How far will house prices fall [volume 4]

How far will house prices fall [volume 4]

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gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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turbobloke said:
It looks to me as though the BoE committee is looking to make room for a rate reduction or two early- to mid-next year, given that there are grounds (excuses) for a modest rise at the moment in terms of wages and borrowing
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Thats exacty my view point, any hike that may come this year, isnt the start of a process to some kind of 'normalisation' of rates, its attempting to give some breathing space to cut when things get stinky next year.

gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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V6Alfisti said:
Absolutely and history supports a number of those fears, I cannot comprehend anyone with knowledge thinking it will be the status quo when the cost of borrowing goes up against a back drop of the highest salary to house value disparities in recorded history.

Even with all the QE, HTB e.t.c the market in large parts of London are falling over itself. That doesn't take imagination, its happening right now.
I'll bet you £100 to a chosen charity that we wont see 3.5% base rate within 5 years of today. Deal?

gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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V6Alfisti said:
The point about anyone on a mortgage ...accepted that was loose wording/thinking.

This thinking applies more to new first steppers/those who are pushing their luck abit, rather than those that have bought with a healthy deposit/retain savings or half way through a mortgage having bought at house prices nearly half what they are now. All to be taken in perspective.

You also use your own position to suggest this is the norm, I suspect many new entrants would not be in the same position.

The point about negative equity remains, if you were a new entrant to the market fixed at 2% for 5 years and house prices drop, and try to remortgage at new rates/equity...your approach fails quickly. No-one knows what the next 5-10 years, but I personally prefer to plan with some buffer.

On the point of 10 years of sub 0.5% being normal, I know you are playing devils advocate but hopefully you know as well as anyone that it isn't sustainable and causes multiple issues including inflation.


Edited by V6Alfisti on Monday 30th July 21:13
How long would rates have to be sub 1% for you to consider them a new normal?

I think you are grossly oversimplifing the mess we find ourselves in regarding the next couple of years of uncertainty.

V6Alfisti

3,199 posts

191 months

Tuesday 31st July 2018
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gibbon said:
I'll bet you £100 to a chosen charity that we wont see 3.5% base rate within 5 years of today. Deal?
The question was what is my view of a normal average base rate, not what that would be in 5 years. Don't be a tool. Who knows exactly what the impact of the rolling out of brexit will do.

Lucky for me the London market is already dropping and has done quite significantly in certain areas already on a base rate of 0.5%, because interest rates arent the only element of housing, FI which has been mentioned before, BTL which has been mentioned before, let alone the removal of the driving up of house prices on the belief that an asset will be more expensive tomorrow...not many people think that in large parts of London anymore.

Interest rate is one of many levers, as I have said a thousand times for those that aren't trying to sugar coat/distract.

Edited by V6Alfisti on Tuesday 31st July 09:18

gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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V6Alfisti said:
The question was what is my view of a normal average vase rate, not what that would Benin 5 years. Don't be a tool.
No need to be rude old chap, if im a tool, im a lucky one. smile

Ok. Where do you think base rate will be in 5 years? You have lots of views of what normal will be, and how quickly we should get back there, so lets put a number on it shall we? We can make it easier if you like, where do you think it will be in 2 years? smile


Lord.Vader

3,478 posts

103 months

Tuesday 31st July 2018
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Tango13 said:
yes

I've just relocated to Lincolnshire from Hertfordshire for work so I've had a search set up on Rightmove for the past year or so. I would honestly say there has been an imperceptible softening in the housing market compared to 12/18 months ago.

I've noticed that good properties in Lincolnshire at the right price are still sold before you can blink but others are having to reduce the asking by quite a lot and still not selling.

Flats where I used to live in Hertfordshire where I could walk out of my front door and be on the tube at Kings Cross inside the hour all on public transport are prime commuter territory...

A good 75% have been reduced from their original asking price, the other 25% will, imho need to reduce the asking if they want a realistic chance of selling, I sold 5% below what I wanted but still think the buyer paid too much.

Personally I'd get out now whilst there are still buyers about as I think any sort ot BTL property will at best stagnate pricewise and if Comrade Corbyn gets in the kick in the bks BTL landlords have received over the last year will seem like a lovers caress compared to the right royal screwing Corbyn will dish out.
That was my thinking too, sold up my BTL’s and we moved house to a nice project that we can see as our family home for the next 5-15 years.

I can’t see any positives for the BTL market if Corbyn gets into power, punitive tax rates, restrictive rent increases, more rights for the renter (?) ... etc.

