Mark Carney Brexit house price warning

[BlueKittens]

Is now a really bad time to sell/buy a house?

We’ve recently put our house on the market to move to a larger house in the same area. Basically because I’m unexpectedly pregnant with our second child. We could hang on in our current home but we’d be a bit squashed because DH works from home. We have seen a great property nearby which we’d need to take out a slightly bigger mortgage to buy (but we have good LTV). We live in one of the fastest moving housing markets in the country (comparatively- it feels quite slow recently!). House prices are high. House has been on over a week and have had 9 viewings. No offers yet but have second viewings booked in.

Thoughts please! I don’t mind if the comments are directly related to our situation or just general chit chat around Brexit and house prices.

@Maricoco I genuinely wouldn't buy in that situation. The worst thing to do when price falls could occur is to buy a house that is too small for you. I'd pull out and wait and see what happens with Brexit. If there's no deal we do't know what the future holds. If there is a deal then its unlikely we are looking at a massive house price correction and property is likely to come onto the market as confidence improves.

There has always been these kind of predictions, reality is prices never crash by much and always increase in the medium to long term. People are just scaremongering.

Back when my brother bought his first house and the housing market was moving crazily fast and prices were rising just as crazily - there were warnings not to buy and that prices would crash any day. They were wrong. Fortunately my bro ignored the scaremongering and bought. The value of his house doubled in less than 2 years! He got some serious equity from it.

As long as you are happy to live somewhere for the medium term then you never need to fear crashes, the market will always see prices ultimately rise.

As long as you are happy to live somewhere for the medium term then you never need to fear crashes, the market will always see prices ultimately rise.

Which is fine for those in long term secure jobs on a long term fixed rate mortgage and a savings buffer. It simply isn't true for those with relatively little job security, living close to/beyond their means and with no savings. It isn't about being happy to live somewhere, its about not being able to afford the mortgage repayments when interest rates rise or the SHTF.

It seems like the prevailing advice on MN in response to the prospect of house price falls is to hurry up and buy a house before prices get cheaper. Is that really such sensible advice? People seem to feel it is best to secure a mortgage now, while they can, because if they lose their job later, they feel they would be less able to get a mortgage. But if they lose their job, how would they continue to pay that large mortgage they have just secured? Maybe I am missing something.

Go ahead. It's not going to lose £50k. The people you're buying from have only made £300k on paper. It's fairy money, their purchase will be £300k+ more than it was 20 years ago.

@starting

Five years. I have 40% deposit so wouldn't be in negative equity. I wouldn't want to lose that though of course.

Its a difficult decision, but for me, I struggled to get a tiny mortgage now, and I have no idea what my work situation will be later - I think I'd struggle in a year. And realistically I think it will take a few years for prices to go down (outside South and London) - I'd be waiting for something that might not ever happen.

If I had a steady job, and could get a mortgage anytime, and was living in London and South, I'd definitely wait though...

Although, I have friends who brought in London for first time this year, as they a) wanted to buy before having children (one is planning on applying to adopt and felt like owning would be her best chance) b) Another friend like me, didn't know what her work situation would be like in a years time, and needed her income for affordability. That couple was also having nightmares renting.

Some people just can't sit back and wait for the crash. Its incredibly scary though. I think the main thing that will bring down house prices post-Brexit will be employment...potential loss of 3 million jobs if no deal...

Maricoco if any help at all and I know this is pretty obvious when you come to think about it (not that I did as a first time buyer), one thing I've learnt about house prices is the importance and power of very local neighbourhood factors.

In one city (especially a middling sort of city, not central London and not one in total post-disinvestment freefall and depopulation), you see completely different patterns operating between neighbourhoods.

A neighbourhood with good schools and local facilities, perfect for families (especially if it's a 'by catchment' county, not a grammar school one but even so, for primaries), is not going to lose value in the same way that a typical 'first time buyer and investment property' neighbourhood will. The latter will be very sensitive to availability of mortgages and affordability to FTBs and tax changes affecting landlords. In the 'second or third-time buyer' family neighbourhood, people already have mortgages, equity and the things that make the area attractive won't change very quickly (unless there's a mass exodus of professionals from the UK, so pressure on good school places, from people who can afford to move for them, drops).

