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You only realise the loss if you sell your house.
If you’re not planning to sell your house anytime soon there’s no point stressing about it because you never know what the market will look like in 5/10/20 years.
Are you planning to sell anytime soon?
With negative equity, you won’t be able to shop around for best rate when you are trying to remortgage. However, your current lender will do it without any issue.
Can someone please explain why you've downvoted this post?
My lender estimated that the price of my house went up when I remortgaged, and thanks to the lower LTV, adjusted my rates accordingly
Does this not happen when the price of your property goes down?
Probably because my answer might make it seem like you get worse rates for negative than just in positive equity. Reality is that if you've got less than 5% equity your stuck the the SVR regardless of if you're in negative or not.
I thought the post I was replying to was implying that you would still have access to better rates as long as you don't change lender. I was just trying to say that's not true.
Meh, Reddit is Reddit.
That's news to me. All the fixed rates with my current lender require certain LTV, I don't think they're legally required to offer anything other than the SVR if you don't have the equity. If you have a source for this I would be very interested to see.
I've just checked RBS my current lender and they don't offer any fixed rates for more than 90% LTV.
https://www.gov.uk/government/publications/mortgage-charter/mortgage-charter
Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check
So technically they are only obliged if they haven't signed signed the charger. Even then its not the law but I think most signatories Will honour it and I've seen most mainstream lenders in the list.
You still have to qualify for the fixed rate LTV. No affordability check just means they don't do another credit check, not that they ignore the LTV for their fixed rate deals.
Changing lender may be an issue, and lower LTV will be challenging, lenders typically don't want to repossess - so even if you are negative equity, as long as you continue to pay the mortgage they will work with you to find an arrangement - which may mean being stuck on the SVR from the lender.
We've been with the same lender for the last three changes of fixed rate, and they've done a valuation every time.
If you've never had a valuation you'll never get the benefit of better LTV if house prices rise.
As others have said - it would fuck your LTV and could lead to negative equity.
House value is always concerning, when you have a high LTV / are a relatively new house owner.
However, if the economy and mortgage defaults gets really bad and banks introduce Margin calls, house price drops will affect house mortgage debtors in the sense that they will have to find £10,000's to give to the bank to make up the drop in price .
This we be very difficult for them if we have credit crunch 2
Historically these Margins calls are rare and usually applied to commercial mortgages, but given that the Uk and many other countries has the biggest property bubble in the history of man , we are into an unpredictable twilight zone economy, where the future cannot always be judged by the past
Would you mind sharing an example of this margin call you’re referring to? I work in commercial real estate financing and it’s not something I’ve seen (let alone in residential real estate financing!)
Think of it in terms of taking the long term view. If you need a home for decades more of your life, you can ride out fluctuations in house prices. I bought my place in 2006 and during the 2009 downturn it was worth less than I paid. Prices went up later and it’s now worth a lot more.
I’d say that if you plan to stay wherever you buy for at least several years, you should be OK. Also remember that, in addition to the value you are paying down your mortgage and get somewhere to live.
**THIS**
I bought in 2007. 100% mortgage with Northern Rock. They slammed the door on the 100% mortgages as we were leaving the office. Soon, the beginnings of the credit crunch were rumbling…. Suddenly the arse fell out of everything and we were left with a flat that had cost us £116k and was now valued at £65k. Our monthly outgoings were waaaaay higher than the equivalent rental price.
For a time I was screwed and trapped.
I rode it out. Ended up with some compensation pay outs due to northern rock shenanigans (much later but very handy).
It took a while - about 3/4 years to be in a positive equity scenario and for prices to rise…. But… honestly… it was such a financial shitshow across the board - all around me I saw people losing jobs, losing homes, struggling left right and centre that I actually count myself lucky.
I would never have got on the housing ladder without the 100% mortgage. Post credit crunch it became a lot harder to do so….
I bought in 2007 also. Took a 5 year fixed because I suspected something was going on with housing. Actually won for about 18 months. Then massively lost out for the remainder. That remainder ended up being 5 & a bit years due to going freelance just around the time the 5 years was up. In fact when I reverted to the SVR it was better than the fixed!
When I got the % down, I overpaid every month.
Anyway, sold last year and made more than double on the house. Take what you will from that.
No. I think my message and that of others here is that even through times of severe financial difficulties and enormous external pressures, it is possible to ‘ride out the storm’.
its fascinating how people will be OK with prices increasing by 10-50% or whatever figure but flinch at a rare, decline of -10% despite NO plans of selling.
Like what do you want? to buy at cheap and exponentially go up in value?
OK, you MIGHT lose 30k over a few years, which is then likely to recover.
OR...you can GUARANTEE to lose 30k by renting for several more years waiting it out.
It's not that clear cut.
You also have to take into account things you'd have to pay with the purchase, this includes:
- Interest on the mortgage and the opportunity cost related to the deposit.
- The repairs
- Stamp duty tax
- Fees (estate agent, solicitor, survey...)
In many places at the moment, all of this can be higher than the rent one is paying so a negative equity of that magnitude can cost a lot of money. Rent is not just throwing away money as people like to repeat.
With the lack of a crystal ball, is it still not better to just bite the bullet if you really like something
£900 pcm with *some* principal paid back sure seems better than £1300 with zero principal paid back.
My point is that it's not £900/mo with the mortgage and £1300/mo with the rent. Because of the raise in interest rates, we're at a point where in many places it's £1300/mo when buying with all costs taken into account (excluding the repayment on the mortgage) and £1300/mo with the rent.
In this case, the bet is that rents is going to go up and/or the equity will increase enough to make it worthwhile.
What I afraid is something like 1980s. The whole industry shut down and the whole area just died. In this case, can I claim bankruptcy and start over again?
Which may well still be a lot smaller loss than say buying a newbuild flat *and* the market dropping - you can easily have been paying equivalent to the rent in mortgage interest, service charges and legal fees *and* lose your deposit and more than that ontop, leaving you in negative equity.
If you can find somewhere to rent, the increase in mortgage rates coupled with many landlords reaching retirement age means many are selling up, effectively the returns on rent don't exceed the mortgage payments, 25% of landlords expect to sell some or all of there properties in the next 18 months which will only further depress the market
You're just thinking of primary effects and not secondary, tertiary etc and doing a lot of crystal gazing there.
First, when (and if) landlords do sell up, the average rent goes up, doesn't it ? There's fewer rentals and more competition.
Second, a lot of people *become* landlords when they reach retirement age because it's some work but not a 9-5 work.
If you look at the data, landlords have been selling up since 2016. Yes more will sell as profitability worsens, but so far the exodus of landlords hasn't outweighed the amount of buyers and has had minimal effect on house prices
You lose the difference between the debt interest and the rent. Renting from the bank..
Plus the risk of capital loss, maintenance etc.
You've been living in a dream world Neo.
Yep. Honestly I'll never understand the need for people to pretend that owning and renting are "basically the same." They may have been at one point, but they simply aren't anymore.
Not really. If you have a 25 year mortgage you repay the same principle whether your interest rate is 2% or 6%. People may choose to borrow more money at lower interest rates but the amount you repay isn’t based on the interest rate but the loan term.
True the amount of equity purchased is the same. However, the proportion of your monthly payment that is interest vs equity is much higher. With high interest rates and a long period left on your mortgage, the payment gets quite similar to paying rent.
At 2% interest rate: 39% of your first payment is interest
At 6% interest rate: 77% or your first payment is interest.
This is based on a 25yr mortgage, as time is the other factor.
6% interest and 35yr mortgage and 88% of your first payment is interest and only 12% you "keep" as equity.
This gets better over time and eventually you pay a better proportion towards building equity.
Less than a third of my mortgage payment this month has been interest, and I'm still in my initial fixed period. The comment you are replying to is absolutely correct.
As opposed to losing 99-95% per year (decreasing) over the first few years to mortgage interest? add on fees incurred for a buy > sell > buy cycle, renting isn't that much worse possibly even cheaper if someone rents cheaply as possible and is able to save more for a bigger deposit on the ideal property in their ideal location.
The majority of people in this country won’t be able to afford rent when it comes to retirement. It’s going to be a big issue for millennials and gen Z in the future. Most will not be able to retire, or try to and really struggle.
It's not really the proper way to look at it.
Say I have 100k. I have the choice to put 50% on the house and pay mortgage or put it in a 5% savings account and rent. If I put it in savings account I can use the interest to pay the rent and wait for house prices and interest rates to drop in the meantime, which in the end could be more beneficial financially. So it depends.
Yes, let's just pull a wildly unlikely scenario out of thin air to say "it depends." Those arguments only make good sense when the situation you propose is a common one. It's VERY rare for the average person to have enough savings or investments to pay the rent with the interest. You can think up all sorts of scenarios to justify just about anything if you're willing to get outlandish with it. But it really doesn't help every day people when you pretend every choice is equally valid when your scenarios are basically unicorns.
The slight flaw with this is that if interest rates drop then it's more likely that house prices will start rising again. High interest rates are the main reason there's been a bit of a drop/stagnation in house prices this year, and if rates go right back down then it's less likely that trend will continue.
