How far will house prices fall [volume 4]

[cymtriks]

JagLover said:

cymtriks said:

Data which ignores the massive decrease in interest rates over the same time period.

And of course interest rates are guaranteed to stay at today's historically low levels for the entirety of the mortgage 25 or 30 year term....

What point are you trying to make? Affordability is interest rate x amount borrowed. One is meaningless without the other. Remember that the seventies, eighties and early nineties rates were unusually high historically. Also consider that everyone has got used to the current rate and that low rates prevailed for some years before that. You need to go back 17 years to find a BoE base rate higher than six. The average over the last century is 5.5. From here any rise is going to be slow, the government will not allow anything else. Don't be fooled by the BoE being independent, you can bet that would change if rates rose too sharply for the electorate to tolerate.

Based on a quick internet search I reckon my first house has tripled in price since I bought it. Inflation would make that a fifty percent rise. High street interest rates with a small deposit (like I had) have fallen by a factor of two. So at the moment its cheaper to pay the mortgage than when I bought it!

[scenario8]

Would I prefer a modest mortgage with interest rates at relatively high levels but with a very real expectation that rates would not rise further - and very likely fall in the future - at a time of relatively high inflation and high expectations of future salary rises most likely secured on the basis of a single income or a huge massive enormous mortgage at a time of relatively low interest rates (but with a very high expectation of future rate rises) at a time of wage stagnation secured on the basis of current and ongoing dual incomes right at the point where one might expect the sexual imperative to kick in?

All in all I'd prefer a hugely reduced mortgage with higher rates, to be honest. But I do accept I am in the unusual position within PH circles of being a very ordinary earner living in the SE.

[turbobloke]

"Another foreign aid cheque from George Osborne - I say we blow it on buy-to-let properties in the UK before April... All in favour?"

[Pork]

scenario8 said:

Would I prefer a modest mortgage with interest rates at relatively high levels but with a very real expectation that rates would not rise further - and very likely fall in the future - at a time of relatively high inflation and high expectations of future salary rises most likely secured on the basis of a single income or a huge massive enormous mortgage at a time of relatively low interest rates (but with a very high expectation of future rate rises) at a time of wage stagnation secured on the basis of current and ongoing dual incomes right at the point where one might expect the sexual imperative to kick in?

All in all I'd prefer a hugely reduced mortgage with higher rates, to be honest. But I do accept I am in the unusual position within PH circles of being a very ordinary earner living in the SE.

Wouldnt anyone? I would rather pay less with the view IRs might fall in my favour (early 90s?) than buy high with an expectation of a rise (now)! I'm not Marty McFly though.

Some crude maths here but.... to use IRs at 1.25% (is that a fair estimate to today?) and 6% (closer to historical norm before QE etc)

Scenario A and B have a total cost of broadly the same, but significantly different purchase price. You could argue it doesnt matter which IRs prevail if its fixed for the term.

		Scenario A		Scenario B
Value of Loan		300,000		181,000
Term		25 yrs		25 yrs
Interest Rate		1.25%		6.0%
Monthly		1,165		1,166
Total Charge		49,467		168,856
Total Repaid		349,467		349,856

However, if you buy today and expect IRs to remain the same, what happens if they return to closer to the historical norm?

If IR were swopped		Scenario C		Scenario D
Value of Loan		300,000		181,000
Term		25 yrs		25 yrs
Interest Rate		6.0%		1.25%
Monthly		1,933		703
Total Charge		279,871		29,845
Total Repaid		579,871		210,845

Scenario D is what many poeple have enjoyed since the historically low IRs. The one figure that has changed is the price of the home. Scenario D with a house worth two or three times what was paid for it is where those who've avoided remortgaging are sat. Scenario C is where FTBs buying today may end up if something changes with IRs in the next 25 years.

I accept these are rough figures and there's a much larger debate around what will and wont happen. I'm not Mystic Meg.

This site was used for calcs.

[Dave_ST220]

BoE BR maybe bugger all but a lot of people still have rates that are much higher. Personally speaking my offset mortgage is 4%. Do doubt should a rate rise happen this will immediately be passed on (the rate drops were not passed on by memory).

[gibbon]

Dave_ST220 said:

BoE BR maybe bugger all but a lot of people still have rates that are much higher. Personally speaking my offset mortgage is 4%. Do doubt should a rate rise happen this will immediately be passed on (the rate drops were not passed on by memory).

That rather depends on your mortgage deal.

[JagLover]

cymtriks said:

JagLover said:

cymtriks said:

Data which ignores the massive decrease in interest rates over the same time period.

And of course interest rates are guaranteed to stay at today's historically low levels for the entirety of the mortgage 25 or 30 year term....

What point are you trying to make? Affordability is interest rate x amount borrowed. One is meaningless without the other. Remember that the seventies, eighties and early nineties rates were unusually high historically. Also consider that everyone has got used to the current rate and that low rates prevailed for some years before that. You need to go back 17 years to find a BoE base rate higher than six. The average over the last century is 5.5. From here any rise is going to be slow, the government will not allow anything else. Don't be fooled by the BoE being independent, you can bet that would change if rates rose too sharply for the electorate to tolerate.

