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Original poster

BoE: Prepared for house prices to drop 33%

88 replies

BoEbrexit · 04/08/2018 10:14

Wasn't sure whether to post this on property or here.

I'm a FTB and just saw the BoE stuff about being prepared for property price drop by up to 33% and massive interest rate rises.

I already knew that now is not the best time to buy, but I'm moving to a new area, and I might not be able to get a mortgage in a year or two due to work situation. I may move after four years or so, and was prepared for the fact I might sell at the same price, or slightly less...but one third less would be pretty destroying! (FYI, its not an expensive area, but not that much available, so prices seem to have stayed pretty stable over the years.)

My parents don't seen phased, saying I could just rent out and move into rented if in negative equity, like they did in the nineties.

Anyway, is anyone else panicking about this?!

OP posts:
DarlingNikita · 04/08/2018 12:19

Yes.

I've always imagined that if everything were to go tits-up we could just sell the house, but now it suddenly doesn't look like so much of a great asset.

I wonder if the rental market is going to plummet in the same way? An alternative if it remains buoyant would be to rent it out and fuck off to live elsewhere.

Willofthesimpletons · 04/08/2018 12:24

My parents and ILs, who voted Leave are similarly blasé. It's infuriating. We need to sell next month. If we lose 33% of the value we are screwed.

GhostofFrankGrimes · 04/08/2018 12:40

If you think negative equity is a possibility I would not touch a house with a barge pole. I think brexit is a waiting game at present, to see just how bad it will be.

mangocoveredlamb · 04/08/2018 12:46

I probably wouldn’t buy if I need to buy again soon.
We exchanged yesterday on our (probably overpriced anyway) forever Home. 33% drop
Would put us just above neg equity, but hopefully it’ll all work out on. It’s a home not an investment really.

Terrifying times though!

Racecardriver · 04/08/2018 12:48

House prices are over due for a correction so will drop soon regardless. There is a chance that brexit will exacerbate this by creating a recession. Unless you are planning on selling soon you don't need to worry about this. What you do need to worry about is interest rates. Will you be able to afford your mortgage payments if interest rates rise? What mortgage product are you using? A longer term fixed interest rate could help protect you somewhat from a rise. The most imports t thing to remember is that if prices drop and you can't meet your mortgage payments you will likely still have a significant amount of debt after the bank has repossessed and sold your property.

SarahDoY · 04/08/2018 12:52

Housing is too expensive in this country.

Those needing to sell and in a negative equity situation will be the losers.

Rosstac · 04/08/2018 12:55

that's good news for some bad for others, I had NE in the early 90.s, just wait for prices to rise again.
They are due a correction wages are not rising fast enough

Original poster
BoEbrexit · 04/08/2018 12:57

@race @ghost

Actually I have 40% deposit so I shouldn't actually be in negative equity if sell, and mortgage would still be affordable after interest rate rises. But would obviously lose most of the deposit which would be completely shit.

Agree a correction is due - I've been expecting a 20% correction in London and South East, but for stuff to remain relatively stable in cheaper areas. (I'm buying in Midlands). But obviously a No Deal Brexit will mean much more drastic changes :( .

@darling I don't think will affect rents too much actually - part of reason why I'm buying - mortgage much cheaper than rent.

OP posts:
Original poster
BoEbrexit · 04/08/2018 13:00

P.S House is 2 bed, around 100k.

OP posts:
DarlingNikita · 04/08/2018 13:00

I don't think will affect rents too much actually

Good news for me, potentially, although I appreciate not for people without the option to rent out their house.

IAmInsignificunt · 04/08/2018 13:32

Do you have a link please?

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CaseStudyResearch · 04/08/2018 13:41

We’re planning on being first time cash buyers or having a small mortgage in the next year or two. Following this with interest.

UnnecessaryFennel · 04/08/2018 13:47

I'm in the same boat - was hoping to FTB with a small (25% LTV or thereabouts) mortgage in the next 12 months so will be watching this with interest (no pun intended...)

ladyvimes · 04/08/2018 13:53

I really don’t recommend the daily fail for reliable information. What that actually says is the BOE has performed stress tests up to house prices dropping a third. This is an absolute worst case scenario that is extremely unlikely. Even a 20% drop is optimistic! What’s more likely is house prices will stagnate and not increase with inflation. Also Mark Carney has proved to not be hugely reliable with predictions in the past. To be honest if house prices dropped by a third it would decimate the economy, whatcha would be a disaster for the country!

