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.

Some more than others like certain other posters on here that we’ve encountered previously…

True! I'm sure some people are more realistic and adaptable in their thinking.
The one poster I'm thinking of had a (potentially) unique take on things!

I would like to see some incentives targeted at downsizers and empty-nesters. Perhaps a relaxation on onward stamp duty for them provided that they sell to a family. On new builds, the incentive for part exchanges discriminate against downsizers.

@rainingsnoring that seems to be the internet and media though.
Despite people online jumping up and down about house prices increases , the old-timers I've spoken to IRL are more cautious. Not all of them have hugely profited either.

Investment aside the issue for current buyers depending on your area is the availability of rentals. After a certain point you just want to live your life in peace.

A decade + of being turfed out of various rentals, being unable to decorate, moving costs etc and I've had enough. We were in negative equity the day we completed (as we offered just as rates started to rise) but we haven't overstretched ourselves. Not planning to climb up the ladder or anything either, and we have insurance to cover anything unexpected.

Even if we sell at a loss (many years into the future!) I consider it a small price to pay for happiness. You never get the times of your life back.

Incentives? Why?

It's "incentives" that has caused this massive ridiculous bloody housing bubble.

How about the government just leave it the fuck alone.

The only incentive the government should have is to make sure everyone has a roof over their head. So more social housing please.

@OfficerPastiche
I wasn't criticising anyone for choosing to buy recently, not at all.
The talking up the housing market seems to be a peculiarly British thing, possibly because half the economy is the housing market in this country!
I agree that the awful mess that is the rental market has the effect of pushing people to take on lots of debt to buy. If the government had built an appropriate amount of social housing and prioritised security in the rental sector, people would have felt far happier renting. Of course, that is not what the government wanted.

@Stalkedbyzombies -I agree that encouraging downsizing when space is no longer needed is sensible but I don't agree that it should be done with stamp duty cuts.

This may be an idiot question, but I don't really understand why negative equity is a bad thing except for end-of-chain sale...

Eg:
Own £300k house with £200k mortgage/£100k equity
I want to buy a £400k house so would transfer £100k equity and get £300k mortgage.
Increase cost = £100k to the mortgage

House prices drop by 10%
Old House worth £270k (300-10%), and I'm just still chipping away at increasing my £100k equity but I've lost £30k on the sale value
New House £360k (400-10%)
Increased cost = £90k (x mortgage interest)

So why isn't it 'winning' to upgrade while the prices are depleted? What's wrong with this logic?

Thank you!

Negative equity is when the mortgage is more than the house value so £300k mortgage - house only worth £250k. You example has house worth more than mortgage.

@User15387534 OMG what a numpty I am, I did know that!! I was confusing house price slump = negative equity, which isn't the case at all.

Thank you!!

I was in negative equity early last year. Bloke in a pub said he thought house prices had already crashed and we just weren't seeing the actual sold prices yet 'coz of the lag in the data. But he seemed pretty sure that I was thousands of pounds poorer. But then some other bloke in a pub a couple of months later said he'd paid a bit more for his house than the first bloke thought he should have done. (Different house, of course ... in a different neighbourhood. At a different time). But that made me think that house prices had risen again and therefore I was actually richer. Now I'm reading this thread, there's even more people online telling me house prices have dropped again. Different houses, obviously. And none of them have actually sold for less than the owners paid for them (they always gloss over that bit ...). But they did apparently sell for a little bit less than a different person paid for a different house somewhere else ever so slightly longer ago. And apparently this means I'm certain to be even poorer in the coming months. But when I compare my bank statements to those from a year ago, all I can see is that I'm earning a little bit more than I was then, and some things like food and electricity cost a little bit more, but the amount I'm paying on my mortgage has stayed the same. Which surely means that relative to other costs, my housing costs are getting cheaper, right? What are rents doing? Anyway, I really don't know what to think. I'm so often wrong on the internet these days, I'm losing track of why all the angry renters still think they're gonna end up with bigger, better houses than those of us who've already bought. Because for that reality to come to pass, they really need lots of people who currently own, to sell, to them, not just at a loss, but at a loss so great that it buys out all the money they've spent on rent in the meantime. And even then they'll still be paying their mortgages well into their sixties, long after mine's paid off. They gloss over that bit, too. Anyone wanna speculate on what the SVR is gonna be in 2048? Not me - I couldn't care less.

[For context. I'm not trying to sell my house. But I'm already 18 months further along the road in terms of paying off the mortgage on it than if I'd put off buying. Which is not to be sneezed at.]

In my area rents have gone through the roof. The house next door about to go onto the rental market. Last time was 2 years ago and it was £825 - now 2 years later it will be £1125. They are building new houses here but my god not aimed at us locals. I've just bought a 4 bed detached for 350k. New estate they will be 700k! We are becoming an area where local people are struggling to buy so stuck in rented which even that is becoming unaffordable and I think that probably is a similar picture across the country.

If your area is becoming too expensive for locals to buy in (which is a common problem, especialy where I live in the SE) then people do have another option to renting. They could move to a cheaper area, although 350k for a detached house suggests it is already a cheap area by the standards of many parts of the UK.

As you note, renting is becoming more unaffordable too (it will reflect local house prices as Landlords will be keen to recoup the money they spent buying the property) and it won't be getting cheaper as time goes on.

What I have noticed is properties to rent going through the roof. Does this means it would not affect houses falling so much? How much can longer can people rent at these prices? The interest going up have affects the rental market prices.

