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Originally Posted by andygrif
The problem is though that most first time buyers, particularly in the South East simply cannot afford to buy any house. I think there was some data a few months back saying that to buy a house in Hemel Hempsted an averaged salaraied first time buyer would have to borrow something like 10 times their salary - which is crazy.
So we're creating a situation where there will be no 'new blood' in the housing market, which will mean that the lower end will stagnate - and that is the start of a crash.
The problem is compunded right now becuase people are panic buying - they see the prices getting bigger and bigger so will leap on the house buying train now, irrespective of whether they will be able to afford the payments should the rates climb to, say 8%.
At the end of the day, no-one knows what will happen, they can only speculate - there is a real danger that we will see a crash, although unlikely to be as severe as the one in the late 80s which was spurred by other market forces too.
To be frank, and knowing that it will cause a lot of heartbreak to many people, a price crash is really the only way that many people will be able to afford a house again.
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I have only one thing to say to people buying right now and that is fixed rate. I did that when we bought our house last year (okay I could only get 3 years fixed rate) which is why I get to take a slightly more relaxed view of the rate raises.
Also due to my new job, I can manage if the rates hit 8% (and possibly higher as well) but I'd rather not see a crash as I've only just started out so for the first few years, I'm pretty much paying the banks interest and not my capital. So if there is a crash I'm going to be stuck in negative equity for several years
