UKC

So Abbey have announced they are going to lend 5 X salary and other lenders will follow suit. I predict this will result in a surge of first time buyers. The result will be another rapid rise in house prices as demand increases over the next 12 months followed by a crash similar to that of 1989 as reposessions start to rise as more and more people find themselves overstretched. Even more catestrophic at such a time would be a rise in interest rates.

I don't know what the solution is to first time buyer's problems, but it is certainly not giving them loans they will be unable to repay. If the status quo continues property prices will remain stagnant until the incomes of FTBs rise to a level which will enable them to get on the ladder again, which although painful for FTBs in the short term is a much healthier market for all (including FTBs) in the long term.

In reply to Trangia: I would agree a crash will come but when is hard to tell. Prices have defied gravity for some time now so when it does come it will be a blood bath. Many will have forgotten the last time or had no experience.
The buy to rent market wasn't so large before and this will no doubt have a big influence

It is often those that are mortgaged to the hilt with multiple properties that are in the biggest denial that prices might crash. Lets see.

In reply to Trangia: If you're talking about the BBC report then they did state that lenders had been lending larger amounts based on affordability for some time now.

And sensible it is too. I got my mortgage last year and wouldn't have been able to afford a halfway decent house without my mortgage being based on my ability to repay rather than my salary.

I'm not a first time buyer but was buying a home after a divorce so was I lucky enough to be able to put down a substantial deposit which enabled me to get that mortgage.

In my opinion affordability is a much better criteria to base lending on than simply by how much an applicant earns as it also considers existing outgoings, loans and indeed living costs when formulating the loan amount.

Cx

In reply to Clears:

I agree affordability is the crux of the matter. The danger is that the lending market is so competitive that a 5x multiple as the norm will result in too many people slipping through the checking system. There are a lot of people out there with 3.5x income loans who are getting out of their depth.

In reply to Clears: Surely the price income multiple indicates your ability to pay. Low interest rates have meant many have dangerously leveraged themselves so that a rise in rates to what represent more long term average levels will kill them financially

3 times earnings was the established level and for average interest rate conditions was about right. A mortgage is after all over 25 years in the norm, these low rates we have enjoyed cannot last forever

In reply to woolsack: No because it doesn't account from income from other sources. I was fortunate enough to have my salary plus additonal incomes that wouldn't have been traditionally included into the equation. This meant that my repayment affordability amount increased.

Ok so not everyone is im my shooes and my first mortgage was based against the trditional salary multiplier and we found it TOUGH to meet the repayments.

The problem with FTB's is that they frequently make the mistake of underbudgeting for their outgoings. Thinking that they can make sacrifices which simply fail to materialise leaving less money than originally budgeted for the mortgage at the end of the month.

Cx

In reply to woolsack: Alo lenders are prepared to lend over longer than the traditional 25yrs now, basically until you reach retirement age.

Cx

In reply to Clears: Japan has had 125 year mortgages for some time now. Leases are usually 99 year so I suppose such longterm agreements maybe the way forward

I think the big question with the property market is will it crash or will people leave in an orderly fashion. I'd say its likely there will be a stampede

In reply to woolsack:


Actually you may be onto something here. Most of the buy to let market tenants are would FTBs who can't afford to buy. If the criteria for getting a loan improves for FTBs (the 5x factor), their tenants will not renew their tenancy agreements and buy instead. This could result in a shortage of tenants causing a scramble of private investors trying to off load their non-income producing properties. As you say the buy to let sector is large, and a destabalisation of this sector could result in an over all drop in property values.

In reply to Trangia:

Shhhh. Stop scaring people. I'm selling in about a year and i need to make as much as possible to go and bum around in Spain for a few years. It's talk like this that sets these things off.

In reply to Trangia: The important point about the BBC report is that Abbey are also lended 5x the combined family income, which is a huge increase.

In reply to biscuit: Yeah, I wanna sell high (in April) so the crash can come in May. Perfectly happy to live with the out-laws for a month or two.

In reply to Trangia:

i'm sure that applies to some people but i got a mortgage of 4x although i'm sure 5x would not have been a problem. it depends if you're buying a dinky little studio or something with more bedrooms (and hence letting potential) for the same money.

In reply to Trangia:
roll it on.

the sooner it comes to a head the better

In reply to biscuit:

and its the presnt situation which is causing a lot of stress and hardshit

roll it on

In reply to biscuit:


You've neatly underlined the problem with the UK housing market. We tend to regard it as an investment market rather than a market for providing a home. First time buyers are desperate to get into it. We call it the "property ladder". The name itself implies an upwards movement, and those of us who have been lucky enough to have got on it are now terrified of upsetting our nice little apple cart even by talking about it.

