Interest rates going up soon...
Discussion
IroningMan said:
So, for the large numbers of 'squeezed middle' households who are surviving on the back of very low mortgage payments, despite six consecutive years of inflation outrunning pay increases by some margin, interest rate rises will do what, exactly?
Punish those who have taken out mortgages they can't afford when rates rise.Sonic said:
IroningMan said:
So, for the large numbers of 'squeezed middle' households who are surviving on the back of very low mortgage payments, despite six consecutive years of inflation outrunning pay increases by some margin, interest rate rises will do what, exactly?
Punish those who have taken out mortgages they can't afford when rates rise.Average wage 25k x 3.5 = 85k so 100k short.
Punish indeed...
jdw1234 said:
House prices are mostly driven by supply of credit.
Higher rates restrict the amount of credit a buyer can get.
While making cash more rewarding. Higher rates restrict the amount of credit a buyer can get.
This risk though lies in our inverted demographic meaning that there is a large amount of money that is not so sensitive to a restriction of debt unlike younger families. So, if the better returns on cash are not enough to slow the flow of that money all a rise in rates will achieve is to speed up the transfer of property from the younger to the older this exacerbating the exact problem we already have.
Just how accurate is that assumption that controlling credit will control house prices? What proportion of properties are bought with a large mortgage LTV/easily managed mortgage/any mortgage/no mortgage? How much has foreign money driven prices (within the M25 (which I would suggest is behind much of the Average UK House Price Soar headlines in the media))? In my view, large rate rises will disproportionately hit those that were just unfortunate not to have reached that stage in life until recently where property purchases were possible. They "had to" pay a fortune for their house and now the repayments will increase. I can't see how it will particularly help those younger/poorer than them to get onto the ladder as afordability will take a dive.
It's all a bit of a mess, really.
It's all a bit of a mess, really.
scenario8 said:
Just how accurate is that assumption that controlling credit will control house prices? What proportion of properties are bought with a large mortgage LTV/easily managed mortgage/any mortgage/no mortgage? How much has foreign money driven prices (within the M25 (which I would suggest is behind much of the Average UK House Price Soar headlines in the media))? In my view, large rate rises will disproportionately hit those that were just unfortunate not to have reached that stage in life until recently where property purchases were possible. They "had to" pay a fortune for their house and now the repayments will increase. I can't see how it will particularly help those younger/poorer than them to get onto the ladder as afordability will take a dive.
It's all a bit of a mess, really.
Articulated rather better than I was planning to!It's all a bit of a mess, really.
scenario8 said:
Just how accurate is that assumption that controlling credit will control house prices? What proportion of properties are bought with a large mortgage LTV/easily managed mortgage/any mortgage/no mortgage? How much has foreign money driven prices (within the M25 (which I would suggest is behind much of the Average UK House Price Soar headlines in the media))? In my view, large rate rises will disproportionately hit those that were just unfortunate not to have reached that stage in life until recently where property purchases were possible. They "had to" pay a fortune for their house and now the repayments will increase. I can't see how it will particularly help those younger/poorer than them to get onto the ladder as afordability will take a dive.
It's all a bit of a mess, really.
A significant proportion of sales will require a mortgage and increasing rates/capping LTV/leverage multiples will restrict demand. It's all a bit of a mess, really.
If/when property prices start to decline I expect foreign money will move on (and a lot of BTL will look to exit further increasing supply).
People who don't need to sell won't, but that has always been the case and doesnt stop transactions occuring at lower values.
One other thought re people with low LTV or no mortgage.
At the moment I wouldn't consider selling as the jump to the next size house is too big. Instead I plan to extend.
However, if house prices significantly fell, I would consider trading up instead.
This might be a consideration for others which could increase transactions.
At the moment I wouldn't consider selling as the jump to the next size house is too big. Instead I plan to extend.
However, if house prices significantly fell, I would consider trading up instead.
This might be a consideration for others which could increase transactions.
IroningMan said:
And that will cool the housing market because?
I didn't say it would 
superkartracer said:
Average prices are 180k so.... theres little choice and thats people earning decent money.
Average wage 25k x 3.5 = 85k so 100k short.
Punish indeed...
I don't own a house and i earn decent money. I don't own a house because i'm not prepared to borrow more than i can afford should IRs rise and Average wage 25k x 3.5 = 85k so 100k short.
