Is this the start of the house price plummet?

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Slowly but surely the papers are reporting reductions in line with the projected economic difficulties.

The Telegraph has today published an article which says those under offer should 'definitely try to negotiate a reduction'. The 'expert' then goes on to suggest trying for a reduction of 10-20%.

Is this the start of things to come?

www.telegraph.co.uk/property/buy/buying-house-coronavirus-advice-lockdown/

@Lizziethe

I would like a picture (or description) of the robbing butcher. He sounds quite intriguing.

@Smallgoon @Desiringonlychild

Yes, of course your LTV and repayment period affects your monthly mortgage amount but if you do the math, it’s still cheaper to repay someone else’s mortgage amount of £200k (aka rent) than your own mortgage amount of £500k for the same property! The reason the landlords cost of buying property is £200k is because they bought it years ago and since then London property prices have risen. In addition to this, most people also do not factor in the cost of maintenance etc into the equation when owning a house. Like a lot of things, it is a financial fallacy to think it’s better to buy than rent - it’s always dependant on the circumstance.

And btw, if most people could put down a 20 - 30% deposit in London, they wouldn’t be renting in the first place. For 99% of the FTBs in London, that’s not an option unless you’re being funded by bank of mum and dad.

@Smallgoon, can I ask if you had a substantial deposit/long mortgage/shared ownership to have those payments?

@thequantofmontecarlo I had a 15% deposit. It also depends what kind of place you buy. I bought a purpose built 2 bed flat (not council). In my area, the period conversions are £500k but the rent is the same so yes it would be more expensive to buy than rent. Also with large family homes in East Finchley, renting is cheaper than buying. Am sure it's the Same in Hampstead, Camden..

Actually rent has nothing to do with the landlord'a investment. My seller bought the flat at 100k(short lease which he extended) but he still charged £1400-1500 to the previous occupants. Its to do with what people in the area can afford.in London, rule of thumb is 50% of average earnings in the area.
And for large family homes, the rent is higher because landlord knows he can rent to 3-4 professionals than a single family. 3-4 professionals can usually afford more than a single family. That's why the prices of smaller places that cannot be converted or extended are more competitive. People like them cos it gives you flexibility and can add value but unfortunately if you can add value, so can a landlord and for a landlord, an extra loft room is not just a room for a second child, a loft room is extra £700 a month and he would pay accordingly.

That's why if I do upgrade, I would buy a small up 2 down that has limited space to extend and would be less attractive to landlords with more money. Don't need the extra room so might as well save the money.

If prices drop those who already got houses will stay put,if you have negative equity you can't move.
If prices do drop it will be for a short time,may be affected if people loose jobs so less people are looking to get a foot on the ladder.

If prices drop those who already got houses will stay put

That depends when you got on the ladder, I would prefer a drop if what I buy next drops.

I wouldn't let anything put me off buying a house right now if I was renting and considering buying. I have a sibling in this position and they now don't want to buy (were seriously looking before lockdown) as they're concerned about immediately losing value of the market falls but, in the meantime rent will cost them far more than a mortgage, and they are not looking to move again for 5-10 years so it would even out.

We have a big mortgage but goodish ltv and so far secure jobs. The house has been worth every penny for us and the kids in this situation - garden, nice neighbours, kids able to play in road, decent office and wfh space for us all. If we have to buckle up and stay here for years we will be OK I hope.

I do think mortgages are going to be trickier to come by though, so if you have a mortgage in principle and can make the next move, I would.

The market hasn't fallen yet, so I wouldn't put in ridiculously low offers as sellers won't necessarily being seeing the discount in what they're buying and will turn you down. There's going to be a shortage of properties to buy as people opt to stay out so you need to offer realistic sums to secure I would think.

This is very different to the 08 crash

We had bought our first flat a few years before like many others with a 95% mortgage, some people were getting 100% mortgages at that time.
Interest rates were manageble.

Then 08 and interest rates shot up. M
Our £700 mortgage went to close to £1500 and we were only on salaries of about £16k a year at the time

It was close to handing back the keys, but we lived off beans and toast and never went out.
People would donate us toilet rolls and toothpaste to help out.

We would never say no to any family offers of a dinner with them.

We ended up keeping the flat and things became manageable again as interest rates dropped again

We ended up with huge debts from the moments we could afford to live and had to put things on credit card though

Unless interest rates do the same this time round I really don’t see people handing back their keys

People also haven’t been able to take out mortgages worth nearly the full value of their house so people shouldn’t be ending up in negative equity like what happened so badly in 08

What will happen will be like each recession
Major house builders will circle the wagons and leave the houses not built until things pick up.
People who wanted to move rather than have to will stay put.
People who have to move will hopefully be able to port neg. equity.
First time buyers will have less choice but lower prices.
Eventually some homes will be repossesed.