As an example in my area, houses in the FTB areas dropped value in 2008 and didn't start rising again until 2014/15. Then only a bit. Whereas in the family neighbourhood prices plateaued for 4 or 5 years, then rose strongly and steadily.

That's one example but the point is to think about the factors that make your house desirable. Is there limited stock of that type of house in that sort of area in your town? Will there always be people who want to live there and are likely to be able to afford this?

There's already a crash happening in Aberdeen if you want evidence of falling house prices (my cousin has been trying to sell a one bedroom flat for almost 18 months). He has reduced until it's cheaper than it was when he bought 11 years ago and did a full renovation. Still can't sell.

Prices are lower (by up to 30%) in some cases for property that was sold 10 years ago.

If their was a general buyers strike, house prices would come down to more affordable levels. Having it is so good over the last few years, sellers are now probably terrified that buyers will go on strike and force down prices.

@lexer Aberdeen has been in and out of a crash for years, because of the decline of the once booming oil industry. Prices there went stratospheric at one time, and are now returning to earth. It is a lesson for anyone who thinks housing booms last forever.

@Analytical

My mortgage is around 200 a month - an amount that I could pay from savings for a few years if I lost my job. If the worst came to the worst, my family would help for that amount. Even if I was fully reliant on all benefits and didn't have a house, I'd probably have to pay that amount just to make up shortfall in housing benefit.

I feel in a far more secure position than if I was renting.

Alternatively I could pay 600 -700 a month for the next 5 years, use part of my deposit money, and wait for the crash...

@beibermylove You sound like you have been financially sensible and have kept your debts small. But a lot of people feel they need to max out their credit and take on as large a mortgage as possible, to get the most expensive house they possibly can.

Maricoco I wouldn't buy if I thought I would want to move within 3 years and may lose £50k equity in the timeframe with little prospect of corresponding upside. Depends where you are but £50k would be 5 years rent on somewhere des res where I am. If you are a FTB then the costs of losing FTB stamp duty plus the usual costs would make any loss even worse. The other factor in a slow market is that some properties become very difficult to sell at all.

Yes, difficulty selling is a real issue. It's incredibly frustrating and difficult to have all your equity tied up in a house you can't sell. It doesn't matter how 'rich' you are on paper if you can't access your money when you need it.

The thing that rings alarm bells about your post maricoco is the smallness of the house. If it was a house you could grow into, in a less good but tolerable area, or needing some work that could be done gradually, you could find that in a few years time you don't want to move.

The worst thing is feeling you really need to move and not being able to buy or sell, without big losses, at that time.

And, buying is always expensive. Better to reduce the number of steps in your journey, if you possibly can. If you do the sums you can see the impact the stamp duty, fees etc has on your costs over time.

And yet, I also recognise there is some contradiction between my two messages here. If the smaller house was in the 'nice, family' neighbourhood I was talking about, its value would have risen with the rest, due to pressure on school places, and you'd be in a realtively good position.

So much subtlety in the assessment of neighbourhoods. Don't get tied up in a FTB area though, if you can help it.

@beibermylove congratulations on moving into your house! Your situation sounds exactly the same as mine. I’m a self employed freelancer, and myself and my partner ( who is in full time employment ) received a DIP from nationwide. I have 2 years SA302s and my income went up by £6000 in the second year, nationwide seemed to use my second year (the higher amount) as their amount to figure out affordability. We’ve applied for the full mortgage now and I’m very worried we won’t get it as it seems too good to be true. We’ve gone right to our max, (literally borrowing £50 less than the max on our DIP) and we only have a 10% deposit, but it’s like pretty much our forever home, plenty of space to start a family and we wouldn’t need to move for the next 20/30 years I’d have thought. We know we can afford it as we’ve done a 5 year fix and mortgage term is 35 years (we’re in our 20s) , and the mortgage amount is only £230 more than we’re paying in rent , plus we’ve been reliably saving £1400 a month.

We really don’t want to wait as we just don’t have enough room and it really affects my partner’s mental state, and we know we can ride out any price drops. The area also is very good value for money.