As a property owner I am just as guilty, but it's all very scary how this situation has evolved.

In reply to Anonymous:



Nope. May will do fine, thanks.

In reply to Trangia:

We seem to have severe 'big number blindness' when it comes mortgages.

Affordability is all about ability to borrow. So borrowers/potential borrowers slowly come round to think in the narrow terms of how much can be borrowed.

Trying to SAVE the size of your mortgage out of your post-tax, post-interest, post-living-expenses income in a low-inflation environment will IMO turn out to be a long and soul-destroying grind for millions of people.

Of course some people are not bothering to save anything and have interest only mortgages. This works fine with inflation.

regards
lowerSharpnose

In reply to Nick Smith - UKC: I dont understand the worry about this thread, when I bought my first house they offered us 3 times my salary plus twice my partners, very close to 5 times. Only a problem if your partner has to cease work to have a baby, by which time hopefully the main wage earners salary would have gone up!

In reply to Trangia:

Ok, so they lend 5x income, for couples or individuals that earn £50,000 a year and have a 25% deposit. So, if you want £250,000, you already need to have a £62,500 deposit. That suggests to me that you've been saving for a pretty long time already, so fairly comitted to actually buying somewhere, and used to making sacrifices towards that.

Given that repayments (according to the BBC) on that amount are going to be £1400 per month, it doesn't strike me as something that people are going to rush into.

Various other companies have been doing 5x income for a fair few years now, especially on Graduate schemes. The world has not ended, nor property prices crashed.

The BTL market has slowed down considerable, as prices have simply risen too high. Given a 10% depost, there needs to be a certain profit margin between mortgage and rental income before lenders will give you the money. This has been eroded so much, that in certain areas BTL is no longer possible.

In reply to Al Evans:

They are now talking 5x COMBINED salary.

(You x3) + (partner x2) is a lot less than (you + partner) x5

In reply to biscuit:

There is so much building going on in Spain I suspect we are approaching a saturation point and prices will fall eventually, so hang on if you are going to buy here (though property is still far cheaper than an equivalent in the UK at the moment)

In reply to Trangia:

a couple of points (neither especially profound)

1) prices are irrelevant unless you are trying to buy or sell. I know this sounds straightforward but if you live in your home and aren't planning on moving immediately they really don't matter - or if you are planning on moving and buying then the prices will still be relative, it's the people who have BTL or happen to be letting their property to cover the mortgage that get hit. For everyone else it's just a conceptual price change, in fact if they crash there will be a lower absolute value between their current property and their next homes.

2) Prices will crash, it's just a question of when. I bought my flat 4 years ago and people said they were about to crash then. They haven't yet, but everyone know's they will.

In reply to Trangia:

a massive housing crash is currently the only thing I'm banking on to be able to get onto the housing ladder at the moment... bring it on.

(oh, and for anyone who might miss the tongue-in-cheekness of that, I am *joking* and don't wish financial destitution on anyone)

In reply to CJD:



Neither do I but bring on the crash and my dream batchelor pad will become affordable!

the problem with trying to time a house price crash is that there are so many factors affecting demand and supply that can change unexpectedly thus bolstering price rises/falls. however there do seem to be some massive imbalances with the housing market.
firstly, sentiment based, an obsession with owning bricks and mortar that is largely based on an unfounded belief that house prices always go up. due to the duration of the current bubble this belief has been reinforced and you oft hear the phrase "i'm afraid i'll be priced out of the market". By definition if new entrants to the market are priced out at the bottom level, then eventually the market will collapse as this will work it's way up the whole chain. the baby boomers are not going to find it so easy to sell their 4 bedroom suburban detached barratt homes.
BTL has to some extent moved to fill some of the FTB void, however successful BTL relies on yields being sufficient to cover mortgage costs which increasingly they are not. New build city apartments outside of London, popular with novice BTL, are already recording losses in price and insufficient yields to cover interest in parts of the country.
A massive factor supporting demand, as mentioned in here is the relaxing of lending criteria coupled to historically low interest rates. This has allowed people to really stretch affordability taking massive loans at low interest rates.
The problem comes as we have now entered a trend of rising interest rates, worldwide, due to mounting inflationary pressures. if people are struggling at current rates they are in deep doodah if we get up to even modest 6 to 7% rates which are pretty much long term trend rates. That this is already occurring at 4.75% is apparent from the record number of bankruptcies in full swing, partially due to relaxed bankruptcy laws, but also due to the massive swelling of debt levels under emergency low interest rates.
At the end of the day though the housing market is inextricably linked to the state of the economy. The problem here is that the economy has been massively sustained by debt funded consumer spended and debt funded govt. spending. As with all debt this must be paid back and by definition as debt has interest paid on it this can have a disproportionatly large effect on spending levels and thus the fortunes of the economy. The buy now pay later mentality of the average consumer, and the government will bite everybody in the bum imo.
personally believe if we go into a recession, and we are due one with many indicators moving in that direction, a Japan style of prolonged house price deflation could result.