@Rebelwithallthecause was that cos you were on variable rate mortgage..almost everyone I know is on fixed term. I am on 5 year fixed term

@Desiringonlychild "in London, rule of thumb is 50% of average earnings in the area"

This is simply not true. The average renter in London spends 36% of their income on rent so how could rent be 50% of average earnings for an area? www.statista.com/statistics/752217/household-rent-to-income-ratio-by-region-uk/

Again, I understand your specific anecdote of landlord pricing at a higher level but the average rents in both Camden and Finchley are, usually, lower than the cost of buying the same property with 10% deposit and 30 year mortgage. The exceptions to this are usually when the property is new/bought in the last 3 -4 years when the market was at peak.

From an earlier thread I posted on:

I don't understand why people peddle these delusional myths across MN. Maybe there are a lot of real estate agents on here . Here are my favourites:

1. "house prices won't fall due to increasing demand".

House prices in the UK are a function of availability of credit. That's it. Please please please do your research and you will understand what I'm talking about. When interest rates fall and high LTV loans, "Help to Buy" etc. pump credit into borrowers hands, they go out and spend more, that drives asset prices. The Bank of England estimated in 2019 that a 1% increase in interest rates would result in 20% drop in house prices.

1. "in the long term house prices always increase"

It is economically impossible for it to exceed a certain affordability ceiling for too long because with each % increase in price, lenders will have to push more credit out for borrowers to buy the house and this means more money spent on servicing the debt, which drives less spending on other things contracting the economy or greater borrowing to keep status quo, which drives more money spent on servicing the debt etc. At a certain point, this "bubble" will pop (a la 2008) and we will have a crash.

1. "in a recession most sellers will "sit tight" and not sell and therefore house prices won't be affected"

If only recessions worked like that. No matter how "tight" people WANT to "sit", recessions usually mean lay offs, pay cuts, people in insecure jobs so unwilling to service big debts etc. and there are always forced sellers. The smartest sellers are the ones who move first, realise a recession is coming, sell as quickly as possible and then "buy the dip". The inconvenience of moving twice and some money spent on rent means usually these sellers tend to be property investors.

@Desiringonlychild
We were on fixed to begin with but we couldn’t remortgage to another fix due to the lack of equity and reduction of mortgage products so ended up on the variable rate

Something that will no doubt happen to others who took out 2 year fixes 2 years ago

Many people won’t have fixed for longer

@thequantofmontecarlo that was something i took from a landlords facebook group, and various members of the group who rented out flats in London said 50% was their benchmark. Also reflected in this article:

metro.co.uk/2018/11/23/how-much-of-peoples-salary-is-being-spent-on-rent-in-london-8169612/

The data has revealed that when renting a one bedroom property in Camden, 61 per cent (£1,944.28) of the average person’s salary within the borough is spent on rental costs, for a two bed the percentage is 46 per cent (£1,471.05), for a three bed it is 51 per cent (£1,614.44) and for a four bed it is 60 per cent (£1,911.65).

Of course people share in order to reduce costs but that shouldn't affect how much a standard flat is for a person who chooses not to economize. For example, a family of 4 (1 boy, 1 girl, parents) should rent a 3 bedroom place for £1800 and that would be the estimated cost for a family living in zone 3 London. We shouldn't base our measure on families who live in 2 bed flats, or families who squeeze in HMOs.

@thequantofmontecarlo not to say families can't or don't live in 2 bed flats. There are quite a few in my development, but there is usually 1 child or the two children are young and headed by a single parent. But in London, there is a lot of overcrowding and this is testament to the fact that most people on average incomes would be spending up to 50% of income on rent unless they squeezed.

@Rebelwithallthecause everyone thought i was delusional for opting for 5 year fixed. but hopefully the worst of the crash would be over by then and more time to accumulate equity.

Looking at central manchester and the adjoining lower areas of Salford/deansgate etc,,they are still throwing up apartment blocks like crazy. Who is going to live in them? If there is capacity to fill them all then where are those people living now? Are they all living with their mothers? Replicate that over the country where flats are being built.

BittersweetMemories, Aberdeen by any chance?

@serenada Yes, well I was trying to give a like for like comparison. I've purchased a 1 bed flat in London. My 1 bed flat would cost £1200 to rent (I know this because it's what other flats in my block charge). I too have rented in HMOs before, my last rental was a 4 bed home on the outskirts of brixton (so zones 2/3) and my rent was £820 a month. It's still cheaper for me to have a mortgage. Truth be told, I've never paid less than £700 a month on rent. The only time I paid less was when I was living at home and paid my parents upkeep.

