.

If you have £100 and spend 25% of it, you have £75.

If you spend 25% of that (don't forget that house prices have increased slightly since then so you're actually starting with more like £80 in my example) then you've got £56.25. Compound calculations. When all the dust settles I expect that from the peak of 2007 to the trough we'll see in a few years time, approx 35~40% will have dropped off the average price (in real terms - watch goods inflation and wage inflation). Markets tend to overcorrect.

 

If your right the fall out would finish the uk off, 50% of people would be in neg ec.

I seriously doubt 50%, but certainly a sizeable propertion - more like 20-30%. Can I ask how old you are? Do you remember the detail of the 1990s crash? Are you aware of what is happeing to Australia's (and America's) property prices right now?

 

Your also reading things from a year ago when the big bad credit crunch was kicking in, the interest rates are now so low that burrowing the money costs less.

And there is significant pressure on the BoE to increase interest rates (which is what the banks SVRs are linked to) as inflation is increasing.

 

Answer this: where do you think all that quantative easing money went? What did 'creating' money do to the value of the pound, and what signals did it send to the rest of the world? Watch Portugal, Ireland, Greece & Spain (aka 'the PIGS' in economy land). We're not that much better off then their economies and our property is even more overpriced.

[imi]

Look at in the worst case, are you going to live there for 6 years?

If yes you shouldnt lose money on the house.

 

If the interest rates went to 6% could you still afford to live?

If yes you wont lose the house.

 

Are you renting now? how much do you pay vs how much the morgage is?

 

A pragmatic approach.

 

Live in an apartment at the moment which I will rent out and move into the house.

[imi]

Good post there Steve....took a while to digest all that

 

by artificial low - i was referring to the current mortgage rates....not the state of the property market.

[The Raven]

I wont quote steve as his post is huge.

 

Im 31.

 

The oz and US markets suffer due to the size of the country, building houses isnt an issue there is more land than people. So i dont think we can use them to judge our market.

 

1990s crash was more than a litte down to 16%+ interest rates. You cant burrow huge amounts of money at that %. So house prices fell to a level so people could burrow that amount.

 

Ive been one of the lucky ones in this, i sold 3 years ago at the peak. I then built my house and invested the left over money into a student let. Which has bucked the trend and increased by 40k in a little over 2 years.

 

I still belive that supply and demand will keep the house prices from any more major falls.

 

While i agree the first correction was indeed due i really cant see a deeper harsher correction coming.

[sdistc]

Do you believe that will also apply to premium locations in london (which almost always tend to be an anomaly).

 

If you're looking at London, then forget about the trends in the rest of the country - some desirable boroughs have actually RISEN in average value since the "GFC" started, due to the relative scarcity of property in these areas. Clapham, Putney, Wandsworth, Kensington etc have all risen in price. Edit: I meant that any decent property, price lowered or not, in desirable boroughs has been snaffled up as soon as available, irrespective of the global & local economy.

 

Now I'm not saying there may not be a drop in price ever, but it seems highly likely that London will always be that anomaly.

[SteveR]

Good post there Steve....took a while to digest all that

 

by artificial low - i was referring to the current mortgage rates....not the state of the property market.

Ah sorry. Phew

 

A pragmatic approach.

I couldn't disagree more with Raven's inference that property prices will be the same in 6 years time as they are today - IMHO that is wholly unrealistic as it ignores the artificial price bubble that was created and that we're still to come out of: a bubble caused by lack lending criteria, debt packaging and false ratings - all of which I pray will never return.

 

But putting that aside, a pragmatic approach is not to assume 6% is as bad as your interest payments could get, although that would easily represent a 100% increase on the monthly mortage payments for those on a 1% rate today (basic check here).

Interest rates are at a 300 year low, yet fixed price interest rates (for a decent period of 5-10 years) even if you have 40% equity are still around the 5.8% mark. Once interest rates rise - and they will, mark my words - the variable and fixed rates will as well.

So 6% is, if you look at it that way, the best things can get [if you took a fixed rate today], not the worst. Variable rates will almost rise above 6% in the next 5-10 years.

Don't forget they hit 16% in the 90s. That couldn't happen this time round, but with the length people have stretched themselve to get a property, they don't need to, to cause the same devastation.

[imi]

Steve - almost makes it worthwhile converting my standard variable mortgage to a fixed one

[SteveR]

The oz and US markets suffer due to the size of the country, building houses isnt an issue there is more land than people. So i dont think we can use them to judge our market.

 

1990s crash was more than a litte down to 16%+ interest rates. You cant burrow huge amounts of money at that %. So house prices fell to a level so people could burrow that amount.

 

...

 

I still belive that supply and demand will keep the house prices from any more major falls.

 

While i agree the first correction was indeed due i really cant see a deeper harsher correction coming.

 

I believe you are oversimplifying in all of the above cases, econonimics is never that simple. We shall have to agreee to disagree - only time will tell.

[SteveR]

Steve - almost makes it worthwhile converting my standard variable mortgage to a fixed one

Have a read of this, it presents both arguments for what will happen to the BoE interest rate in the medium term future, and just as importantly why that's not the only influence on personal lending rates (inc. mortgages).

http://www.thisismoney.co.uk/interest-rates

 

 

edit - I've said enough on this so I'm going to back out now and watch how it unfolds. Plus I'm meant to be preparing a presentation for an interview.

[The Raven]

 

 

edit - I've said enough on this so I'm going to back out now and watch how it unfolds. Plus I'm meant to be preparing a presentation for an interview.

 

 

Always good to have a debate. Entertained me this morning. Good luck on the interview.

[imi]

edit - I've said enough on this so I'm going to back out now and watch how it unfolds. Plus I'm meant to be preparing a presentation for an interview.

 

thanks for your help (going through the material you linked)....good luck with your presentation.

[Abz]

Some really good information on this thread guys.

 

I've brought a property at the tail end of last year to rent out, although I am not expecting a rise in house prices for at least another couple of years for a few reasons.

 

Firstly as Steve mentioned supply & demand an also people's wages. If everyone's wages went up the way house prices did then their would not be an issue but with wages not going up & house prices were, we was bound to come to a bust.

 

imi still got some riverside apartments opposite me if you got million or so to spend

[den1]

House prices will drop another 25%~35% in the next 2 years, in real terms.

 

This WILL Happen!