OT : A helping hand....

sketchley

First Aspect wrote:

Sketchley wrote:

Never understood the obsession with house prices. Apart from the problem of negative equity, if housing markets drops by 10% then the gap between your house and next one up also drops by 10%. So it makes it more affordable to upgrade.

Of course best option is to sell high, rent for a while then buy low. But chances of pulling that off are next to done. I friend of mine waited 7 years for the market to collapse then brought his first house 6 months before it did.

Well, it depends on how much equity you have.

The lower your % equity falls, the worse your interest rate when you remortgage. The amount they will lend you might still be 4x salary or something, but the affordability can change drastically. You might be able to buy more house on what they will lend you, but who ever accused a bank of lending only what anyone can afford to pay back?

If like me you don't really have a significant equity in your house (10% at best at this point) you can't remortgage at all unless you can find a deposit plus stamp duty. Effectively you are like a first time buyer.

It's a fair point. If you end up with no equity or negative equity then you can't move.

However consider this.

If you own a house that's worth say £100,000 you have a 90% mortgage meaning you have £10,000 equity. Let's also say for argument you have saved up £18,000 in the bank. The house you want to move to is £200,000. You pay a £28,000 deposit and you get a mortgage of £172,000. Easy enough.

If the market fall 10% your house is not worth £90,000 wiping out equity you then have a deposit of just £18,000 you may think this is a bad thing. However the £200,000 house is now worth £180,000 and as a result your mortgage would only need to be £162,000. Which mean despite "loosing" 10 grand you are quids in.

(for the pedants out there I know this excludes fees and stamp duty which by the way also goes down 10%)

So point is 10% drop in the market is good thing if you are looking to upgrade. Providing you have the deposit that is. It could be argued that if you don't have the required equity / deposit then you should stay where you are and save. Either that or the banks need to start giving out risky 100%+ mortgages again and look what happened last time.