As lenders get tough, property prices look to drop 20%

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As lenders get tough, property prices look to drop 20%

Postby CraKinShOt on Fri Mar 21, 2008 7:05 am

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As lenders get tough, property prices look to drop 20 per cent in two years
By BECKY BARROW and SEAN POULTER
Daily Mail


House prices could fall by up to 20 per cent over the next two years, a senior economist warned yesterday.

The prediction, from Professor David Miles, chief UK economist at Morgan Stanley, will dismay millions of homeowners.

At present, the average house price is about £200,000. If Mr Miles is correct, it could fall as low as £160,000 by the end of 2009.

The biggest losers will be those who have forked out a fortune to buy a home over the past couple of years.

However, Professor Miles, a former Government adviser, insisted such a fall would not be a catastrophe.

He said at a housing conference in central London: "I am at the pessimistic end of the spectrum, but I don't think it should be seen as the pessimistic end because there are as many gainers as losers."

The winners, he said, will be first-time buyers and those on lower salaries who will finally be able to afford to buy.

His warnings come as figures showed that the most expensive London house prices are falling and Bank of England minutes revealed concerns about inflation.

Since the new year, house prices in the £1 million to £2million price bracket have dropped 2.7 per cent but overall prices above £1 million have slumped 1.5 per cent, estate agent Savills reported.

The fall, which came before this week's financial shocks, is said to have been in response to shrinking job security and earning expectations among City buyers, combined with the pre-Budget uncertainty regarding the "non-dom" tax changes.

The change has dramatically reduced the annual rate of price rises at this end of the market from 27.6 per cent to 5.3 per cent.

The mortgage debt crisis threatens to engulf millions of homeowners, bringing financial misery, repossession and an economic slump.

The storm clouds gathering over the property market bring with them the risk of a repeat of the crash of the early 1990s.

Citizens Advice reported a 35 per cent rise in those seeking help with mortgage arrears in the first two months of the year.

The finance website Moneynet said more than one in three home buyers are struggling to cope with repayments on a mortgage debt that is more than three times their gross salary.

It is also clear that banks and building societies are turning the screw. Yesterday, Britain's biggest mortgage lender, the Halifax, replaced much of its existing range with deals carrying higher interest rates or administration fees.

continues...

http://www.dailymail.co.uk/pages/live/a ... ge_id=1770


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Postby gandy on Fri Mar 21, 2008 7:28 am

its about time house prices come down.. they got stupidly high due to over pricing.
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Postby Mez on Fri Mar 21, 2008 8:32 am

I really hope that they fall around the end of this year so this is good news :D


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Postby CraKinShOt on Fri Mar 21, 2008 9:23 am

Of course this is bad news for people (and investment companies) that have put funds into properties... they are now going to see negative equity.
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Postby Blast on Fri Mar 21, 2008 10:54 am

so this means i'l be able to afford moving out before im 25? =P
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Postby Dr Caligineus on Fri Mar 21, 2008 11:23 am

Yeah, God I hope house prices come plummeting down before summer 2009 when the tenancy agreement on my flat ends.

Good news indeed for first time buyers. Now, if the government will only raise the stamp duty threshold to an acceptible level (i.e. to the point where it fulfils its original purpose)...


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Postby Dr C on Fri Mar 21, 2008 12:03 pm

houses dropping in price maybe in a few years time i could look in to moving out. But for people that own there home I guess they not gunna be to happy about it.


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Postby nevvy on Fri Mar 21, 2008 12:24 pm

if they drop by 20% across the country then i will eat my hat. i'll even video it and put it on youtube.

and this must be an average drop of 20%, not just in some expensive district of london.
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Postby Mox -05 on Fri Mar 21, 2008 1:29 pm

blast wrote:so this means i'l be able to afford moving out before im 25? =P


No, it'll add 10 years for you, so 35 years old blast will be moving :P
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Postby Little_Devil on Fri Mar 21, 2008 2:10 pm

House prices will drop, but not by that much over a year imo, maybe over 3 - 4 years and only in certain parts of the country.

Lets face it, London house prices are the most expensive in the world, a fact I found quite surprising, thought it would have been somewhere like NY.
Average Prices in Major Global Cities (2008)
1 London £9,805 /square metre

2 New York £ 7,919 /square metre

Source: Global Property Guide


The smallest increase in property prices over the pas 5 year has been 30%, whilst the largest increase has been 203% (Merthyr Tydfil), so even given a 20% decrease, in a lot of instance, in real terms, the house prices will not drop that much.