V6Alfisti

3,199 posts

191 months

Tuesday 31st July 2018
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gibbon said:
No need to be rude old chap, if im a tool, im a lucky one. smile

Ok. Where do you think base rate will be in 5 years? You have lots of views of what normal will be, and how quickly we should get back there, so lets put a number on it shall we? We can make it easier if you like, where do you think it will be in 2 years? smile
See above for a more detailed retort, I don't have any strong views on interest rates or have looked particularly closely at it, but it will certainly be above 0.5% that many new/recent entrants to the market are struggling with. That's all I need to know given the surrounding factors that are already impacting London.

The beauty of this is that I don't need to even 'guess', London has already started to unfold and is back to 2014 sold values in some areas as has already been proven by the same sold property over different years, or we can play guess the interest rate in 17.4 months old chap.


stuckmojo

2,405 posts

152 months

Tuesday 31st July 2018
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Rovinghawk said:
One of my places is becoming vacant shortly- I think it's time to sell.

There are various personal reasons for wanting to sell but in addition to these I think the market is going to stagnate at best, the government are actively attacking landlords and the attacks will increase plus there is the risk of a near-future labour government making me feel the need to acquire some flight assets & a foreign bolthole.

Time to sell up, take the money & prepare to run.
Quoting this as it's a significant change in tone from Rovinghawk. If a successful landlord sees the clouds gathering and decides to move out, the majority of clueless amateurs out there are in for a rinse.

And the critical mass of BTL do move a market.


gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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V6Alfisti said:
See above for a more detailed retort, I don't have any strong views on interest rates or have looked particularly closely at it, but it will certainly be above 0.5% that many new/recent entrants to the market are struggling with. That's all I need to know given the surrounding factors that are already impacting London.

The beauty of this is that I don't need to even 'guess', London has already started to unfold and is back to 2014 sold values in some areas as has already been proven by the same sold property over different years, or we can play guess the interest rate in 17.4 months old chap.
I read above, you talked about 3.5% averages, normals, and your belief we would return there, I would call that a fairly strong view.

I happen to see things differently, and for a bit fun would like to take the opposite view to you in the form of a small charitable donation.

A tool and his money are easily parted, so i thought you'd jump at the chance. smiletongue out




V6Alfisti

3,199 posts

191 months

Tuesday 31st July 2018
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gibbon said:
I read above, you talked about 3.5% averages, normals, and your believe we would return there, I would call that a fairly strong view.

I happen to see things differently, and for a bit fun would like to take the opposite view to you in the form of a small charitable donation.

A tool and his money are easily parted, so i thought you'd jump at the chance. smile
Based on the question of 'what do you consider the average base rate", over a 30 year period of actuals in this country averages out at 7%, the lowest it's ever been is 3.5% before the global recession in 2008. Sorry if you don't like these figures, but these are actuals and you should take it up with the Bank of England if you wish to have a bet.

So at a time where the economy is on sound footings (no time defined, who knows?) then it doesn't defy the whit of man to think it will get back to the lowest figure of a 30 year run before a global recession. If you disagree then that's fine.

The only person to put a time frame on the historical actual averages/figures and when those will be seen again old chap...is yourself.

Edited by V6Alfisti on Tuesday 31st July 09:45

gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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V6Alfisti said:
Based on the question of 'what do you consider the average base rate", over a 30 year period of actuals in this country averages out at 7%, the lowest it's ever been is 3.5% before the global recession in 2008. Sorry if you don't like these figures, but these are actuals.

So at a time where the economy is on sound footings (no time defined, who knows?) then it doesn't defy the whit of man to think it will get back to the lowest figure of a 30 year run before a global recession. If you disagree then that's fine.

The only person to put a time frame on the historical actual averages/figures and when those will be seen again old chap...is yourself.
Im not debating the past with you, im debating the future, and the perception that many, including yourslef, seem to hold that rates will return to somewhere near the lower range of the 30 year average.

By the nature of us debating interest rates in the context of mortgages, we are all looking at it within a time frame, most people fix in 2-5 years chunks, hence the most pressing view for home owners needing funding is 0 - 5 year time frame. It also almost pointless in my view to try to predict much futher than that.

Put simply I think there has been a paradigm shift and the new normal rate range is conservatively 0 / 2%, more likely 0.25 / 1.75% the concept of previous normals is, in my view, completely meaningless.

