Why interest rates will surge upwards.

Dithering_Dad

My responses below in red:

the_ash_and_the_oak wrote: »

Problems (or at least serious questions I would have):
a)uncertain job prospects

A mortgage is typically for a period of 25 years. In that time it is likely that you will experience 3 or 4 recessions, will you never buy because there is a possibilty of losing your job at some time within the mortgage period? Better to buy in a recession than a boom because you'll be more cautious.

b)15% deposit equals hsbc offering a fix north of 6%

You can get much better fixed deals than this, especially if you go via a mortage broker who has a wider selection of the market. If most of the HPC people are to be believed, they 'saw all this coming' and have been saving for years, with deposits upward of 20% already saved.

c) I have no idea how long it will be before rates head high (and if I were to borrow - it would seem they are already high!)

This is the gamble, do you wait until rates start moving up before you buy? If you do, and get caught in a chain (or have any of the other millions of delays that make house buying one of the most stressful life events) and end up taking 3 to 6 months to complete on the purchase? If the HPC guys are to be believed, when interest rates take off, they will rocket. In 3 to 6 months your 6% fixed rate deal may seem like an absolute bargain!

d) my income is earnings related not interest-savings related. For a pensioner (and my 04 STR grandparents fit into this category - your points seem more persuasive - but then on other hand they wont need to borrow. For me (as a wage earner) it makes sense to me to wait while rent is still cheaper than mortgage interest (which despite headlines of 8p borrowing, it is for me). If rates were to rise could find a weird situation in which renting remains cheaper than mortgage interest for many years...regardless of price. In such a scenario it seems to make sense to me to continue to rent and put the excess money into shares rather than a house (though this wouldn't be just yet either)

You are possibly different to most prospective FTB's on here. They talk of anything upto £100k in deposit savings. Even a £20k deposit will represent a huge percentage of most people's salaries. These savings will be inflated away if left in the bank.

You might find that renting will always be cheaper than buying, especially when you factor in the huge up-front costs. If monthly outgoings is your only motivation then you're correct to stay renting. Most people want a place to call their own and are willing to pay more for that priviledge. I'm not saying either way is wrong because it's all down to personal choice. However if you want to buy then now is the time (if you believe the HPC guys).

mikelivingstone

Graham_Devon wrote: »

I think it's a shame that the Tories will again, have to take this on and raise interest rates. People are still going round saying "ahhh but under tories interest rates were 15%" and totally ignoring the reason why.

Unfortunately, the tories, again, will be left with no other option after a labour reign.

Indeed. I do recall a recent Ken Clarke and Ed Balls discussion on TV. Ed was banging on about how people didn't like the policies of the Tories with high interest rates. But then Ken Clarke made the point that actually they were necessary to avoid the sort of catastrophe we now face. Labour treats the electorate/country like a bad smothering parent treats an their obese child. Sport not allowed in case the little darling hurts itself and plenty of substitute love from the tuck shop (low interest rates and liquidity). Unfortunately the said child will probably a. die early and b. Get beaten up by the by the other children at school (the bond vigilantes et al). The Tories would at least put the child in the Gym.

Dithering_Dad

mikelivingstone wrote: »

When interest rates go up, it would be better not to have a large mortgage irrespective of whether you have a 10 year fix or not. House prices will be probably still be lower in 2019 than they were in 2007 and at if you took out a 10 year fix you'd have to get a new one by 2019. Anyway, all the good fix deals seem to be vanishing as we speak, the markets know what it about to happen and this is why SVRs haven't really fallen despite the interest rate cuts.

I think it's better not to have a large mortgage, full stop.

It doesn't matter whether house prices will be lower in 2019 than 2007 because you're not buying in 2007. You'll be buying in 2009, possibly early 2010 and I'd suggest that house prices in 2019 will be higher than in late 2009, early 2010.

Do you really believe we'll still be suffering from the current recession in 2019? If you do (and I think you're in the minority), then arrange a 25 year fixed rate.

All the good tracker rates vanished when mortgage rates fell. Fixes are still available. Let me ask you this... do you think that you will get a better fixed rate deal in three years time when interest rates are at 6% or right now when interest rates are at 1%?