@thequantofmontecarlo Depends on what your maths are actually based on. Why do you assume that we all purchased £500k properties? Perhaps the flats that you're looking at are in this range, in which case, yes of course, the mortgage repayment will be high or similar to that of rental rates. I purchased my one bed flat in Forest Hill for £315k - I could have purchased a more expensive flat, the banks were willing to lend me more than I ended up borrowing but I decided for myself what a desirable mortgage repayment would be, and I stuck to that criteria. Your point on the additional costs of repairs etc is a little moot if I'm honest. These come with the territory. When you're renting you still have to pay bills, which can be quite high, and you still have to pay a deposit up front, which the landlord could dip into if they find any issues. The additional charges that I face as a homeowner I can contend with knowing that I'm saving money by not having to rent, and knowing that essentially the money I'm putting in actually benefits me in the long-run. Oh and I didn't need mansplaining on how landlords will have a much lower mortgage, I'm quite au fait with property prices being a fraction of what they currently are 15 yrs ago... - the one thing you should also bear in mind with landlords, is that a fair few buy to lets will be on a interest only basis, so they're actually making a killing on the rent they charge. When they've decided enough is enough, they'll simply sell. They'll have so little equity in the property but will make a stonking profit regardless.
I take on board your comment about people not having significant deposits. But it's unfair to presume those of that did relied on bank of mum and dad. I started saving solidly from the age of 23 and was able to purchase just shy of my 35th birthday. I didn't rely on Mum or Dad in the slightest. I wasn't even allowed to live at home rent free (which I have no objection to) but just highlighting that I wasn't given a helping hand. In an ideal world I'd have gotten onto the property ladder much sooner, but we both know that isn't easy.

@Lightsabre Hi, yes I did have a significant deposit in the 6 figure range. As I explained, this was down to solid saving. Full disclosure, I was made redundant a few years ago and put my package straight into savings, but aside from that, my deposit was my own money, no inheritance/assistance from anybody else.

Then 08 and interest rates shot up. M
Our £700 mortgage went to close to £1500 and we were only on salaries of about £16k a year at the time

Interest rates fell from there peak in 2007.

I think you had a mortgage company problem rather than a national interest rate problem.

I would check out your paperwork if you still have it.

We had something similar happen in the late 80s early 90s and managed to get a substantial refund as the mortgage company had been over charging us

We've just exchanged, at the same price we offered nearly 6 months ago. We took the view that the house was exactly what we wanted, and even if house prices did fall 10-20 percent, we'd take the hit because it's the same amount as a couple of years of the rent we're paying now (it's taken us a year to find the place we wanted to buy) for a place half the size.

Over time it'll regain the value, and in the meantime we will have been enjoying living there, rather than paying out rent for a place we don't even like.

I think that prices will fall, but I'd be surprised if it was at the 20% end - people always need somewhere to live.

@smallgoon @thequantofmontecarlo I think a big factor is OP is looking at north London, and north London is much more expensive to buy than south london, despite rentals being fairly equal. I think it may be the schools and the tube network.

But i did buy in east finchley, 2 bed flat for £392K. Still cheaper than rent. Mortgage is £1020, Rent for the same flat is £1500. I can have a baby without moving which would be the case if I rented as I would probably have rented a 1 bed flat. I also bought in catchment for good schools and a bus route to a good private school. If i rented, I would be unsure if I would still be able to live there when my child reaches school age.

I think a lot of people with children or planning to start a family would buy even if it was equal or more than renting. Unless you are renting a 10k per month home a la Justin bieber (don't think you have a high chance of being kicked out). the previous occupant of my flat was a couple with a young baby and a dog, I tried to buy another flat and the estate agent lied to the tenant that I was an investment buyer and she could continue living in her flat with her baby. I concluded that landlords this side of north london really like kicking out families with young babies. Maybe cos babies cause wear and tear.

@Rebelwithallthecause Gosh, what a awful period you had to go through after the '08 crash. Glad you came through it.
I think the other thing to remember, which you touched on, is that back then banks were issuing 100% mortgages, which was simply criminal, and just gave false hope to those struggling to get onto the ladder. The minute property prices crashed, there were hundreds of thousands in negative equity who were having their properties repossessed.

Totally agree @smallgoon

At least anyone who has a mortgage in recent years have had to put a proper deposit down which should prevent most from falling into negative equity.

The stress tests of affordability also came in which should prevent people from needing to abandon houses again