Property market outlook and negative equity?

Hi Michael,

Easy question first - Once you have completed the mortgage contract should be for the amount you borrow with the lender covering its risk by only lending up to a certain LTV percentage. As long as you keep up your mortgage payments there should be no recourse for the lender to claim back capital to reduce the LTV back to where it was.

There have been exceptions in the past with failing banks making life difficult for customer, but in general the above should hold true.

Now onto the property market and economics - If any one tells you they know what is going to happen then they do not understand economics. At best we all (including the experts) make educated guesses based on the current facts.

I personally do not think our economy or the world economy in particular is in a stable state. Therefore I cannot see the Bank of England risking raising rates for quite some time yet.

Just look at the recent news on Greece again and now Russia !

I don’t see an interest rate rice as being the reason for a large full in UK property prices.

I expect that interest rates will not go much up until with have inflation, improved job market, and banks lending with a lower margin. All that will lead to property prices going up.

However I can think of 101 other reason why property prices may come down….

The rumbles are that interest rates wont go up before at least autumn and when they do only slowly, but that's while we have a conservative government.

If you are in a position to buy now then enjoy the low rates, but if you can, allow a good income to payment gap to cover interest hikes later on, or higher interest rates could swallow up your rents leaving you in difficulties.

The value of the property doesn't really matter if you are buying for long term investment, you still get your rent if the property value falls and you can be fairly certain over time values will go up again. Just get a long term mortgage, without long term penalties, then you have plenty of years to ride out any rate and value fluctuations and you pick the time when to remortgage, not the mortgage company. Whether its in 5 years or 20.

Good luck.

Hi Michael

You say the property market is near its high . Surely no one can call that though. Only history can call it

You say low interest rates are pushing investors into risky assets. I don`t see property as a risky asset I see it as a very stable investment providing you do your homework. Its hard to be pushed into property. It takes maybe 2 months from offer to contracts being exchanged. That`s a long time to reflect and back out if you think you have been pushed into a purchase by an over eager estate agent.

Stocks of course can be bought one day and there is no going back. A pushy broker might yes make you make a hasty decision you later regret. They could plummet the next day so yes are potentially very risky. But property has so many safeguards in place that you only have yourself to blame if you allow yourself to be pushed around.

To look at the future as Neil says no one actually knows so we take an educated guess based on all the information available. Look at what a broad range of commentators are saying. Many I have seen do not indicate we are at a high. Quite a few say growth over the next 5 years. About 3- 5% per year. That will do me. Maybe we are at a low now .

Buy a high cash flowing property on a 5 year fix today and you wont go far wrong in my view.
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I believe that the southern property market is near its high relative to wages.

But wages do go up faster the inflation over the long term!

I think of it more like getting to the bottom of a river without falling of the raft, we know what the long term outcome will be, but if you hit a hard period (that may last for many years) and don’t come out of the other end then you don’t get the long term benefit.

Hence high cash flowing property is a good option, as they let you cope with the hard periods.

My experience says always buy quality in an area you know well, quality property is the first to move in a bad market if you need to unload fast. Make sure your margins have at least 30% slack, whatever the state of the Economy markets do turn at unexpected times (remember the Thatcher days), there is nothing worse than Banks on your back, Tenant voids while still having to pay service charges and General Rates for empty property when perhaps you have lost your job too. Use common sense, don't over stretch and then its easy to build a little nest egg for the future returning a good margin.

To answer your mortgage query, most lenders don't tend to automatically seek capital repayment when prices drop because history says that what falls can also rise and it would be an administrative headache of nightmarish proportions if they asked for a repayment every time the value decreased. There are always short to mid term peaks and troughs however over the long term values have always tended to rise. However, saying that, they may ask for repayment if they themselves are in trouble or they see another credit crunch on the way. In the meantime,

I entirely agree. I think there is a lot of hubris around general comments that the UK market is forging ahead. We have a great deal of debt which is going to take years to address, and recent updates about the economy have been disappointing.