But I’m worried- you said you had difficulty securing the mortgage because of your situation- could I ask what difficulty you had as I’m really worried we won’t get ours accepted. Did you get rejected from any lenders?

Thanks very much!

But that's hindsight of course. If I'd been so clever to have been able to foresee this, I'd have been rich(er). The safer option is the house you could stay in med-long term, not the reliance on a good market, or unchanging local conditions, to enable you to sell without loss.

@Bellatrix

Thanks!

Nine months of maternity leave (and they wouldn't take into account maternity allowance) brought my average earnings over 3 years way down. Some mortgage lenders wouldn't take into account my self employed earnings at all because I hadn't been self-employed for long enough (less than three years). Half of my income is in grants, which some lenders wouldn't take into consideration at all. High childcare costs were put on affordability, without taking into consideration childcare funding I am eligible for...(I'm a lone parent).

All my sources of income add up to over average wage, but one lender said I could only afford 50 quid a month :p.

So basically, as a self-employed loan parent, when I had the chance to get a small mortgage, I took it. As I said, I'm pretty sure I'll always find a way to pay my tiny mortgage, but lenders aren't so flexible now.

Apparently they used to take into consideration the rent you would be paying vs the mortgage you have, but they don't do that anymore either.

I regret not going for the 35 year option though - am also in my twenties - I went for 25 years instead for some reason!

It doesn't sound like any of these issues will affect you though so good luck :) .

Oh, but the places I was rejected from, it was clear in the first meeting (I never actually applied for a mortgage with them) - so if you have an offer in principle I'm sure you will be fine :)

Any sort of uncertainty in the economy will affect stock markets and property prices. Brexit is an uncertainty and no one knows how it will play out. It may all be fine with no change or there may be jobs locating overseas which may lead to higher unemployment which may affect people's willingness to take on mortgages. Then of course there may be changes in interest rates due to inflation and government gilts. No one knows until realistically the end of next year. If you plan to move and are reasonably confident your employment wont change then I would just go ahead as you intended anyway.

Maricoco my advice would be to pull out. I’m the OP and it looks like we’re going to be stuck in a house which is too small for us with 2 kids. It’s not a great feeling as it looks like we’ll be stuck here for a while. We only purchased 3 years ago and we’re regretting it now.

@beibermylove thank you so much for your reply, that sounds quite unfair of the lenders but I’m glad you were accepted in the end and now you have long term security and don’t have to rent!!

Thanks also for reassuring me- feeling a lot less anxious now as you’re right it sounds like a lot of the complications in your case don’t apply to us (although i do only have 2 years SA302s but our mortgage lender has already discounted lenders who require 3).

We just went for 35 years to keep our repayments sounding manageable as it is a pretty big mortgage, but the advantage of going for 25 years means you pay waaaay less interest so sounds like you made a good decision! We will overpay when we can so hopefully might pay it off in 25/30 anyway- will see!

Enjoy your new house- definitely sounds like you will thank yourself in the future for making the move now :D

www.bloomberg.com/graphics/property-prices/london/?terminal=true

I agree with PP - any changes will be v much locality and market segment (FTB, families, downsizes, BTL) dependent once the “big picture” kicks in. NE hasn’t recovered since 2008, Belfast is in reverse, London boomed but has been slipping since 2015. These are facts not speculation.

I think a very deep analysis of the dynamics of your local area vs your needs and wants over the next 5 years is a responsible thing to do.

I really don't know what to do..

We had our house valued yesterday and we have about 40k in equity. We were looking to move somewhere that is in the vicinity of better schools (particularly high schools, we have decent primaries).

The issue we have is that our house is a large 3 bedroom detached with character features, a large garden and a double detached garage, with 2 parking spaces on top. Being such an old house (1800s) it's not without its problems and I'm not in love with the area - but it's not terrible either!

However, we will never get another house of the size and character again for what we paid for it. We will still get 3 bed detached but more likely an old 'new' build (but at least it will have straight walls!).

So.. do we release equity and spend money where we are to make us fall in love again or do we do the full move and love the area. If we do either, are we going to lose out financially?

It's a very tricky time.