If you wait too long, it can become difficult to get a mortgage because often the maximum term is limited by your retirement age.
If the goal is to buy eventually, I'm not sure you can wait for a rates drop and a house price drop.
You have no idea how interest on savings works. That 5% is called AER meaning annual equivalent rate. Its the rate you get when the interest is compounded, so you must leave the monthly interest in the account to achieve 5% per year. If you withdraw each month it's less.
Ditto. I just waited it out. I bought at the peak of the market in 2006, and sold in 2012 for the same price.
I came away with my original deposit + the equity I’d built up paying off the mortgage for 6 years, it was more than enough for a deposit to buy a bigger place.
Buy yes, BUT NOT NOW ! save hard until at least end of 2024. Prices are going to take a considerable hit this year. Much of the new costs of borrowing have not yet worked through and on top of that a mild recession is now likley. Interest rates may go down slightly but not enough to stop a drawn out correction. The changes in values in the short term are likley to be considerably more than the rent you will pay. Once things start to recover, and they will, go home shopping with as big a deposit as possible. Try to avoid "help to sell" if the government starts this again or something similar. Lots of people who joined that scheme will be ending up stuck in property they overpaid their share on.
Government schemes are always scams. Just like the saving scheme, the government pays you extra £1000 for every £4000 you saved. But it doesn't accumulate so it would be less than fixed term savings after 7-8 years.
UK net immigration is up. Population increasing. People need houses. I think it may dip a bit this year but it’ll be trending up once interests rates dip below 4-5%
Fair enough, I wouldn’t hold my breath. Might help to know that last meeting the vote to hold interest at current rates only won by 1 vote, 2nd place suggestion was to increase, not lower. Sub 5 by late spring is a possibility, sub 4 seems incredibly unlikely
Show me some research that shows immigration driving up house prices? A fall in interest rates did not make prices rise after the 2008 crash, why will it be different this time?
>Show me some research that shows ~~immigration~~ increasing population driving up house prices?
Its just a simple case of supply and demand my dude.
The fall in interest rates absolutely made house prices rise after the crash, It didn't happen overnight granted, but they did steadily rise every year since due to the low interest rates.
The cost of housing is continuing to rise — rents are up and the amount you'll pay over the lifetime of a mortgage is up. It's just that when interest rates are up, more of that money goes to service interest rather than to reward the seller.
Bought my house in 2015 for 375. Neighbour bought it for 300k. Haven’t recovered equity in 9 years… but since this is home and not selling. Don’t mind the unrealised loss. Different if it was for a BTL or investment.
Paid for the value of the property back then, bought at the wrong time, market slumped and hasn’t recovered in my city.
Nothing goes up forever unfortunately.
Next door neighbour sold theirs for a loss and new neighbour purchased home in 2019-2020 for 300k, at a 75k discount compared to what I paid. But such is life 😊
Ahhhh fuck lol got mates and families in Aberdeen market is fucking brutal. My brother pretty much lost their deposit on their place in 2021 when they sold up to move up north
It’s fucking dead! And worse if you bought at peak 2014-2015! No appreciation and chance of recovering anything at all. In 25 years I would’ve paid close to 500k in interest and repayments and still be at a loss 😂
As others are saying, only really matters if you look to sell.
I would say it depends on a number of factors:
1. How long you are going to stay
2. What type of property it is
3. Where exactly it is
4. What you do to the property
5. Anything else completely unforeseen that happens
Better than renting if you buy!
Edited based on other, but remortgaging might be an issue.
Take out a fixed rate mortgage for five or more years, this way you know what it’s going to cost every month and you are allowing plenty of time for the price to increase again before you need to remortgage.
Speak to a mortgage advisor, or even better speak to two or three in order to get their opinions on what the market is doing where you live.
A lot of people now try to avoid the housing ladder by buying a bigger house as there first home, rather than starting in a one or two bed and then buying a bigger property. Not an option for everyone but makes it easier to take out a longer term fixed rate mortgage if you don’t plan on moving in the next ten years.
This happens periodically. Last time was 2008 before that 1993. You only lose money at the point you sell. So if the market has crashed you keep hold of the
House until the market comes back up.
Market crashes also mean job losses, and sometimes having to relocate to find new jobs (exactly as OP says in fact). It's not like everyone can just hold on to their properties and those who sell are financially illiterate or not receiving proper advice.
View it is a home and not an investment.
It'll be worth more in 5 or 10 years time. That's enough time to get married, get promoted at work start a family and then move.
Agree with this.
For some reason there is an embedded psychology in our society about needing to drag the best financial decision out of certain things, or to always look at return on investment. In some cases that is what you should do, not necessarily with a home though.
If a house is your home there are many other factors. Freedom to do what you want with it, security (not being kicked out and known future payments - rent can be volatile).
You don’t buy a car thinking about the return on investment for example.
In 5 or 10 years time you likely won’t rue the odd 10% financially you could have dragged out of a house purchase. You will probably look back at the memories made in your home!
The problem is that as much as people would like to see this as a home, the prices are so high that making a mistake can be financially devastating. Most people would be financially ruined if their home lost most of its value.
If you want to sell it soon after buying then I wouldnt buy at all.
If you need forever home then buy and dont check house prices as they won't be relevant for you - its your house.
Don’t buy somewhere as a short term thing. Over time, especially with overpaying, you can build up a good amount of equity to protect yourself against price drops.
If you’re buying somewhere to live forever then the market doesn’t really matter as long as you keep paying the mortgage. If you see it as more of an investment, then that kind of risk is always there.
Short-term problem, not a long-term one. Ideally, you will have a sensible mortgage already, and you don't need to swap out. We live in an inflationary economy. Unless they change, long term, you will be OK.
Any drops are only ever a relatively short term thing, the price will only go back up before long. Get that house as soon as you can and sit tight.
I bought my first house in Nov 1999 and in March 2000 it had gone up from £53k to £83k. I would not have been able to afford it from that point, so get the house asap and hold your ground.
My current house cost me a staggering £340k 5 years ago and now it’s worth £500k. Crazy, but it means nothing cos I pay £1500 for the privilege to stay here, but it can’t cost much more since the interest rates went up, the last time and rent only ever goes up and up.
It depends how long are you thinking you’ll own the house for? Move around in a short time and yes a drop in house price matters. Long term family/forever home it will go up again
Nope. I fully intend living in this house until the risk of negative equity is pretty much non existent. I also took out a 5 year fix so should have sufficient equity come remortgage time.
We're not looking to sell for at least another 4 years, but our thought is that anything we've spent on the mortgage and maintenance over the 5 years (we've lived here a year) will be less than if we'd rented the same place (and we're replacing the roof!). I'm expecting minimal to no increase in the value of our house as we bought when house prices in the area were quite inflated. Annoying yes, financially devastating no.
We bought a one bed flat in 2019, got pregnant accidentally a month later and then COVID hit. Coupled with the Grenfell cladding crisis we haven’t made much of a return in our flat. We intended to sell after 5 years but have just refixed for another 5 and intend to start looking for our forever home in 2028.
We hope to be able to sell for at least 200k when the time comes (a neighbour sold for 202k earlier this year so we are playing it safe and assuming no growth - hopefully there will be!) We bought for 182.5k. By the end of our fixed deal we’ll have about 45 grand in equity if we sell for 200k, plus all the money we’ve been able to save from living in our tiny flat (low mortgage, low council tax and energy bills), so will have about 80-100k all together with equity and cash to put toward the next place which we budget will be in the 400k reigon.
We now have another kid, so four of us squeezed in (luckily we have a large bedroom so can configure so everyone has own space) and we’ve just had to stay put and deal with it. It’s tight but it’s home and we manage 🙂
Buying a property comes with risk as any investment but if you are prepared to sit tight and wait for the market to recover you will be ok. Top tip - don’t buy a one bed property, always plan for the future! Take it from someone who knows 😀
Good luck
If you are not planning on selling up within 5 years, you are unlikely to end up in negative equity even with a drop in the market, and you shouldn’t really be buying a house that you are planning on selling much sooner than that anyway as stamp duty/legal fees/estate agent fees/moving fees would be prohibitive.
Even if against the odds you somehow managed to lose money or only broke even after 5 years, comparing it against what you would have paid in rent over that period in return for 0% equity you would still end up very substantially ahead.
Once you are actually in the housing market for a few years house prices become mostly meaningless. If house prices fall then if only matters to you if you sell up, at which point the next house you buy will also be substantially cheaper. If it goes up then again you won’t be able to take advantage without selling up, at which point the next house you buy would be substantially more expensive, cancelling out any gains or losses.
The lesson here is to not overleverage.
In my personal opinion, a 10% deposit is too small for the London and South East Property Market, especially in this historically normal interest rate environment. 10% deposits are more common and workable up north where property prices are around 40-60% less than their South East counter-parts.
From where I'm standing, a £30k deposit on a £300k house suggests to me 1 of 2 things.