EDIT: after literaly 2 mins of googling I have found a 5.24% 10 year fixed rate with Abbey. It has a 75% LTV, so most of the FTBers on here will be already have a 25% deposit saved (if they're to be believed). While 5.25% may look high compared with the 1% BoE rate, it'll look amazing against a 15% BoE rate, especially as 1% BoE rates may last a year, whereas the 8% to 15% rates may last for a decade (if the HPC people are to be believed).

stevetodd

What I find strange is that everyone seems to know interest rates are going to shoot up, except those silly lenders that are offering long term fixed rate deals. I find it very strange that those who are in the business seem to know least about it. I would tend to think the current long term deals on offer reflect another, not necessarily correct, but nevertheless a valid opinion as to what rates might do.

mbga9pgf

What I find strange is that everyone seems to know interest rates are going to shoot up, except those silly lenders that are offering long term fixed rate deals. I find it very strange that those who are in the business seem to know least about it. I would tend to think the current long term deals on offer reflect another, not necessarily correct, but nevertheless a valid opinion as to what rates might do.

I think you are forgetting that a couple of 'loons' on House price crash predicted exactly would happen back in 2005; the details were sketchy but no-one wanted to listen.
Bankers have proved themselves useless; I can imagine themselves trying to worm out of 4.83% 10 year fixes in years to come once rates are above 7%. Just like they did with rates falling and collars.

the_ash_and_the_oak

Mine in green (I hope)

Dithering_Dad wrote: »

Originally Posted by the ash and the oak
A mortgage is typically for a period of 25 years. In that time it is likely that you will experience 3 or 4 recessions, will you never buy because there is a possibilty of losing your job at some time within the mortgage period? Better to buy in a recession than a boom because you'll be more cautious.

This is true. And I agree it is better to buy in a recession if you have the confidence, although I would suggest that the end of a recession is preferable to the beginning of one. I would prob as you say experience further recessions although I would hope that this would occur further into a mortgage when I might have more of an equity cushion. I'm aware there may be periods of uncertainty about jobs again, but I am feeling this quite acutely at present (but conversely will be in great position in 2 years if remain in employment!)

b)15% deposit equals hsbc offering a fix north of 6%

You can get much better fixed deals than this, especially if you go via a mortage broker who has a wider selection of the market. If most of the HPC people are to be believed, they 'saw all this coming' and have been saving for years, with deposits upward of 20% already saved.

Well I'm in my 20s and live in London! While I am on a very good salary I have not been on it long enough to have reached 20%!

c) I have no idea how long it will be before rates head high (and if I were to borrow - it would seem they are already high!)

This is the gamble, do you wait until rates start moving up before you buy? If you do, and get caught in a chain (or have any of the other millions of delays that make house buying one of the most stressful life events) and end up taking 3 to 6 months to complete on the purchase? If the HPC guys are to be believed, when interest rates take off, they will rocket. In 3 to 6 months your 6% fixed rate deal may seem like an absolute bargain!

It may but in this scenario my rent surely would seem an even better bargain, comparatively?

d) my income is earnings related not interest-savings related. For a pensioner (and my 04 STR grandparents fit into this category - your points seem more persuasive - but then on other hand they wont need to borrow. For me (as a wage earner) it makes sense to me to wait while rent is still cheaper than mortgage interest (which despite headlines of 8p borrowing, it is for me). If rates were to rise could find a weird situation in which renting remains cheaper than mortgage interest for many years...regardless of price. In such a scenario it seems to make sense to me to continue to rent and put the excess money into shares rather than a house (though this wouldn't be just yet either)

You are possibly different to most prospective FTB's on here. They talk of anything upto £100k in deposit savings. Even a £20k deposit will represent a huge percentage of most people's salaries. These savings will be inflated away if left in the bank.

Well maybe but as it is increasing by 1k a month at present it doesn't feel like its being inflated away too much. My hedge inflation so far has been yen/gold (but am primarily still with normal cash in bank). I would increase gold but probably start looking at shares (next year?) if it seemed inflation was going to take hold. At the moment primary outgoing is rent followed by food (I use public transport)

You might find that renting will always be cheaper than buying, especially when you factor in the huge up-front costs. If monthly outgoings is your only motivation then you're correct to stay renting. Most people want a place to call their own and are willing to pay more for that priviledge. I'm not saying either way is wrong because it's all down to personal choice. However if you want to buy then now is the time (if you believe the HPC guys).

