US prices are now down average of 10% in one year. If this is mirrored in the UK, and let's face it prices are going to plummet big time, it is very serious, way worse than the 90's.
Why, because in the late 80's early '90's, interest rates were much higher and mortgage rates halved by 1995, allowing the market to re-ignite. Negative equity was less of a problem then, as although negative equity mortgagees could not re-mortgage with other banks, they would be on a steadily falling standard rate. Overall their pain would be falling.
Now it's different in the wrong way. Morgage rates are now higher and will stay high. The artifically low rates that enabled people to over borrow to buy overpriced houses are gone. With negative equity they cannot remortgage, when their fixed terms end. Interest only meant they never repaid a % of capital. Technically many will be insolvent. They will be forced onto their lenders standard rate which could see sub primers paying 9%. Many, maybe 1m will foreclose and be homeless. Another 2m people will see their payments skyrocket by 50%. This will make the 90's downturn look like a cakewalk.
I think the govenment will have to nationalise a large chunk of the housing stock. Maybe they can buy out the BTL sector, of which many a punter will be wiped out if prices fall 20%. A return to council housing by the back door you could say.
Why, because in the late 80's early '90's, interest rates were much higher and mortgage rates halved by 1995, allowing the market to re-ignite. Negative equity was less of a problem then, as although negative equity mortgagees could not re-mortgage with other banks, they would be on a steadily falling standard rate. Overall their pain would be falling.
Now it's different in the wrong way. Morgage rates are now higher and will stay high. The artifically low rates that enabled people to over borrow to buy overpriced houses are gone. With negative equity they cannot remortgage, when their fixed terms end. Interest only meant they never repaid a % of capital. Technically many will be insolvent. They will be forced onto their lenders standard rate which could see sub primers paying 9%. Many, maybe 1m will foreclose and be homeless. Another 2m people will see their payments skyrocket by 50%. This will make the 90's downturn look like a cakewalk.
I think the govenment will have to nationalise a large chunk of the housing stock. Maybe they can buy out the BTL sector, of which many a punter will be wiped out if prices fall 20%. A return to council housing by the back door you could say.
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