Bluntness100 · 04/08/2018 13:54

It's a little out of context and a bit of media hysteria as usual. If you look at what he actually said it was this is what could happen but if we have a transition period we can prevent it, even with no deal, and we do have a transition period, I think till the end of 2020 min, as base case.

A lot of this is politics and media frenzy, and it's got to stop as it just makes it worse.

LimboLuna · 04/08/2018 13:56

The sticking point for you is the moving again soon after buying. Normally my advise would be to buy and enjoy your home, in the long run it will level out. But its the waiting game. Personally if you can still get a mortgage to lend to you i would still buy and enjoy my home.
If things go tits up the rental market will follow, it may be house repossessions mean mortgages aren't being paid on rentals so the first the poor renter knows is bailiffs at the door. It could be fewer rentals on the market but more people renting due to mortgage companies not lending so rents going up.
There are so many variables in renting, you are better of owning as at least you have some say in your destiny (admittedly negative equity lessons those choices, but you still have some control over your home). If you rent you are still stuck with the variables of the economy but have the landlords decisions to deal with as well IYSWIM.

So i still think your better off buying.

I bought when the twin towers attack happened people were saying not to as it was too dodgy , the house shot up by over £100,000 within a year.
I now rent and can't get anywhere near owning again and its truly depressing especially now as i have children and the instability its giving them.

NotSuchASmugMarriedNow1 · 04/08/2018 13:58

Yep. Project Fear strikes again.

PlausibleSuit · 04/08/2018 13:58

I think the way this is being reported is lacking detail.

It's in a few papers; the Independent, the Express, the Metro. The Express article includes the following quote from Carney and line:

“We ran the system through a stress test which had real estate prices going down by more than a third, house prices and commercial real estate, interest rates going up by almost four percentage points, unemployment going to nine percent and the economy going into a four percent recession.”

He reiterated that this was not a prediction of what could happen if there was no Brexit deal, but to provide an idea of what the system could withstand.

The figure I've heard thrown around from friends who work in financial forecasting is an average 15% drop in house prices. I think 33% is extreme, although it could happen in certain areas and at certain price points I suppose.

Actually, I think a no-deal Brexit - something I believe to be very unlikely because ultimately it's against the Tories' electoral self-interest - would result in house prices in London and the south east rallying somewhat, and prices in other areas falling. That's because as the economic impact from no-deal Brexit bites, London is likely to be the place that will be affected least, even factoring in the finance sector moving out en masse (which they are already doing) so there will be an ever bigger drive for more people to move here for work.

reallybadidea · 04/08/2018 14:07

I think you're putting the wrong emphasis on the word 'prepared'. As far as I can tell the BoE doesn't expect these things to happen, but as part of its remit to ensure financial stability, it has made sure that banks generally could cope if a whole set of bad things (ie higher interest rates, falling house prices and a recession all at once). In the last financial crisis a number of banks were at risk of going under which put huge strain on the economy; this wouldn't happen again today. This is absolutely not the same as them predicting a massive crash in house prices.

IAmInsignificunt · 04/08/2018 14:08

Thanks for the links OP

Bluntness100 · 04/08/2018 14:09

This always happens though, they say one thing then it's taken out of context and blown out of proportion. I guess if they reported what he actually said it wouldn't be so interesting. The issue is folks believe the headline and the media know it. This ones click bait.

Original poster
BoEbrexit · 04/08/2018 14:34

Eeek - hope you guys are right.

I don't agree with the London and South East holding up. People won't flock there because they can't afford to. House prices have been dropping massively in London the last couple of years. All the predictions indicate continual drop in London, and stability in other cities. But yes, overall, London will be cushioned from many other Brexit effects.

(I posted DM it was first link came up).

I understand it is stress test, still extremely worrying.

I think 15-20% depending on area sounds realistic. 30% in some parts of London.

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reallybadidea · 04/08/2018 14:37

An average of 15-20% falls would still be a crash. Iiirc the average fall in UK prices during the late 80s/early 90s was still "only" about 12%

Bluntness100 · 04/08/2018 14:38

It's not really about being right or not, no one is forecasting what will happen, all that's been posted is what he actually said, not what rhe media are misquoting,