h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

To whom would it matter? People who had to move home to change jobs, I assume, as that was me just a short while ago. I timed it right, thank Bod. And people coming off short-term "offer" mortgages and onto higher rates...

When I was young, the deal appeared to be, get a mortgage, then spend 25 years paying it off.

Now it seems to be get a mortgage, spend two years paying it, then get a different one, paying less per month because you get an offer, but liquidating some of the value of your home and spending it on toys. Wait two years, then repeat.

What will happen to the economy if house values really do plummet?

SoRB

Unfortunately for a lot of people, it would be pretty horrific.

I would give it another year or so and buy one... Assuming I could get some semblance of a mortgage...

I remember the 25 year- 3½ x annual salary max (combined if you were married with no kids) mortgage deal. You moved, you topped it up by adding years.

This is the only way young couples are going to get onto the housing ladder, by lowering cost of houses.

Where are the people going if they've had their homes repossessed?

Into debt, renting and potentially bankruptcy...

My mum and dad were on the very fine line of this in the early 80s... They managed to survive and stay in the housing market but they were relatively lucky.

"Where are the people going if they've had their homes repossessed?"

They'll rent, like people always used to and like much of Europe still does. It's only relatively recently that it's become "expected" that people will own their own home. My grandparents bought their first home when they were in their fifties, and considered themselves very lucky and had worked very hard and gone without for many years to afford to do so. People don't seem too keen to spend years saving any more - the philosophy is "I want it all, and I want it now".

Much of our current problem stems from the fact that 30 years ago, the "I want it all and I want it now" would have been met with a stern "TOUGH. Save up, loser." from the banks. Then they realised they could make a stack of cash by instead saying "You can have it all, and you can have it now. You won't have to pay until next year, either! ", then whispering very quietly, "but you'll have to pay twice as much as if you'd save up...".

But seriously... if all houses dropped in "value" (strange concept...) by 50% in the next five months - what would happen, really?

What I don't understand is how can people rent if they didn't pay their mortgage because they couldn't afford to.



I hear your question, but I don't know the answer, SoRB.
I got my first mortgage at 19, I was too young to be considered by my employer, Barclays Bank, and their rules forbade me applying to a Building Society, and my husband didn't earn enough to buy the house we wanted (£3500) and they wouldn't take *my* salary into consideration so we got a loan off his employer, at B of E base rate. We lived off his money and paid back the loan with mine, it was paid up in 3½ years.

Hm, as a single girl, I can say that any mortgage I got would be double my rent, minimum. I can barely afford to rent a 2 bed flat with a housemate, so a mortgage is out of the question.

I do have a certain lack of sympathy for people who have gone ahead and bought houses without giving themselves a margin for security, stretching themselves, even on the never-never... Because if demand had dropped sooner, prices wouldn't have gone up so high. There seemed to be this frantic panic-buying of houses, people pushing themselves far beyond their means... And now reality bites.

Some people are just trying to do their best and have done what they needed to do and no more, they have my sympathy.

I've never paid rent, so I'm pretty clueless there, but my son and daughter pay rent where they live and it seems dead money to me.

It's OK to feel sympathy for those doing their best and I feel for people caught in the rent trap but that's not practical help is it? It's also easy to suggest alternatives - the hard thing is to use the correct wording so I wouldn't be yikesed or branded a racist.

There's not a lot anyone can do to suggest ways of helping, except encouraging people to be realistic, decide where they can make cuts (Do you really need to tumble dry everything? And how about washing up by hand instead of using the dishwasher for two of you every night? Budgeting on clothes and luxuries..)

As for rent/buy, I've been recipient of both. Renting is *dead* money in one sense, but not in another. Your landlord is responsible for all running repairs to the house, if your boiler breaks, you call the landlord and he worries about he cost etc. If you rent from the council you can get assured tenancies which mean you can pass the tenancy onto your children (who, like you, will have the option of buying).

Owning a house, you pay out for everything, it's all your responsibility and you may not even pay it off by the time it comes to shiffle off the mortal coil and your children will probably sell it and split it anyway, unless you only have one or one is in the position to buy their sibling(s) out...

Yes, it's collateral, but what it is *actually* worth in the long run, who knows?

As for renting privately, I've lived in several houses because of the whims or changing fortunes of the landlords we've rented from (my mum has rented from). You get no security and it's not ideal, but it's often the only option.

>>it seems dead money to me<<

I don't think renting is dead money. My rent buys me a nice place to live, that I could never afford if I was trying to buy it.

I don't expect to settle down in one place for some years yet - I'm in Bradford for now, but this time next year I could be living literally anywhere in the UK - and so buying doesn't make much sense from that point of view either.

When I get into the position of being able to buy a house, I think I'll still rent for a few years - it's much cheaper and that money can go into a bank account. Plus, as Robyn said, I don't want the responsibility of a house - I'm hopeless with the few bills I have to pay, I couldn't cope with repairs and all that lot.

I think that if house prices fell 50% a lot of 1st time buyers would come out of the woodwork and start buying again. Which means renting would probably become cheaper, so I'd be happy.

Renting in the UK is a rip off, I remember a few years ago, when I rented out my house through a letting agency (whilst I was studying away at University for a year), the amount charged for renting htis place per month, was several hundred pounds more expensive than it would have been at the time for a good deal on a mortgage for a house costing the same Rents don't often seem to resemble much the actual cost of housing in a given area, more the lack of supply of property means they can just charge some utterly invented figure for a six foot square box Mind, having said which, if I'd not been in the position I was and able to buy my first house without needing a mortgage, I'd still be renting now, I'd have maybe £200 of my wages left per month to pay for gas, electric food and clothing etc after paying the rent Oh, that would be less than the current water/sewage/electric/gas/council tax bill per month.. I don't know how people can work and pay rent/mortgage unless they're on pretty damn good wages

Yes I was shouting at the telly last night - on a documentary looking at the housing crisis the only people they featured were greedy boggers - the lady from Kent, who'd bought 4 (count 'em) flats in Manchester because they were cheap (....compared to what she was used to in Kent...), hadn't been to see them - I mean, if you're going to invest in property, do some research, love!