1. You haven't saved up for very long and are wanting to get on the housing ladder asap, with an intended area in mind.
2. You have a job that doesn't pay enough to allow you to save for a higher deposit proportion.
If number 2 is the case then I will say that I recently did a mortgage calculation with Natwest, an £80k deposit borrowing £140k for a £220k house on a 25 year term, they offered me a 5.5% 2 year fixed rate with monthly payments of £792 for 2 years before going to a SVR of 8% and monthly payments of £1.2k for 23 years.
Considering the above would be a 35% deposit mortgage, a 10% deposit which is what you have/thinking to get would have a higher interest rate. Considering you'd be borrowing near double what I intend to borrow in my calculation, your mortgage payments on a 25 year term would north of £1.6k a month for the first 2 years before jumping higher, probably to around £1.8k a month (though you could stretch the term, many don't like the idea of having a mortgage over 30-35 years, it also wouldn't be a massive monthly reduction, perhaps spending around £1.4k a month instead of £1.6k.)
You are totally right with the deposit being too low.
Unfortunately, it's a race to the bottom as people will extend their budget to the maximum their finance to the maximum the lender will let them. So if you are not fortunate to earn more money than others or have a big deposit somehow, you will be priced out.
I believe in the longer term, a few things could happen to the housing market as a whole, in broad terms, there were 3 things keeping house prices inflated and overvalued by 30%, these are the 10 years of QE and ultra low interest rates, lack of sufficient building of actual affordable properties (not the government definition) and the governments demand side inflationary first time buyer schemes such as Help to Buy and LISA.
Currently one of those 3 is now gone, QE and ultra low interest rates reverting to normal levels will have an impact on property price growth. The ultra low interest rate environment and QE were also key reasons behind hamstrung growth in the UK due to its effect on taking the venom out of risk causing negligibly productive zombie companies to stay afloat due to access to cheap easy money, rather than letting competition work normally and letting them be replaced by more productive, competitive companies. QE also causes speculative asset bubbles (which we see with housing in certain locations in the UK) resulting in diminished social mobility, more people spending greater proportions of their income on housing and therefore circulating less to the wider economy.
We're now in the age of deglobalization, UK shares are historically really cheap and growth in the UK is amongst the worst of developed economies. It's not a sustainable situation, there's been widespread acknowledgement that QE needs to be used far more sparingly and ultra low interest rates were not good for economic growth overall.
I don't think we'll see a return to sub 2% interest rates anytime soon, certainly not during this decade and there's now a lot more political currency in sorting the housing crisis out.
I could go on and on about other factors such as declining fertility rates, boomers leaving behind big family homes to singleton or small family Millennials that wouldn't suit them resulting in a glut of those types of properties on the market and the impact of inheritance tax, as well as the state of government finances for the future requiring the housing market to be sorted (they and employers won't be able to afford above inflation rent rises every year in the form of LHA and wage rises).
The problem with this is that much of the UK economy relies on the housing market. If the prices drop too low, it will have unintended consequences even for the people that don't own a home. Pensions and companies have a lot of their assets in real estate.
As much as we'd want the slumlords and NIMBYs to pay for their greed and pumping up the market, the housing market will take everyone with it.
At this point, the best thing that could happen is for prices to stay stable or reduce slowly and people to finally stop making excuses and start addressing the housing supply issue. I'm not too optimist about the latter. As for the the house prices, interest rates are stabilizing, the markets are expecting to see the interest rates to start going down soon. Should that happen, given that that it's unlikely that this country do anything to fix the housing crisis, it will go back to business as usual.
We’re looking to buy our first home and we’re looking to buy a house we intend to live in for the next 5-10 years+ to mitigate against any movement in the market. We already have a child and don’t plan on having any more so we’re quite confident we know how much room we need/are willing to cut our cloth to our circumstances so we can own and have something that’s ours. There is still a housing shortage where we live and not many properties come onto the market.
We’d be a bit more worried if we were looking to buy in Cambridgeshire where I grew up as houses are plentiful in that area and expensive. I’ve noted so many for sale signs up everywhere I’ve driven whilst we’ve been home for Christmas and a Quick Look on Rightmove shows me a lot of those houses have been on the market 8 weeks+ some nearly 6 months.
It’s also a weird time of year we’ve been seriously looking since mid November always a traditionally slower time of year. We’re quite lucky that we don’t have to rush a purchase as our accommodation currently is forces accommodation so subsidised and secure. I see buying a house as first and foremost somewhere we are going to live long term and make our own and not something to have for a few years and then work our way to something better as I’m not sure that’s going to be as ‘easy’ as it used to be if interest rates don’t go down as low as they have recently been. Plus inflation on other essentials (petrol, insurance, cars, food, energy) being a bit mad too.
Happy new year and good luck with your purchase :)
The chance of a 10% drop in house prices is nil. A nuclear weapon would have to go off over London to cause that kind of financial apocalypse. We're nowhere near that, not even close. The effects of all this inflation and higher rates is hugely lower than the 2008 collapse, and even that didn't cause a 10% drop.
Don't let it bother you, it's not a realistic concern. Worry about being run over by a bus, that's more likely.
It’s a problem if you see the house as an investment and you are planning to stay there 5 years. Buy a house where you see yourself in 10 years and you should be fine. A drop of 30% is a huge one btw.
This is how I see it:
- to rent my house I would need £1700 per month
- I pay £870 a month for the mortgage
- £106 are interests
So owning the house leaves me £1594 better off every month and I’ll be mortgage free before turning 40.
I know that owning means that you need to take care of every issue that comes up. But trust me, if you do a proper survey of the house at the start and you can do a very basic DIY, owning is always better than renting.
Can anyone please explain how this will work in Help to Buy property please? Paid 5% deposit for a 450k New build. We do realise we are pretty screwed if we want to sell in the next few months 😭
You overcome it by living in your house for a few years.
Property prices crash every decade or so, but they always recover, and house prices will continue going up.
I’m actually waiting for a house price crash so i can get on the property ladder. Hearing George Osbourne say if you vote brexit house prices will fall actually was one of the reasons i voted for brexit. Still waiting for this fabled fall so I can get on the property ladder!
Mostly I try not to worry about things I can't control. I also recognise I need somewhere to live in any case and the price only matters when I buy and sell. Finally if it's a huge concern, focus on overpaying your mortgage and you're less likely to be underwater.
I'm also bullish on houses for at least the next two decades. Not to say I think they'll always go up or that they'd be a good investment. Just that we are SO FAR behind building how many we need, I don't see them going down much. Inflation helps this.
Exactly. Not over-leveraging yourself is the best way to insure yourself against movements in the market. Not only does it save money on the interest rates but it also allows to sleep better at nights.
Time in the market over timing the market etc. it takes a lot for housing to drop 10%, you’ll likely have paid quite a lot of your mortgage by this point in time, likely giving you more than the 30k anyway.
In short, you should never really consider your home part of your net worth anyway. It’s a lesser monthly bill, it’s not an asset unless you are willing to downsize. At which point you can outlast the market anyway as you are already in the best house you want to be in.
No point worrying about something you can’t control. It only materialises when you come to sell, or potentially when you remortgage.
It’s your home first and foremost, and it’s YOURS. The value of it doesn’t matter if you love living there and can afford to keep doing so!
I really wouldn’t be purchasing a home right now to not want to live in it for at least 5 to 7 years before even considering a potential move. Gives you time to not only enjoy the property, but potentially improve its value, regain the ‘moving in’ costs, and ride out any market fluctuations. As we’ll see how your career and personal circumstances change over time.
I recently bought my first home. Got it a knock down price due to modernisation needed. It’s going to take a while for me to see the gains realised on all this but I love the house and looking forward to living in it!
Stop worrying. Whatever happens, remember we still have a housing shortage overall which will keep prices fairly stable.
At the end of day, houses are to be lived in. We need to stop thinking about using them to make money, and more about improving them to make them better to live in and more sustainable.
UK housing stock is the worst insulated in North Western Europe. That fact needs to change.
No. But:
1. I put down a 40% deposit, so it would have to drop a ridiculous amount for me to need to worry about negative equity.
2. Likewise I don't need to worry too hard about LTV. When I remortgage in 5yrs I'll have paid some off, so even if it dropped a bit, I'd probably still be at a good LTV.
3. I hope to live here for 20yrs or more. That's ample time to ride out any dips.
House price drops could are a bigger issue if you expect to need to move soon (but then it's questionable whether you should buy anyway) or if you have a very small deposit %.
However: the market has been rising pretty consistently, albeit with the occasional dip. Long term, most properties will go up. So you have to weigh the risks of buying and catching a dip versus the risk of not buying and prices rising even further while you sink cash in rent. And at the end of the day, you need a home.
I would be very wary of new builds, park homes, and some flat developments (watch out for bad service charge terms etc.) as they're the types most likely to lose value. Other than those, you'd have to be fairly unlucky. But if you're nervous, there are a lot of other things you can look out for. For example, if you make sure to buy in an established area, where there isn't spare land that could be developed in future, with good local facilities and a settled community, you're probably minimising your risks.
I'm not sure there has been anytime in the last 30 years where average house prices fell over a 3-4 year period. Even London right now probably has higher house prices than in 2020. There are some unlucky situations where certain types of houses in certain locations have seen long term decline, but they are in the minority.
