oh dear™: UK house market is ‘heading for crash’

[sasguru]

It's not my estimate - but here is how it works: people who took morgage 2 years ago were taking at the time of 4.50% interest rates, they had them fixed for initial period of 2 years or maybe even 3 - now official rate is 5.75%, but banks are pushing morgage rates higher because of sub-prime losses, also they won't give credit now to all of the customers who could get it elsewhere, so those who come off initial cheap period of credit will not be able to move and will have to pay 6.75% or higher - this is 50% increase on 4.5%, some subprime chaps will certainly have to pay above 7%.

Yes but what is the actual increase in cold hard cash each month? 6.75% is still cheap money by historical standards.

[Xenophon]

I've had 5 flawless mortgages all paid off and I use my credit card but generally pay back the balance each month. And years ago 2 loans. Adn I'm on the electoral roll.

Bravo, my friend. Sounds healthy.

When I got my last property my broker told me my credit rating was graded by the mortgage company at the top level. This was pleasing. Not entirely sure how it happened, but pleasing nonetheless.

[Bagpuss]

Yes, but surely borrowing (and paying back on time consistently) helps boost up your credit rating? Was what I heard, anyway.

You are right, the most important thing is having a good payment history. At the moment I have circa 10 credit cards (for stoozing purposes) and my credit rating is a1.

[AtW]

Yes but what is the actual increase in cold hard cash each month? 6.75% is still cheap money by historical standards.

Yes it is cheap, but the problem is that those people who got credit even cheaper 4.50% have already overextended themselves - they will suddently need to find 50% more cash for morgage, and how can they do it if their savings rate was next to zero or even negative? They will have to cut consumption and this will tank the high street, but I don't think this will be enough - there will be plenty of defaults: UK in Europe is the same as USA in World as far as property bubble is concerned.

[AtW]

When I got my last property my broker told me my credit rating was graded by the mortgage company at the top level.

He was just lieing to you to get your business.

[DBA_bloke]

It pains me to say it, but sas is right. This is an island, ridiculously overpopulated, more coming in, not enough housing stock by far, etc. There'll be peaks & troughs, as per, but, overall, it's a no-brainer. People want their own homes, there aren't enough to go 'round, and so housing is, correctly, the numero uno cash cow.

[Bagpuss]

It pains me to say it, but sas is right. This is an island, ridiculously overpopulated, more coming in, not enough housing stock by far, etc. There'll be peaks & troughs, as per, but, overall, it's a no-brainer. People want their own homes, there aren't enough to go 'round, and so housing is, correctly, the numero uno cash cow.

But not in the short term, Buy now hold long term yes, buy now sell in 3 years , computer says no

[sasguru]

But not in the short term, Buy now hold long term yes, buy now sell in 3 years , computer says no

Well only fools indulge in get-rich-quick schemes.

[Gonzo]

Yes, but surely borrowing (and paying back on time consistently) helps boost up your credit rating? Was what I heard, anyway.

Borrowing a large amount on a card and consistently paying it back quickly will get your credit limit raised significantly.

Last time I looked, the credit reports from the likes of Experian will show each credit facility that you have, the type of credit, the limit, the balance and a rating for the past (12?) months showing whether it paid on time, up to 1 month late, up to 2 months late, or worse.

How individual financial companies process this information to give you a credit score is a secret.

That reminds me, I really should get an up to date version of my report to check for identity fraud.

I see Experian are offering some sort of update service for £7 a month, this seems a bit steep when they should give you a copy of your report for £2. Anyone tried the £7 a month service? Is it worth it?

[M_B]

It pains me to say it, but sas is right. This is an island, ridiculously overpopulated, more coming in, not enough housing stock by far, etc. There'll be peaks & troughs, as per, but, overall, it's a no-brainer. People want their own homes, there aren't enough to go 'round, and so housing is, correctly, the numero uno cash cow.

Dense population isn't necessarily going to hold the market up. Yes in the long run it is a driving factor, but Japan also has a dense population yet managed to have a 14 year slump in house prices.

"Japan suffered one of the biggest, and best documented, property market collapses in modern times. At the market's peak in 1991 all the land in Japan was worth about £10 trillion, or almost four times the value of all property in the United States at that time. Then came the property crash, after the Japanese central bank finally moved to raise interest rates. House prices plunged into a 14-year slump, from which they have only recently started to recover.

In 2005 Japanese property was worth less than half its 1991 peak, meanwhile un-mortgaged property in the United Kingdom has more than tripled in value, to reach a total value of around £3.6 trillion and debt secured on UK property has risen to around £1 trillion, both all time highs. Private homeowners were amongst the hardest hit. In Japan's six largest cities, residential prices dropped 64% between 1991 and 2004. By most estimates, millions of homebuyers suffered substantial losses on the single largest purchase of their lives.

Their experience contains clear warnings for UK homebuyers. One is to avoid the sorts of temptations that appear in over-heated property markets, particularly the use of risky or exotic loans to borrow beyond one's means e.g. extended lending multiples, interest-only and 125% mortgages. Another is to avoid property that may be hard to sell when the market cools.
"