@Twiglets1 although if everyone moves to cheaper areas, those areas become more expensive and the whole merry go round starts again. Yes some areas will be cheaper than others, but not necessarily cheap (or cheap enough for people to comfortably buy in).

Rents have gone up crazy amounts because some BTL landlords have over leveraged themselves and are faced with paying much higher monthly payments and some are just plain greedy even if they have no mortgage.
They can't just keep going up and up in advance of real wage increases.
There will be a ceiling where they won't get renters and/or there will be multiple defaults on rent as well as mortgages. People cannot pay what they cannot afford and many are spending/having spent their savings at this stage.

Rents have gone up crazy amounts because some BTL landlords have over leveraged themselves and are faced with paying much higher monthly payments and some are just plain greedy even if they have no mortgage.

Rents have gone up crazy amounts because of the supply has fallen relative to demand. That's how the price of anything gets set.

(All landlords are always greedy. If they can raise the price simply by dictat why have they only just started doing it? Why didn't they put the prices up in 2015, regardless of mortgage rates, and just enjoy spending the extra money on lovely holidays and handbags?)

Yes, low supply exacerbated by government policy hasn't helped for sure but supply/ demand is not the only factor in how the price of anything gets set.
As I said, if people can't pay, the can't pay and will default.

I didn't say all landlords are greedy, I said some landlords are greedy. I'm sure you know why rents are rising now rather than back in 2015. I'm sure I don't need to explain this.

Removing the benefits cap will only cause landlords to raise rents even further in parts of London where people have been priced out.

I think we will wait til next year now to start the process again, try and pay as much off on current mortgage. Hopefully will have a clearer picture of what prices are doing.

Rural rents went up by 40% during COVID with more WFH. We watched them rocket up whilst looking, twice. We now pay 1600pm for a house that wouldn't have got more than 900/1k 2.5 years ago.

That was just pure greed based on demand. Nothing to do with over stretching themselves.

Now you get an interest rate crisis and rents become a joke. What you can get in comparison to our rent, even 11 months after moving, is pretty disappointing.

I'm pretty sure that supply and demand is exactly the only factor in setting the price of anything! Demand is defined as the consumer's desire to purchase goods and services and willingness to pay a specific price for them. If tenants can't pay then demand goes down.

(As far as I can see the reasons rents have gone up since 2015 is all to do with issues of supply and demand, I don't know if you're thinking of something else.)

Buy something you can do up extend etc so if you do lose money you still have a deposit if you have to sell. Buy something you can rent out (we still own the previous 3 houses we have lived in) or better yet push the boat and buy your forever home.

I don't see prices falling, projects seem to have frozen in prices over the last few months but complete ready to move into houses are very much still rising.

Because the market sets the price. You put your rents up above the market and you’ll just get voids as no one will be able to afford to occupy them.

So 2015 rents were at 2015 levels alongside with the earnings/cost of living/bills ratio. If you tried to charge more then, you just wouldn’t have any tenants they would go elsewhere.

Now however mortgages and rents are rising above people’s ability to finance them and afford that same ratio. It gets to a point where half the people in the country cannot not afford the basic necessity of shelter.

https://www.walesonline.co.uk/news/uk-news/half-people-paying-rent-mortgage-25966457.amp

Yes desperate people cut back and will pay more rent and there will be more competition for fewer rental properties but that can only go to on so long and is area dependent. The cushion to finance an unexpected cost like a car service or a household bill becomes untenable.

There is a ceiling for rents (which is LHA on housing benefit). You can fit more people in (HMOs etc) but you can’t charge more and more. This alongside government taxation will force most private landlords out.

What it means in the meantime is that more people will have to start renting out rooms instead to share costs of living - lodgers basically. The tax incentives are already in place. Things like rent controls may come into place once Labour get in (again more pressure on landlords).

House prices will correct eventually in line with historical earnings affordability (5-6 times down from its 9-10 today), but not many will be in a position to take advantage because of the contraction and cost of credit conditions (no more easy options at low rates).

Big organisational pension funds and banks will eventually become the landlords and will pick from the pieces with the likes of people defaulting (essentially porting people over to IO mortgage options is renting) and the likes of build to rent.

Thanks @Lightscribe , you explained this really well.

I guess the point I was trying to make is the idea that landlords can just put the rent up because they want to and they're greedy is wrong. Landlords don't set the rent any more than tenants. At some level both sides are greedy. Landlords want to charge as much as they can and tenants want to pay as little as they can. The actual rent gets set by the market at a rate which achieves a balance between supply and demand.

Negative equity is only a bad thing if you plan to sell.

Historical price rises of housing in the Uk for the past 100 years averages out at a smidgen below 1.9%, accounting for inflation.

As long as you can afford to buy and factored in any potential rate rises, don’t sweat it.

Personally I don’t own property, have always rented, because I get far more return on investments, 6 to 9% after inflation and that gives me greater flexibility and accessibility to my money than a house would. As a result, just about to head off on a world tour and as a byproduct of asking my partner to give up work to come with me, I will clear her mortgage Of about £190k and pay her ni annual charge to ensure she doesn’t miss out on state pension. simply won’t make a dent in my money.

Ultimately, a house is just a house, and it’s performance as an investment is not fantastic but more so it’s a psychological security benefit. this is why most FI don’t really advise paying off your mortgage at the earliest opportunity, whether that be overpayments or lumps sums.

But the main point I repeat, negative equity is only an issue, if that’s the point at which you sell.