Get ready for the housing crash part II

Thrugelmir

Really2 wrote: »

Not really if they shot base up to 15% you would expect mortgages to have been way over 15.4%

So base did not look like a representation of what the money markets were doing.

I think your point is still very valid. (EG the mortgage companies did not respond in the same way)

Back then the mortgage market was different. All the now defunct operations. Northern Rock, Bradford & Bingley, Woolwich, Halifax, Abbey National, Cheltenham & Gloucester, Alliance and Leicester were all regional building societies not national banks. None had access to wholesale money markets. All depended on heavily or entirely on retail deposits.

So lending was rationed. Or should I say constrained by the amount of money they had to lend. There was no RMBS market or loan securitsation.

In many ways we are heading back to a similar enviroment. The only difference being that the main UK retail banks now provide the majority of mortgage finance. Not the now defunct building societies.

Thrugelmir

chucky wrote: »

the mortgage interest payable on an average property 1990 would not be much less than the mortgage interest payable on an average priced property today.

1991 Average House Price = £53,635, 14% Mortgage rate - it was a couple of % higher then too
Interest Repayment was £626 a month on 1991 average salary

2009 Average House Price = £161,816 , 5% SVR
Interest Repayment is £674 a month on today's average salary
http://www.nationwide.co.uk/hpi/historical.htm

Not sure why you based it on interest only ?

For a repayment mortgage the figures are £646 and £946 respectively.

So the question has to be does the average family earn £300 per month more 18 years later? And thats after factoring in the cost of living and a different tax regime. So not a straightforward comparison to make.

People will borrow as much as they are allowed to. So house prices will reflect this plus the amount of money that they have saved, inherited, won on the lottery etc.

StevieJ

purch wrote: »

Which is why when people try to claim that "under the Conservatives mortgage rates were 15%" they are way wide of the mark !!!

Idiot Boy Lamont did put the Base Rate up to 15% in September 1992, but it didn't last long enough even to get into the following days Newspapers :eek:, let alone feed into general Lending Rates.

Base rate went to within a whisker of 15% in Oct 1989 (rising quickly from 7.5%) and stayed there for 12 months, mortgage rates were of course higher than 15% (there was tax relief at the time though)

purch

Yeah Yeah Yeah....stick the boot it as well :rolleyes:

Cough Cough...............anyway as I was saying........

Which is why when people try to claim that "under the Major Government mortgage rates were 15%" they are way wide of the mark !!!

Idiot Boy Lamont did put the Base Rate up to 15% in September 1992, but it didn't last long enough even to get into the following days Newspapers , let alone feed into general Lending Rates.


P.S. I was way to interested in thinking up a clever line about not making the following day's newspaper, that I didn't give a moments thought to the actual FACTS of the matter !!!!

HAMISH_MCTAVISH

Cliff "flip flop" D'Arcy----
Here are five reasons for my reluctance to climb back onto the property ladder:

Why don't we add a 6th reason Cliff?

Namely that you STR-ed in 2005, and lost £200,000 by doing so.

A quick glance at Cliff's past positions reveals that he has some of the all time worst ability to predict markets in history.

In fact, Cliff NEEDS the market to fall to cover up for his utterly inept financial decisions. No wonder he's always talking it down!!!!

Total VI, not to be trusted.

baileysbattlebus

the_ash_and_the_oak wrote: »

So if mortgage rates were around 11-12% in 1987 why were high interest rates the cause of the last crash? If you had borrowed in 1987 at 12% how much more a month would you be paying in 1990?

Sorry that's me - in early 87, 12% by the spring about 11% by the summer 10% back up to 11% for a couple of months back down to 10.5% for a couple of months, ending the year at 9.5%

1988 - 9.5%, then 10% then 9.5% by late spring 8.5% in the summer, 10.5%, then 11.5%, ending the year at 14%, it stayed there and hit 15.4% in spring of 1989 - it remained at over 15% for months.

rates went up and down like a yoyo - usually up - then down a bit - then up.


It was hard - at the low point, our own mortgage of £60k was somewhere around the £400 per month mark and it went to over £750, it was an endowment so it was interest only. A lot of people couldn't manage.

What you have to remember that the 1980's in particular were a time of huge change here. We had the "big bang" of 1986 - building societies were allowed to borrow money - foreign banks and investers were appearing over here - hey, times were great - credit was easy to get, in the past if you wanted a bank loan for a car - you had to have a cash deposit - you couldn't borrow the full amount. Mortgages were easy to get as the building societies lent more and more money. It was in the 1980's that we were first offered a mortgage of over 4x salary. The City was booming, people had "loadsa money". Mewing started - unheard of before - previously you could borrow money from the building society for improvement/extentsions but the money was released in stages as work was complete - now it was yours to do with as you liked.

