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..

It sounds like you could sell your house now, rent in the school catchment area, and then once your daughter is settled in school, you would have the option of buying a cheaper property just outside the catchment area, as she would already have a place.

thanks everyone. Actually saw a fantastic house to rent today, bigger than the house we were going to buy and much nicer, about the same in terms of rent/mortgage. Think we might well go for it, in the light of this thread. If we have a chance of buying a house more cheaply in the next few years we ought to hold out for it really, as we are stretching ourselve to the limit if we buy now. So we might have to swallow a bitter pill of losing nearly 10 grand now [early repayment penalty, plus survey on house and solicitor's fees] and hope house prices drop enough in the long run. But the house to rent is really nice at least.

Speculation is a factor in food rises and especially oil. Obviously not the only reason, but it is a factor.
Yes of course food and oil will rise but not usually this fast in such a short space of time, and the futures markets are making a lot of money in all of this.

You're right that it's a global issue, which is why just raising the rates in the UK is unlikely to do a hell of a lot.
And cutting inflation to 2%, from the predicted 4% may well happen within 2 years but it will take a lot more than the Bank of England to ensure this.

How is raising our rates going to bring down the global cost of oil, or the price of rice in China? Unless all the issues (which includes the speculators) are addressed nothing will change.

The fall inthe housing market shouldn't have come as a surprise to anyone, it was unsustainable and tbh it hasn't exactly crashed, not yet anyway!

Food prices are rising (as is oil) yes because of global shortages, but the shortages can be attributed to the speculators as well as everything else, ie political instability, economic growth of certain countries ect.
There's always a reason for global shortages

Food price rises are also to do with the rising price of energy.
Back to oil, back to speculators

Raising interest rates usually does bring prices down as producers and suppliers have to be more competitive to get sales.I will be v surprised if rates are not higher by xmas.

Can you afford to rent and not sell until the penalty runs out?

Glad something has come up that you are happy with. I hope the market goes in your favour and you can eventually get your dream home.

we've gone and put the deposit down on the rental house! I think we would be happier to sell now and put money in savings account, would give us peace of mind in current climate. Hopefully we've made the right decision. It will be a nice house to live in anyway, much nicer than the house we were going to buy. Carpets are pristine ironically, so will have to make sure we don't cover it with squashed baked beans!

this thread definitely affected the decision, so you lot better be right!

rent rent rent.

If you are only tinking of staying 4 years then the likelihood is that the market will just have hit bottom and might slowly be climbing bcak up. But you'll have lost money and probabl more than the 8k penalty on your mortgage.

Haven't read whole thread but people ofetn forget that the equity will be in the bank making money for you. We have just sold and are about to go into rented. We have 300k equity and the interest on that will pay our rent. So actually we will be making money (since we'll be saving the money we would have paid on the mortgage interest) AND the market is dropping by the day

RENT

Oops sorry - see youmade the right decision

cor - 300k equity! You'll be in an amazing position. Yes, just hope it is worth losing 8k now. We should have sold last summer really, we were told we could have got 50k more then

never mind you can't go back npw. but you have made the right decision going forward and will save a fortune

it will be the first wise financial decision of our married lives if we do!

Interest only mortgages are the sort of risk that people take if a) they intend to stay there forever, b) house prices are galloping upwards. I think you should assume that the property you are buying will drop in price. You will not be paying off the capital. I don't know your deposit but negative equity will happen for some people.

We sold our house last year for £215k, my old neighbour is selling her house which is exactly the same house and has had to drop it to £199k and its not selling.

I thought that in recession interest rates go up, why is the BoE talking about pegging back the rate to 2% by 2009?

Would really like to know what you think, as we have the choice of a 5yr fixed or a 3yr tracker mortgage.

Ruty, I do think you're doing the right thing.

The bank of england are talking about getting inflation down to 2% from the expected 4 which is predicted by the end of the year.To do this interest rates will have to rise That is the job of the bank of england governor and his team NOT to fiddle about with rates depending on and to maintain house prices.Mortgages are rising weekly atm and the outlook is that thye will remain that way for several years.

well done ruty good choice!

hope so noddy!

Noddyholder is right. Interest rates will rise if there is inflation. And there will be inflation if oil prices continue to rise.

ruty - are you a SAHM? If so then it's a good idea to put most of the money from the sale of your house in your name. That way you can use your income tax allowance to save paying tax on all the interest. It would mean filling out a tax form in April, but it is very satisfying to get money from the tax man.
Also, it's a good idea not to put all your savings in one bank account - in the rare even that the bank goes bust, only the first £35,000 is insured - details of that and of high interest accounts here in money saving expert. Apologies if I'm teaching my grandmother to suck eggs here.

you certainly are not mrs Tittlemouse - very grateful for those tips. Wish we had more money sense, have to learn rapidly now!