In reply to galpinos: Anti social attitudes and behaviour from the hoodied youngsters today must in part come about because they realise there is no way they can own their own place on the salaries and wages they are likely to earn. They need to become stake holders in society.
Creating affordable housing is a pipe dream all the while affordable is deemed to be in the 189,999- bracket

In reply to woolsack: That's a troll, right?

In reply to woolsack:

Keynes said, "The market can stay irrational longer then you can stay solvent."

Dammit.

In reply to Trangia: The other factor which will have a big impact is the other debts such as credit cards and loans and we in the UK have such a scarily high proprortion of Europes total. That may be the straw on the camels back.

Anyone who is willing a crash should consider their job. A property crash might seem like an opportunity to get on the ladder. Neutral or negative economic growth will not likely present an opportunity to snap up a bargain unless you are one of the parasitic vultures such as a repossession agent or receiver/administrator who profits on financial misery

In reply to woolsack:

Not sure if this is aimed at me, am I one of these "hooded youngsters"?

What's the 189,999 bracket? I was considering buying but in the £130,000 area. That would get me a 2/3 bed terrace in a decent area. Seems reasonably affordable to me.

In reply to Wingman@work:


Unless of course interest rates rise to the point where you cannot pay your mortgage and then have to sell your house - when you may find out that your house is worth less than your mortgage, then negative equity and you're in trouble.

In reply to galpinos: For £130,000 here you could pick up a detatched 3 bed villa with a swimming pool and a sea view

In reply to Al Evans:

I suspect £40k+ earning opportunities are a little bit more limited though...

In reply to Al Evans:

Ahh, but why would I want to leave the fantastic midlands for sun, sea sand and climbing? Are you mad?

Was living in France but moved back and want ot stay in England for a while. I like it here.

In reply to thomasadixon:

Yeah, that is true. I guess it's not representative but how many people out there are actually at their limit (if they live in the home that has the mortgage) with current interest rates? If they are then they have put themselves in a very silly position as interest rates are low on a LT basis and a mortage is LT. (I'm not including CC debt etc as well)

In reply to galpinos: I was aiming at those with little hope of achievement. You can use a computer and spell, I suspect you wont have a problem getting onto the ladder.

But for those that previously would have gone down the route of social housing, the fact that none of this seems to be built, they dont have much of an option. No wonder they get invloved in crime, are off binge drinking etc etc . Big subject and one for another thread

But on a 3 times basis, even £30k is not opening too many doors these days. Prices and incomes have opened too much of a gulf.

In reply to lowersharpnose:


no, affordability is all about ability to repay, which is entirely different.

Our mortgage lender worked out how much our net income was, then subtracted car running costs, petrol, household/car/life insurance, any other debts, pension contributions, and proposed mortgage repayments at a higher stress-test rate of interest. If we didn't have 350 quid each left at the end of every month then we couldn't afford that level of mortgage. With that kind of affordability calculation, nobody should get overstretched.

In reply to woolsack:


yes, that's my understanding - on my salary, I'd effectively either have to cripple myself completely, or go in with someone else in order to even get a start on the housing ladder. I'm not sure how much the British fixation with property ownership is really helping us.

this is a slightly different take on it but as a student with loans and debts is this a good thing or a bad thing when it comes to repayments? its not housing but the two are connected, arent they?
tell me this is a good thing...please.
Pete

In reply to Trangia: The Abbey rep on R4 Today stated you had to have a household combined income OVER 50K to get the 5x multiplier...
They aren't offering it to everyone, and TBH? In most of the UK you do NOT need 250K for your FIRST house...

TTG

In reply to Trangia:

I suspect that global warming will have a part to play in the impending crash.

In reply to Pete Swan: You should never have taken those bribes, you would be on a £1,000,000 a year by now managing a premiership club!

