10:51 GMT
8/2/5
In view of Land Registry showing actual losses for the first time please take note of this thread and proceed with caution,
WARNING FOR FIRST TIME BUYERS IN THE UK
2005 is not the right time for first time buyers to enter the housing market.
The United Kingdom is currently experiencing the biggest property boom of all time. Over the last few years, many have seen these
rises and have been advising young people that they should get on the property ladder before it is too late and if they don’t buy a
house now, they may not get another chance ever again. This factsheet attempts to cast light upon some of the popular myths that
surround the housing market in the UK and urges people who are thinking of buying their first home to be cautious.
MYTH 1: HOUSE PRICES ALWAYS GO UP
Many people believe that house prices can only go up. This is simply not true. Ask somebody who bought a house at the height of the late 1980s boom and they will tell you otherwise. As the
Nationwide graph below shows, since 1972, there have been a
number of house prices booms. These booms are always followed by some form of crash.
The historical trend is shown in red and the
real (i.e. inflation-adjusted) figures are shown in blue. Currently,
house prices are almost 50% above the historic trend.
Graph source: http://www.nationwide.co.uk/hpi/historical.htm
MYTH 2: RENTING IS DEAD MONEY
Many people will tell you that renting is “dead money” and you are just paying your landlord’s mortgage. The reality is that interest
payments on a mortgage is ALSO dead money. If you purchase a house in 2005, it is highly likely that your property will start
decreasing in value as soon as you have bought it and it may take many years before it returns to the price that you paid for it.
In the majority of cases, it is cheaper to rent the house you are living in
than to buy it and pay a mortgage. While you are renting, you can
save each month towards a deposit.
MYTH3: THERE WON’T BE A HOUSE PRICE CRASH
One argument put forward by the so-called “vested interests”
groups is that that there won’t be a house price crash because interest rates and unemployment are low. During the house price crash of the late 1980s/early 1990s, the high rate of unemployment
was an effect of the falling house prices, rather than the cause of it.
Interest rates were cut a number of times during the crash, but this did not prevent prices from falling in most areas. House prices
can fall regardless of unemployment and interest rates.
The Bank of England’s view is that house prices are overvalued by
approximately 30%, and it is for the reason that prices are likely to fall.
Over 90% of first time buyers are now priced out of the market - many people simply can’t afford to buy at the current prices, and
many more are unwilling to buy at massively inflated prices.
It is highly likely that UK house prices will gradually fall back to the
historical average level before people start buying again.
The UK housing market depends on first time buyers! Mortgage lending has dropped to a 10 year low.
In the graph below you can see the average house price to
average earnings ratio. We are again at a peak where the
average house costs nearly 6 times the average wage:
Data source http://www.hbosplc.com
FACT 1: HOUSE PRICES HAVE BEEN FALLING
SINCE JULY 2004
From 1996 to 2004, house prices have risen substantially.
However, since July 2004, contrary to what many people
believe, UK house prices have actually been falling in real
terms. You may have read contradictory articles in the press
claiming that house prices are both rising and falling and it is hard to find out what is really happening. The truth is that many of the articles you read are produced by a party with a vested interest in the rise of house prices in the UK. These vested interests include money lenders and estate agents who benefit
from higher interest payments and transaction fees. The press are notoriously bad at presenting the “bigger picture”. During
the house price crash of the late 1980s, there were countless articles suggesting that house prices were rising, when they
were clearly falling over a number of years. History has proven that house price crashes do not happen over night; they tend to
be long and drawn-out affairs that last a number of years.
House prices may even go up in the middle of the crash, but the long term trend is downwards. February 2005 is just the tip of
the iceberg.
FACT2: RENTING IS THE SENSIBLE OPTION
House prices in the UK have been falling since July 2004 and it is widely anticipated that they will continue to do so for some time.
There will be a time when house prices become affordable again, but house prices need to fall significantly before we
reach this point. Many believe that early 2005 will be looked at as the worst time to buy, as the market is only just past it’s
peak.
As a general rule, renting is currently cheaper than the mortgage payments required to purchase the same property.
The question on many people’s lips is “when is the right time to buy?”
The recommended option is to wait until average house
prices have reached the long term average and think about
buying then.
