House prices set to fall 10% in 2 years

[treesareyellow]

We have a 5% deposit but as other posters have pointed out on my other thread, seems that might be very high risk for negative equity especially given a credit agency have reported this morning that house prices may fall by as much as 10%! It does not look good. I really pity the people selling, and other FTBs in the same situation as us where we just can’t buy right now.

I agree we need a correction. But if inflation runs at roughly 10%pa then even if house prices stand nominally still they have effectively dropped by 20% in two years.

I think a fair chunk of the correction will be achieved just by inflation.

agree

They've been wildly over priced the past year or two, I think they will fall but back to where they'd naturally be if covid hadn't happened.

It means we can’t buy a starter home

i would try & skip that stage as you want to future proof as much as possible

On a 400k mortgage you would pay at least £40k in interest over two years plus be responsible for maintenance etc. so renting now costs pretty much the same as owning. In a falling market that makes it pretty attractive…

@treesareyellow -it is very likely that house prices will fall by significantly more than 10% over 2 years. They have fallen around 10% (on average) since the peak last Summer already. The ONS has shown 5 consecutive falls now (going back to last year), Nationwide has shown falls in 8 months out of 9 and is showing negative annual growth as is Halifax. The rate of falls are likely to speed up now as interest rates filter through the economy, including all the rises of the last few months, more of which are expected this year. Mortgage have risen in the last week. Real wages are down, unemployment has already started to rise (only slightly so far) and we are likely to enter by the end of this year, or next year if not so unemployment will increase.

We bought our current home in 2007 (interest only mortgage due to nursery fees). In 2008 the market crashed and the value plummeted. We were in negative equity for years.

However that has all changed and our house is now worth more then we paid for it in 2007. Plus we moved to a repayment mortgage in 2015 so have about 50% equity now.

Moral of the story is if you buy somewhere that you intend to live in for years (maybe at least 10) then still buy.

Buy with long term in mind!

But negative equity is meaningless unless you want to sell. I’ve been in negative equity for 5+ years and have just put in an additional £10k to secure a remortgage on current values (and I’ve only had to do this as we’ve moved out and let the property). But I’ve still (almost) only spent the same as if I’d been renting, and so it hasn’t really been an issue.

If you intend to stay put in your starter home with a 20 year mortgage and a 5% deposit for 3-5 years the drop you mention shouldn’t have you in negative equity when you come to sell.

I think this graph is not correct as houses have been selling well over the asking prices in the last couple of years

A significant drop is likely only in case of a prolonged economic downturn. There is still an appetite for quality housing where I live, reasonably priced houses are selling quickly which makes me think that offers are probably agreed close to asking prices.

But whenever you buy a house you will have to pay some interest, and so you may as well get on with it, because if you finish paying off your mortgage two years sooner, you will benefit from two extra rent/mortgage free years in your later life.

Prices would have to drop a lot for it to be worth delaying another two years when you factor two more years of rent into the equation.

@wildfirewonder but whatever you over pay costs twice as much to pay back.
Getting a 20k reduction in price, amounts to not having to pay back 40k, or earn the necessary 60k to do it after tax.
In an obviously falling market, with increasing mortgage rates, it makes sense no to buy, but to save, and wait a while.
This is reflected in the massive fall in transactions.

You can buy a home, as long as you are planning to stay there for a few years. Negative equity doesn't matter unless you want to sell during that period.

House prices wax and wane but the long term trend has always been upwards because populations grow and land is a finite resource.

We bought our house late 2006 for £220k. The crash of 2008 saw the price drop by quite a bit. It seemed to take YEARS to recover. Even 10 years later similar houses nearby were still going for about what we paid. Only in last five years have we made headway.

Remember @rainingsnoring house values do not fall. What is now unfolding in front of peoples eyes is no more than a glitch in the matrix.
‘Supply and demand innit?’ That misunderstood phrase should be the national motto of the country. Lots still won’t understand why what is happening is happening.

Exactly.

Why is paying £20k in rent a year dead money but paying £20k a year in interest fine 😂

Yeah, bought my house 3 years ago and has increased by 120k in that time, crazy.

I know! There seems to be something in the British psyche that simply cannot grasp that there is a possibility that house prices can fall significantly and not regain the value, at least not in real terms. And there seems to be a lack of understanding of what constitutes supply and what constitutes demand. And a general assumption that everything will carry on as before.

Isn't negative equity an issue if you want to remortgage too? I'm sure there's a poster in negative equity that has had to accept their lenders SVR of over 7%? That is a significant jump in rate from what else is around at 4-5%.

And in a logical society they would have fallen after the financial crash, but we've had 13+ years of extremely low interest rates and QE, plus help to buy schemes and stamp duty holiday. This has now ground to a stop.

700,000 mortgages are due to come off the 2 year fixed rate in the next 6 months. Interest rates are not going back down anytime soon, and will probably never return to the ridiculously low rates of the past 13 years.

The government cannot afford to do any more "schemes" to prop the housing market up. There's only 1 way the property market can now go.

Migration is expected to radically increase.

Yes it can be, you can end up stuck on the SVR

Wry smile at the prospect of "The Government" I.e. taxpayers helping buy to let landlords with taxes because they boo-hoo can't cope. Whatever next!

Where's that tiny violin

Government has done something to help landlords, they moved the EPC deadline for needing level C to 2028 from 2025, obviously to stop some selling up

I've seen projections of both and increase an a decrease in UK population.
Whatever happens, it won't suddenly mean that everyone can afford current prices.

Migration will increase as we have no choice. It will go on increasing in Aus/NZ/US/Canada/EU and UK when growth is declining. In the UK our population has increased 17% from 2005 yet GDP per capita has flatlined.

Doesn’t mean that will increase demand for mortgages/credit supply however, as most moving here to economically better themselves won’t qualify for a mortgage. Private landlords will be increasingly taxed out the game to sell up like they are now. It will be mostly big pensions funds/banks/BTR organisational landlords.

How else was the country going to keep at a 2.4 children self sustaining population level by pricing out the youngster generation from having families of their own?

That’s the price of not letting 2008 correct, printing trillions, zero rates and letting the assets/pension/housing flow to the top benefiting the older generation.