In reply to Trangia:
IMHO the property market at present has been driven by a number of factors. Firstly, the poor performance of equities to the common man, who has in turn switched his pension payments into his mortgage. This is particularly applicable to the buy to let market but is clearly evidenced in the private investment market, especially the SIPPs purchases which have driven sub £1m auction purchase over the last 2 years.

It has also driven the mainstream commercial property investment market as funds have increasingly returned to the property sector, which has in turn become more sophisticated and more sensible in relation to predictions of rental growth. Thus the risk / growth element of yields out in the market are hardening to reflect the more confident and more sophisticated approach, and also the number of tax breaks REITS, op co/prop co vehicles, which we did not have in the last “surge” in 1992 (remember the Germans?)

With equities recovering and yield compression increasing we will see a shift out of BTL into more varied investments.

In isolation, the market will head for a soft landing as pricing adjusts and lenders tighten controls in light of more relaxed insolvency / CVA rules. There is still a significant level of disposable spending out there. I would start to worry when the high street is hit across all sectors, followed by the leisure industry and holiday industry as these sectors depend on discretionary spend.

In reply to Pete Swan:

Err, no. Student debt (as all debt) is a bad thing when buying a house.

Varies according to your credit score and income, but generally there is a finite amount of debt you can get into. Credit cards, loans etc are all take off this amount when you buy a house, so the more debt you have, the less house you can buy.

In reply to CJD:

That would have been the case for me back home in the South East, but having moved to Manchester there's plenty of affordable houses for FTBs although prices in the regeneration areas are creeping up too as they gradually get the investment.
In my street & neighbouring ones, estate agents are now advertising house prices at £5-10k more than I paid for mine, an increase of maybe 10% in just under a year!

In reply to Nevis-the-cat:

I prefer it when you talk tapir...

In reply to erikb56:
Fair play, you're the wisest man I know.

In reply to Clauso:

I have to use my alter ego on this one owl toucher.

In reply to SecretSquirrel: Its odd isn't it, we bought a new place nearly twelve months ago on the basis that prices would stabilise (ie. fall in relation to increase in earning, but maintain a very modest increase in value), but in actual fact comparable properties are now selling for £30-50K more than we paid.

Price increases have clearly slowed since 2003 - 2005 when a lot of property seemed to almost double in value. I still think that values will slow for a prolonged period rather than crash.

In reply to Trangia: completely , totally agree with you.

My solution as follows:-

1) Limit loans to ONE salary only - No exceptions (This can be the higher salary obviuosly)

2) Limit the amount of loan to the old 3.5 times salary, again NO exceptions

I agree this will STOP virtually all FTB's coming onto the market, and as a property owner myself, will STOP me being able to sell up and move on.....BUT after the intial pain, admittedly felt mainly by FTB's, the market will have to rebalance itself to enable these FTB's to come onto the ladder......but with prices at a more reasonable level
This is just the same as years ago when mortgages were based on "hubbies" income only.

Lending anyone 5 or 6 x salary or joint income is plain crazy, and I worry for my kids when they are trying to buy their first place. I thought it was hard for me years ago (1st house was £59k with a mortgage of £45k and a salary of £11k) but thesedays its just madness !!!

In reply to Kevin Livingstone:

joint income is one of the main reasons that house price increases have accelerated so much in past 20 years. Particularly with regard to one bed flats (say in London)

In reply to Wingman@work:

But that is in part a reflection of the shift in demographics. that is the traditional model of husband working and wifey at home is no longer the norm. We have co-habiting couples both earning and thus able to service the debt. those same couple as driving demand for homes.

In reply to Nevis-the-cat: lots of bods living on their own too

In reply to woolsack:

plus the pink pound

In reply to Nevis-the-cat:

Of course - it doesn't make it any easier for single buyers though.

In reply to Nevis-the-cat:

probably the more significant bit is people living alone though, which is boosting the demand.

Interest only mortgages are also an arse, particularly when used for BTL.

In reply to Kevin Livingstone:

I broadly agree. In the end few individuals really benefit from high property prices, the real winners are the lenders, the estate agents and the solicitors. With a housing shortage lending more money will only fuel house inflation.

If the government wants to do a favour for the young they should get more houses built.

10 years ago if I wanted to sell my flat 2 bedroom flat and move into a 3 bedroom one I would have to have found about £30K. If I want to move into a 3 bedroom flat today I'll have to find £100K. What's good about that for me?

