talk me through the house price crash please

[ruty]

OK so we are selling up. We have offered on a house, about 8% under asking price [offered lowered initially and was refused] in a very good area with good school, etc. But we are really mortgaging ourselves to the hilt to get the house and will have to remortgage when tracker rate ends in December [taking mortgage from current property and borrowing more]
Are we being completely stupid? Our thinking is, we will spend an awful lot of money in the next two years if we rent a house, about 30 grand all in all, and we will have to pay 8 grand in early repayment penalties if we sell and pay off mortgage now.
Any ideas if these losses now will pay off if we wait for a couple of years to buy? Very confused at moment. We are borrowing a lot and I am very nervous about it, but then again if we don't buy we have to lose money immediately. Will all areas go down hugely if there is a crash or just not so desirable ones? Anyone with a crystal ball welcomed!
Really, I rather worried, could do with some advice..

well, renting might be expensive, but it is better to lose some money renting than to lose your house through bad buying decisions surely? Not saying you will lose your house of course but you seem very set against rental. Which seems odd when interest only is the same. More or less.

We have been in this position, and have decided to take house off the market for now when the contract with estate agent ends.

I am not surprised your mortgage co are allowing you to transfer. Our mortgage co are allowing us to transfer our fixed rate across to a new house with no charge. and giving us more money too. But we have a deposit to put down.

But we have decided that we would be stretching ourselves. We had factored in additional heating etc as a bigger place, and more council tax, and some increase on our mortgage when the fixed rate ends. But we are moving a little out of the area, so travel costs will go up, and up, and up, and heating is going to go up even more and probably food and probably other things.

So we have decided to sit tight in our little place, and if we get stuck we will move into the loft too.

We are thinking we will pay our deposit onto our mortgage to give us leeway if we get stuck financially, and if the housing market crashes completely we will rent our flat and buy a house too. If it does not, we will buy in a year or two when we know how our finances are going to be effected.

I have found the last two months so very scary thinking we could end up in a house we cant afford to keep and losing everything if we max ourselves to much and cost of living continues to rise. I has made us feel so so unseasy, we have decided to just wait it out.

Interest only is just like renting from the bank.If you buy now for 500k and pay interest only for 3 years and the house is then worth 450k you are in debt to the bank for even more.It is not a good move in a recession

yes it is like renting from the bank isn't it, that's what i said to dh tonight. Only thing is you can redecorate and change manky carpets and stuff. But not set against it, just worried about where we'll live - no one will take us until we've exchanged, so there's going to be a month's gap with no where to live. And we've spent money on the house purchase which we'll lose as well as the early repayment penalty. but if you lot think losing that now is better because we would lose more in the long run then it certainly food for thought.

Ruty, don't forget if you sell and rent you will have a big lump sum of money in the bank earning lots of interest to go towards the rent. So although rents may look a lot higher than your current mortgage payments you probably can afford it because of the interest you'll be earning.

yes that's true. Do you have to pay tax on it if you don't own anything else?

You have to pay tax on the interest we sold and are renting and the interest covers the rent and a bit more Our old place is worth 75k less than we sold it for in august so its food for thought

Don't know about paying tax (prety sure we do) but it if you have a lump sum you have to declare the interest as income for to the working tax credit people - we now owe them money because of this. (sold house in 2005, currently renting).

yes noddy it is. Will we get much profit from the interest after tax i wonder?

I'd wait to buy - two reasons:

1. prices are set to keep falling, and with an interest only mortgage, you're paying interest on a loan on a property that will likely decline in value without making any sort of dent in the actual amount you owe.

You can always buy points off a mortgage, you know, if you think the interest is too high. Negative equity, not so easy to deal with, particularly if you're stretching yourselves to the limit to repay the loan.

2. Credit crunch is well and truly with us. It isn't so much a question of banks having money and not wanting to lend it as much as it's banks not having a whole lot left over after internal & external risk & cash criteria are met. The Bank of England will have to raise interest rates at some point - no choice, given the inflation figures coming out. Getting into an interest only mortgage in a falling property market is bad, doing so when interest rates will rise is worse.

I don't know if it's a fixed rate of interest on your loan or variable, but either way... run, screaming, from this one.

Maybe I'm being thick, but I'm not sure why you're selling and planning to rent at this exact moment. Rents are set to go up as more people are squeezed out of the property market, by choice or otherwise. Unless you're selling to avoid foreclosure, I'm not sure why you'd sell with the idea of renting (or paying an interest only mortgage). If you need to sell, any chance of folding whatever gains you've had into a more affordable property? Smaller loan usually means smaller repayments, right?

It is also worth noting that interest only is considered sub prime in the US and it is only here that it is so commonplace.Grrl is right too that it is not really the time for this as the market is falling and either way its a risky situation.It sounds harsh but if you are mortgaging to the max on interest only it is an indication you can't afford it.

Whilst I hope that you wouldn't be in this case I have seen one letter from our local council which has indicated that if someone takes on a mortgage which is clearly likely to be unaffordable then in the event that they are repossessed the council will deem them to be intentioanlly homeless (and therefore not eligible for homelessness assistance). Have you had a look at what current interest rates are like at present for 80% mortgages? How much above your current rate would that be and can you afford the new rates?

What mortgage rate have you got at he moment? If it's a good one from a while ago, try and work out what you would pay in December based on the rates going around at the moment.

