To worry about the predicted 30% fall in London house prices

[feellikeahugefailure]

This would have huge knock on affects if they let this happen to everyone in the country.

It wouldn't help people that cant afford a home, it would probably make them worse off as banks won't lend. The poor will be hit the hardest by any downturn.

Mr Carney does need to do something imo, was surprised that the rate wasn't dropped. But it will have to be in August.

It wouldn't help people that cant afford a home, it would probably make them worse off as banks won't lend. The poor will be hit the hardest by any downturn.

Why wouldn't it help? A 30% drop in price would help loads of people. This bubble was driven by low rates, not most people actually getting richer.

There is some fantasy land out there where simultaneously housing prices keep rising AND they get more affordable.

We are in NW and when house prices fall in London, it's far less up here, sometimes hardly noticeable.

Negative equity isn't a problem unless you plan to move, why do people worry about it so much? Prices will go up again during the person's lifetime.
The first house we moved into, not still living there has gone up numerous times and is about 4x what we paid for it in 1992.
You just don't move whilst in neg equity and wit until you aren't.

Also, it helps to start off small and not go for a high mortgage giving you room to manoeuvre

The problem is easy credit not building not enough homes. Even if they built millions if they can be bought by foreign investors and BTLers it won't make a difference. They need to reduce credit so that people cannot get into huge amounts of debt just to have a roof over their heads. It used to that banks lent 3 or 4 times income. Now house prices in London are 30-40x average London wage. This is because of easy credit. The banks have caused this mess and nobody has been jailed for the complete reduction in living standards of a whole generation.

The problem is buy to let. There are enough houses, but buy to let has pushed house prices up. The houses that first time buyers used to buy are usually now owned by buy to let people.

it will help people who cant afford current prices.

it will help key workers who need to live in london or near
it may make the differential easier for people needing more bedrooms.

it may mean the new blocks by developers will have to sell a lot cheaper which is a good thing.

people who bought on repayment mortgage at height just need to keep paying - it's like a secure rental from the bank. eventually, they will have paid off enough so no longer in negative equity.

People with buy to lets will suffer, as rents will drop as well. But then if you take out an investment, you have to accept the risk as well.

OP has this thread changed your perspective at all? Many excellent points made.

Does no one remember the 2008-9 crisis and what happened to mortgage availability for first time buyers as property prices fell? Banks wanted insane deposits. They weren't keen to lend against a deprecating asset.

But it did bring house prices down for a while. The housing market needs to correct.

People with buy to lets will suffer

Good.

The problem is that if prices fall by 30% people won't be selling. So there won't be any houses to buy at the reduced rate.

So the only option will be for new builds to go on the market at reduced rateS meaning that first time buyers will need to buy new builds rather than existing properties (assuming they can get mortgages.).

But then prices will go up again.

I agree that London prices are astronomical. But it is what it is now.

Yes it did practy as the stock of buyers dried up.

Imagine a first time buyer is after the 200k flat in Slough mentioned up thread. If the price fell to £160,000 and the bank required a 30% deposit that would leave the first time buyer to find 48,000. Mortgages with high off ratio will not be knocking around when prices are in a sustained slump.

first time buyers will need to buy new builds rather than existing properties -

and that is bad because?

first time buyers are being/have been pushed to buy new builds with help to buy etc. all the ads are "get on the property ladder buy a share in a tiny one bed new build./2 bed in slough.."

which everyone ie tax payers are funding thru the govt equity loan

How will people with buy to let suffer?
There will always be people who can't afford to buy.

someone mentioned houses for a tenner because no-one wanted to live there and because the renovation costs were huge. Incentivising renovation and sorting out a no-go area would be a sensible thing to do.

but if it isn't in London, it never happens.

If house prices come down, some of those currently renting will buy. If the number renting falls, rents will fall.

But if house prices come down the only houses on the market will be new builds, because no-one is going to sell a property which has dropped in value by 30%. And as such the demand will outstrip the supply and thus the prices will go up again.

People talk about house price decreases as being a good thing because people will be able to afford to buy. That's true, but with such a big dip in prices people won't be able to afford to sell.

there will always be people who need to sell due to job moves; divorce; separation; death; etc.

If house prices come down, some of those currently renting will buy. If the number renting falls, rents will fall.

As others said above, that isn't how 2008-9 played out in most places in the UK. Prices came down, lenders tightened lending criteria in response to market uncertainty, those without large deposits weren't in any better position to buy.

These things don't tend to happen in isolation - if prices come down, there'll be an effect on lending and (unfortunately) probably on the broader market and people's jobs.

A crash of 30% wouldn't be devastating for down-sizers who have lived in their homes for decades since when they bought their homes they were worth about ten times less so even if they 'lose out' they will have still benefited enormously.

