To be a bit worried that the Bank of England is testing for house prices to fall 31%

[jdoe8]

A 31% fall would leave many people in NE and unable to move, this would be disastrous for the whole economy as people would not sell and just keep hold of them. Would make for a very inflexible workforce as people wouldn't be able to move to for new work or be stuck in houses following divorce.

I know MN hates BTL people, but the vast majority are really hard working people that own just one property in order to provide for them in retirement. This would also be very bad for them.

Is this to do with the stress tests for high street banks?
If so - it's not a prediction, or even likely - the BoE put together some 'worse case scenarios' to see if the high street banks can cope without a repeat of Northern Rock/RBS type fiascos.

Where do you get that from?

Highly unlikely - no one would want a 31% fall - you'd destroy the economy. Many home owners would be in negative equity. Aside from anything else, imagine what would happen at the next General Election!

Yes, it's just a test to see if the banks could cope with extremes. RBS failed I think.

Yes, sorry I may of overreacted - heard it on the radio and it was presented more as a prediction and I was worried about talking down the market. TG presents a very different story.

It's just a stress test, as See says, not a prediction - so YABU

Massive cross post!

I work at a big bank and they've been stress tested for years, it's not a new thing. Banks need to evidence they have a buffer to allow for a number of economic impacts and they're tested from the possible to the catastrophic i.e. unlikely. As a homeowner the best you can do is ensure your mortgage (if you have one) is able to cope with a scenario where BoE base rate rises to 5% which is the long- term norm.

If prices fall by 31% over the whole of the UK then it wouldn't be such as issue. The problem is that the less productive (N. England, Scotland) couldn't afford to move to the South.

We have a geographically inflexible workforce due to the Brits preoccupation with owning property.

As seeline mentioned, this was a stresstest and holey unlikely. Near enough impossible.

If your house fell by 33% then what actual difference would it make to you OP, assuming that either the next rung on the property ladder did too or that you'd bought a house as a place to live and not as a nest egg for your retirement?

I own 4 properties (BTL) but rent my own house. BTL as the best investment is 10 years out of date hence us renting our home. Money can be invested elsewhere more safely and with far higher returns.

Well, if I wanted to move from my £170k house on which I owe £145k and it fell to £120k value, all the money I've got saved would go into paying off the mortgage difference and I wouldn't have a deposit to buy a new house no matter how much that house had fallen in value. So, I wouldn't move.

A 30% fall would see London prices fall back to 2012 levels, arguably even then it was oversold.
It is a British disesae celebrating house price increases.

PNGirl

But transferring mortgages is an entirely different matter. You aren't liquidating your assets and then entering the market afresh.

I have little sympathy for anyone who has a £25k deposit on a £170k property*. It smacks to me of over reaching. Over how many years is the mortgage spread? How many times your household income is the value of the property?

*assuming you've repaid £0. It's likely much worse.

I love a good cross post!

No one is celebrating price rises, just keeping in line with inflation is best for the economy and everyone.

It matters to me, as If they fell i might have issues re-mortgaging or moving.

A £170k property with a £25k deposit is an 85% mortgage - I'd say that was fairly typical when first starting out.

What? Firstly it was a hypothetical example to illustrate why it matters to people. But for your information a £170k property would be less than 3 x my household income.

My point is current house is a FTB property and if it fell to the point where I couldn't afford the difference to pay off the mortgage and move then I wouldn't. Then next FTB can't buy it. I don't want to own a house to make money - I'd be happy if it stayed the same!

We have a geographically inflexible workforce due to the Brits preoccupation with owning property.

No we don't. My US colleagues are owners and can move much more easily because -
The legalities aren't such a labyrinthine time-consuming joke.
Aside from a few hotspots, there is less regional variation in prices - unlike the UK where EVERYTHING revolves around one corner of England
They don't have an equivalent of Stamp Duty sapping people's ability to move.

No one is celebrating price rises, just keeping in line with inflation is best for the economy and everyone.

Are you sure that's actually what you meant? House prices rising in -line with the economy? That would make house ownership a fairly daunting proposition due to the costs of ownership and interest on the amount borrowed.

If every house fell in value by 1/3, explain what your issues might be. You're talking about negative equity but still looking to buy a property with a higher value.

Buying a house is a safe investment but all investments come with some risk.

Wasonthelist

I had no idea labyrinthine was such an interesting adjectival form for labyrinth.*

I'd absolutely disagree with the idea though that the Brits notion of needing to own property doesn't create an inflexible workforce. Compared to the majority of Western Europe, we have far higher property ownership rates and it's nigh on imporsidlbe to deny that this creates issues.

Are you suggesting that there isn't a regional difference in house prices in the US? We looked at buying a property in NY. A bedsit there was the same as a good sized 4br in even NY state.

But for your information a £170k property would be less than 3 x my household income.

If that were true, why would you care. You could happily raise and cover a much larger mortgage and so could move up the ladder without issues. I'm not sure what point you're trying to make. You have a very low mortgage and so should be fairly comfortable.

*not sarcasm! I'm a geek

Prices in ireland fell circa 50% in the time from 2008-2012 and even though they've risen significantly- think they're only 1/3 below the peak - it has been pretty devastating for many.

The market was massively overinflated, but the reality is there's a huge housing crisis and a huge increase in rents. People won't sell because either they're still in negative equity or they're waiting to recoup their losses. Almost all houses on the market are either forced bank sales or executor sales. Parents are raising children in one bed flats they bought as started homes they can't afford to leave.

It has hugely made me rethink my approach to property. I had friends in London go in jointly on a small property in a dodgy area. They had no thought to what would happen if it fell, one of them wanted to move/have a child but they were jointly responsible for the mortgage andnit was in massive negative equity. I've seen so many situations like that go wrong for friends in Ireland.

This is just a stress test, but people need to engage with the fact that we're in an extremely volatile time politically and anything could happen financially as a result.

Around 60% of homes are mortgage free, owned outright, of the remaining 40% the average ouststanding debt is 75k.
As the average house price is 240k it is clear that the market could indeed stand a 30% drop.
The losers would be the late entrants, although not as many as is often presumed.
The banks are well capitalsed to cover this fall.

This is great news for anyone hoping to buy a house to live in such as the WHOLE of the younger generation. I welcome it.

I'm 23 and own my house outright. I would be fucking disapointed ngl.

It wouldn't be a good thing no, not even for first time buyers. But it's certainly possible. It has happened in Ireland.

There really isn't a silver lining for first time buyers by the way. In Ireland, all that happened was that the banks virtually stopped lending. And there was nothing to buy anyway, because everyone stopped selling.

The only winners are those with enough cash to buy outright.

Are you suggesting that there isn't a regional difference in house prices in the US

No. I wasn't and I didn't. I made it quite clear.

Our workforce "inflexibility" isn't caused by our love of home ownership. A lot of Americans can move much more easily because the government and legal system doesn't place barriers in the way. The same is trure for a lot of my Aussie friends.

It is really difficult to move here because all the jobs are in places we can't afford to move to. Being in love with ownership vs renting wouldn't matter if prices weren't so skewed and if the costs of moving weren't so high (Stamp Duty, Legal etc)

In Aus you can sign a contract after you've looked at a place (it has some get-outs to protect everyone). No weeks and weeks of expensive lawyers. Think what that one thing would do for labour mobility.

exactly no one will win if they fall. it will bring down the whole economy so the young people wont even have jobs