Sunday 7 July 2013

Warning - to individuals and to our government - another financial crisis ahead

Sadly individuals are being attracted to buying property at the Persimmons building estate at the end of Union Lane referred to as Hoad View. I understand the first house has already sold.

Despite strong warnings from his friends, someone has put a deposit on one of the houses.

I suggest that, unless he is buying the house outright, he is heading for severe financial trouble.

If, as seems very likely, the property prices collapse then a purchaser will find himself having negative equity. This means that if he seeks to sell his house he will have a bigger mortgage than he receives from the house sale ie he will receive nothing from the sale but instead will leave his house owing money. This will be a very depressing experience.

What happens next will be disastrous, not only for the buyer, but for the country.

If the individual leaves his house as many do in similar circumstances and goes on the run with debt collectors chasing him, it will be a distressing experience.

If lots of individuals do the same the banks are in trouble once again.

This situation is referred to in a leading article in The Independent last Friday - please read Housing's bubble trouble.

I ask myself what could cause the property market to crash. This from the above article is relevant :

"It is true that the national picture has been skewed by the extraordinary situation in London, where prices have risen inexorably thanks to international wealth pulled in by the capital’s status as global playground, safe haven and sound investment."

Does it not follow that the minute foreign investors sense that London is NOT a safe haven then they will whisk their money to a safer haven with the result that property prices in London will fall suddenly with a knock on effect all over the country.

Thus the government is caught in a dilemma : protect the banks and the rich by ensuring that foreign investors keep their money here in Britain (London) and thus ensure property prices are maintained or even go up OR respond to the demand that property prices are within the reach of normal people and do not impose unreasonable burdens on the family budget - which was the case when I first bought my house at 4 Beech Bank for £900 whilst  earning £900/per year at Glaxo ie one year's salary. Ever since then property prices have increased but rarely fallen. At some point in the future those earning low wages/salaries and high living expenses will revolt and I suspect chaos will result.

Please act with great caution - only buy if you can buy outright then you will always have the value of a house whatever its price. Do not buy if you have to borrow.

I am alerting MPs Woodcock and Farron of this problem. A warning must be sent out to our government. We are literally dicing with death: the individuals (suicide) and the country (loss of credit rating).

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