Decades of booming property prices ahead, baby-boomers to blame, higher mortgage bills for 200,000, a property-market crash...These are just some of the issues being considered by The Motley Fool's community.
Perhaps the most hotly debated subject on The Motley Fool's discussion boards is property. In particular, it is the questions that are related to which way property prices are headed that cause the most friction.
Our Property - Markets and Trends discussion board is the venue for these strong opinions. Here are the highlights of some recent discussions.
Property prices to boom for twenty years
Board user calcaria draws our attention to an article from The Guardian which claims there will be a 20-year boom in house prices that will 'split the nation'. He also quotes a report:
'The report forecasts that by 2026 the cheapest 25% of houses will cost 10 times the average earnings of the poorest 25% of people. At the moment these houses cost seven times earnings; a decade ago they were only four times.'
Basically, this means that the cheapest homes are getting further out of the reach of the poorest people, hence the 'split nation'.
freddieforecaste read the article too and replied 'Making effectively 20-year forecasts is admittedly a dangerous (and maybe even pointless) game.'
Most or all Fools will certainly agree that over the long-term house prices will rise, but freddieforecaste is right: not many Fools would argue that it's easy to predict with such accuracy the figures in the quoted report.
Read the whole discussion: Britain faces 20-year house boom ...
Baby boomers are to blame
PommyExpat draws our attention to another Web article. He says it is 'regarding a UN report stating that British children have the most miserable lifestyles in the western world'.
He quotes the article: 'Britain's baby-boomers seem hell bent on ensuring that...their offspring will be the first generation in living memory to have a lowered standard of living.'
Responses to this post include:
nairobiny: 'So the young of today can afford iPods, mobile phones, nightclubs, expensive drinks, cigarettes, etc. But they can't afford houses? Funny thing, priorities.
'This might make a great sob story for the media, but it's a complete work of fiction. The only thing the young are lacking is an ounce of common sense.'
canexpat (replying to nairobiny): 'That appears very harsh. Were we so different?'
njleaton (also replying to nairobiny): 'Not quite. They are being shafted on things like pensions.'
undercoat: 'This article really annoyed me actually. I have 2 children and I don't believe that I had any part in selling off council houses, or in preventing them from getting "safe" jobs. I don't think I am responsible, but I think that the government are.'
Read the whole discussion: How Britain is eating its young.
Almost 200,000 now face an extra £185 monthly bill
whitefriars says 'According to Mortgage Advice Bureau 178,800 people, who took out mortgages in 2005, will face mortgage repayment increases of £185 a month as they come to the end of their fixed-rate deals and move onto their lenders standard variable rate this month.'
activeREinvestor responds 'Maybe the real shock will be when most people take it in stride and little fall-out happens.'
Avon101 says 'It continually amazes me how people will shop around to get the best deal they can find on a washing machine but when faced with financial decisions take no great degree of thought whatsoever.'
So, make sure you're not one of those Avon101 is criticising! For those of you whose deals are ending, look for a new deal fast and before your current one expires. But beware of any early-repayment penalties that may be in your contract, and consider any additional costs for switching your mortgage, such as the arrangement fee.
Read the whole discussion: 178,800 borrowers face mortgage repayment increases of 33%.
Overstretched borrowers have difficulty remortgaging
cathview says 'For those who stretched themselves beyond the normal limits and have high multiple income mortgages, interest only or self cert mortgages...they may well find that when the time comes to remortgage all these relatively low rates are unavailable and they end up on the lenders SVR (which is the normal default at the end of the fixed period).'
2MeterBear responds '...In areas where prices have been increasing fast, these borrowers might not be so stretched, because their LTV's* will have been improved by house price increases.
'For example: a buyer of a property in London 2 years ago could easily be looking at a 25% capital gain on paper. Hence if their LTV was 100% they would now be on 75% which opens up better remortgage loan terms...'
My view is that most home owners, even if they're over-stretched, are likely to be able to find a better deal than their lender's standard variable rate (SVR).