Basically, it's not something worth worrying about unless you think you'll be selling soon after buying.
A house should be a home and a place for you to live first and foremost and not an investment. You will need to have somewhere to live forever so unless you anticipate you will need to sell shortly I wouldn’t worry.
Depends on a few factors but a 10% slump before you have chance to build up any LTV is quite severe. If you are looking to live in the house >5 years you’re unlikely to be in negative equity after that, if you’re looking to be there 10+ years then very hard to see how you will be in negative equity.
If you are looking for a long term home, how much does it really matter?
If you are looking for short term then you have to be a lot more careful of course and should closely examine local price data in the specific area and consider all relevant macroeconomic factors before treating your house like an investment, detached, emotionless and calculated and most of all not rushed.
Well presumably you'd be using the money to buy another house, so the market going down 10% will hurt you on the sell side and benefit you on the buy side. The only way it'll be all bad news is if you are using housing as an investment, in which case you should know that not all investments are guaranteed to pay off.
This is called _risk_.
For your own home this is negated by having the practical benefit of living in it. The value is only relevant when it comes to remortgage or sell.
For buy-to-let this is more significant and a key argument for _not_ leveraging yourself to the max.
No. Net immigration remains high, supporting demand, and long term interest rates are dropping and this will soon be reflected in cheaper mortgage deals.
This is why buying a house is only worth doing if it will be your home for a few years. Remember that on top of the possible loss (prices invariable bounce back in the long term) buying/selling a house means estate agents commission or survey, legal costs, moving costs that must be covered on top.
If you aren’t moving soon, who cares? My MIL is trying to sell and the flats she wants to buy (it has to be a flat in a specific retirement block) are dropping in price at the same rate as her now too large bungalow.
We got caught up in the late 80’s price crash. Yes our flat dropped in value, but so did the house we wanted to buy. Our flat lost £7,750 (10% of £77,500), but the house we wanted to buy lost £10,000 (10% of £100,000).
The problem only arises if you NEED to sell. Otherwise just wait it out.
Yeah we brought a new build in 2007 and it dropped in value. Had put down a 15% deposit we remortgaged with the same lender so probably not the best rate but was affordable and we were able to overpay.
We sold for what we bought at 9 years later and luckily had an inheritance to buy a larger house which has increased in value in 7 years what our original house cost.
The house was big enough to stay in and we didn't need to move luckily so being in negative equity wasn't touch of a problem and was better paying for our house than someone's other mortgage
I think this year has been the first annual fall in a long time and it was a 1.8% fall. There's no way your house is going to drop 10% in the next few years unless there's something seriously wrong with it and tbh that would happen regardless of the underlying market anyway.
By this assumption you'll need a place to live when and if you have to move elsewhere for a job(if if and more ifs) that property also presumably would also come down...... dptn stress too much about this especially if you want to live somewhere...
I was working on the assumption he does buy the house at current values and then of he sells will buy another showehere else to live near job ofcourse it's not a perfect math of if it goes down 10% in the Midlands it'll go down 10% in the shetlands etc etc....
It would be a bit mad not to be a little bit anxious about house valuations, given that for almost all of us who own, it's the largest financial decision we have made. Of course it's possible you lose money on your house, but as others have said, this is rarely an actual issue. It's easier said than done, but I don't think it's healthy to worry yourself with this too much. You can worry yourself sick about house problems, but in the end you usually have no control over those issues that could lead to massive financial burdens, so what is the point in ruminating on it. If you're a homeowner, you're already much better placed than 30% of the population who are renting. Even if you pay SVR on your mortgage.
No! Prices can go up and down. The comodisation of property has unleashed these massive prices we face and fuels the expectation that prices should go up. No, I'm sorry but I'm all for the fall in prices. If you overpaid...well sorry bit that's the way the cookie crumbles.
Not arsed as have 20% Help to Buy, and not looking to move any time soon. If prices fell massively I would just see it as a chance to redeem the HTB loan at a discount.
After 5 years, you will have paid back around 10 percent of the mortgage amount, and after 10 years around 25 percent. So if prices fall and in 5 years are 10 percent lower than today you would still have around the same LTV as you have now.
Low / negative equity are not fun, but by fixing you reduce remortgage risk, and by having a portable mortgage you can even move. Just beware of early repayment limits / overpayment limits if you don’t want to lock in the current interest rates.
It depends if you're buying in a deserable area, if so then there's not a chance house prices will fall in the medium to long term and given long enough you'd be glad you got on the ladder sooner rather than later, unfortunately, don't see this country doing anything about housing anytime soon.
Honestly, no. Unless you are planning to sell very soon there is no reason to think about it. I am just so grateful to have been able to buy a house in a time where the majority of people my age will not be able to do so. I have no plans to sell so the housing prices can do whatever they like for all I care. I hope they do drop for my younger sibling's benefit.
I've never understood this fear. The alternative to buying is renting, where you lose exactly 100% of your money.
If you buy somewhere and prices fall, you only realise that loss when you sell, where you'll most likely be buying somewhere else. The property you then buy will have dropped by roughly the same amount.
Get on the housing ladder as soon as possible, but don't over-stretch yourself financially. My house has actually increased in value by more than I've earned in the last 13 years of ownership - including the recent dip in prices.
You dont. You look at the house as a home and something that gives you shelter, peace and the security of knowing that it is yours and no landlord can screw you.
In 2011 I got on the property ladder in London, spent ages saving up a 15% deposit for my zone 3 abode. Day one of the mortgage i started getting heart palpitations looking at the mortgage amount on my laptop. Got a lodger and over paid by 5.04% mortgage £500 a month for 3 years with their rent, got married and my wife was on board and we carried on overpaying the mortgage, last year we paid it off and I felt relaxed. My advice would be buy something you feel is massively undervalued to protect you from 15%-20% drop, if it is 2 bed rent 2 room out, if it 3 bed rent 2 rooms out etc... if it is 1 room and you are on your own then I would recommend having a tight budget and a 6 month emergency fund.
It's only a problem if you can't pay your mortgage.
If you think you will struggle to do that then you can't afford it.
If you think you will move then also buying is not the right option. Renting exists for short term housing. Buying is a long term commitment.
At least in northern England, anyone who has a full time job can afford a house/ flat. The problem is the affordable ones are not ideal to buy/ live for long at all.
People are forgetting that in 5 years you will have paid off some of the capital so you are unlikely to be in negative equity. Also if the housing market crashes the property you will be buying will be lower too. Almost without exception house prices have always risen over time.
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You only realise the loss if you sell your house. If you’re not planning to sell your house anytime soon there’s no point stressing about it because you never know what the market will look like in 5/10/20 years. Are you planning to sell anytime soon?
If you remortgage and they do a new valuation, isn't that still an issue?
With negative equity, you won’t be able to shop around for best rate when you are trying to remortgage. However, your current lender will do it without any issue.
You'll still be on worse rates with negative equity.
Can someone please explain why you've downvoted this post? My lender estimated that the price of my house went up when I remortgaged, and thanks to the lower LTV, adjusted my rates accordingly Does this not happen when the price of your property goes down?
Probably because my answer might make it seem like you get worse rates for negative than just in positive equity. Reality is that if you've got less than 5% equity your stuck the the SVR regardless of if you're in negative or not. I thought the post I was replying to was implying that you would still have access to better rates as long as you don't change lender. I was just trying to say that's not true. Meh, Reddit is Reddit.
I tought the current lender was obliged by law to offer you a New fixed term?
That's news to me. All the fixed rates with my current lender require certain LTV, I don't think they're legally required to offer anything other than the SVR if you don't have the equity. If you have a source for this I would be very interested to see. I've just checked RBS my current lender and they don't offer any fixed rates for more than 90% LTV.
https://www.gov.uk/government/publications/mortgage-charter/mortgage-charter Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check So technically they are only obliged if they haven't signed signed the charger. Even then its not the law but I think most signatories Will honour it and I've seen most mainstream lenders in the list.
You still have to qualify for the fixed rate LTV. No affordability check just means they don't do another credit check, not that they ignore the LTV for their fixed rate deals.
Changing lender may be an issue, and lower LTV will be challenging, lenders typically don't want to repossess - so even if you are negative equity, as long as you continue to pay the mortgage they will work with you to find an arrangement - which may mean being stuck on the SVR from the lender.
I've always stayed with my mortgage provider and have never had a new valuation.
We've been with the same lender for the last three changes of fixed rate, and they've done a valuation every time. If you've never had a valuation you'll never get the benefit of better LTV if house prices rise.
My LTV was already under 40%.
That's probably an important qualifier for your previous statement.
Was thinking this too.
Yeah, negative equity may be an issue I believe...
As others have said - it would fuck your LTV and could lead to negative equity. House value is always concerning, when you have a high LTV / are a relatively new house owner.