Punish indeed...
t-box flat, clambering at the bottom-step of some ladder and perpetuating this insane market. I'd rather rent.But the fact remains - increasing IR's will hurt those who have taken out mortgages that they can marginally afford with ZIRP.
I have less faith than you that rising rates will "solve" the "problem". A smallish subsection of property owners who by definition have already made the leap into ownership will be hit hard. Generally speaking, an older, much larger, wealthier section will be only marginally affected. Some, but few, perhaps inept, private BTL investors will be troubled. The flow of foreign money nto the UK property market is an altogether complicated nature and I'm unconvinced a rate rise will redcue the flow in itself let alone lead to a flow out of the UK. Certainly even if rate rises helps to reduce demand (and therefore prices) it will be a hell of a knock for the demographic I touched on earlier, will make next to no beneficial difference to the younger groups trying to come up behind, barely make any difference to that group that has cash in current accounts as it's investment portflio and doesn't look like a particularly good fix to me.
All in my humble opinion, naturally.
All in my humble opinion, naturally.
scenario8 said:
I have less faith than you that rising rates will "solve" the "problem". A smallish subsection of property owners who by definition have already made the leap into ownership will be hit hard. Generally speaking, an older, much larger, wealthier section will be only marginally affected. Some, but few, perhaps inept, private BTL investors will be troubled. The flow of foreign money nto the UK property market is an altogether complicated nature and I'm unconvinced a rate rise will redcue the flow in itself let alone lead to a flow out of the UK. Certainly even if rate rises helps to reduce demand (and therefore prices) it will be a hell of a knock for the demographic I touched on earlier, will make next to no beneficial difference to the younger groups trying to come up behind, barely make any difference to that group that has cash in current accounts as it's investment portflio and doesn't look like a particularly good fix to me.
All in my humble opinion, naturally.
I agree with this, however I would add that Im not sure why the general public seem to think that rate rises are so closely linked to property prices, the property market is just one consideration of many when adjusting rates, and there are many other tools available to 'tinker' with the housing market. I believe base rate hikes are a blunt tool in effecting the issues we have with house prices (particularly in London), and I think more traditional economic indicators are not pointing to hikes, there simply is no need. Look at global land and property trends, and global interest rate trends, there in lie the trends.All in my humble opinion, naturally.
We are in a new era of house values and the paradigm is shifting, wealth in the form of property and land will be passed through generations. Its only a recent phenomenon (two generations perhaps?) to buy a home as a standalone single financial purchase, why should this continue to be the case? Why do we feel like this is a right?
The last two generations overall have had it very good in this respect, once again it has reverted to being very hard to ‘get on the ladder’, but this whole notion is a relatively new one in the grand scheme of things.
scenario8 said:
I have less faith than you that rising rates will "solve" the "problem".
But is it about solving a problem? We know that a base rate of 0.5% is not normal - it will return to normal levels (whatever that is) sooner or later. Therefore we either wait until we have to put them up OR move ahead of the inflation curve and put it up gradually. Okay, there is the third option of pre-empting the curve but no sane central banker or politician would consider that! Of course some people will get hurt but far less than if we let the property/debt market go out of control - as happened a few years ago.jdw1234 said:
Dunno. I guess I kind of like the idea that you can get a job and then buy a house. Seems like a vote winner to me!
A bit like suffrage, gay rights, no slavery, racial equality, widely available healthcare etc. Relatively new concepts, but they seem like a good idea.
;-)
A good point, and I agree, however those points arnt constrained by and evolving with global economics, its not simply a right issue, though it would be simpler if it was and I agree the concept is great, sadly that's not the way it is.A bit like suffrage, gay rights, no slavery, racial equality, widely available healthcare etc. Relatively new concepts, but they seem like a good idea.
;-)
gibbon said:
jdw1234 said:
Dunno. I guess I kind of like the idea that you can get a job and then buy a house. Seems like a vote winner to me!
A bit like suffrage, gay rights, no slavery, racial equality, widely available healthcare etc. Relatively new concepts, but they seem like a good idea.
;-)
A good point, and I agree, however those points arnt constrained by and evolving with global economics, its not simply a right issue, though it would be simpler if it was and I agree the concept is great, sadly that's not the way it is.A bit like suffrage, gay rights, no slavery, racial equality, widely available healthcare etc. Relatively new concepts, but they seem like a good idea.
;-)
I.e. as the younger non-property owning demographic rises, it will become higher up the political agenda. You can see it happening now.
Interesting stuff.
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