House price drop like this do happen from time to time, but over the very long term increase by far more. It is also not very good for first time buyers either, especially with the banks making it harder for people to get credit. They originally cut the 100% mortgage back to 95% then another 5% followed and some even further and yet there are other banks talking of 80% as a standard.

Some figures for you to see who actually this is good for.
First time buyer may have to find 20% of the value to get started so that is £10K for every £50K of house price, or £40,000 of savings to buy a £200,000 house :? plus a very good job, since they are changing the ratios offered.
If you have bought your house in the past few years then the interest hikes will certainly hit you, plus the negative equity means you can't sell.

Anyone who has had their house over 5 years, would still break even and 10 years would still make a profit.


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Postby Mr Tortoise on Sat Mar 22, 2008 7:48 pm

20% isnt so bad tbh


that is unless you bought a house in a trendy area for the sake of living there for a fortune ;)


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Postby sarie on Fri Apr 11, 2008 10:29 pm

House prices are currently 44% over inflated. There's no reason why a fall of 20% isn't plausible.

The London School of Economics is predicting over 30% falls before the end of 2008.

I've been saying this was due around about now for over 2 years and the only person who thought I wasn't an idiot/pessimist was Crakin. Funny that.

And now that it's actually showing the signs of starting it's suddenly all over the news and oh woe is me, the house prices might fall... how unexpected. Uh not at all really.

It suits me. I can't get on the housing ladder... everything is over inflated at the moment, not just house prices. Recession here we come. Please?


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Postby sarie on Fri Apr 11, 2008 10:36 pm

Little_Devil wrote:It is also not very good for first time buyers either, especially with the banks making it harder for people to get credit. They originally cut the 100% mortgage back to 95% then another 5% followed and some even further and yet there are other banks talking of 80% as a standard.

Some figures for you to see who actually this is good for.
First time buyer may have to find 20% of the value to get started so that is £10K for every £50K of house price, or £40,000 of savings to buy a £200,000 house :? plus a very good job, since they are changing the ratios offered.
If you have bought your house in the past few years then the interest hikes will certainly hit you, plus the negative equity means you can't sell.


Sorry I hadn't read this before I replied so double post. Had to respond though as you've kinda contradicted yourself. You're saying house prices won't come down very much short term. You're saying house prices never really come down much. And then you're saying the lending situation means if house prices are as high as they are then first time buyers will need £40k to buy a £200k house. Which obviously 99% of first time buyers do not have...? You've lost me. That is exactly why we're going to see a huge fall if not a full blown crash.

The tightening up the lenders are doing at the moment means that even people already on the housing ladder are going to struggle to come up with the deposit required to purchase a new property. 95% deals are already becoming scarce and very expensive, and it will only get worse as the year goes on. This means unless house prices fall people will require huge amounts of cash to put down a deposit. Combine that with soaring interest rates and the price of stamp duty and fees being charged by lenders and you've got no market. No market means the market has to fall into line.

What you're saying is that the housing market won't really come down, even though noone will be able to afford it? That doesn't make a lot of sense to me... :shock:


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Postby Little_Devil on Sat Apr 12, 2008 12:00 am

Maybe did not explain it too well :P

In proportion to the amount of rises in house prices over a long period of time, the price drop as a % of today's prices, is relatively small, compared to the amount that the houses have increased in value.

Say a house has risen on average 10% per year over the past 10 years then a house that started off at 100K is now worth 259K. So even if you reduced the price of that house by 30%, it would still have gained 99K in value.

I also stated that mortgage lenders and creditors of all varieties are clamping down on lending, which means first time buyers will find it harder to get a mortgage, despite what people are saying, that it should be easier for first timers because of the house price drop. This is because they will have to find a much larger slice of the house price out of their savings, which is as you put it, is just about impossible.

The housing market never does come down to a rate that everyone can afford, the financial institutions tighten their belts in rough weather, and as soon as they have made enough profits, they slacken off enough to give the better lending rates, which is the point in time where new lenders come into the property market.


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Postby Sc(x)ttish Duck Hunter on Sat Apr 12, 2008 12:12 am

The markets rise and fall.

Idiots are trying to say that "this is different" and not just another economic crash in order to cause panic and allow them to make a quick profit in stocks.

All this will pass eventually and we will have a good economy, high prices etc followed by another crash.
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Postby CraKinShOt on Mon Apr 28, 2008 9:28 pm

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