For up-sizers with a decent amount of equity, a crash will be beneficial as even if the value of their homes go down, the homes they want to buy will relatively go down in value further so they'll be better off.

It will ofcourse benefit first-time buyers and for homeowners who plan to stay in their properties for several years it won't make any difference.

The people it will adversely effect are those who bought recently and took out a mortgage with a high LTV ratio and want to move soon. I can understand the fear here, we were actually considering this just before the referendum - to buy a two bed house as a stepping stone and only live in it for a few years but didn't offer in the end for fear it could plunge us into negative equity if things went wrong. We had initially been banking on house prices going up further...but who knows? It's not clear yet one way or another. I think the best approach is to wait and see. Pretty sure they'll be a much better understanding by Christmas.

cest I don't think any one is saying there will be no houses for sale anywhere, but the supply will be heavily depleted.

I think the concept of starting off small & taking on a huge mortgage does make sense.

But as one of the 30-somethings living & working in London, my husband and I both work FT (we have a small child) but if we wanted to buy in SE London (zones 3-5), at our maximum mortgage amount the most we can possibly afford are 2 bed flats.

This is making us twitchy...we would probably go for a 2 bed now as it would solve us being stuck in the rental trap...however, it may lead us into another trap where we are in NE a few years down the line, wanting to "trade up" and possibly with another child.

I would certainly welcome a drop in house prices, but as a PP pointed out, there is a chance that mortgages might become even harder to get, with banks wanting 20% + deposits

On balance, I think we would want to buy sooner rather than later- we could sit on the fence and see how things pan out, but who knows, property might just carry on it's crazy trajectory in London and we'll be in a worse position.

TurquoiseDress We are in a similar situation, but we own a one bed flat and have been looking for a house on and off for the last two years. It's hard because we are simulataneously desperate to move for more space (it's DH, me and baby in flat) and absolutely fear-striken when looking at house prices in London and thinking about the mortgage we would be taking on. DH said yesterday 'though I hate only having one bedroom, if we bought a house now and it ended up being worth 30% less in 6 months I'd be absolutely devastated'. It might only be a pipe dream and the so called 'crash' come to nothing but if there is any chance of one we are staying put, we feel we have stayed put for this long, we might as well wait it out, we are actually considering renting outside London in the interim, potentially for 6 - 12 months if space issue becomes unbearable.

It's very reminiscent of the property market following big bang, when (in London at least) prices dropped 20 - 25% leaving many folks in negative equity. Which wouldn't have mattered but that people were losing jobs too and unable to pay the mortgage. I knew several people unable to sell (as the mortgage exceeded the value) and some moved back with their parents and became unwilling landlords, some went bankrupt, and at least one I knew did a runner to Italy. A surveyor friend had a job assessing repossessed properties for any work before being (re)sold: he said it was his busiest work time, ever. This was 1988 - 1994.

Property prices have risen insanely (at least in London, where I live) for a variety of reasons, but to me, from the experience of nearly getting burnt in the early 1990s, two stand out: first, interest rates are absurdly low and have been for ages (remember 1993 when Base Rate was 15%, albeit only for a day?); secondly, at some point the old salary multiplier restriction was replaced by 'affordability'. (It used to be the case that you couldn't borrow more than something like 3x one salary and 1x the second, or 2.25x joint salaries.)
Put shortly, it is easy credit which has driven price rises. Other factors like the advent of BTL in 1997 probably didn't help, although the second most significant factor after easy credit is probably the new build shortage.

On interest rates, when we were looking (and we originally got together solely to afford somewhere to buy, but luckily it blossomed) we would always check if we could afford the mortgage, if rates were 3 or 4 points higher. I vividly recall the building society person's perplexity - 'why would you do this?'

It is however right that negative equity only matters if you have to sell. In the 1990s the lenders took big hits because of foreclosing, and selling at a 'loss', and then being unable to recover the balance from the hapless borrower. I expect they have learned from the experience, but as time passes fewer and fewer will remember 1988-1994.

If London suffered a 30% drop in prices, how many people would be in negative equity tho?? Prices have rocketed recently. So would it just be people who have bought in the past 3-5 years??? Yes, thats a lot of people, but equally, probably not a great deal as a percentage of London housing stock???

That said, my northern house probably isn't worth the purchase price a decade ago. That's different to saying were in negative equity. London is bonkers prices, and something needs to give. Personally, I'd love to see a 10% correction in London prices, and a static price til inflation brings them back to a point where an "average couple, can buy an average house in an average area". And yes, my definition of average would change depending on the location. 3 bed flat London, 3 bed terrace round London, and 3 bed semi in the bits Londoners tend to forget exist!!!!