To feel scared about a house price crash?

[Nervousnelly2019]

I’ve recently purchased my first house. I’m in the SE and prices are eye watering. We definitely paid far more than I ever thought a house would be worth. (400k for small 3 bed terrace)

All the talk of house prices crashing are making me feel sick. This is not our forever home, we don’t have dining table space and the kids rooms only fit a single bed with no wardrobe space even in the master. I think we bought out of pressure to buy.

We definitely need a crash to make house buying more affordable, and this will be great to young people especially. But if prices fall 30_40% what happens to people like me? We only put down a 5% deposit... would you have to go bankrupt to move?

Hi Nelly,

Ignore the negativity about leasehold. You definitely do own something very valuable! It's a very common form of ownership.

Did you check whether you need permission to make changes such as adding an extension or conservatory? Many leasehold landowners charge money for permission to be given.

I’m astonished you couldn’t find a property that wasn’t leasehold in your budget. You said you bought out of pressure to buy. Did you spend enough time looking?

Sorry, I guess it’s academic now as it’s done and you’ve completed so it’s finalised. Worth discussing though if any new buyers see this and don’t already know about the lease and freehold issue.

@Nervousnelly2019

Index linked ground rents are a far better option but not without its complexities.

Don't fall into the false sense of security that just because your lease is 200 years it won't affect you. The banks will be reviewing their lending criteria long before the 200 years is up, most certainly will be in your lifetime.

If you can buy the freehold it's worth doing

Over time houses always rise. If you were renting you would be at the whim of the market and your landlord, at least in this position you are paying off your mortgage. You might have to sit tight for a few years, you might be luckier than that though.

We bought our first place in a rapidly rising market, thought it was a tidy investment, were loaned a deposit from a housing association. I got pg, we put it on the market right at the peak, loads of viewings, next day the markets crashed, banks withdrew all their fix rate mortgages, no one wants our flat.. just over 2 years later we sold it for slightly less than we bought if for, had enough mortgage paid off to put a deposit down on a rental. I wasn't at all what I'd planned, but we loved that flat, we enjoyed being there and renting again wasn't ideal but we had a roof over our head.

We're now in the process of buying a nice house with a huge deposit as we have inherited about 20 years earlier than I expected. You never know what life is going to throw at you, worrying is pointless. It's understandable that you are stressed on taking on a large mortgage, but it probably will be just fine and it might be fantastic, enjoy your new house and don't worry about the bad stuff until you have to.

I'm in Hampshire and the market is slow for houses that are over-priced or less attractive, new development near me has sold houses that won't be finished for a year without even advertising them.

Please don’t panic over lease hold. All of the houses in the next town over from us are leasehold as standard!

We also just bought a 3 bed for 400k (technically 4 bed but one is downstairs). I have the same panics but I reassure myself by the fact we are paying less on a mortgage than the rent would be. If the market struggles then anything you want to buy will also fall in price so it could make moving up the ladder easier in the future so long as you don’t end up with negative equity. I am over paying our mortgage as much as possible atm to reduce our debt and I would strongly recommend looking to do the same. Even small amounts a month make a big difference long term - there are calculators online which can show you how much you will save.

Please don’t panic at all the people shocked st the prices. I’m guessing they aren’t in the south east where even 1 bed flats cost a fortune!

oll

I'd be more worried about trying to sell a leasehold house. I wouldn't even consider a leasehold and a lot of others are the same.

@ihatethecold perfectly normal for London/south east.

House prices will not crash. They will fluctuate.The mortgage companies will be under immense pressure soon to increase lending to ease the market and increase the number of buyers.

It is not in their interest to have a market collapse again and for them to lose billions of £. Again.

And even if they do dip, it will rise again within about 10yrs. So 🤷 we just got up to the same prices as pre bubble burst. It took 12yrs.

Also very silly to buy a leasehold!! 😳

Well OP's just in the same position as she would be if it was a leasehold flat. Still better to buy the freehold if she can though.

Why is the house leasehold?? I thought houses were usually freehold? Is it so the developer can sell the property at the price of a freehold but actually retain the really valuable bit?? Is this a recent trend? I'd be more worried about having bougbt a leasehold house than house prices in general

It's not the same as a leasehold flat at all, flats obviously have to be leasehold as they can't practically be freeholds, but a house would only be a leasehold so the developer makes even more money (ie sells the leasehold at a ridiculous price but retains part of the asset). Just because it's common doesn't mean it's a good idea, endowment mortgages anyone!?

perfectly normal for London/south east

We ruled out a lovely 2 bed in Acton because it was leasehold. Dh felt very strongly about this, so while there might be leasehold houses in London, lots of people still avoid them!