If you feel you can afford that, and maybe a little more if the rates go up again then that should be ok.
If it's an interest only mortgage, I wouldn't be planning to move after a fixed time especially if the house prices are likely to drop, you'd end up in negative equity.

You'd need to tell yourselves that you'd be happy to stay in that house for the long term and only try and sell if the value of your house didn't drop below the capital owing on your mortgage.

Interest only mortgages work well in certain circumstances, not sure if your situation is one of them.
Is there a chance that you could look for another property that has a smaller mortgage and can pay off some of the capital too.
Also if you went for something cheaper you will be able to put down a bigger deposit, which will help if you do want to sell later on and the prices have dropped slightly.

Not sure prices will drop as much as 30% though.

we're going for the cheapest house possible in the bloody school catchment area! But yes, you're right, it is still outside our affordibility really, even though they've accepted under the asking price.
The schools issue is the real problem, if we bought a house in a cheaper area round here the schools are poor. That's why we may have to rent. You think that's a bad idea Grrlscout? To be honest to be able to afford a repayment mortgage we'd have to get a house at around 280k which is the price of a small flat around here.

headache we've worked out what we think we'll be paying in December and it works out only a little bit more than we'd have to pay to rent a similar house. Until December we'd have a lower rate and it would be cheaper than renting. But that is only if the house price doesn't fall too much. I'm nervous about the house price falling and then not getting the mortgage we need. We have unemployment insurance btw.

Totally understand the school thing, and I would do the same thing.
If you'd be paying the same amount in rent as you would on your mortgage, even after the change in December, I would probably go with buying the house. Though this isn't advice just what I would do!!

Even on an interest only mortgage, falling house prices aren't a problem as long as you don't sell in that period if you're in negative equity.
If you're not then selling doesn't matter, as long as you can pay the bank the capital owed.

I would say that as long as you can afford the house if the rates rise anymore, but tbh if they do then I think most of us would be in the same situation. If the rates continued to rise then I'd be in big trouble!

Nothing is ever certain, and you could rent and wait for the houses to drop even more, maybe they will, maybe they won't. Because no one actually knows what will happen, it's all speculation.
You can end up renting, spending that money that could be used towards your house.
Maybe you'll rent and the house market will bottom out so much that you won't even need a mortgage

I have a feeling that you're going to go for it anyway, but are feeling nervous (understandably).
There's always an element of risk with everythingthat you do, you just have to do what's best for your family, and what you can live with.

I moved from Scotland where I had a 3 bed house with tiny mortgage to East Anglia 2 years ago to a town where you can't buy a 3 bed for less than around £280K.

Our plan was to rent our Scottish pad out for a year to make sure we were settled, then sell and use the profit for a deposit to buy something here.

Given the predictions that prices are going to fall by about 30% we have sold our house and are continuing to rent. that way we can guarantee we're not in trouble if interest rates rise and if we hold off we're hoping we can afford something better this time next year than we can atm.

I wouldn't advise mortgaging to the hilt right now - my dh's aunt did this before the last recession and her morgage payments almost doubled overnight less than 6 weeks after she moved in - not much fun esp when you have dc's to think about.

ruty we bought a house we couldn't afford to get ds into a particular school and it was miserable no holidays spare cash etc so be careful.

I really don't think at this stage it is speculation.People do know they just don't tell us the whole story to limit panic.I started reading and studying econmics books last year as I just couldn't grasp the whole thing and tbh wish sometimes i hadn't as i think the truth is far scarier than anyone dares admit.We are so in debt in this country and the banks have run out of money.A recession is imminent and to curb inflation rates will rise.

We were planning on moving out of our 2bed council flat this year to privately rent somewhere bigger in the area of the school we want. We would have been stretching ourselves to afford the extra £500 on top of what we are paying now. we got as far as paying a deposit on the place but the landlord suddenly decided to sell up instead. It went for £180k for a 4 bed semi which is pretty low so I guess he was cashing in his chips b4 things get worse and he cant meet his mortgage payments even with rent increases.

Thing is, whether the massive drops happen or not, something IS going to change, be it interest rates, some price drops. And regardless, mortgaging yourself to the hilt on interest only is rather foolish, even in a steady climate, let alone what is happening now.

A lot of what goes on is speculation. The speculators 'predict' what will happen in the coming months and thsi does have a bearing on what happens in real life.

They have predicted a drop in house prices, so what happens is people don't buy houses yet because they wait for the prices to drop. If the buying market slows, supply becomes greater than demand, so the house prices drop.
Speculation has had a part in the rising price of food and oil. There's a huge amount of money to be made in this, just not for us little people.

The BoE needs to keep rates the same or cut them to stave off a recession.
And for it to raise the rates to curb inflation is madness, that will just push us further into financial difficulty, so I hope BoE doesn't do it. They haven't so far.

Raising the rates in just the UK will do little to stop the rate of inflation anyway.

Food rises and oil aqre not speculative at all and are global issues which happen regrdless.The governor of the bank of england has hinted heavily that he will do whatever it takes to bring inflation back to 2% by 2009 end so considering he predicts inflation will be over 4 by the end of this year rate risesa re the only way.Interest rates have fallen by .75 since december but mortgage rates are still rising as banks need to rebuild their books and the IMF think this will take 7 years minimum.So recession is likely and I think the govt will go for the short sharp shock.House prices are falling because historically prices always revert to affordability according to salary multiples.Food prices are rising because of global shortgages and nothing else.