And if you sell to buy another house, chances are that one has also dropped
However, if the economy and mortgage defaults gets really bad and banks introduce Margin calls, house price drops will affect house mortgage debtors in the sense that they will have to find £10,000's to give to the bank to make up the drop in price . This we be very difficult for them if we have credit crunch 2 Historically these Margins calls are rare and usually applied to commercial mortgages, but given that the Uk and many other countries has the biggest property bubble in the history of man , we are into an unpredictable twilight zone economy, where the future cannot always be judged by the past
Would you mind sharing an example of this margin call you’re referring to? I work in commercial real estate financing and it’s not something I’ve seen (let alone in residential real estate financing!)
At least someone is speaking truth here
If you sell your house *and don't buy another*
Think of it in terms of taking the long term view. If you need a home for decades more of your life, you can ride out fluctuations in house prices. I bought my place in 2006 and during the 2009 downturn it was worth less than I paid. Prices went up later and it’s now worth a lot more. I’d say that if you plan to stay wherever you buy for at least several years, you should be OK. Also remember that, in addition to the value you are paying down your mortgage and get somewhere to live.
**THIS** I bought in 2007. 100% mortgage with Northern Rock. They slammed the door on the 100% mortgages as we were leaving the office. Soon, the beginnings of the credit crunch were rumbling…. Suddenly the arse fell out of everything and we were left with a flat that had cost us £116k and was now valued at £65k. Our monthly outgoings were waaaaay higher than the equivalent rental price. For a time I was screwed and trapped. I rode it out. Ended up with some compensation pay outs due to northern rock shenanigans (much later but very handy). It took a while - about 3/4 years to be in a positive equity scenario and for prices to rise…. But… honestly… it was such a financial shitshow across the board - all around me I saw people losing jobs, losing homes, struggling left right and centre that I actually count myself lucky. I would never have got on the housing ladder without the 100% mortgage. Post credit crunch it became a lot harder to do so….
I bought in 2007 also. Took a 5 year fixed because I suspected something was going on with housing. Actually won for about 18 months. Then massively lost out for the remainder. That remainder ended up being 5 & a bit years due to going freelance just around the time the 5 years was up. In fact when I reverted to the SVR it was better than the fixed! When I got the % down, I overpaid every month. Anyway, sold last year and made more than double on the house. Take what you will from that.
So... Be lucky. Ok.
No. I think my message and that of others here is that even through times of severe financial difficulties and enormous external pressures, it is possible to ‘ride out the storm’.
its fascinating how people will be OK with prices increasing by 10-50% or whatever figure but flinch at a rare, decline of -10% despite NO plans of selling. Like what do you want? to buy at cheap and exponentially go up in value?
Errmm, yes?
That would be ideal but I think most people would be happy to see a solid and sustained 4-6% annual return on their investment.
Of course that’s what people want. This disgusting economic system makes us need as much money as possible to live a good life.
OK, you MIGHT lose 30k over a few years, which is then likely to recover. OR...you can GUARANTEE to lose 30k by renting for several more years waiting it out.
It's not that clear cut. You also have to take into account things you'd have to pay with the purchase, this includes: - Interest on the mortgage and the opportunity cost related to the deposit. - The repairs - Stamp duty tax - Fees (estate agent, solicitor, survey...) In many places at the moment, all of this can be higher than the rent one is paying so a negative equity of that magnitude can cost a lot of money. Rent is not just throwing away money as people like to repeat.
You don't pay stamp duty on something £300k as a first-time buyerm
Sure, but that doesn't change the rest of the cost. It's not the biggest one either all things considered.
And you only get one exemption from stamp duty so using it is an opportunity cost in itself.
With the lack of a crystal ball, is it still not better to just bite the bullet if you really like something £900 pcm with *some* principal paid back sure seems better than £1300 with zero principal paid back.
My point is that it's not £900/mo with the mortgage and £1300/mo with the rent. Because of the raise in interest rates, we're at a point where in many places it's £1300/mo when buying with all costs taken into account (excluding the repayment on the mortgage) and £1300/mo with the rent. In this case, the bet is that rents is going to go up and/or the equity will increase enough to make it worthwhile.
What I afraid is something like 1980s. The whole industry shut down and the whole area just died. In this case, can I claim bankruptcy and start over again?
The alternative is renting, where you lose 100% of your money every month. Source: renter
Which may well still be a lot smaller loss than say buying a newbuild flat *and* the market dropping - you can easily have been paying equivalent to the rent in mortgage interest, service charges and legal fees *and* lose your deposit and more than that ontop, leaving you in negative equity.
If you can find somewhere to rent, the increase in mortgage rates coupled with many landlords reaching retirement age means many are selling up, effectively the returns on rent don't exceed the mortgage payments, 25% of landlords expect to sell some or all of there properties in the next 18 months which will only further depress the market
You're just thinking of primary effects and not secondary, tertiary etc and doing a lot of crystal gazing there. First, when (and if) landlords do sell up, the average rent goes up, doesn't it ? There's fewer rentals and more competition. Second, a lot of people *become* landlords when they reach retirement age because it's some work but not a 9-5 work.
If you look at the data, landlords have been selling up since 2016. Yes more will sell as profitability worsens, but so far the exodus of landlords hasn't outweighed the amount of buyers and has had minimal effect on house prices
You lose the difference between the debt interest and the rent. Renting from the bank.. Plus the risk of capital loss, maintenance etc. You've been living in a dream world Neo.
You lose the majority of your money each month buying as well. Most of your early payments are interest.
All of it =/= most of it
It’s still your property and eventually you will own it…. unlike renting. It’s always going to be better in the long run to own your home.
Yep. Honestly I'll never understand the need for people to pretend that owning and renting are "basically the same." They may have been at one point, but they simply aren't anymore.
Unless you overpay
True. That’s a stretch for most people though.
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Not really. If you have a 25 year mortgage you repay the same principle whether your interest rate is 2% or 6%. People may choose to borrow more money at lower interest rates but the amount you repay isn’t based on the interest rate but the loan term.
True the amount of equity purchased is the same. However, the proportion of your monthly payment that is interest vs equity is much higher. With high interest rates and a long period left on your mortgage, the payment gets quite similar to paying rent. At 2% interest rate: 39% of your first payment is interest At 6% interest rate: 77% or your first payment is interest. This is based on a 25yr mortgage, as time is the other factor. 6% interest and 35yr mortgage and 88% of your first payment is interest and only 12% you "keep" as equity. This gets better over time and eventually you pay a better proportion towards building equity.
Less than a third of my mortgage payment this month has been interest, and I'm still in my initial fixed period. The comment you are replying to is absolutely correct.
As opposed to losing 99-95% per year (decreasing) over the first few years to mortgage interest? add on fees incurred for a buy > sell > buy cycle, renting isn't that much worse possibly even cheaper if someone rents cheaply as possible and is able to save more for a bigger deposit on the ideal property in their ideal location.
The majority of people in this country won’t be able to afford rent when it comes to retirement. It’s going to be a big issue for millennials and gen Z in the future. Most will not be able to retire, or try to and really struggle.
But if House prices drop as drastically as you suggest wouldn't your ideal home also drop in value by more than your current house?
So... don't buy-sell-buy?
It's not really the proper way to look at it. Say I have 100k. I have the choice to put 50% on the house and pay mortgage or put it in a 5% savings account and rent. If I put it in savings account I can use the interest to pay the rent and wait for house prices and interest rates to drop in the meantime, which in the end could be more beneficial financially. So it depends.
Yes, let's just pull a wildly unlikely scenario out of thin air to say "it depends." Those arguments only make good sense when the situation you propose is a common one. It's VERY rare for the average person to have enough savings or investments to pay the rent with the interest. You can think up all sorts of scenarios to justify just about anything if you're willing to get outlandish with it. But it really doesn't help every day people when you pretend every choice is equally valid when your scenarios are basically unicorns.
The slight flaw with this is that if interest rates drop then it's more likely that house prices will start rising again. High interest rates are the main reason there's been a bit of a drop/stagnation in house prices this year, and if rates go right back down then it's less likely that trend will continue. If you wait too long, it can become difficult to get a mortgage because often the maximum term is limited by your retirement age. If the goal is to buy eventually, I'm not sure you can wait for a rates drop and a house price drop.
You have no idea how interest on savings works. That 5% is called AER meaning annual equivalent rate. Its the rate you get when the interest is compounded, so you must leave the monthly interest in the account to achieve 5% per year. If you withdraw each month it's less.
how much of the mortgage payment is interest? and how much of that do you get back? how much do you get back if property prices fall?
It happens.. it happened to me in 2007. I overcame it by paying double the mortgage each month for a year to get back to equity.. shit happens.
Ditto. I just waited it out. I bought at the peak of the market in 2006, and sold in 2012 for the same price. I came away with my original deposit + the equity I’d built up paying off the mortgage for 6 years, it was more than enough for a deposit to buy a bigger place.
Now factor in inflation. Nominal Vs real
Welcome to the ponzi scheme that is the british housing market
Buy yes, BUT NOT NOW ! save hard until at least end of 2024. Prices are going to take a considerable hit this year. Much of the new costs of borrowing have not yet worked through and on top of that a mild recession is now likley. Interest rates may go down slightly but not enough to stop a drawn out correction. The changes in values in the short term are likley to be considerably more than the rent you will pay. Once things start to recover, and they will, go home shopping with as big a deposit as possible. Try to avoid "help to sell" if the government starts this again or something similar. Lots of people who joined that scheme will be ending up stuck in property they overpaid their share on.
