Will house prices drop massively? About to exchange/complete - please help!

[clong742]

Due to exchange and complete on a house I love which has been in the process for months and I've planned so much for. It's been pushed back a few weeks due to lockdown. My dad is generally quite negative and always looks at the worst and tells me we will lose a heck of a lot of money if we go ahead as house prices will drop massively. For the type of house it is I can't see it dropping that much but I'm definitely no expert. I love the house and would devastate me to pull out, Id been looking for about 6-7 months prior to finding this house and have not seen a single other one that I like. Really need others advice who have more idea on this please! It's got me worried sick. We have signed all paperwork etc only thing left to do is request funds etc, we will be exchanging and completing on the same day.

In from the north east and where I'm looking there is either a ton of run down rentals for sale or there very overpriced or need loads of work done which I don't want. This house is perfect and ticks all of my boxes.

If it's for the long term then yes I would buy it ...
Otherwise no

Are you in a chain? Could you all agree to take a 5% hit?

There's no no chain, we are FTB and sellers are moving in with relatives for time being

It sounds like you love the house, so I would buy it. O
Dp and I bought our flat in 2007. In the economic

Sorry posted too soon. In the economic crash the following year our flat went down in value.

We didn't regret buying when we did, as after the crash, the conditions for getting a mortgage got stricter, and do lost his job, so we wouldn't have been able to buy the flat at the lower price.

Also a strong reason why I don't want to prolong any longer than necessary or this pull out it because we are currently living with parents since we moved out of our rented home, as much as I'm grateful we were able to do this, it's so difficult with the lack of personal space and being limited to a bedroom, if we had to be here say another 6 months - 1 year I think I'd seriously crack up and it would damage our relationship!

The Bank of England are saying we are in for a deep and sharp recession BUT it will be TEMPORARY.

So you could gamble on pulling out and trying to get it or something similar again down the line - and you will have to guestimate when we are at the bottom of that drop. It might be 6, 12, 18, 24 months - no one can tell. Calculate much rent would you waste during that time and how much emotional stress would you endure before you make a decision to pull out.

If you have found a little gem as a forever home amongst the dross of offloaded BTLs - I would personally stick with it.

Sometimes the best emotional outcomes trump the technically better financial option.

Think if you had been your new home for the past 6 months before CV happened - would you be devastated?

You know whether this is one of many houses, or whether it's "the one for you". It sounds like the latter, you were happy with the price, so I'd go for it.

Just need to Google and there are hundreds of articles stating the same thing, only one way prices are going I'm afraid....

www.cityam.com/uk-house-prices-set-to-fall-as-coronavirus-sends-purchases-plunging/

@gutterton I've been thinking about it that way aswell, I think we will end up just taking the risk and going for it, my partner is hoping to get the 80% wage off his employer but has literally only just started working permanently for him so not banking on that, we have my wage though which is not great compared to his but could just cover until he's back to work. We've got a good fixed 2 year interest rate aswell which is around 1.8% which I guess will rise a lot if we were to pull out and start again. As much as my parents say we can stay as long as we need, I think they are desperate to get their space back aswell as all our furniture etc is bursting out of there house at the moment, and it's a pretty large house they have!

If you plan to stay there, i would still go ahead. Even if the market takes a hit now, in the long run it will recover.

There's no no chain, we are FTB and sellers are moving in with relatives for time being

Would you be comfortable in that case of renegotiating?

They might be v relieved that you don’t drop out. If they are buying later in the year they will be £££s up - so might be OK to take a dent. That’s how many of us are running out businesses - all taking a little hit for each other.

This will be our first home and one which we intend to bring up a family in. I do plan on this being a long term home, not forever I don't think, but certainly long term.

If this was us when we were trying to buy our current home I would still want to go ahead as it is a long term home for us and I fell in love. It will all level out again over the next year or 2 anyway.

So sorry this is happening with your house right now, so hard.

We bought our first house at the peak in 2006. The value probably went down in 2008 but even in an average city it had gone up by 2016.

I'd go ahead given it's a long term house if you can still afford it.

I don't mean to be the voice of doom but, even if it's your dream house, I would hold off from purchasing it at the moment if I was concerned about house prices.

House prices, given all the economic indicators, are heading for a 10 - 15% correction over the next 12 - 18 months. This is essentially inevitable. Some have compared this to the recession back in 2008 and believe that was worse. I politely disagree. When Lehman Brothers failed, we weren't asked to stay indoors, business didn't go bust because people we're buying goods/services (they went bust because they couldn't get loans and the interest rates skyrocketed) and we were able to fix the problem by propping up the banks and making sure they lent to others. This is a very different beast. The usual methods of remediation aren't working. Despite the government guaranteeing workers income, banks are unwilling to lend money as they sense inherent weakness in the economy and a significant increase in household debt. There isn't an economic model we can use to predict how we will recover but, if there's one thing economists agree on, it is that this is a recession that is worse than 2008 and it will have an impact lasting till late 2021.

