Why interest rates will surge upwards.

Graham_Devon

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?

Not if properties plummet a further 50% (a total loss of 70%) as some people are warning.

Basically it's all a a gamble. And personally I do not see any reason why property could not plummet 70%. The price of a home can only be based on what the general population can afford to pay.

In reality, a 70% drop from peak would mean the average house becoming £60,000.

That is, in all reality, a 3x income figure for a majority of the population. £20,000 x 3. The average figure, yes, is £27,000 at the moment I believe, but as we all know, there are MANY under the average especially when you take London out of the equation, as the UK is not made up of solely London.

If lenders return to lending multiples of 3, then 60-80k would be that 3x income for the majority of families in the country. As we can all see with graphs, before the bottom arrives, house prices always seem to go under the average income values before starting to rise again.

the_ash_and_the_oak

Dithering_Dad wrote: »

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..

This is the interesting part. I don't know if they will be higher or not in 2019. I guess I kinda think that I'm prob saving around just under 10% of current prices per year. so I'd prob save the current price of an 'average house' over the next 10 years. If they are around the same figure I theoretically wouldn't need a mortgage if I were to buy in 2019

Not saying the above is going to happen but lets say they are 40% higher in 2019. Above theoretical scenario would leave me needing around a 30% mortgage

Its not that I think the above will happen, for a start its based on continued employement at current salary - its also based on what I do with the money over the next 10 years, its just more of a feeling of there's not really a rush if you are saving. They'd kinda need to double again just to leave me in same place

caveat: you are prob right...I prob won't end up buying at any time unless it becomes cheaper than renting and even then maybe not!

stevetodd

Graham_Devon wrote: »

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.

BUt someone has still sat down and gave some thought to long term rates and decided to offer low long term rates that some will take advantage of. My point is that it is not a 'given' that rates will shoot up, ther are other scenarios also.

the_ash_and_the_oak

Don't really think renting is putting your life on hold tho tbh

StevieJ

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.

Are those the same silly lenders who have reaked havoc on the world economy?

Dithering_Dad

Graham_Devon wrote: »

Not if properties plummet a further 50% (a total loss of 70%) as some people are warning.

Basically it's all a a gamble. And personally I do not see any reason why property could not plummet 70%. The price of a home can only be based on what the general population can afford to pay.

In reality, a 70% drop from peak would mean the average house becoming £60,000.

That is, in all reality, a 3x income figure for a majority of the population. £20,000 x 3. The average figure, yes, is £27,000 at the moment I believe, but as we all know, there are MANY under the average especially when you take London out of the equation, as the UK is not made up of solely London.

If lenders return to lending multiples of 3, then 60-80k would be that 3x income for the majority of families in the country. As we can all see with graphs, before the bottom arrives, house prices always seem to go under the average income values before starting to rise again.

As you say, it's all a gamble and no one really knows what will happen. I usually pitch myself in the middle of any two extremes and find that I'm never far away. If you really going to hang on for 70% drops, then I think you're taking a massive gamble, but if it pays off, then you will be quids in.

As far as your details on the average salary... the current lending criteria is based on a lot more than 3x salary and has been for decades (rightly or wrongly). Even when I bought my first house in 1995, I was offered 3.5 x salary, or 3x my salary and 1x my partners salary. With your 'average' figures of £20k, 1995 criteria would result in a mortgage of £70,000 or £80,000 for couples. If you include a 10% deposit, you're looking at a couple affording a £100k house, which sounds about right for a 2 bed starter home or a singleton affording a £79,000 one bed apartment, which again sounds about right.

If average salaries are £27,000 as some people suggest, you're looking at mortgages of £94,500 and £108,000 respectively. That's using the old 1995 criteria. As we know, we're in 2009 and the criteria seems to be around 4x or 5x.

Dithering_Dad

the_ash_and_the_oak wrote: »

Don't really think renting is putting your life on hold tho tbh

Neither do I, except for those people who sold to rent so that they could buy a cheaper house. For those people, they're literally putting their lives on hold because they do want their own home, again, eventually.

I have never understood this country's obsession with house buying, most of continental Europe and large area of the US seem to rent for life and are quite content. We need to go back to having long assured tenancies, professional landlords and a mindset where owning a pile of bricks is not the 'be all and end all'.

I won't hold my breath because even people on here who say they're happy about renting are obsessed about buying - therwise why would they be on a House Price forum?

mbga9pgf

Dithering_Dad wrote: »

As you say, it's all a gamble and no one really knows what will happen. I usually pitch myself in the middle of any two extremes and find that I'm never far away. If you really going to hang on for 70% drops, then I think you're taking a massive gamble, but if it pays off, then you will be quids in.

As far as your details on the average salary... the current lending criteria is based on a lot more than 3x salary and has been for decades (rightly or wrongly). Even when I bought my first house in 1995, I was offered 3.5 x salary, or 3x my salary and 1x my partners salary. With your 'average' figures of £20k, 1995 criteria would result in a mortgage of £70,000 or £80,000 for couples. If you include a 10% deposit, you're looking at a couple affording a £100k house, which sounds about right for a 2 bed starter home or a singleton affording a £79,000 one bed apartment, which again sounds about right.

If average salaries are £27,000 as some people suggest, you're looking at mortgages of £94,500 and £108,000 respectively. That's using the old 1995 criteria. As we know, we're in 2009 and the criteria seems to be around 4x or 5x.

Hang on, you cant use average salaries then compare them to starter homes.! :rolleyes:

StevieJ

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 note you were a little late on HPC/Doomer scene Trying to make up for lost time?

Graham_Devon

Dithering_Dad wrote: »

As you say, it's all a gamble and no one really knows what will happen. I usually pitch myself in the middle of any two extremes and find that I'm never far away. If you really going to hang on for 70% drops, then I think you're taking a massive gamble, but if it pays off, then you will be quids in.

I'm not taking any gamble. I already bought in 2006, sadly!

As for the rest. Yes, your coming to the exact same figure as I did. I said 60-80k.

You are basing it on 10% deposit, but forgetting that for the past few years, the majority of buyers have simply not had a deposit. Even less will in the future, as more and more people are chucked out of their homes as the downward spiral hits.

We can't rely on the first time buyers, the ones we have totally alienated for the past few years to prop up the housing market. There are going to be swaithes of people not only with no deposit, but who have to write a damn large cheque just to leave their current home, stagnating the market even more. So infact, more people in debt, who will need to move home due to family situations. So they will not only not have a deposit, but they will have a rather large chunk of debt (born from neg eq) around their necks also.

People are only looking at people sitting waiting to buy, and that's not how the property market works.

As for the 4x to 5x criteria. I think you may find yourself a little upset if your basing your calculations on this.