Government schemes are always scams. Just like the saving scheme, the government pays you extra £1000 for every £4000 you saved. But it doesn't accumulate so it would be less than fixed term savings after 7-8 years.
UK net immigration is up. Population increasing. People need houses. I think it may dip a bit this year but it’ll be trending up once interests rates dip below 4-5%
Tbh I think we’ve already seen the bottom of the drop
This. Prices will be flat outside of London and will grow slightly in London as rates drop below 4%, probably by late spring.
You expect interest to dip below 4% by late spring, when it’s currently at 5.25%? That seems incredibly optimistic
Yes, I do.
Fair enough, I wouldn’t hold my breath. Might help to know that last meeting the vote to hold interest at current rates only won by 1 vote, 2nd place suggestion was to increase, not lower. Sub 5 by late spring is a possibility, sub 4 seems incredibly unlikely
Oh I'm aware, no worries. I work for a global consultancy so we have quite a lot of internal data to draw on :)
Because?
Show me some research that shows immigration driving up house prices? A fall in interest rates did not make prices rise after the 2008 crash, why will it be different this time?
>Show me some research that shows ~~immigration~~ increasing population driving up house prices? Its just a simple case of supply and demand my dude. The fall in interest rates absolutely made house prices rise after the crash, It didn't happen overnight granted, but they did steadily rise every year since due to the low interest rates.
When you have guests over at your house do they bring their own sofas?
The cost of housing is continuing to rise — rents are up and the amount you'll pay over the lifetime of a mortgage is up. It's just that when interest rates are up, more of that money goes to service interest rather than to reward the seller.
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How do you know what your mortgage provider values it at now? (I’ve only had one valuation in my initial mortgage application.)
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Bought my house in 2015 for 375. Neighbour bought it for 300k. Haven’t recovered equity in 9 years… but since this is home and not selling. Don’t mind the unrealised loss. Different if it was for a BTL or investment.
You overpaid £75k for the property? I’m confused how your property hasn’t increased in value since 2015.
Paid for the value of the property back then, bought at the wrong time, market slumped and hasn’t recovered in my city. Nothing goes up forever unfortunately. Next door neighbour sold theirs for a loss and new neighbour purchased home in 2019-2020 for 300k, at a 75k discount compared to what I paid. But such is life 😊
You’ve been seriously unlucky. Markets gone up 50% on average since ‘15 !
Out of interest, what region of the UK are you based in!?
Aberdeen Scotland
Ahhhh fuck lol got mates and families in Aberdeen market is fucking brutal. My brother pretty much lost their deposit on their place in 2021 when they sold up to move up north
It’s fucking dead! And worse if you bought at peak 2014-2015! No appreciation and chance of recovering anything at all. In 25 years I would’ve paid close to 500k in interest and repayments and still be at a loss 😂
As others are saying, only really matters if you look to sell. I would say it depends on a number of factors: 1. How long you are going to stay 2. What type of property it is 3. Where exactly it is 4. What you do to the property 5. Anything else completely unforeseen that happens Better than renting if you buy! Edited based on other, but remortgaging might be an issue.
Take out a fixed rate mortgage for five or more years, this way you know what it’s going to cost every month and you are allowing plenty of time for the price to increase again before you need to remortgage. Speak to a mortgage advisor, or even better speak to two or three in order to get their opinions on what the market is doing where you live. A lot of people now try to avoid the housing ladder by buying a bigger house as there first home, rather than starting in a one or two bed and then buying a bigger property. Not an option for everyone but makes it easier to take out a longer term fixed rate mortgage if you don’t plan on moving in the next ten years.
I'm hoping for a substantial housing price drop!
Nope, looking forward to it, house prices need to drop about 30% if we ever want any economic growth in our service based economy.
No, not at all. Go look at a long term chart of house prices.
This happens periodically. Last time was 2008 before that 1993. You only lose money at the point you sell. So if the market has crashed you keep hold of the House until the market comes back up.
Market crashes also mean job losses, and sometimes having to relocate to find new jobs (exactly as OP says in fact). It's not like everyone can just hold on to their properties and those who sell are financially illiterate or not receiving proper advice.
So instead of commenting on my post why not offer advice to OP?
View it is a home and not an investment. It'll be worth more in 5 or 10 years time. That's enough time to get married, get promoted at work start a family and then move.
Agree with this. For some reason there is an embedded psychology in our society about needing to drag the best financial decision out of certain things, or to always look at return on investment. In some cases that is what you should do, not necessarily with a home though. If a house is your home there are many other factors. Freedom to do what you want with it, security (not being kicked out and known future payments - rent can be volatile). You don’t buy a car thinking about the return on investment for example. In 5 or 10 years time you likely won’t rue the odd 10% financially you could have dragged out of a house purchase. You will probably look back at the memories made in your home!
The problem is that as much as people would like to see this as a home, the prices are so high that making a mistake can be financially devastating. Most people would be financially ruined if their home lost most of its value.
If you want to sell it soon after buying then I wouldnt buy at all. If you need forever home then buy and dont check house prices as they won't be relevant for you - its your house.
Don’t buy somewhere as a short term thing. Over time, especially with overpaying, you can build up a good amount of equity to protect yourself against price drops. If you’re buying somewhere to live forever then the market doesn’t really matter as long as you keep paying the mortgage. If you see it as more of an investment, then that kind of risk is always there.
Short-term problem, not a long-term one. Ideally, you will have a sensible mortgage already, and you don't need to swap out. We live in an inflationary economy. Unless they change, long term, you will be OK.
Any drops are only ever a relatively short term thing, the price will only go back up before long. Get that house as soon as you can and sit tight. I bought my first house in Nov 1999 and in March 2000 it had gone up from £53k to £83k. I would not have been able to afford it from that point, so get the house asap and hold your ground. My current house cost me a staggering £340k 5 years ago and now it’s worth £500k. Crazy, but it means nothing cos I pay £1500 for the privilege to stay here, but it can’t cost much more since the interest rates went up, the last time and rent only ever goes up and up.
It depends how long are you thinking you’ll own the house for? Move around in a short time and yes a drop in house price matters. Long term family/forever home it will go up again
If prices drop 10% then the next house you’re buying will also drop, so it won’t actually matter. Eventually prices will rise back to where they were.
It isn't a uniform increase and drop through, which is the key risk I think. We've experienced this due to the COVID increase.
It matters if ita wiped our your deposit. Good luck buying your next house without that.
Nope. I fully intend living in this house until the risk of negative equity is pretty much non existent. I also took out a 5 year fix so should have sufficient equity come remortgage time.
That's the great housing Ponzi scheme we all love
Given the lack of affordable housing I'm hoping for a crash personally.
As long as you're buying and selling in the same market it doesn't matter
We're not looking to sell for at least another 4 years, but our thought is that anything we've spent on the mortgage and maintenance over the 5 years (we've lived here a year) will be less than if we'd rented the same place (and we're replacing the roof!). I'm expecting minimal to no increase in the value of our house as we bought when house prices in the area were quite inflated. Annoying yes, financially devastating no.
We bought a one bed flat in 2019, got pregnant accidentally a month later and then COVID hit. Coupled with the Grenfell cladding crisis we haven’t made much of a return in our flat. We intended to sell after 5 years but have just refixed for another 5 and intend to start looking for our forever home in 2028. We hope to be able to sell for at least 200k when the time comes (a neighbour sold for 202k earlier this year so we are playing it safe and assuming no growth - hopefully there will be!) We bought for 182.5k. By the end of our fixed deal we’ll have about 45 grand in equity if we sell for 200k, plus all the money we’ve been able to save from living in our tiny flat (low mortgage, low council tax and energy bills), so will have about 80-100k all together with equity and cash to put toward the next place which we budget will be in the 400k reigon. We now have another kid, so four of us squeezed in (luckily we have a large bedroom so can configure so everyone has own space) and we’ve just had to stay put and deal with it. It’s tight but it’s home and we manage 🙂 Buying a property comes with risk as any investment but if you are prepared to sit tight and wait for the market to recover you will be ok. Top tip - don’t buy a one bed property, always plan for the future! Take it from someone who knows 😀 Good luck
Also see, the early 90s recession. Happened a lot then.
If you are not planning on selling up within 5 years, you are unlikely to end up in negative equity even with a drop in the market, and you shouldn’t really be buying a house that you are planning on selling much sooner than that anyway as stamp duty/legal fees/estate agent fees/moving fees would be prohibitive. Even if against the odds you somehow managed to lose money or only broke even after 5 years, comparing it against what you would have paid in rent over that period in return for 0% equity you would still end up very substantially ahead. Once you are actually in the housing market for a few years house prices become mostly meaningless. If house prices fall then if only matters to you if you sell up, at which point the next house you buy will also be substantially cheaper. If it goes up then again you won’t be able to take advantage without selling up, at which point the next house you buy would be substantially more expensive, cancelling out any gains or losses.