Based on a quick internet search I reckon my first house has tripled in price since I bought it. Inflation would make that a fifty percent rise. High street interest rates with a small deposit (like I had) have fallen by a factor of two. So at the moment its cheaper to pay the mortgage than when I bought it!

BOE base rates higher than 3-4% would put a large number in trouble these days.

I'm just pointing out that basing "affordability" calculations on BOE base rates of 0.5, when there is usually only a 2-3 year fix and the mortgage term is 25-30 years is rather short sighted.

Edited by JagLover on Monday 30th November 13:43

[Dave_ST220]

gibbon said:

That rather depends on your mortgage deal.

Of course but of what I can see the low figures are for short term "deals", from a search for "mortgage rates" I got this.

[anonymous-user]

Mine is worth 5X what I paid in 1996 (what I paid compared to neighbor selling lesser house)
So no fall in the long term. Nor even in the short term...
The last 7 years of mortgage @ BOE + .59% tracker, from IF.
No point in paying off mortgage, I'm waiting them to offer a discount to pay off early as its costing them money...

Edited by anonymous-user on Monday 30th November 23:58

[gibbon]

Dave_ST220 said:

Of course but of what I can see the low figures are for short term "deals", from a search for "mortgage rates" I got this.

Your statement was 'BOE rates mean bugger all'. Clearly, from your own evidence that is not the case. You can get a tracker at sub 1%, and fix for two years at 1.15%.

[gibbon]

Jimboka said:

The last 7 years of mortgage @ BOE + .59% tracker, from IF.
No point in paying off mortgage, I'm waiting them to offer a discount to pay off early as its costing them money...

Edited by Jimboka on Monday 30th November 23:58

I wouldnt hold your breath, its not costing them money, in fact you could remortgage at a slightly more aggressive deal right now if you so wished.

[walm]

gibbon said:

I wouldnt hold your breath, its not costing them money, in fact you could remortgage at a slightly more aggressive deal right now if you so wished.

Really?
The best I can see are 1.24% lifetime trackers.
What deals can you see?
I would kill for one at 0.59%!!!

[Dave_ST220]

gibbon said:

Your statement was 'BOE rates mean bugger all'. Clearly, from your own evidence that is not the case. You can get a tracker at sub 1%, and fix for two years at 1.15%.

No it wasn't, go back & read again.

[turbobloke]

http://www.bloomberg.com/news/articles/2015-12-28/...

"Knightsbridge is the worst performing housing market in central London this year as rising taxes curb valuations in the district that’s home to the Harrods department store."

"Prices fell 6.1 percent as an increase in the stamp duty charge damped demand and sales volumes fell, according to Rupert des Forges, a partner at broker Knight Frank LLP."

[okgo]

Newham in E London the fastest riser this year at 22%

[Pork]

okgo said:

Newham in E London the fastest riser this year at 22%

That's just mental.

[Pork]

anonymous said:

[redacted]

Thanks.

Not related to that post but related to the subject, a mate who builds houses told me bricklayers have gone from £120/130 a day 12 months ago to £250/300 a day today. He's pretty convinced that it's all going to end in tears, bigger tears than we've seen before.

[Burwood]

Pork said:

anonymous said:

[redacted]

Thanks.

Not related to that post but related to the subject, a mate who builds houses told me bricklayers have gone from £120/130 a day 12 months ago to £250/300 a day today. He's pretty convinced that it's all going to end in tears, bigger tears than we've seen before.

Headline BS i'm afraid. Pricing work can earn high rates but that is not the same thing as a daily rate. Inside the M25 £200 pd perfectly believable, but to suggest brick layers 'wages' have gone up to 200% in 12 months is fantasy. Tell your mate to hire some Portuguese who will happily take 150 euro a day and the quality of their workmanship will be much better than the UK standard.

[Mr Whippy]

gibbon said:

This coupled with finite land and increasing population makes it is obvious to me that homes as a general trend will increase in value

Price or value?

I'd agree that values probably did rise, but since 2007 I've just got this feeling that the £20 note you had in your pocket goes a lot less distance than it used to.

Since around 2007 I'd say prices have gone up, but not values...? Hmmmmm.

[Pork]

Burwood said:

Headline BS i'm afraid. Pricing work can earn high rates but that is not the same thing as a daily rate. Inside the M25 £200 pd perfectly believable, but to suggest brick layers 'wages' have gone up to 200% in 12 months is fantasy. Tell your mate to hire some Portuguese who will happily take 150 euro a day and the quality of their workmanship will be much better than the UK standard.

Realy? I saw them go from £120 to £180 first half of last year on a project I was doing. Couldn't believe it, but they basically said "if you don't want to pay it, plenty of others will"

I'll def pass on your comment.