To ask what recession is like and is there any way to prepare?

[sunfloweryy]

Just that really.

I was in my teens for the last one and both my parents were in secure jobs and houses so nothing really changed for me. I barely even registered anything was going on.

Now I’m 27 and bought a house a few years ago with my DH. We were hoping to TTC and upsize next year and have been saving.

I have been reading lots on here that we are likely to go into a recession as a result of all this and I’m starting to feel anxious.

Just interested in people’s experiences of what things might be like on a personal level and if there is anything we can do to prepare ourselves or make it easier?

Maybe something a little reassuring to hear about my experience of last recession - DH and I purchased our first place in 2005, house prices had been rising steadily at quite a pace until then. We were just 20 years old.

We had low incomes, I was on £13k a year at the time, can’t remember what DH was on but was a little more

We put down £5k deposit on the mortgage.

Soon after the crash happened. It was just over 2 years later. The interest rate on our mortgage sky rocketed. Our repayment at its highest was £1500.
DH was out of work for a time.
We lived off baked beans and real basics.
Most of our friends were in uni and having wonderful lives not really knowing what it was like to be so broke.

DH secures a job then I was made redundant.
I luckily found work again shortly after.

We had by this point also sold our cars and just had a banger we picked up for £300 to keep us mobile.

We rode it out.
We had only planned on living there for 2-3 years tops as it was a tiny one bed place and had no garden. The neighbours were a nightmare too.

We held on until 2010 and managed to sell. By then we had luckily come out of any previous negative equity and the mortgage rates were down low again so our mortgage was a much more reasonable £600 or so.

We then had many years after that of cheap borrowing and decent growth.

But it did change our mindsets.

Not to overstretch yourselves on any borrowing.
Buy only what you need and no more
Don’t subscribe to any unnecessary services
Learn how to make food go further

I’m 34 now and very risk averse still despite having solid career.
But this experience we are in now is different all together and I’m learning different things this time.

We were discussing our plans for moving house or extending as baby 2 arriving soon.

But actually I am now considering reducing work or changing career completely to allow me and DH to be at home more.

We still live as frugally as possibly which has allowed us to have a small rainy day pot and I’m more grateful of doing that now than ever before.
But I’m also learning we can still live on less than we thought we could so hopefully we can ride this out again and be better off in the future once again, just like before

Not only do I have little alternative but I actually prefer frugal living. It sits more comfortably with me. I had a brief period, enough to satisfy my vanities, when I had the money for nice clothes, make up etc but it didn’t satisfy as much as my backpacking or camping trips ever did. There is a sweet spot in between where you have the money to buy good equipment or boots but other than that it has always been secondhand clothes for me plus books are my thing so secondhand there too.

I live cheaply - the last 5 years in London I have spent about 6000 a year plus 6000 on rent. That includes bills, dentists, local travel costs, textbooks, work clothes.

My next role is not well paid 22,000 in the London suburbs but it is doable at first and is secure.

I completely get where you are coming from @Honsandrebels
Still do waste some though :-)

@Rebelwithallthecause

Meant in reply to you

Also big difference keeping to a budget when you have no debt compared to when you are paying off credit cards, etc. Psychologically debt always makes me feel like money has lost its value.

Actually that calculation is wrong - have spent more than that and have had big expenses where I splashed out.

There's no such thing as a secure job, and in recession interest rates on loans can rise dramatically, whereas the housing market will be flooded due to repos, then would be a good time to buy as more for your money.
However, with a flooded housing market renters have the upper hand and rents likely to decrease.
I wouldn't make any decisions now, apart from saving as much as possible, moving short term investments to savings, as they could be worth much less, and paying off any debt you can.

If things go wrong you have savings with no risk, no debt, so fewer outgoings.

@Devlesko

Thanks. The thing I’m worried about is the availability of 95% LTV mortgages as that’s my only option. If the market hits badly I think they might be likely to go.

If they do go, then they aren't meant to be.
You could go for your 95% mortgage and interest rates go up dramatically.
There is far more chance of getting more for your money if you wait and there is a recession.
You probably wouldn't need a 95% deposit if there was a crash, and it really is a huge risk during recession.
I can remember the house we were looking at was on sale for 75k, recession hit and before they rose again we bought the house for 45K.
You really don't know what will happen or how recession will hit, but you can be sure those with some easily accessible savings will be more likely to survive.
I know it's a tough time, my dc have both got mortgages now, the youngest moving in Feb. I'm so glad he went when he did, but as a mum you never stop worrying and I would tell them the same, if they were in your position. Such awful time for your age group.

@Dev

That’s very kind of you, Dev but sadly I am more likely to be your age group than theirs. Due to a few big things happening I missed my chance with the housing boom in London.

The way it goes, I guess as I am also conscious that even though they cannot discriminate on age for mortgages I am cutting it fine.

I also remember the very high interest rates of the late 80s and neighbours who were in negative equity then so I take onboard what you say and I won’t be making any decision for a while just thinking out all the options.

Any other pearls of wisdom you have please share - I’m all out of my own at the moment 😆

@Devlesko. How likely do you think a recession is and what impact will that have on the housing market, do you think? A reduction of 20%?

