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Thursday, April 03, 2008

Crash?

Unless you've been a sleep for the past 6 months you may have noticed that there has been a bit of "turmoil" in the banking sector regarding mortgages.

I did comment last July that people's obssession with treating houses and especially homes as an investment could come back to bite us. I also said we should take a balanced long term view to investment and that we should not assume interest rates would remain at those incredibly low rates.

As it is people kept mortgaging and remortgaging their properties but now its coming back to roost. One bank is closing itself to new business and others are raising rates and stopping cheap fixed deals.

The impact of that was brought home by a chap on channel 4 news. He had seen his 2 year fix end and his rate go up from 4.95% to 7.95% and his payments go up by £1000 PER MONTH. I did a quick calculation and his mortgage must be close to £400,000 (I wouldn't be able to sleep!!). The thing is, historically, 7.95% is not low. My first mortgage was 11% in 1988.

The same article said that some experts believe that to be on trend property prices need to fall 27%. This would raise the prospect of that dreaded phrase negative equity.

Of course for some of us this is not new I bought my first flat in 1986 for £41,650 and when I came to sell it in 1994 the thing had bearly moved. Of course there were some people who were sitting on some big paper losses.

If you don't need to move negative equity is no problem you just wait it out but some people will need to to move and they will be in a right state.

I think this all goes to show we need to take a balance view on finance like life. If you can't afford it don't buy it. But then we all like to live the dream I guess. And resposbility is boring.

6 comments:

Toffeeapple said...

Thank goodness I have only three more years left to pay on my mortgage! I don't envy people with large balances at all!

oldcrow61 said...

I've been hearing a lot on the news about situations like this. Apparently in the US loads of people are losing their homes. The real estate market is in a very bad state. I agree, if you can't afford it, don't buy it, but people seem to just want, want, want! Everyone is so maxed out on their credit cards I don't know how they sleep at night.

Mo said...

I took out my first mortgage in 1990 and paid 15% interest!!! No wonder I could only afford a small flat.

Thank goodness prices have never got as crazy in Scotland (except for Glasgow and Edinburgh) as they have in the SE.

I often think we belong to a different world as we don't owe anyone a penny.

Tricia said...

Fortunately, my mortgage is now a thing of the past. My first mortgage on a 3-bed end-of-terrace house (in 1967 - costing £3,995!)was charged at 5.6%. Admittedly a staff rate as I worked for the building society that supplied the mortgage!

Pete said...

well I'm happy my mortgage days are a thing of the past.

Mo - sadly houses prices throughout large parts of England are bonkers

Liz said...

haha, and now you're just really freaking me out!

I aimed to go for a mortgage that wasn't too high for us, so I would hope that come three years time I shouldn't be struggling - too much!

I'm not crazy enough to aim to spend every penny I have on a mortgage, it's just no way to live just to be able to gloat about how successful I am (or not). So I've been sensible and bought something to suit well and the reality is that I don't need a three bed house and don't ever plan on needing one, so why buy one?