In reply to Removed User:



but that is assuming it is simply first time buyers wanting to purchase as opposed to BTL and other investments purchases, bearing in mind that if you beat the person to the house you can then rent it back to them.
Admittedly you would eventually hit saturation but would take time.

In reply to dissonance:

How many people do you know that BTL? The number's not that great as far as I can see.

In reply to dissonance:

True, but we seem to have rooted out and exposed Endowment mortgages for what they are.

Interest only will be the same, when people discover that they can no longer sustain their little BTL nest eggs as the capital growth is no longer there.

In addition, I would be interested to see the rate of mortgage switching, as existing borrowers move to interest only rather than capital and interest in order to reduce repayments. A good sign that they are starting to sweat.

In reply to Removed User:

find a decent new build scheme, prefarably near a transport link or water and see who is in the queue to buy off plan.

In reply to Removed User:


Agreed. My cousins bought cheap in a run down area of Colchester about 10 years ago and now have over £100k equity in their property. But there'd be no point in them selling up now because they still couldn't afford to buy anything better.

In reply to Papillon: todays "affordable housing" will become tomorrows 60s high rise sh*tholes, they are generally poorer quality than the more expensive homes on the same development, naturally, which makes them less attractive.
Over time, they will rapidly degrade to poor estates, bringing down the value of the "better" properties built as part of the same development.

I wouldnt buy a place in a new development with attached affordable housing if you bought it for me. Disaster waiting to happen.

In reply to fxceltic:
It does seem a rather short-sighted "quick fix" sort of attitude on the part of the planners.
Its not just those though. There's loads of new flats springing up all over Manchester. A lot of them are in good locations and there are some really stunning developments but the majority seem to be built straight out some rather unimaginative "how to design trendy flats" manual with a random mix of render, bare brickwork and wooden cladding then a sloping or butterfly roof on the penthouse floor. They mostly look sh*t and i'm sure in 20yrs time everyone will think of them in exactly the same way as those hideous 60s concrete monstrosities.

In reply to fxceltic:

Plenty of schemes are dull but the materials used are in no way comparable to thsoe of the 1960's.

Indeed, many affordable shcemes are built using the best materials and are highly energy efficient compared to mainstream developments. Google for Zed and Peabody to see several schems, mainly shared equity and keyworker with sustainblilty as a core to the development

In private schemes the location of the affordable element may be in a weker part of the development location wise, but i have not come across many that are constructed to a lower standard than the the private stuff. the internal fit out might be differant, but the building fabric is the same.

In reply to fxceltic: You clearly do not understand how affordable housing works in these schemes. On private developments they will be built to the same standard and many schemes run by HA's will be built to a much higher standard.

In reply to Stormmagnet: I have not read this whole thread so i am sorry if some one has said this, but population numbers are rising at an all time high, more people need more houses. Demand is outstripping supply. with a limeted number of places to build houseing why do you think the prices will come down?

In reply to no job rob: I don't know if you are specifically asking me or just the thread in general, but I don't think prices will come down in absolute terms, I think the market will slow. I think that some areas of the market will be hit more than others and may see falling values.

In reply to Stormmagnet: sorry that was a general thing.

In reply to no job rob:
there are 870 000 empty properties in the UK.
prices in cash rich places with a wealthy industry, e.g. london and finance, and with influxes of people are unlikely to come down. prices in places with disappearing industry and great social problems will. e.g. if we look at latest land registry figures, just released, we see a 2% month on month drop in the north east, 1.9% annual increase which accounting for inflation is of course a real fall.

In reply to erikb56: Strangley the town that I live in has Housing Market Renewal status, but the population is actually increasing.

In reply to Stormmagnet:
talking of population increases. what concerns me a bit about about the eastern european influx, which am not against as necessary for the economy in may ways, is that this time am not convinced of it's long term nature, unlike the afro carribbean or asian influxes of previous generations. the hardwoking polish tradesmen for instance are squirreling away lots of cash (or sending it home to family) by living ultra cheaply in shared accommodation etc. and I can't see them doing this for any other reason then to return to poland etc. with a healthy bank balance. this money has far more purchasing power back home of course. not to mention eastern europe whilst still having it's problems is starting to catch the west in terms of living standards.

In reply to erikb56:

But is that not a good way for the cash to be more evenly distributed throughout europe? Leading to further trade opportunities...

In reply to gourd:
personally i think yes. but in the context of property prices in this country no.

In reply to Trangia: I guess the question for home owners is how much of a hit could you take in terms of interest rate rises. We are on a 5 year fixed deal, but could cope with 2% rise at present and probably around 6% by the end of the fixed rate period.