*LTV is 'loan-to-value'. It means the amount of your outstanding mortgage compared to the value of the property, e.g. if you have an £80,000 mortgage and a £100,000 property, your LTV is 80%.
The above discussion was also from 178,800 borrowers face mortgage repayment increases of 33%.
Negotiate a new deal with your current mortgage lender
Again from the same thread, Galst0nian says of switching to get a better deal 'Anecdotally I know of people who are paying a very high premium (in costs of legal fees, surveys etc..) to get what amounts to very little in terms of saving or security.
'I would always advocate going to your current lender at the end of any deal term and ask them what they do for you, it might not be as good as the best on the market but it doesn't have to be.'
Lisawilcox100 doesn't believe that re-negotiating is always best. She says 'I agree that it's a good idea to check but I don't agree that it will always represent the best value. Sometimes it does, sometimes it doesn't.'
DetailMerchant says 'When comparing deals I tend to use a search facility where there is a 'true cost' comparison, that includes all the start-up and exit-fee costs, and compare the true costs of the deals over the period that the fix or discount lasts for. So in effect I assume I will be switching at the end and price that in. It doesn't matter to me if the combination is higher fees and a lower rate, or vice-versa, just the total cost over the deal period.'
I'd do both: compare prices and try to renegotiate with my current lender.
With The Motley Fool's award-winning comparison tables, you can find out the true cost of switching. (Read Find The True Cost Of Your Mortgage.)
Read the discussion: 178,800 borrowers face mortgage repayment increases of 33%.
A crashing property market
Goel2 says '20% falls in prices amounts to - in a number of areas - little more than the last 12 months' worth of gains...A 20% decline in many instances wouldn't even take us back to the prices of two years ago.'
However, after some debate, he follows this up with: 'There are locales in Florida, of course, that are reported to have witnessed real falls approaching 45% - and this is still, on most accounts, during the early days of the slump.
'Florida and California are a long way from Slough, Newcastle or Glasgow in terms of desirability, but are suffering greatly nevertheless.'
'But there remains a determination among landlords on the Property - Markets & Trends board that such prospects are utterly remote in the UK, even as UK interest rates are tipped to rise to 6% or beyond, and the market passes all previous limits of affordability, traditionally presaging a house price crash.
Zulu105 says 'I would be most unhappy with a 50% fall. Can you imagine the devastation to the economy for this to happen? A deeper and longer recession than the 90's and mass unemployment, under this scenario. I am not sure what the effect would be, but it's never happened before so although anything is possible I feel it a remote chance of occuring.'
Read the whole discussion: Safe strategies in case of a crash.
A property crash is bad for renters too
With many predicting a falling property market in the very near future, this is another topical thread started by KingofNowhere, who posted data from National Statistics (ONS) which indicates that as house prices go up, rents tend not to, and, as house prices fall, rents go up. Referring to the ONS data, he says 'What is of real note is the very large increase in rent that was achieved during the last crash.'
He later adds 'Indeed, over time both rent and house prices rise, in approximate line with earnings...House prices tend to rise if interest rates fall, and if interest rates fall then landlords don't need to pass on rent increases to cover increased costs.'
ThirdWay says 'But...our economy today is dependent on a mortgage equity withdrawal-fuelled shopping spree. Once this bubble bursts unemployment will rise, taxes will go up, Polish plumbers will go home and there just won't be the demand nor money around for rent increases.'
Busy poster activeREinvestor says 'It should be noted that rents tend to respond to rental demand. If house prices are crashing the number of people who may need to rent is likely rising.
'If people feel that it is too expensive to buy (because of prices or interest rates) then renting also makes sense.'
If you're a renter and can't get on the ladder at present, that shouldn't put you off saving money for a possible future deposit. At some point both the house prices and interest rates may reach a point where you can afford to buy. But whatever you do, don't overstretch yourself by buying a property you can't afford.
Read the whole discussion: Rent and House prices.
Note: I amended some of the quotes, but only to make them clear where the English not good was.