As for your comments regarding a soundly footed economy, again, well thats a whole other debate, I dare say we would differ in opinion on that too.


V6Alfisti

3,199 posts

191 months

Tuesday 31st July 2018
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gibbon said:
Im not debating the past with you, im debating the future, and the perception that many, including yourslef, seem to hold that rates will return to somewhere near the lower range of the 30 year average.

By the nature of us debating interest rates in the context of mortgages, we are all looking at it within a time frame, most people fix in 2-5 years chunks, hence the most pressing view for home owners needing funding is 0 - 5 year time frame. It also almost pointless in my view to try to predict much futher than that.

Put simply I think there has been a paradigm shift and the new normal rate range is conservatively 0 / 2%, more likely 0.25 / 1.75% the concept of previous normals is, in my view, completely meaningless.

As for your comments regarding a soundly footed economy, again, well thats a whole other debate, I dare say we would differ in opinion on that too.
Ok good, we have moved to a higher shelf conversation clap

You are of course right to look forward, but imo you cannot ignore history.

There were some that recently said "how can house prices drop, when demand is so high and money so cheap" "house prices have only gone up in the last x years". Looking forward at the time (2015/6) ignoring history/economics would tell you that yes house prices would keep going up (and indeed they have in some areas like the west/northwest ), but history tells us there are a number of levers in a market and things that happen over a lifecycle.

Low base rates = low savings rate, that means people look to move their money into something (typically an asset) that has opportunity to grow. This if not controlled will run out of control and eventually out of steam (housing, classic cars, antique watches...)

Housing peak and troughs = Housing has had a stellar run and the typical peak/trough model has roughly worked out through the years, this time its had a rather extended upside due to HTB/BTL/FI/QE. Not all of those levers are particularly strong now....

Sentiment = This is where I am most interested in interest rates more than the rate itself in all honesty, IR even increasing 0.25% noticeably impacted sentiment. The everlasting 0.25% base rate was no more, so that's the free money forever dream gone, then see house prices going in reverse...that's another blow to sentiment and a major one.

Anyway I digress (but my history point remains), the interest rate debate is a point of interest for me but admittedly rather low at the moment, because the impact on the other levers is seemingly so severe, a number of areas of interest in London are already down to their 2014/2015 values. Maybe you are right, who knows...lets see.

Also with the mortgage point, I can see your logic, but I look at this more from a negative equity/affordability perspective for those who are stretching themselves (who lets not be in any doubt, a large number of new market entrants are...you don't go to a city with 13x average salary and find the majority of people easily affording property) rather than those that were lucky enough to be born a few years earlier and have bought at much lower multiples/core cost and paid off a % of their mortgage.

In terms of debating where interest rates will be in x years, like I said I don't have any really strong views on it currently as I wouldn't need to borrow much but more interested in the sentiment.

ClaphamGT3

9,049 posts

207 months

Tuesday 31st July 2018
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Interest rate remains essentially a political tool. Attempting to apply economic logic or to correlate it to market forces is for the birds.

What we can see is that increasingly lengthy mortgage rate fixes at rates based on the current position are readily available. As others have said, it is now possible to get 25 and even 50 percent through a mortgage term on a fixed rate. If, in 10 years time, the political and economic landscape has maintained downward pressure on house prices to the extent that purchasors have seen stagnant or negative capital appreciation then the value of their home is likely to be the least of those purchasers worries.

stongle

4,088 posts

126 months

Tuesday 31st July 2018
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ClaphamGT3 said:
Interest rate remains essentially a political tool. Attempting to apply economic logic or to correlate it to market forces is for the birds.
.
Eh? Interest rates are used In monetary policy to influence inflation, supply of money and soft (or hard) steer economies. Its entirely market force and logic driven- in the UK devolved to the BoE not chancellor. Fiscal policy on the other hand is entirely political and tax / spend.

Implementation of monetary policy may well be politically ideologically motivated but it's fairly easy to predict rate movement based on market and economic factors. Given the size of UK household debt and economy driven by consumer spending / service sector there really is limited scope for hawkish rate rising. With a decade of low rates and significant rise in asset wealth (for those on the ladder), it has increased consumer activity. Raising rates may have too detrimental effect on the economy given other factors such as Brexit that throw us into significant recession. It's not a binary linkage between inflation and central bank rate, other factors come into play (FX can push inflation up).

