"We need a 95 per cent mortgage and under offers over if we bid above the surveyor's valuation, we would need to find the difference, and we don't really have any savings for that." After looking for five months, at properties in Leith, Newhaven, Abbeyhill and Easter Road, they finally spotted a one-bedroom flat in Edinburgh's Meadowbank at a fixed price of £122,500. Miss Rae added: "We have bought a flat that needs a bit of work. We hope to sell in 18 months and make a bit of money on it."This couple expect to sell at a profit in less than two years. That seems an incredibly risky strategy to me, especially when the buyers are starting out with a mere 5% in equity. Caveat Emptor.
I came across this excellent article about the similar housing boom in the US:
So what is going to happen? It certainly appears that Alan Greenspan's loose monetary policy has done more than inflate a housing bubble. Prices of goods and services are rising as well now (even though the grossly manipulated CPI indicates only mild price inflation). Should the bond market get a whiff of real inflation, then an inflation premium will be priced into long-term bonds i.e., interest rates will rise sharply and bonds will fall. At this point, the bond market will show that Alan Greenspan is behind the curve and he will be forced to dramatically increase short-term interest rates in order to slay the inflation dragon. Such a scenario, of rising interest rates, will pummel the housing market and will leave millions of homeowners with negative equity in their homes. Mortgage defaults will rise, especially on adjustable rate mortgages, and this will be a financial disaster that will make the S&L crisis pale in comparison - keep in mind that we are talking about trillions of dollars in home loans and federal mortgage guarantees.I am concerned about the stability of the financial system itself as well as the risks being undertaken by homebuyers. Naturally, the taxpayer will be called upon to bail out the improvident borrowers and lenders. As Mr Englund puts it:
In spite of their implicit culpability, while America's financial system teeters on the abyss, these politicians will go on the offensive and somehow lay blame on all private companies involved with real estate - and call them "fat-cat, capitalist exploiters." In the end, politically-motivated pandering to envy may leave us with a nasty, brutish, and impoverished democracy.It's the same over here, and I don't doubt that the NuLab spin machine has already written the press release.