Rising house prices fuel "dangerous" debt levels

The debt is starting to bite as I told you it would ;-) ....................

Rising house prices fuel "dangerous" debt levels Tue Apr 11, 2006 8:09 AM BST

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By Lorna Bourke

LONDON (Citywire) - A slew of property data has highlighted the growing strain that the resurgent housing market is placing on first-time buyers and the wider economy.

One in 10 first-time buyers now use a bank loan or credit card to fund a typical deposit of 15,000 pounds, according to smartnewhomes.com, a property website. A fifth are resorting to a 100 percent mortgage with no deposit as the annual rate of house price inflation measured by Halifax more than doubled to 6.2 percent in the last quarter of 2005.

David Bexon, managing director of smartnewhomes.com, said: "New buyers now make up less than 25 percent of the market, having been edged out by spiralling house prices and limited supply of appropriate properties. The levels of debt that first-time buyers now have to take on to buy a home is dangerous."

Existing homeowners are also sinking into debt. Bank of England figures also released last week show that the level of mortgage equity withdrawn by homeowners surged to 11.8 billion pounds in the fourth quarter of last year, up from the average of 8.2 billion pounds over the previous four quarters. This is equivalent to 5.6 percent of post-tax household income.

Jim Cunningham, senior economist at the Council of Mortgage Lenders, said this was a "significant pick-up" from the average 4 percent quarterly level in the previous 12 months. He noted that real disposable income had been flat in the fourth quarter and that close-to-trend real spending growth had only been financed by a reduction in saving and an increase in mortgage equity withdrawal.............................

Reply to
Crowley
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Make your mind up. So now you agree that house prices _are_ rising? I'll put the gas on under the tar, it takes a while to warm up :-)

p.s. Awesome result against the Hammers. Win against Bolton and its all over bar the shouting, but in any case it will be much tighter next season.

Reply to
Tumbleweed

Not even slightly nervous? ;)

Reply to
Sam Smith

Don't be so hasty ! I've got another nine months :-)

I don't know about a win against Bolton though they are off the boil at the moment, anyway you've got it in the bag, we've left it too late but we'll give you a run for your money next season.

I suspect Arsenal will be back challenging aswell :-( though if they lose Henry who knows ?

Reply to
Crowley

Now only 'slightly', as opposed to 'very', after 20 minutes into the game on Sunday :-)

Reply to
Tumbleweed

Yep, the Arse without henry doesnt seem right somehow, would be interesting if there was an analysis of their results with and without him. But they do seem to be on the way back, plus the (irritating) scousers. Should be a much closer race all round next season.

Reply to
Tumbleweed

I thought you said house prices would crash, now you say they are on the up.

Reply to
Chris.S

As Crowley rightly said, he still has another nine months ! Do try and keep up with the adults, Slimey. Take your nebuliser and have a lie down, come back when you're feeling a bit "fresher" !

Reply to
Chris X

Try to pay attention Slimey. The point is house prices have achieved such ridiculous levels that many buyers are having to take on crippling levels of debt to obtain one.

It's a bubble ripe for bursting and as easy money dries up (see other thread) watch it go pop with a vengeance.

Reply to
Crowley

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I wonder how much, though, of the mortgage equity withdrawals are because of people using the cash to pay off existing debts, thus converting unsecured debts they've already incurred into secured ones at a far lower rate of interest. That seems a perfectly sensible thing for most people to do.

Steve

Reply to
Stephen Glynn

"Crowley" wrote

Why don't they bid-down the price, instead of accepting even higher prices?

[Your article quoted: "...the annual rate of house price inflation measured by Halifax more than doubled to 6.2 percent in the last quarter of 2005".]
Reply to
Tim

Good point. We're told it's now a buyers market so why don't more would-be buyers try harder to haggle prices down furiously rather than saddle themselves with huge debts ? Either that or stand aside and wait for the inevitable (IMO) correction.

Perhaps it's a "British thing" ? Many people seem to think they're being 'cheeky' if they offer 5% off. They should spend a week training in haggling in the casbah in Tangier.

House prices are sliding again according to the ODPM report yesterday based on selling prices :

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Reply to
Crowley

It's sensible to move to secured lower interest rate vehicles so long as they can maintain the payments. Securing the debts against their house however means the property is at risk if they fall behind though I heard lenders can obtain CCJ's to secure 'unsecured debts' that fall behind anyway.

Reply to
Crowley

Are you Crowley's spokesperson or are you just following me around?

Reply to
Chris.S

I have been paying attention, for about 4 years now people have said that the housing market was set to crash, along with supporting links. However these claims never came about, but you know what they say, say it enough times and you may get lucky. ;-)

Reply to
Chris.S

I do hope people hven't borrowed to buy that housepricecrash site... :)

Reply to
mogga

Those meds are making you paranoid, Slimey.

Reply to
Chris X

The same was true at the end of the last credit cycle. By 1924/1925 it was obvious to anyone who looked that there was a stocks bubble going on, but of course most market participants made "New Plateau" and "new Paradigm" arguments, ignoring all warnings. That bubble, as many major credit bubbles do, went on far longer than even the bears figured it could, and topped in 1929, bottoming as late as 1932.

If one wants to get rich, it's not enough to know that a credit bubble is reaching the peak. One also has to be able to predict *when* it will peak. To my knowledge only Prechter Senior managed that.

Of course many people, such as Rockerfeller, saw that it was a bubble and managed to get out before the top with their cash intact. That's probably the best that most people will ever manage since of course, the majority will sell too late and ride the bubble part of, or all of, the way down.

I can't remember who it was who said that you can look at the smart money or look at the dumb money, but the largest bubbles will make enough reverse moves to take the money from everyone still in the market, bull or bear.

The guys who end up richest in these things have always been those who got out early and then used their cash to buy assets at 10 cents on the Dollar at the bottom. Carnegie being a classic example from my own homeland.

FoFP

Reply to
M Holmes

If one wants to buy a chinese carryout on a 30 year mortgage and pay 3.5 times its value overall, then sure, it's an excellent idea.

Just read today that despite the phenomenal rise in US house prices, the debt to equity ratio is now larger than when the bubble began. That's a lot of chinese meals at 30 year rates.

FoFP

Reply to
M Holmes

Not for the odd takeaway, certainly, but I'd have thought it's a pretty good idea for someone who's maxed himself out on credit and store cards which he then finds he can't repay in full every month -- provided, of course, he doesn't promptly go out and max himself out again once he's cleared his plastic.

Steve

Reply to
Stephen Glynn

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