Those that expect it to bounce right back in the short term should remember that in 2008/2009 when house prices crashed 15%, it took 7 years to recover and that was due to interest rates being pushed to all time lows and money being "cheap". There are a number of reasons why most economists agree that we're nearly at the ceiling for house prices (i.e., if you buy now and expect it to rise beyond the current value in the next 15 years, it's unlikely, once you've accounted for inflation):

1. The current average house price to average income ratio in places like London is unsustainable. This is why house prices in London, on net, were fairly stagnant over the last 2 years (despite Brexit making properties 12 - 20% cheaper to overseas buyers due to sterling's weakness).
2. Incentives like Help to Buy etc.are being scaled back from April 2021.
3. Buy to Let costs are rising as landlords cannot claim tax for interest rates starting April 2020.

If you buy a property now, even if it was the home you'd live in for the next 15 years, and the market recovers, you wouldn't make any real "profit" from selling it in 15 years time, after factoring in inflation, as you're buying at the price ceiling.

@newwbie

what about a doer upper?

What are your opinions on mortgage LTV offers after this? Will they be keen to get ftb onboard at 90/95% mortgages or only go for those with a sizeable deposit?

Or @newbie111 you could look at it this way: if you are as certain as you can be that you can afford the house, why wouldn't you continue with the purchase? If the scenario you describe happens, then a FTB wouldn't be able to get a mortgage for an extended period of time due to not being able to meet the LTV ratio required. So instead shelling out on rent and not having the opportunity to build up any equity at all. If it's a long term house surely you'd be better buying whilst you can get on the ladder?

I'm afraid we're probably going to disagree on the economic forecast though, because my opinion is very different: a short sharp recession, but relatively quick recovery. All the indictors from both my line of work and my DH's are currently very positive: Feb was our busiest month for the last 2 years and March looks like it has been busier still. Feb because China was put of the game and March because China are starting to ramp back up so are buying again. Our order book for April is almost full already and we usually work to a two week lead time (no we aren't making ventilators).

Add to that the pent up demand from those who put off buying because of Brexit and the fallout from house developers stopping building houses, plus the current lack of housing stock availability...

newbie but if OP buys because it's a long term home, a perfect house for her where she will feel happy (instead of staying with parents) rather than investment, she's not after making money on it as a priority - even if your 'worst case scenario' forecast is right regarding 15yrs.

But I really don't think it will take that long to recover.

@Iwannabeadored20 It really depends on what the potential value for the doer upper would be once you’re finished. I’d use 15% below the current property prices as a benchmark.

Regarding mortgage LTV, I don’t think banks will be keen to lend at 90-95% LTV till late this year/early next year etc. The current risk they are carrying on their books is too high and that’s the reason why they have withdrawn higher risk products. This is not a bad thing though. High LTV requirements will drive down house prices.

@MaJoady I really hope you are right :) The key reason economists don’t expect a V shaped recovery is because the there are a significant number of jobs being shed across sectors that will not be reversed overnight when the lockdown ends.

If you love it, have secured a good low-rate mortgage and you envisage it being your beloved home - so much so that in 18 months time you will say ‘I don’t care that I lost 10%, this is my home and it makes me happy’, or if you’re currently paying rent - go for it.

My dad is always like ‘oooh, wouldn’t do THAT,’ a lot of it linked to finding it difficult to comprehend modern prices, low rates and market forces. I educate myself as much as possible, take cautious choices, then crack on.

If however, your father is a successful financial advisor and your house is a large derelict gothic folly on a cliff edge with a 95% mortgage, def listen to him!

@CatAndHisKit Yes, if the OP is willing to treat this as a necessary purchase rather than an investment and not be emotionally attached to the “value” of her house. But, we as a society, are significantly affected by house prices as we treat it like an investment, it’s an obsession, and that means while the OP might feel good in the short term about buying this house, this might be a decision that weighs heavily on her in the long term.

Ps. As I mentioned earlier, I really do hope you are right and this recession is a short contraction rather than a prolonged dip. Unfortunately, from what I’m learning from my circles, that might not be the case.

All things being equal I’d say go ahead, for all the reasons listed above by pp. But unfortunately all things aren’t equal right now, it’s a very uncertain situation.

We don’t know OP’s LTV or job situation. If OP and/or her partner lose their jobs as a result of the recession and prices plummet and banks tighten lending then OP could find herself in trouble.

If OP can afford the mortgage on one salary, has a lot of slack in her budget, or can rely on parents to help out, that would help a lot.

The other thing I would say is that although one can plan to live in a house for years sometimes circumstances change and you need to move - not a big consideration but something to bear in mind.

People have been talking about house prices dropping for years now, it hasn’t happened yet, I’m not saying it won’t, but imo you shouldn’t put your life on hold waiting for something that may or may not happen and even if it does you have no idea how much it will affect your life good or bad or how long it will last.

We purchased a doer upper last May and it was the best decision we ever made because it got us out of renting, gave us security and is a good investment. Even if prices drop we can stay here potentially for the rest of our lives and we’ve done a lot to the house to increase its value, we also borrowed way less than our affordability so I’m not overly concerned about negative equity or interest rates when remortgaging.

If you’re buying at the top of your affordability and/or you don’t have job security I would think again, not because of prices dropping, but because of how you would afford to pay your mortgage if rates increased substantially and/or one of you lost your job.