LINKS
http://www.propertyfacts.co.uk independent data about the UK housing market
http://www.housepricecrash.co.uk an open forum discussing whether the UK housing market will crash
http://www.nethouseprices.com database of historical UK house prices, searchable by postcode or address
8/2/5
In view of Land Registry showing actual losses for the first time please take note of this thread and proceed with caution,
WARNING FOR FIRST TIME BUYERS IN THE UK
2005 is not the right time for first time buyers to enter the housing market.
The United Kingdom is currently experiencing the biggest property boom of all time. Over the last few years, many have seen these
rises and have been advising young people that they should get on the property ladder before it is too late and if they don’t buy a
house now, they may not get another chance ever again. This factsheet attempts to cast light upon some of the popular myths that
surround the housing market in the UK and urges people who are thinking of buying their first home to be cautious.
MYTH 1: HOUSE PRICES ALWAYS GO UP
Many people believe that house prices can only go up. This is simply not true. Ask somebody who bought a house at the height of the late 1980s boom and they will tell you otherwise. As the
Nationwide graph below shows, since 1972, there have been a
number of house prices booms. These booms are always followed by some form of crash.
The historical trend is shown in red and the
real (i.e. inflation-adjusted) figures are shown in blue. Currently,
house prices are almost 50% above the historic trend.
Graph source: http://www.nationwide.co.uk/hpi/historical.htm
MYTH 2: RENTING IS DEAD MONEY
Many people will tell you that renting is “dead money” and you are just paying your landlord’s mortgage. The reality is that interest
payments on a mortgage is ALSO dead money. If you purchase a house in 2005, it is highly likely that your property will start
decreasing in value as soon as you have bought it and it may take many years before it returns to the price that you paid for it.
In the majority of cases, it is cheaper to rent the house you are living in
than to buy it and pay a mortgage. While you are renting, you can
save each month towards a deposit.
MYTH3: THERE WON’T BE A HOUSE PRICE CRASH
One argument put forward by the so-called “vested interests”
groups is that that there won’t be a house price crash because interest rates and unemployment are low. During the house price crash of the late 1980s/early 1990s, the high rate of unemployment
was an effect of the falling house prices, rather than the cause of it.
Interest rates were cut a number of times during the crash, but this did not prevent prices from falling in most areas. House prices
can fall regardless of unemployment and interest rates.
The Bank of England’s view is that house prices are overvalued by
approximately 30%, and it is for the reason that prices are likely to fall.
Over 90% of first time buyers are now priced out of the market - many people simply can’t afford to buy at the current prices, and
many more are unwilling to buy at massively inflated prices.
It is highly likely that UK house prices will gradually fall back to the
historical average level before people start buying again.
The UK housing market depends on first time buyers! Mortgage lending has dropped to a 10 year low.
In the graph below you can see the average house price to
average earnings ratio. We are again at a peak where the
average house costs nearly 6 times the average wage:
Data source http://www.hbosplc.com
FACT 1: HOUSE PRICES HAVE BEEN FALLING
SINCE JULY 2004
From 1996 to 2004, house prices have risen substantially.
However, since July 2004, contrary to what many people
believe, UK house prices have actually been falling in real
terms. You may have read contradictory articles in the press
claiming that house prices are both rising and falling and it is hard to find out what is really happening. The truth is that many of the articles you read are produced by a party with a vested interest in the rise of house prices in the UK. These vested interests include money lenders and estate agents who benefit
from higher interest payments and transaction fees. The press are notoriously bad at presenting the “bigger picture”. During
the house price crash of the late 1980s, there were countless articles suggesting that house prices were rising, when they
were clearly falling over a number of years. History has proven that house price crashes do not happen over night; they tend to
be long and drawn-out affairs that last a number of years.
House prices may even go up in the middle of the crash, but the long term trend is downwards. February 2005 is just the tip of
the iceberg.
FACT2: RENTING IS THE SENSIBLE OPTION
House prices in the UK have been falling since July 2004 and it is widely anticipated that they will continue to do so for some time.
There will be a time when house prices become affordable again, but house prices need to fall significantly before we
reach this point. Many believe that early 2005 will be looked at as the worst time to buy, as the market is only just past it’s
peak.
As a general rule, renting is currently cheaper than the mortgage payments required to purchase the same property.
The question on many people’s lips is “when is the right time to buy?”
The recommended option is to wait until average house
prices have reached the long term average and think about
buying then.
LINKS
http://www.propertyfacts.co.uk independent data about the UK housing market
http://www.housepricecrash.co.uk an open forum discussing whether the UK housing market will crash
http://www.nethouseprices.com database of historical UK house prices, searchable by postcode or address