Brexit probably removes a lot of housing and speculative demand from the market + confidence to dent house price growth without having to default to rate rises. And not just London. Cardiff, Glasgow, Bournemouth etc all have significant financial service hubs that could be massively affected by Brexit.

I'd bet that Brexit uncertainty has a bigger effect on house prices than rate setting right now.

Edited by stongle on Tuesday 31st July 12:20

ClaphamGT3

9,049 posts

207 months

Tuesday 31st July 2018
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stongle said:
Eh? Interest rates are used In monetary policy to influence inflation, supply of money and soft (or hard) steer economies. Its entirely market force and logic driven- in the UK devolved to the BoE not chancellor. Fiscal policy on the other hand is entirely political and tax / spend.

Implementation of monetary policy may well be politically ideologically motivated but it's fairly easy to predict rate movement based on market and economic factors. Given the size of UK household debt and economy driven by consumer spending / service sector there really is limited scope for hawkish rate rising. With a decade of low rates and significant rise in asset wealth (for those on the ladder), it has increased consumer activity. Raising rates may have too detrimental effect on the economy given other factors such as Brexit that throw us into significant recession. It's not a binary linkage between inflation and central bank rate, other factors come into play (FX can push inflation up).

Brexit probably removes a lot of housing and speculative demand from the market + confidence to dent house price growth without having to default to rate rises. And not just London. Cardiff, Glasgow, Bournemouth etc all have significant financial service hubs that could be massively affected by Brexit.

I'd bet that Brexit uncertainty has a bigger effect on house prices than rate setting right now.

Edited by stongle on Tuesday 31st July 12:20
I agree with your point about Brexit.

Whilst your analysis of the theory of interest rates works as a summary it doesn't really take in the reality. You don't need to know as much about the subject as you clearly do to recognise that, had you had a bunch of economists undertaking a desk-top exercise on the UK economy with no outside intervention or pressure, we probably wouldn't be in the position we're in today.

nikaiyo2

3,382 posts

159 months

Tuesday 31st July 2018
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I don't get why mortgages are not fixed rate for the life of the loan, is there a reason for this?

At least if they were you would not have to try and forecast affordability at an unknown interest rate at an unknown time in the future.

Rovinghawk

13,300 posts

122 months

Tuesday 31st July 2018
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stongle said:
Brexit probably removes a lot of housing and speculative demand from the market + confidence to dent house price growth without having to default to rate rises. And not just London. Cardiff, Glasgow, Bournemouth etc all have significant financial service hubs that could be massively affected by Brexit.

I'd bet that Brexit uncertainty has a bigger effect on house prices than rate setting right now.
Whilst that might apply to the towns you mention I think it has less effect in Coventry, Stoke, Newcastle, Merthyr Tydfil, etc.

stuckmojo

2,405 posts

152 months

Tuesday 31st July 2018
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nikaiyo2 said:
I don't get why mortgages are not fixed rate for the life of the loan, is there a reason for this?

At least if they were you would not have to try and forecast affordability at an unknown interest rate at an unknown time in the future.
They are in most countries. France, Italy, etc. In the UK the mortgage products are awful in comparison.

p1stonhead

24,902 posts

131 months

Tuesday 31st July 2018
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nikaiyo2 said:
I don't get why mortgages are not fixed rate for the life of the loan, is there a reason for this?

At least if they were you would not have to try and forecast affordability at an unknown interest rate at an unknown time in the future.
30 years is a hell of a long time to fix a loan for. And banks would cover the worst case scenario so it would be ludicrously expensive. A ten year fix is a lot more expensive than a 2 year fix, so imagine a 30 year fix.

Banks lose out if they have to cover rises but also the consumer also loses out with a drop in interest rates during fixed deals. I lost thousands on my previous 5 year fix at something like 5% when the base rate tanked.

gibbon

2,129 posts

171 months

Tuesday 31st July 2018
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p1stonhead said:
30 years is a hell of a long time to fix a loan for. And banks would cover the worst case scenario so it would be ludicrously expensive. A ten year fix is a lot more expensive than a 2 year fix, so imagine a 30 year fix.

Banks lose out if they have to cover rises but also the consumer also loses out with a drop in interest rates during fixed deals. I lost thousands on my previous 5 year fix at something like 5% when the base rate tanked.
The banks will hedge out the risk after taking a haircut, they wont be winning or loosing on hikes / cuts.

30y gbp irs is at about 3%. Interestingly thats lower than 15y gbp irs, which is at about 3.2%.

Edited by gibbon on Tuesday 31st July 13:19

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