I think this is the ground where we appear to be in at least some agreement. Although I wouldn't say monthly outgoings were my only motivation, although cashflow is of course important. I don't really feel I am falling behind or missing any kind of boat (though this may well depend on decisions taken re:stock market next year or year after)

stevetodd

mbga9pgf wrote: »

I think you are forgetting that a couple of 'loons' on House price crash predicted exactly would happen back in 2005; the details were sketchy but no-one wanted to listen.
Bankers have proved themselves useless; I can imagine themselves trying to worm out of 4.83% 10 year fixes in years to come once rates are above 7%. Just like they did with rates falling and collars.

A collar is a legimate contractual clause I don't see it as 'trying to worm out'. Why were they loons, the housing market is cyclical and will also be subject to an eventual crash/correction. I am sure if you look hard enough you will also find some people who incorrectly predicted falls in 2001/2 also.

Dithering_Dad

mbga9pgf wrote: »

I think you are forgetting that a couple of 'loons' on House price crash predicted exactly would happen back in 2005; the details were sketchy but no-one wanted to listen.
Bankers have proved themselves useless; I can imagine themselves trying to worm out of 4.83% 10 year fixes in years to come once rates are above 7%. Just like they did with rates falling and collars.

Actually some loons were predicting a crash from 2001 onwards, and the HousePriceCrash website started up in 2003. Anyone who didn't buy in 2001 would have been in rented accomodation for 8 years so far, with a couple more to go before they buy. 10 years with your life on hold just so you can finally buy a house at 2003 prices. Hmnnnn.

Even a stopped clock is right twice a day.

If the HPC guys are right about interest rates rocketing, then we're back to my original question. Surely late 2009 or early 2010 is the right time to buy financially due to the combination of cheaper properties, a depressed seller market and low interest rates? As we already know, it can take a while to buy a house, so to buy in late 2009 really means starting to shop around now.

Surely if you really believe the HPC guys on interest rates, then it's unarguable that you should buy a house this year?

Graham_Devon

stevetodd wrote: »

What I find strange is that everyone seems to know interest rates are going to shoot up, except those silly lenders that are offering long term fixed rate deals. I find it very strange that those who are in the business seem to know least about it. I would tend to think the current long term deals on offer reflect another, not necessarily correct, but nevertheless a valid opinion as to what rates might do.

Their risk is minimal.

Very few can afford these long term rates, very few indeed, due to the mass deposits they would have to make.

Add to that the fact that they are offering these rates, but not neccesarily giving, and their risk becomes even smaller.

Add on to that fact that they are cherry picking the very best customers (those with assets, money and decent job prospects like doctors / lawyers) and declining anyone who doesnt fit their hymn sheet, and again, it becomes an even smaller risk.

Theres a big difference between offering and operating these figures. The HSBC all time low one for example, was only for people with x amount of cash in the bank for properties well out of most peoples leagues.

mbga9pgf

Dithering_Dad wrote: »

Actually some loons were predicting a crash from 2001 onwards, and the HousePriceCrash website started up in 2003. Anyone who didn't buy in 2001 would have been in rented accomodation for 8 years so far, with a couple more to go before they buy. 10 years with your life on hold just so you can finally buy a house at 2003 prices. Hmnnnn.

Even a stopped clock is right twice a day.

If the HPC guys are right about interest rates rocketing, then we're back to my original question. Surely late 2009 or early 2010 is the right time to buy financially due to the combination of cheaper properties, a depressed seller market and low interest rates? As we already know, it can take a while to buy a house, so to buy in late 2009 really means starting to shop around now.

Surely if you really believe the HPC guys on interest rates, then it's unarguable that you should buy a house this year?

I agree. Check my other posts. I have been saying I will be looking to buy in the new year 2010 for about 18 months now. That includes over at the Dark side.

I only joined HPC in 2005, and made my call that I reckoned the market would crash in Quarter 1 2007. So I agree, some got their timing completely wrong. There were plenty though that recognized subprime, liar loans and excessive multiples as the primary cause of the upcoming financial blizzard we were about to encounter. The word 'Credit Crunch' was first used on the site mid-2006 I believe.

Shame Hornby and fred the shred werent listening, not their shareholders.