Is it a new build OP?

Jeez where I live that could buy you a lovely 5 bed detached, with huge kitchen, 2 reception rooms, bathrooms and en-suites, dining room and more! I can’t believe the house prices in your area!

Leaseholds.... another way to screw you over 🤨

Historically the government has done everything possible to prop up house prices because it would be an economic disaster if banks lost billions and half the country was in negative equity. If house prices crash unavoidably then your house value will be the least of your worries.

Do you really think if the market drops by 50% everyone with a £400k house will just sell for £200k? No. They’ll refuse to sell, thus restricting supply and pushing prices back up. A price crash is only relevant if there are also lots of forced sellers who have to sell their homes at the reduced price. In which case the economy would be a mess, lenders would tighten up on mortgages, and potential buyers may find they can’t buy houses even at the reduced price because they can no longer borrow money or have lost their jobs. A crash is bad news for everyone except cash buyers.

Weird to care about leaseholds unless it's a dodgy one that goes up loads in ground rent

I will be dead, my kids will be dead, and all my grandchildren will be dead before my lease runs out ...

I also think a full on crash is unlikely as people will have to use their homes to pay for care - the govt has that incentive to shore up the market.

Unfortunately it’s not as simple as it being similar to freehold as long as there’s a long time left on the lease. Leaseholds can come with all kinds of restrictions: they can stipulate you can’t sublet therefore you’re unable to rent your house out, they can refuse permission to make alterations or charge you for that permission, they can stipulate no pets, etc. Not to mention the ground rent which you have very little control over, you just have to pay it, and it goes up. You’re paying to be able to rent the property and land for the period of the lease so you’ve invested a shitload of cash into believing you own a house when you don’t, and it’s often difficult to sell leaseholds on as buyers with options often don’t want them and will be warned off them by their solicitors due to the above issues. And of course someone will end up being the one nearing the end of the long lease even if that’s not you or an immediate relative, it does happen to people.

That’s practicalities but personally I wouldn’t out of principle either. Why go to all of that trouble under the facade you’re becoming homeowners when you’re just glorified renters who have to pay ground rent on top of the mortgage? You don’t own anything. It means a lot to me that I’ve purchased not only the bricks a mortar of the house but that the piece of land it stands on belongs to us too. It’s a wonderfully secure feeling and we don’t have to pay a mandatory annual fee to the person who actually owns the land to keep reminding us we’re only there temporarily but it belongs to someone else.

We definitely need a crash to make house buying more affordable, and this will be great to young people especially. But if prices fall 30_40% what happens to people like me?

So you would like a crash for everyone else but not for yourself? 🙄

I don’t remotely judge anyone who goes for leasehold btw, as long as they’re clued up and have made their decision in full knowledge of the ramifications. But I’ve heard so many horror stories of people who have somehow got to the end of the long complex mortgage process before realising too late they don’t own the house or land and are now stuck. I feel for people who have no other choice if that’s the case.

I don't pay ground rent on my leasehold flat - it's a 'peppercorn' and there are no restrictions at all on pets, changes, renting etc.

It's all normal for London. I've owned loads of freehold houses before as I've moved so often.

Pretty much any house here built recently is a leasehold, it’s not uncommon. We had to buy new to use help to buy. Not a single house we could afford that wasn’t teeny was freehold.

I hope you’re all right about it going up. I know some places still haven’t recovered from 2007. I wish I could afford to overpay on the mortgage!

Alexa Well yes, a crash would be great for those hoping to get on the ladder but not great for people on the ladder without much equity. Isn’t that just common sense?

I found a place, week after it completed the recession happened. I just sat tight. It's what you may have to do.

But as someone says, you should try not to worry about things not in your control. As another with anxiety, i sympathise as it's so easy to catastrophise but try to break out that cycle.

Mitigate risk as much as possible with savings.

Don't worry. As long as you don't have an interest only mortgage. If they drop you just have to stay put but ultimately it may mean you can afford something bigger.

Make overpayments if you can.

We had to sell out first house for less than we paid after the recession. Not negative equity but still upsetting. It did mean that the mortgage we have on our current house is smaller than it would have been if your prices were higher and of course prices have risen since then.