In reply to Stormmagnet:

Aye - to use the £350-per-month buffer mentioned above...

If you have a £150,000 mortgage, to be paid off over 25 years, at an introductory rate of, say, 4.5% you're paying £833 per month. Once the discount period runs out you move the the standard rate, which is about 5.5% at the moment (I think...) and you're paying £921 per month. If interest rates then go up 2% you're paying £1108 per month and your buffer is mostly gone...

In reply to Stormmagnet:
you are clearly sensible to have something in reserve however not all are wise:
"770,000 people throughout Great Britain, with a mortgage have missed one or more mortgage payments in the last 12 months."
from here: http://www.creditaction.org.uk/debtstats.htm
if this many people are struggling with low rates as they are imagine the potential for disaster with 6% (historically average rates.)

In reply to Removed User:

I'm not sure what it's like where you are but round here (Oxford) the number of first time buyers is very low (lowest for many, many years if not all time), but house prices are still increasing. This is because landlords come in and pick up so many properties. I've heard stories where out of 10 new build properties, a professional landlord will come in and just sweep up nine of them. That was from the local barber so may be an exaggeration but I would say that BTL is probably at least 50% of the market.

Most first time buyers just can't compete and, of course have to rent. So I fear that Kevin's plan would just make matters worse. Much worse.

In reply to erikb56: 6% does not worry me in the slightest, I remember my Dad struggling a bit with 15%.

In reply to Stormmagnet:
does worry a lot of people though. in terms of debt servicing costs an increase from 3.5% to 6% is not dissimilar to 8 - 15% of course. modern mortgages may have low interest rates but low interest on a proportionally bigger amount.

In reply to El Greyo:

There are a very large number of BTLs in this area which has large stock of converted Victorian Flats and basic quality 1970s terraced housing at the lower end of the market. Many of the former are of poor quality in badly managed and maintained buildings. A high proportion of the BTL purchasers are inexperienced members of the public rather than professional investors. Many do not get proper surveys done when they buy and I forsee a lot of burnt fingers if the market hardens and they struggle to off load flats which will not stand up well to survey.

In reply to erikb56:

Not really so, if you're trying to draw parallels with the 80's / 90's property crash. Multiples then were 7-9x income.

When I was an esatate agent, BTL probably accounted for about 80% of sub £130k properties.

In reply to moomin:
the average wage to average house price multiple peaked at 5 in 1989. 2.2x for first time buyers.

In reply to erikb56:

Yes, but that does not take into account serviceability of debt. In 1989 the IBLR was averaging 14%, whereas for the last 5 years we have had 4 to 4.75%.

further to above:
"first time buyer income multiples reached their highest level ever in july '06 at 3.24 x average income" Council of mortgage lenders.

In reply to John Rushby:
repeat posting but this tells us something about servicability of debt:
"770,000 people throughout Great Britain, with a mortgage have missed one or more mortgage payments in the last 12 months."
from here: http://www.creditaction.org.uk/debtstats.htm
anyway must dash got to get dinner.

In reply to erikb56:

yes, but what was the figure in 1999, 1992 and 1989?

In reply to Richard:

Not quite - The £350 buffer is after calculating using a 7.95% stress test, which is 2% over the current 5.95% standard variable. Using your example, you set up a mortgage for 150k, and budget your affordability on £1108. If you have a fixed rate or discount at ~5%, then you are actually only paying £833. When the deal expires, interest rates will need to have risen by 2% above the current level for you to be at the original "stress test" budget. Only if they have risen more than 2% do you even begin to eat into the £350 buffer. Plus, you have been able to save thousands of pounds during the course of your fixed rate because you have been paying at 5% instead of 7.95%. It gives as good a reassurance as you can get that you will be able to afford repayments as long as your salary doesn't decrease dramatically or interest rates go more than just a few percent up.

In reply to erikb56:

Apologies - you are correct. I had always been lead to beleive that income multiples were much higher during the late 80's, which formed part of the reason for the crash. AS I was only 9, I wasn't really paying much attention at the time though.

In reply to moomin:

Nope, it was a number of issues that caused the crash, primarily in the commericla property secotr, but the interest rates where unsustainable in hindsight. The purchaser demand was also vey differant, whereas this market is much more regulated, both implicitly and explicitly.

In reply to johnsdowens:


That's interesting (and much less irresponsible that I'd suspected).

In reply to Trangia: Yes, I've read that the BTL market is a bubble ripe to burst. And if it does then house prices will crash.

