Will house prices now have to drop to realistic levels?

Discussion in 'Finance, Property, Law' started by headgear, Jul 29, 2010.

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  1. BBC News - House price inflation eases again, says Nationwide (latest house price drop 0.5%)

    As someone who's not bought a house yet I've been watching the market for quite some time and have come to the conclusion that house prices will have to drop into line with achievable mortgages. I've argued with many people, who are homeowners and disagree with me that if the banks really have returned to responsible levels then an average person earning £25K will probably only get a mortgage of 4 times his/her salary with a deposit of 10-20%, and therefore can only buy a property worth a max of £120K.

    With average UK house prices around £167K then something somewhere will need to give - and I don't think it'll be the banks, nor should it as 100% mortgages and the like led us into an unsustainable housing boom in the first place.(and that total ****** Gorgon Broon!)

    So I guess my question is: is it me thats completely wrong or are homeowners and property developers being unrealistic at valuing properties at current levels?

    This is a genuine thirst for knowledge question as I believe unusually for me I'm right on this one and everyone else is wrong!
  2. The trouble with allowing the price of houses to fall to realistic levels is:

    1. More demand because more people can afford to buy thus reducing the available housing stock.
    2. Negative equity for those who bit the bullet and bought when prices were high.
    3. The rich will use the chance to buy more houses thus reducing the housing stock even further.
  3. You fail to take into acount that the majority of houses cannot have the sale price reduced to far as they are mortgaged by their current owners.
    If my house (for the sake of argument) is worth the national average of £167,000 and I have a mortage of (say) £145-150,000 I am never going to be able to reduce the price by a huge margin.
    It would have to sell for more than the mortgage value or it can't be sold.
  4. Both very fair points however - if the banks do practise responsible lending then the only two things can happen 1 stagnation (adult kids never leave home!) 2 wages will need to rise (even more unlikely!). I'm no expert but the only thing that can possibly reinvigorate the market is reduced prices in line with mortgages, you are absolutely correct the negative equity trap is massive but this has stemmed from crappy little semis being valued at stupidly high prices for too many years.
  5. As true as that may be it still means the housing market will remain stagnant until houses can be sold for the mortgaged value.
    I can't see many home owners being willing to sell at a loss (which is still mortgaged)
    Her indoors and myself bought our house two years ago, just before the crash in values, fortunatley we bought it at a competative price and have no intention of selling in the immediate future but is worth more than its mortgage. Our other property is currently worth less than its mortgage value, neither would concievably go on the market unless the value increases. I would imagine most people with a mortgage think the same.
    The housing market has crashed before and recovered, it will recover again.
  6. Dont forget the buy to lets.... at the moment rents are higher than mortgage repayments making it a very tempting business ..... forcing the prices up....
  7. The_Duke

    The_Duke LE Moderator


    It has stemmed from people being willing to pay the stupidly high prices the semis have been valued at. The true price of any item is what someone will pay for it - as long as there are people willing to pay the prices, the prices will remain. If they drop too low there will be some repossessions as people are unable to sell when they divorce etc , but basically the market will stagnate.

    Don't expect the prices to fall that far just because a mortgage is harder to achieve - unless people are forced to sell they will just extend or make do rather than lose their money.
  8. I also wish they'd drop further... but though the average house now costs more than years ago, the average age of a first time buyer has also risen, older people generally are on higher salaries and have had longer to save and so can afford more. You've also got the phenomenon of buy-to-let who can put up other houses they have as collateral to get good rates and generally outbid you.

    Wish the average price applied to where I live - the average here for a 3 bed house is more like £250K. 2 Bed cottages are £200K. I'd hoped to own a house before I turned 30, that didn't happen.
  9. That is as correct as it is sad Legs, unfortunatley! I couldn't afford to get a house now (I'm not the only one) christ know's what the future holds for someone looking at getting a house nowadays?
    Even a massive house building programme like post WW2 wouldn't help all you would get is investors lapping up all the new builds for buy to let as happened recently.
  10. I was under the impression that the new goverment was going to make buy to let owners pay more capital gains tax (40%)? in my opinion buy to lets have screwed the whole housing market up and at the very least there should be a cap on how many residential properties one person can own. Many areas of the country have been taken over by buy to letters and the local inhabitants forced out - that is not right in any mans book surely!
  11. Lets not forget the additional 394,000 people who want somewhere to live each year.

    Population growth, increase in single households and of course longevity means an increasing pressure on houseing stock.

    Demand/supply = price so unless there is a mahossive building programme I can't see the prices going down much in the near future.
  12. CountryGal

    CountryGal LE Book Reviewer

    Why do people need to buy a house? I rent my house, all the maintance is someone elses problem and i pay about £150 less than a comparable endowment mortgage for the same sized house in this area, and compared to a repayment one i save about £230 a month. The only downside is that you are deemed less attractive to raise credit on, but then maybe that attitude will change now people are stuck with mortgages that are worth more than their homes.

    Most people buy houses so that after the mortgage is repaid they have bricks and mortar to pass onto their children, but is it worth the risk of paying for your house for 25 years, and then suddenly needing to find an additional lump sum to pay off the remainder of the mortgage when its due.

    Endowments are now a closed market with few providers offering new ones, and completely repayment mortagages are expension month on month.

    I decided to save my divorce settlement and will think of topping up my current pension provision later on too or maybe investing in a house years down the line. My son will still receive savings and money should anything happen to me, and if i live for another 30 years or so, i expect he will have a job to enable him to have his own place same as i manage mine on one wage.

    For now, the risk of owning my own home isnt one i think is worth it.
  13. Where does that leave housing associations? It's a free market ecconomy, like it or not.

  14. Renting is dead money, and all you are doing is paying someone else's mortgage! Also if you are renting privately you can be booted out (with noticed mind) at the will of others.
  15. CountryGal

    CountryGal LE Book Reviewer

    Thats not quite true, the minimum notice period is set at the term of the rent and you take that gamble when you sign up, and the goverment passed an amendment to law to say that a mortgaged property that has a sitting tenant in needs the same notice as their contract even if the house is repossessed.

    I personally dont consider the money to be wasted by renting, though admittally it suits my circumstances but being tied to one house, one place and the whims of the bank of england, the uk economy and the whims of other EU countries isnt a burden i wish to take up ;o)