I am thinking in terms of London

I can't help with London I'm afraid, as it's alien to me being in the NW, but I do think a recession is inevitable, with huge knock on effects.
I would think people like you would be ok, because the drop would mean with the deposit you have saved, you are less likely to need a 95% deposit.
It depends on how bad a recession it is ito how far house prices will drop.
I think more than anything our lifestyle will change, e.g if people are worried about job security they aren't going to be spending their lunch in Starbucks or Wetherspoons. They will be less likely to go to the pub at night. So people tightening their belts will have a knock on effect to many businesses. The larger ones may be able to tick over but I think lots of smaller retailers will go.
I'm no authority and have no idea about economics, but keep reading the financial times and is it called the economist? Just get a flair for what you can understand and talk to relatives who may have been through recession.
We are all different too, we won't lose much however bad it gets because having lived through all the others, we sort of stayed in the frugal stage and didn't move on. It wasn't a conscious decision, we just moved with the times.
Knowing it's probably inevitable and preparing the best you can is the best defense, accepting it and not doing the woe is me, will keep your mh together, the most important thing.

Can somebody on here explain it in London terms, is it just a different set of 0000

It will really depend on the part of London.

There are some parts that prior to this were already seeing some losses, alternatively just outside the M25 house prices have always been the safest bet during any previous recession. Some places not losing much at all.

It really depends where you are buying and what sort of people need to live there

Thank you both - I think it will be SE London and out towards Kent so anything affordable along that route from Lewisham onwards. Current one beds are still 180,000 plus (decent building, decent size, good condition)

Crazy isn't it?

I knew there was a huge difference.
Near me a 3 bed semi with a decent (ish) garden would set you back about £180k .
But obviously it's swings and roundabouts, we don't have the same wages and opportunities.
I doubt we'd afford a shed or parking space in London.

I'd say a lot of London homes are sparse enough on the inside. The costs don't always balance out and London weighting is small in comparison.

The north east of Scotland has been in a mini recession since about 2016. House prices took a huge crash and have never recovered. We bought our house in 2014 for £178k, put down a 15% deposit and have spent approx £30k on it. Current value of the house is about £155k. It's rubbish. We've spent so much money and owned for 6 years to have very little equity in the house. If there's another recession, I'm scared we'll be pushed into negative equity if the house prices go down even further and then when our deal is due to renew in July, we'll be offered horrendously high interest rates and maybe be forced onto the SMR which is currently 4% with our mortgage provider but could well go up. If the SMR increases to even 5%, we're looking at our mortgage costing us £220 a month more than it does now.

When you think your mortgage will cost you £220 a month more and that's just interest, it doesn't take the capital down any quicker, it's sickening really. We could save that

I guess you need to decide if your house is a home or an investment. And review your personal views on ownership vs renting.
I believe in a home vs investment and believe it’s a market that can take a lifetime to see it grow in value. Periods of negative equity and high interest is all part of a lifetime.

@fallfallfall and what do you think might happen in the next few years regarding housing in London, out of interest?

My DD lives in London I’m in Canada. When it comes to London I get the impression it’s street by street not London in general. Some homes and streets will remain resilient and maintain value but those are not in the entry level market. So a nice 1.5M across from a sweet park will still be desirable recession depression or not.

@fallfallfall I think thats true

My biggest memory of the last recession was hearing about bloody 'austerity' every day and waking up to the shock of another big high street chain going bust. Wondering who would be next, praying it wouldn't be DH's company! I work for the NHS so my job was safe, thankfully DHs has been so far too.

Our mortgage was interesting, we bought in 2004 just before the prices went sky high. We took out a 3 year deal and after that it tracked 0.25% above base rate. Interest rates kept falling and so did our mortgage repayments along with it, was amazing!

We moved a few years ago and actually sold our house for similar to what we paid which shows how long it took for recovery in our area, albeit it sold quickly and easily. We are now tied in to our mortgage deal for another 3 years so don't need to worry about interest rates for some time. We are in the same jobs as before, DHs company have furloughed half the staff (not DH) and are getting worried, they provide contract work for mostly retail and hospitality businesses so expect to have a lot less businesses to be on their books at the end of this.

We live pretty frugally anyway and put some money away into savings each month which are immediately accessible, we have about 6 months of his wages saved up so have a buffer. I expect my job to be safe, I am an HCP in an area that will always be essential. We have no debt, always save up to buy the big stuff, have never owned a credit card or taken out a loan.

We are hoping we will be ok again, we are focusing now on saving more - we will be careful not to go crazy when lockdown is lifted to keep saving.

To the poster with debts looking to buy - I would be carefully considering whether I could afford to take on a mortgage if I cannot currently afford to live to my means. That's what it comes down to really. You have to assume that all your bills will rise, at best you won't get pay rises - at worst your job cut be cutback/lost. A mortgage may seem cheaper than rent, but have you taken account of insurance etc and costs associated with home repairs etc and do you already pay council tax? There can be bills alongside home ownership that don't happen when renting.

Buy a house in the country.

They have shut the market ( estate agents etc ) as it would be in freefall in the current condition

There will always be forced sales Death , Debt and Divorce

When it reopens who knows what reduction there will be its only a guess mine would be 25%

This will be made worse with less choice as fewer houses will be on the market and the Government will probably prop up what they can with their schemes and sales volumes going down

It will probably take a while for reality to set in with sellers that an asking price is only that

Far too many house owners think that the trees will grow to the sky and it will all be over in a couple of years

I would say it will hit hard. Retail could well be doomed completely after this. Commercial Property will take a hammering. The car industry may take a while to get going as people hold on to cash. Estate Agent May suffer as people put off moving.

I lived through Thatchers 80’s in the North and they were grim.

A big problem with the market in London is people stuck on the ladder So the rung is too high for lots of ftbs but gov schemes/family help can get them on it but I know a lot of people who can't move up & in my area of SW London prices haven't changed much for 5-6 yrs. The days of making 200k in 2-3 yrs are over imo