Not sure I believe it, I've been hearing tales of woe about house price crashes since I moved to Oxford 5 years ago, but they are still going up. I hope they crash before I buy rather than after.

In reply to Richard:

surprised us, and actually quite comforted us as well. Good to know that even if we wanted to (which we don't), we couldn't have overstretched ourselves too far with the current lender.

In reply to El Greyo:

The fact that the bubble hasn't burst doesn't mean it's not a bubble, just that it's become a bigger one.

In reply to Trangia:

The fundamentals do not remotely support current house prices, which are probably at least 30% above the long-term price, and may well fall 40-50% in price before that.

In reply to John Rushby:
Slightly different figures so not direct comparison but arrears peaked in 1993 > 602,000 households owed three or more months payments. obviously that was a few years into a recession unlike now before a recession.

In reply to iceaxejuggler:

I agree. But when will it burst?

We are, at last, in a position where we may be able to buy a house. But it's nerve-wracking, do we go for it or do we hold off?

In reply to El Greyo:

I doubt it will, too much emphasis on the house market in isolation. It is is very much driven by the wider commercial market, which it could be argued has slowed already.

More likely a nice soft price adjustment driven by acombination of a small increase in the base rate and RPI (which are of course not mutually exclusive).

In reply to El Greyo: I'd bet that with an extra 0.5% on base rates things might get a little bit too hot for quite a lot of borrowers, that with their other debts

In reply to El Greyo:

Andrew Farlow gives quite a good introduction to the issues (other more recent articles available if you google):

http://www.housingoutlook.co.uk/Papers/bubble.pdf

http://www.econ.ox.ac.uk/members/andrew.farlow/Part2UKHousing.pdf

Here is what has happened to prices in recent years (adjusted for inflation):

http://www.nationwide.co.uk/hpi/downloads/UK_house_prices_adjusted_for_infl...

(scroll down for the chart)

In reply to El Greyo:

Er, and that's a definite don't buy from me, by the way.

In reply to El Greyo:


If you are buying or somewhere to live for the next few years you may as well buy now. Things level off in the long term and a huge crash (as opposed to a leveling off or slight decrease) has not materialised after being predicted for years. I completed on my house last year in the same week as the gov of the B of England predicted a crash!

In reply to Trangia:
I did some work on a book, Boom Bust, about the house price issue back in 2005. I think the author Fred Harrison's predictions of a house price collapse in 2008 deepening to a general depresion in 2010 are interesting. There's a rather lengthy review of it here:

http://www.cooperativeindividualism.org/dodson-edward_review-of-harrison-bo...

In reply to Tyler:
agree to some extent if buying for a home over the long term, i.e. you will be happy living there through thick and thin for at least 5+ years, then you'll prob be ok buying whenever. if buying for investment i think you'd be madder then mad jack mcmad (to plagiarise black adder possibly).
disagree on the rationale behind "the crash won't happen because it hasn't happened yet" because there isn't a rationale. if the economy takes a downturn then prices will fall and sentiment will accelerate this. it's why there is no precedent for soft landings, human nature doesn't work that way.

In reply to Tyler:

I collect housing market forecasts and keep them in a jar next to my desk. I feed them titbits from the Halifax, Nationwide and the RICS etc every now and again.

I am trying to breed the ones predicting gloom with the ones predicting good news in order to produce something that looks like common sense.

I am still waiting.

In reply to John Rushby:

Well, just read the articles I linked to above. Then ignore all the rubbish spouted by these so-called "analysts".

In reply to John Rushby:
That will never work. What you need to do is feed a male tapir exclusively on the gloomy reports and a female on exclusively upbeat ones. The baby tapir will then sh*t out neutral reports.

In reply to erikb56:


I'm not saying it won't happen just that no one knows when it will happen. I have a friend who works in the city (mind you, if ever there was an example to show what a bunch of charlatans 'city experts' are, it is him!) sold his house and put money into shares about 5 years ago! He hasn't dared buy a house since as every day that passes makes the day of the dreaded crash closer. This is true but in the intervening 5 years he's lost out on 100% retun on housing.

I wavered last year before moving to a more expensive house but since then prices have brobably risen by nearly 10% so I'm already insulated against a 10% drop, next year there may be a crash but if not I may be insulated to the tune of 15% (ignoring opportunity costs)

In reply to iceaxejuggler:

I just read the Oxon one, it was dated 2004.

I don't listen to analsyst, most of those reports are written by the office cat.

In reply to iceaxejuggler:


What? Including the one written in 2002 saying we are on the eve of a bursting bubble?