If my house fell in value, I could be paying off a mortgage that was higher than the value of my house. For a while. So what? I don't believe in the long term that that would continue. I wouldn't be tempted to sell - my income and outgoings would be the same.

I can only really talk about flats, but in Bristol, for anything half decent, one or two bed doesn't seem to matter, you're looking at paying £120,000 minimum, which however you figure it is going to cost me alone more than me and my housemate currently pay. Unfortunately single bed flats rent for the same as two beds here, so you cannot go it alone unless you're wildly rich!

"What I don't understand is how can people rent if they didn't pay their mortgage because they couldn't afford to."

It's a lot easier to get help with your rent than it is to get help with your mortgage. Very few people qualify for mortgage help, no-one gets it for the first three month, and there is no 'low wage' option. With rent you can get some help towards it, if not all. With mortages it's all (although even that is interest, not capital, so repayment mortgages still leave people with some money to pay) or nothing.

If my house value halved from what it was valued at last year (the last time I had it valued) it would still be more than my mortgage, but only by a few thousand. As I'm not intending to move it doesn't matter what it's worth - as long as I can continue to meet the mortgage payments - with my fixed rate about to end in the next few months...

If I were forced to sell, the small profit I would make would make me ineligable for most benefits until it was gone or much reduced, which I have no quarrel with. I didn't buy the house as an investment for me, but rather a place for my son's future should he not be able to work, but in a way I wouldn't be sorry to go back to being a council tenant, although the thought of going back to a flat is very depressing.

If all houses halved in value by Christmas, there would be a *huge* recession. Tens or hundreds of thousands of mortgage holders would be faced with negative equity, and many of them would feel they might as well chuck their mortgage as pay for it. Banks and building societies would therefore have assets worth, say, £2 trillion to back up their debts of say £4 trillion. They wouldn't have any money to lend to businesses, so investment would plummet.

The stock market would crash, because the value of firms depends (in theory, anyway, and usually in reality too) on the value of their future earnings. Without investment, these are going to drop like a stone. As the value of the firms goes down, they'll have less capital to borrow against, so any kind of investment would be even *more* difficult. Companies would therefore invest less, but try to spend less *now*, and start firing people left, right and centre. More people wouldn't be able to pay their mortgages, so the downward spiral would continue.

The financial companies would have any *current* earnings, never mind future ones, so they'd be first. Construction would shortly follow, and then the rest.

The housing market would be further affected by the fire sale of huge amounts of homes. First time buyers wouldn't be in that great a position either, because the interest rates banks would charge would probably be about twice the base rate of the Bank of England, which would put them out of reach for many people. (As an example, on a £100k property, a 5% mortgage costs about £200k, a 10% one costs about £300k.)

As unemployment rose sharply, the governments expenses would rise at the same time tax income drops, so the government would have to go into huge amounts of debt just to find the money for benefits, never mind anything strategic. Given the hellish disaster that the UK economy has become, they'd have to pay high levels of interest to the world markets if they're going to borrow much. It's unlikely that financial markets elsewhere are going to be unaffected by something of this magnitude, so they might not even *have* the available credit to lend us. So...

In the worst case scenario, the govt just prints the money anyway. As a result, money is literally worth less, so inflation results. Not the piddly 2-4% we've got now, but 20-40% inflation.

We'd all be screwed.

Actually, the govt would intervene amazingly strongly to stop this happening, markets are great except when they're not. But a 50% drop in house prices would be a signal of something *very* wrong in the UK economy, and something that big would almost certainly be an international financial crisis which is far bigger than the one that's going on at the minute.

They'd return to a level not seen since...oh, about 2002.

Unless you happen to live in Northern Ireland, when you'd be whisked back in time to...2005.

RF

We're looking to buy our first house right now, so this is a very 'live' issue for us.

We can just about scrape something respectable, not leastly because sellers will consider 'cheeky' offers because they're so worried. But it seems frighteningly realistic that prices could drop - perhaps not halving in 8 months, but perhaps by a third in 12 months.

But on the whole, many first-time buyers are holding on for a crash.

Gif

Interesting to look back at this thread from a perspective three years later...

For quite some years now, renting has counted up to measureably more than a mortgage. Should the value drop by half before I am ready for my final move, I might be concerned about resources for my retirement ...

I've been thinking about this:

Renting SHOULD cost more than a mortgage.

As a tenant, you have no responsibility for maintenance and no long term commitment, and no exposure to the risks of the housing market.

As an owner-occupier, every leaking tap, faulty boiler, cracked roof tile and broken garden gate costs you money over and above your mortgage. You are stuck with the mortgage until it's paid off - you can't simply decide to stop paying and move on somewhere else without consequence. If you do decide to sell, it's damned expensive what with solicitors and estate agents, and when you do, there's no guarantee at all that you'll even get what you paid for it - negative equity is BACK, people. It's like we weren't paying attention in the 90s.

Frankly, a tenant should expect to pay a premium to avoid all that nonsense. Boiler broken? Call the landlord. He'll fix it, or pay a man who can. Tap leaking? Ditto. Changed your job to another part of the country? Eight weeks' notice and goodbye and thanks. Housing market tanking, repossessions rising? What do you care, doesn't apply to you.

If your rent isn't significantly more than you'd be spending on a mortgage for the same property, you're getting a bargain.