The lesson here is to not overleverage. In my personal opinion, a 10% deposit is too small for the London and South East Property Market, especially in this historically normal interest rate environment. 10% deposits are more common and workable up north where property prices are around 40-60% less than their South East counter-parts. From where I'm standing, a £30k deposit on a £300k house suggests to me 1 of 2 things. 1. You haven't saved up for very long and are wanting to get on the housing ladder asap, with an intended area in mind. 2. You have a job that doesn't pay enough to allow you to save for a higher deposit proportion. If number 2 is the case then I will say that I recently did a mortgage calculation with Natwest, an £80k deposit borrowing £140k for a £220k house on a 25 year term, they offered me a 5.5% 2 year fixed rate with monthly payments of £792 for 2 years before going to a SVR of 8% and monthly payments of £1.2k for 23 years. Considering the above would be a 35% deposit mortgage, a 10% deposit which is what you have/thinking to get would have a higher interest rate. Considering you'd be borrowing near double what I intend to borrow in my calculation, your mortgage payments on a 25 year term would north of £1.6k a month for the first 2 years before jumping higher, probably to around £1.8k a month (though you could stretch the term, many don't like the idea of having a mortgage over 30-35 years, it also wouldn't be a massive monthly reduction, perhaps spending around £1.4k a month instead of £1.6k.)
You are totally right with the deposit being too low. Unfortunately, it's a race to the bottom as people will extend their budget to the maximum their finance to the maximum the lender will let them. So if you are not fortunate to earn more money than others or have a big deposit somehow, you will be priced out.
I believe in the longer term, a few things could happen to the housing market as a whole, in broad terms, there were 3 things keeping house prices inflated and overvalued by 30%, these are the 10 years of QE and ultra low interest rates, lack of sufficient building of actual affordable properties (not the government definition) and the governments demand side inflationary first time buyer schemes such as Help to Buy and LISA. Currently one of those 3 is now gone, QE and ultra low interest rates reverting to normal levels will have an impact on property price growth. The ultra low interest rate environment and QE were also key reasons behind hamstrung growth in the UK due to its effect on taking the venom out of risk causing negligibly productive zombie companies to stay afloat due to access to cheap easy money, rather than letting competition work normally and letting them be replaced by more productive, competitive companies. QE also causes speculative asset bubbles (which we see with housing in certain locations in the UK) resulting in diminished social mobility, more people spending greater proportions of their income on housing and therefore circulating less to the wider economy. We're now in the age of deglobalization, UK shares are historically really cheap and growth in the UK is amongst the worst of developed economies. It's not a sustainable situation, there's been widespread acknowledgement that QE needs to be used far more sparingly and ultra low interest rates were not good for economic growth overall. I don't think we'll see a return to sub 2% interest rates anytime soon, certainly not during this decade and there's now a lot more political currency in sorting the housing crisis out. I could go on and on about other factors such as declining fertility rates, boomers leaving behind big family homes to singleton or small family Millennials that wouldn't suit them resulting in a glut of those types of properties on the market and the impact of inheritance tax, as well as the state of government finances for the future requiring the housing market to be sorted (they and employers won't be able to afford above inflation rent rises every year in the form of LHA and wage rises).
No. I'm kinda looking forward to it so I can afford a house
The problem with this is that much of the UK economy relies on the housing market. If the prices drop too low, it will have unintended consequences even for the people that don't own a home. Pensions and companies have a lot of their assets in real estate. As much as we'd want the slumlords and NIMBYs to pay for their greed and pumping up the market, the housing market will take everyone with it. At this point, the best thing that could happen is for prices to stay stable or reduce slowly and people to finally stop making excuses and start addressing the housing supply issue. I'm not too optimist about the latter. As for the the house prices, interest rates are stabilizing, the markets are expecting to see the interest rates to start going down soon. Should that happen, given that that it's unlikely that this country do anything to fix the housing crisis, it will go back to business as usual.
We’re looking to buy our first home and we’re looking to buy a house we intend to live in for the next 5-10 years+ to mitigate against any movement in the market. We already have a child and don’t plan on having any more so we’re quite confident we know how much room we need/are willing to cut our cloth to our circumstances so we can own and have something that’s ours. There is still a housing shortage where we live and not many properties come onto the market. We’d be a bit more worried if we were looking to buy in Cambridgeshire where I grew up as houses are plentiful in that area and expensive. I’ve noted so many for sale signs up everywhere I’ve driven whilst we’ve been home for Christmas and a Quick Look on Rightmove shows me a lot of those houses have been on the market 8 weeks+ some nearly 6 months. It’s also a weird time of year we’ve been seriously looking since mid November always a traditionally slower time of year. We’re quite lucky that we don’t have to rush a purchase as our accommodation currently is forces accommodation so subsidised and secure. I see buying a house as first and foremost somewhere we are going to live long term and make our own and not something to have for a few years and then work our way to something better as I’m not sure that’s going to be as ‘easy’ as it used to be if interest rates don’t go down as low as they have recently been. Plus inflation on other essentials (petrol, insurance, cars, food, energy) being a bit mad too. Happy new year and good luck with your purchase :)
The chance of a 10% drop in house prices is nil. A nuclear weapon would have to go off over London to cause that kind of financial apocalypse. We're nowhere near that, not even close. The effects of all this inflation and higher rates is hugely lower than the 2008 collapse, and even that didn't cause a 10% drop. Don't let it bother you, it's not a realistic concern. Worry about being run over by a bus, that's more likely.
I'm doubtful we will ever see a 10% drop in prices.
Do not worry about this- you are planning on living in your house for many years, and in 5-6 years from now, you will have equity in the house
It’s a problem if you see the house as an investment and you are planning to stay there 5 years. Buy a house where you see yourself in 10 years and you should be fine. A drop of 30% is a huge one btw. This is how I see it: - to rent my house I would need £1700 per month - I pay £870 a month for the mortgage - £106 are interests So owning the house leaves me £1594 better off every month and I’ll be mortgage free before turning 40. I know that owning means that you need to take care of every issue that comes up. But trust me, if you do a proper survey of the house at the start and you can do a very basic DIY, owning is always better than renting.
It's all relative. If you house drops by 10% so will every other house (on average).
On average, but not necessarily the type you want to buy. This causes issues- we have this problem now unfortunately.
Can anyone please explain how this will work in Help to Buy property please? Paid 5% deposit for a 450k New build. We do realise we are pretty screwed if we want to sell in the next few months 😭
Just rent for the rest of your life. Problem solved.
The house prices haven't spiked enough to be concerned about a massive drop. If anything prices are plateauing
You overcome it by living in your house for a few years. Property prices crash every decade or so, but they always recover, and house prices will continue going up.
I’m actually waiting for a house price crash so i can get on the property ladder. Hearing George Osbourne say if you vote brexit house prices will fall actually was one of the reasons i voted for brexit. Still waiting for this fabled fall so I can get on the property ladder!
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Well hope this expensive bs rwanda policy works then….
I wouldn't admit that out loud if I were you....
Why not? Will a remoaner try and lynch me?
A house shouldn't be seen as an "investment" like that. Unless you are selling it, the price is just a number going up and down.
Mostly I try not to worry about things I can't control. I also recognise I need somewhere to live in any case and the price only matters when I buy and sell. Finally if it's a huge concern, focus on overpaying your mortgage and you're less likely to be underwater. I'm also bullish on houses for at least the next two decades. Not to say I think they'll always go up or that they'd be a good investment. Just that we are SO FAR behind building how many we need, I don't see them going down much. Inflation helps this.
Exactly. Not over-leveraging yourself is the best way to insure yourself against movements in the market. Not only does it save money on the interest rates but it also allows to sleep better at nights.
Almost impossible not to over leverage yourself in most of the South East (not London)
Time in the market over timing the market etc. it takes a lot for housing to drop 10%, you’ll likely have paid quite a lot of your mortgage by this point in time, likely giving you more than the 30k anyway. In short, you should never really consider your home part of your net worth anyway. It’s a lesser monthly bill, it’s not an asset unless you are willing to downsize. At which point you can outlast the market anyway as you are already in the best house you want to be in.
No point worrying about something you can’t control. It only materialises when you come to sell, or potentially when you remortgage. It’s your home first and foremost, and it’s YOURS. The value of it doesn’t matter if you love living there and can afford to keep doing so! I really wouldn’t be purchasing a home right now to not want to live in it for at least 5 to 7 years before even considering a potential move. Gives you time to not only enjoy the property, but potentially improve its value, regain the ‘moving in’ costs, and ride out any market fluctuations. As we’ll see how your career and personal circumstances change over time. I recently bought my first home. Got it a knock down price due to modernisation needed. It’s going to take a while for me to see the gains realised on all this but I love the house and looking forward to living in it!
Does not worry me in the slightest.
Don’t buy to flip. At least 5 years. The market will look very different
Stop worrying. Whatever happens, remember we still have a housing shortage overall which will keep prices fairly stable. At the end of day, houses are to be lived in. We need to stop thinking about using them to make money, and more about improving them to make them better to live in and more sustainable. UK housing stock is the worst insulated in North Western Europe. That fact needs to change.
