Buying a house in East Dulwich? expect sealed bids!

[red devil]

Brendan Wrote:

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> What sort of deposit do you need for a decent

> donkey these days?

At least a monkey multiplied by a pony, and then some...

[chantelle]

sambobia, your argument only works if people see value in buying a house as opposed to renting it, which for any rational person means they must expect significant capital gains to make it worth their while. Sadly not everyone is sensible but there are many of us who actually can afford to buy in the area who would rather rent and save the vast difference.

Your high demand, limited supply argument falls apart in light of the recent downturn - prices fell significantly despite high demand, limited supply and low interest rates. Funny, so many people in this country told me that could never happen.

I am always sceptical of arguments that say basic laws of affordability don't apply.

[*Bob*]

chantelle Wrote:

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> sambobia, your argument only works if people see

> value in buying a house as opposed to renting it,

> which for any rational person means they must

> expect significant capital gains to make it worth

> their while.

Is this the only reason for buying a house?

I don't think so.

[chantelle]

you're right, it is by no means the only reason. But when the difference between a mortgage and rent payments is as much as 40%, those reasons need to matter an awful lot.

[peckhamboy]

I suspect that for a lot of people (especially those with young kids) the cost of owning a house outweighs the risk that your landlord refuses to renew your 12 month lease or simply kicks you out on 3 months' (or less) notice. That was certainly the main reason we bought rather than continued renting. If we end up with capital gains, great. But frankly, if we sell at a price that means it's cost us about the same as it would have done to rent a similar place, then it will have been more than worth it.

I can't believe the number of people on here who seem to be quite seriously hoping for a major crash in house prices though, in order to "make it more affordable" (for them). Given that a major crash in house prices tends to go hand in hand with a serious recession, the consequences are likely to be significant numbers of homeless families, significant rises in unemployment, and massive increases in government spending. Which inevitably lead to higher taxes. Seems a high price to pay so that you can buy that nice 3 bed you have your eye on. Provided you're not one of the casualties of unemployment of course...

[Penguin68]

We were lucky to be buying in the 70's and 80's - but then high inflation helped - a crippling mortgage and mortgage repayments one year was a breeze to handle a few years later - when salaries soared with inflation but the underlying debt remained the same - even high interest rates were high on what became a comparatively low sum.

However, with low inflation and current low interest rates quite a small interest rate hike may mean a very substantial increase in real mortgage payment costs. If interest rates are at 3%, a rise to 4% reflects a 33% rise in actual mortgage interest charges.

[Mr Mann]

.

[chantelle]

Clearly the past gains on housing have served as a huge prop to the market, even though it is currently not generating them and has even put quite a few people into negative equity. So that makes ?500k seem "affordable" to families who would never meet lender criteria on their income if they were borrowing for the first time.

[Mr Mann]

Totally agree Chantelle- a good point

[Magpie]

Expectation of capital gains is not the single reason to buy a house. Assuming you expect at some point to pay off the mortgage, once its paid off you have the asset regardless of whether prices have changed over time. Hence consideration of the relative monthly cost of buying versus renting should only be a short term consideration. Long term owning a property makes more financial sense - unless you believe that the savings on rental differentials will be greater than the value of the asset at the end of the period. This is unlikely as rental payments are subject to inflation, as are capital values, while mortgage repayments are not.

[Penguin68]

This is from today's CityWire:-

Would you be mad to buy a house right now?

By Tony Bonsignore | 14:45:55 | 18 March 2010

The true state of the housing market remains frustratingly difficult to gauge.

On the one hand many indices seem to be showing prices rises in much of the country, and activity appears to have rebounded somewhat after last year?s collapse - notwithstanding the recent post-stamp duty holiday lull.

On the other hand, however, much anecdotal evidence suggests that prices are still falling in many regions and property types, and that the only thing stopping prices plummeting further is a lack of supply.

The key factor here has been the record cut in interest rates. This in turn has allowed millions of over-indebted homeowners to stay in their properties when they might otherwise have been forced to move.

Hence they are holding out for the price they want, rather than the price they can get.

But this puts many prospective buyers in something of a dilemma.

On the one hand prices don?t seem to have fallen as far as many expected, despite all the economic fundamentals. The government and the Bank of England, for their part, seem to be doing everything in their power to inflate prices once more.

Is it finally time, many wonder, to bite the bullet and accept that prices will always head north in this country - even if they are artificially manipulated?

Buy now, in other words, and stop hanging around waiting for a crash that may never happen.

Others, however, believe the property market is still living in a fantasy world, and that it is only wafer-thin interest rates holding the tattered pieces together.

Once these go up - as they inevitably will - the situation will rapidly become a lot worse for millions of home-owing Brits, it is argued.

Anyone buying a house better make sure they can deal with a sharp hike in rates some time soon, they warn.

One such warning today came from a relatively unlikely source: shadow business secretary Ken Clarke. In an interview with the Evening Standard the Tory ?big beast? fired a warning shot to potential buyers.

?These are artificially low interest rates,? Clarke told the paper, ?they obviously can't stay as low as this.

?Anybody buying a house now must realise the rates are unnaturally low and will go up in future years. In working out whether you can afford a house, you have to work out if you can afford a quite perceptible increase in interest rates, regardless of who the government is.?

So what do you think, then, is Ken right? Have people got too used to a low interest rate environment? Are potential buyers factoring in the potential impact of a steep and rapid rise in interest rates? Is such a scenario likely, or even possible?

In short, is now a crazy time to buy a house?

[cate]

Sounds like the writer has been reading this forum.

[sambobia]

chantelle Wrote:

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> Your high demand, limited supply argument falls

> apart in light of the recent downturn - prices

> fell significantly despite high demand, limited

> supply and low interest rates.

Not really...There is a degree of short term volatility in property prices. ED property prices fell sharply in 2007 but have since recovered.

But don't confuse this with the underlying fundamentals. Supply is largely fixed. It cannot adjust, much, to rising prices. Demand in ED -- for all the reasons outlined above -- is high and likely to remain so.

Rising interest rates may curtail demand somewhat. Prices may fall. But set this against a fixed housing stock, an expanding, increasingly affluent population, and a taxation system which favours buying over renting etc. This is what drives the market.

[????]

[quote name=an expanding, increasingly affluent population]

er.....some assumption

[Mick Mac]

chantelle Wrote:

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> you're right, it is by no means the only reason.

> But when the difference between a mortgage and

> rent payments is as much as 40%, those reasons

> need to matter an awful lot.

Unless you are talking interest only then part of that mortgage payment will be capital repayment which is paying down your debt on the property, so its reducing your debt.