In reply to Tyler:

We're still in it. It's just grown somewhat since 2002.

In reply to Tyler:
lol city experts are oft' useless. saying that if he bought an ftse 100 tracker around april 2003 he'd have pretty much doubled his money as well.
most sensible people ride through housing booms and busts unaffected it's the overstretched or unlucky (e.g. lose job) that suffer. concern for me is the amount of overstretched.

In reply to Tyler:

And nowhere does it say we're on the eve of a bubble bursting. I don't believe there's a time frame given. It just says we were in a bubble in 2002 (we were) and that bubble will burst (it will).

In reply to Tyler:

The thing about BTL is that it is not a market full of Rachman like landlords. It has been a major part of urban regeneration.

One point to consider is that if interest rates rise, and buyers move out of the market, the rental sector will potentially become stronger. In following, competition for tenants may increase and as has been seen in the market recently ( Capital Economics 2006) the BTL market and tenant demand has improved the general quality of rented stock.

In reply to John Rushby:

That's a completely crap argument.

In reply to iceaxejuggler:

I will pass your sentiments on to our residential department.

In reply to iceaxejuggler:


It doesn't give time frame but without one it is meaningless. For instance, if you look at average house prices then and now you can see that house prices would have to drop further than the worst predictions for that report to have successfully pointed to problem with buying a house at the time it was published.

Ave houe price in 2002 £100K

http://news.bbc.co.uk/1/hi/business/1803810.stm

Ave house price in 2006 £179K

http://news.bbc.co.uk/2/hi/business/6090972.stm

In reply to John Rushby:


No it's bee fuelled to a large extent by pension companies etc who were meant to abandon the market once the FTSE picked up. This, again, has not happened.



Bless their little alturisitc hearts!

In reply to Tyler:

(a) You'll see there was a substantial rise in prices during the course 2002, which is largely what the article was a response to (NB Andrew's Farlow first line)

(b) You haven't adjusted for inflation

In reply to Tyler:


Who said anything about altruism?

In reply to John Rushby:

....plus, why abandon the market, it has demonstrated strong returns with All Risks Yields for prime in the region of 5 to 6%, lower in certain sectors?

In reply to iceaxejuggler:

(a) You'll see there was a substantial rise in prices during the course 2002, which is largely what the article was a response to (NB Andrew's Farlow first line)

What's that got to do with anything? He was predicting a crash 4 years ago, it hasn't happened yet. The longer it goes on the less it looks like a prediction and more like a statistical inevitability i.e. give an infinte number of monkeys an infinte....etc, etc.

(b) You haven't adjusted for inflation

No but nor have I factored in the cost of housing to actually live in. The cost of renting pretty much offsets inflation.

In reply to John Rushby:


Only me, don't worry no ones accusing you property developers of going soft. Your rep is safe!


Well that looks like English, but......

Only joking,I think I know what you mean! I was just pointing out that the doom mongers come out with many reasons for a crash, all of which look plausable, but many of them turn out not to matter over time.

In reply to Tyler:

It means that the house price you quote for Feb 2002 is not particularly relevant to the article, published Oct 2002 after several months of surging prices.


What a bizarre argument.

In reply to iceaxejuggler:


OK add 15% to the initial figure, the basic tenent of the argument remains the same. At what point after making a predicition is it still acceptable to say "I told you so". If the "surging prices" of 2002 were the main reason for making the predicition then I'd suggest his prediciton has come to the end of its shelf life.


Not at all, there is obviously an opportunity cost in having £100K wrapped up since 2002 (at least inflation but more likely 5%) but then if you'd decided to rent instead of buy in 2002 then you would have spent probably more than 5% of £100K PA in that time.

In reply to Tyler:

All I was saying about inflation was that £100,000 or whatever the price was in Feb, is more like £117,000 in real terms. It's just necessary to account for inflation to make the comparison meaningful.

In reply to iceaxejuggler:

Yes, but equally, "in real terms", if we are talking about residential, non investment property, which is where I was coming from (see my first post) there are other things to consider. What someone chooses to factor in to bolster their argument is up to the individual but my opinion remains that those articles you quote as gospel are meaningless and they do not provide evidence of an imminent crash - which is different to sayng there won't be one.

In reply to Trangia:


The BBC seems to say this every now and then... they haven't been right for the last few years but I suppose they will be one day

In reply to Tyler: Hey Tyler, does your house have a roof now! Is it finished, is it better than pre-cataclism? Gis an update!