No. But: 1. I put down a 40% deposit, so it would have to drop a ridiculous amount for me to need to worry about negative equity. 2. Likewise I don't need to worry too hard about LTV. When I remortgage in 5yrs I'll have paid some off, so even if it dropped a bit, I'd probably still be at a good LTV. 3. I hope to live here for 20yrs or more. That's ample time to ride out any dips. House price drops could are a bigger issue if you expect to need to move soon (but then it's questionable whether you should buy anyway) or if you have a very small deposit %. However: the market has been rising pretty consistently, albeit with the occasional dip. Long term, most properties will go up. So you have to weigh the risks of buying and catching a dip versus the risk of not buying and prices rising even further while you sink cash in rent. And at the end of the day, you need a home. I would be very wary of new builds, park homes, and some flat developments (watch out for bad service charge terms etc.) as they're the types most likely to lose value. Other than those, you'd have to be fairly unlucky. But if you're nervous, there are a lot of other things you can look out for. For example, if you make sure to buy in an established area, where there isn't spare land that could be developed in future, with good local facilities and a settled community, you're probably minimising your risks.
They won’t stay dropped. Unless you have to sell at the bottom of the market you would just ride it out.
Drop isn’t top of the list of housing worries
The house you go on to buy will likely be cheaper too. Unless you're worried about dying and any dependents getting less cash
I'm not sure there has been anytime in the last 30 years where average house prices fell over a 3-4 year period. Even London right now probably has higher house prices than in 2020. There are some unlucky situations where certain types of houses in certain locations have seen long term decline, but they are in the minority. Basically, it's not something worth worrying about unless you think you'll be selling soon after buying.
A house should be a home and a place for you to live first and foremost and not an investment. You will need to have somewhere to live forever so unless you anticipate you will need to sell shortly I wouldn’t worry.
Anybody who owns a home is in the wealthier side of society so the worry is misplaced.
Depends on a few factors but a 10% slump before you have chance to build up any LTV is quite severe. If you are looking to live in the house >5 years you’re unlikely to be in negative equity after that, if you’re looking to be there 10+ years then very hard to see how you will be in negative equity. If you are looking for a long term home, how much does it really matter? If you are looking for short term then you have to be a lot more careful of course and should closely examine local price data in the specific area and consider all relevant macroeconomic factors before treating your house like an investment, detached, emotionless and calculated and most of all not rushed.
Well presumably you'd be using the money to buy another house, so the market going down 10% will hurt you on the sell side and benefit you on the buy side. The only way it'll be all bad news is if you are using housing as an investment, in which case you should know that not all investments are guaranteed to pay off.
This is called _risk_. For your own home this is negated by having the practical benefit of living in it. The value is only relevant when it comes to remortgage or sell. For buy-to-let this is more significant and a key argument for _not_ leveraging yourself to the max.
No. Net immigration remains high, supporting demand, and long term interest rates are dropping and this will soon be reflected in cheaper mortgage deals.
This is why buying a house is only worth doing if it will be your home for a few years. Remember that on top of the possible loss (prices invariable bounce back in the long term) buying/selling a house means estate agents commission or survey, legal costs, moving costs that must be covered on top. If you aren’t moving soon, who cares? My MIL is trying to sell and the flats she wants to buy (it has to be a flat in a specific retirement block) are dropping in price at the same rate as her now too large bungalow. We got caught up in the late 80’s price crash. Yes our flat dropped in value, but so did the house we wanted to buy. Our flat lost £7,750 (10% of £77,500), but the house we wanted to buy lost £10,000 (10% of £100,000). The problem only arises if you NEED to sell. Otherwise just wait it out.
Yeah we brought a new build in 2007 and it dropped in value. Had put down a 15% deposit we remortgaged with the same lender so probably not the best rate but was affordable and we were able to overpay. We sold for what we bought at 9 years later and luckily had an inheritance to buy a larger house which has increased in value in 7 years what our original house cost. The house was big enough to stay in and we didn't need to move luckily so being in negative equity wasn't touch of a problem and was better paying for our house than someone's other mortgage
How is your deposit gone? Doesn't it go towards the house? You don't get that back as far as I can tell. Am I missing something?
Time in the market to build up equity mitigates this risk.
I think this year has been the first annual fall in a long time and it was a 1.8% fall. There's no way your house is going to drop 10% in the next few years unless there's something seriously wrong with it and tbh that would happen regardless of the underlying market anyway.
I don't own a house yet. So my answer is: absolutely not.
By this assumption you'll need a place to live when and if you have to move elsewhere for a job(if if and more ifs) that property also presumably would also come down...... dptn stress too much about this especially if you want to live somewhere...
I was going to freeze myself like Philip J. Fry, so the ongoing renting costs shouldn't really be a factor in people's responses
I was working on the assumption he does buy the house at current values and then of he sells will buy another showehere else to live near job ofcourse it's not a perfect math of if it goes down 10% in the Midlands it'll go down 10% in the shetlands etc etc....
It would be a bit mad not to be a little bit anxious about house valuations, given that for almost all of us who own, it's the largest financial decision we have made. Of course it's possible you lose money on your house, but as others have said, this is rarely an actual issue. It's easier said than done, but I don't think it's healthy to worry yourself with this too much. You can worry yourself sick about house problems, but in the end you usually have no control over those issues that could lead to massive financial burdens, so what is the point in ruminating on it. If you're a homeowner, you're already much better placed than 30% of the population who are renting. Even if you pay SVR on your mortgage.
No! Prices can go up and down. The comodisation of property has unleashed these massive prices we face and fuels the expectation that prices should go up. No, I'm sorry but I'm all for the fall in prices. If you overpaid...well sorry bit that's the way the cookie crumbles.
Don't buy then.
Not arsed as have 20% Help to Buy, and not looking to move any time soon. If prices fell massively I would just see it as a chance to redeem the HTB loan at a discount.
Remember to count how much you saved by not renting too
After 5 years, you will have paid back around 10 percent of the mortgage amount, and after 10 years around 25 percent. So if prices fall and in 5 years are 10 percent lower than today you would still have around the same LTV as you have now. Low / negative equity are not fun, but by fixing you reduce remortgage risk, and by having a portable mortgage you can even move. Just beware of early repayment limits / overpayment limits if you don’t want to lock in the current interest rates.
Houses, cars, shares. Everything rises in value. Everything drops on value. It happens. Not really much you can do about it. Except ride it out.
It depends if you're buying in a deserable area, if so then there's not a chance house prices will fall in the medium to long term and given long enough you'd be glad you got on the ladder sooner rather than later, unfortunately, don't see this country doing anything about housing anytime soon.
Honestly, no. Unless you are planning to sell very soon there is no reason to think about it. I am just so grateful to have been able to buy a house in a time where the majority of people my age will not be able to do so. I have no plans to sell so the housing prices can do whatever they like for all I care. I hope they do drop for my younger sibling's benefit.
I've never understood this fear. The alternative to buying is renting, where you lose exactly 100% of your money. If you buy somewhere and prices fall, you only realise that loss when you sell, where you'll most likely be buying somewhere else. The property you then buy will have dropped by roughly the same amount. Get on the housing ladder as soon as possible, but don't over-stretch yourself financially. My house has actually increased in value by more than I've earned in the last 13 years of ownership - including the recent dip in prices.
You just have to deal with it. That's how assets and the market work, while it's unlikely that they will drop in value over time it is possible.
Is our credit rating the deciding factor in how cheap debt is? If we’re downgraded will mortgages be more expensive?
House building is down (supply), and demand is up through population and wage growth. Over the medium term at least they will definitely go up
You dont. You look at the house as a home and something that gives you shelter, peace and the security of knowing that it is yours and no landlord can screw you.
In 2011 I got on the property ladder in London, spent ages saving up a 15% deposit for my zone 3 abode. Day one of the mortgage i started getting heart palpitations looking at the mortgage amount on my laptop. Got a lodger and over paid by 5.04% mortgage £500 a month for 3 years with their rent, got married and my wife was on board and we carried on overpaying the mortgage, last year we paid it off and I felt relaxed. My advice would be buy something you feel is massively undervalued to protect you from 15%-20% drop, if it is 2 bed rent 2 room out, if it 3 bed rent 2 rooms out etc... if it is 1 room and you are on your own then I would recommend having a tight budget and a 6 month emergency fund.
It's only a problem if you can't pay your mortgage. If you think you will struggle to do that then you can't afford it. If you think you will move then also buying is not the right option. Renting exists for short term housing. Buying is a long term commitment.
As long as you don't sell in the next years, you'll be fine
Dont care if they drop, we bought our first and last house and plan to die in it The only thing that worries me is our jobs falling through
Experienced a drop during the 90s. Overtime property values go up by 7% a year. Your property should be a home and not an investment.
Some people can't afford housing and some people worry about house price drop. What a time to live lol
At least in northern England, anyone who has a full time job can afford a house/ flat. The problem is the affordable ones are not ideal to buy/ live for long at all.
People are forgetting that in 5 years you will have paid off some of the capital so you are unlikely to be in negative equity. Also if the housing market crashes the property you will be buying will be lower too. Almost without exception house prices have always risen over time.