I suppose the tipping point was interest rates - we were a nation, as now massively in debt - private debt and we couldn't pay for it.

Sorry for the long post - but you really got me thinking about it all.

StevieJ

purch wrote: »

Yeah Yeah Yeah....stick the boot it as well :rolleyes:

Cough Cough...............anyway as I was saying........

Which is why when people try to claim that "under the Major Government mortgage rates were 15%" they are way wide of the mark !!!

Idiot Boy Lamont did put the Base Rate up to 15% in September 1992, but it didn't last long enough even to get into the following days Newspapers , let alone feed into general Lending Rates.


P.S. I was way to interested in thinking up a clever line about not making the following day's newspaper, that I didn't give a moments thought to the actual FACTS of the matter !!!!

The best decision that the Tories were ever forced to make

http://www.youtube.com/watch?v=AHDsO7gvXHQ

BTW I am pretty sure they actually went up to 17%, starting at 12% increased by 2% then 3% (as mentioned in the vid). I remember watching in horror:eek:

the_ash_and_the_oak

baileysbattlebus wrote: »

Sorry that's me - in early 87, 12% by the spring about 11% by the summer 10% back up to 11% for a couple of months back down to 10.5% for a couple of months, ending the year at 9.5%

1988 - 9.5%, then 10% then 9.5% by late spring 8.5% in the summer, 10.5%, then 11.5%, ending the year at 14%, it stayed there and hit 15.4% in spring of 1989 - it remained at over 15% for months.

rates went up and down like a yoyo - usually up - then down a bit - then up.


It was hard - at the low point, our own mortgage of £60k was somewhere around the £400 per month mark and it went to over £750, it was an endowment so it was interest only. A lot of people couldn't manage.

What you have to remember that the 1980's in particular were a time of huge change here. We had the "big bang" of 1986 - building societies were allowed to borrow money - foreign banks and investers were appearing over here - hey, times were great - credit was easy to get, in the past if you wanted a bank loan for a car - you had to have a cash deposit - you couldn't borrow the full amount. Mortgages were easy to get as the building societies lent more and more money. It was in the 1980's that we were first offered a mortgage of over 4x salary. The City was booming, people had "loadsa money". Mewing started - unheard of before - previously you could borrow money from the building society for improvement/extentsions but the money was released in stages as work was complete - now it was yours to do with as you liked.

I suppose the tipping point was interest rates - we were a nation, as now massively in debt - private debt and we couldn't pay for it.

Sorry for the long post - but you really got me thinking about it all.

Please..don't apologize! Quite rare to get a post like this here tbh. This is interesting to me (never really understood people just saying "high interest rates" without any illumination)

What I don't understand here is you borrowed at 12% and at a later time this went up to 15.4% - so that should have been just over a 25% increase in your mortgage payments? But your mortgage went from 400 to over 750? How did this actually occur?

baileysbattlebus

the_ash_and_the_oak wrote: »

Please..don't apologize! Quite rare to get a post like this here tbh. This is interesting to me (never really understood people just saying "high interest rates" without any illumination)

What I don't understand here is you borrowed at 12% and at a later time this went up to 15.4% - so that should have been just over a 25% increase in your mortgage payments? But your mortgage went from 400 to over 750? How did this actually occur?

Because rates at one point were about 8.5% - the low point. Didn't stay there long though. But there were a few months when they weren't astronomical -

We bought our first house in 1982 - rates were 12% then. And we struggled as FTB's with 3 little kids - but we weren't alone as I said the vast majority of people were on SVR - so everyone suffered.

We bought a different house in 1987 - that is the one that had the mortgage of £60k and a payment low of about £400. Around the time we bought it rates were about 9.5% but they went a bit lower the following year which was the low - most people were still on SVR then and it seemed like your were instructing your bank every other month at some points.

What happened to us was, as interest rates started to fall properly towards the end of 1992 - when they reached a level we were comfortable with - we just left the payment as it was. It had only started to dawn on us that an endowment mortgage may not have been the best choice to have made - and we started to pay down the capital.

I kid you not, when the labour gov't gave the BOE responsibility for interest I could have put the flags out. IMHO, one of the best things they did.

sabretoothtigger

Maybe it will be an orderly decline rather then a crash





90's rates were:

Tue, 23 Nov 1993 5.38
Tue, 26 Jan 1993 5.88
Fri, 13 Nov 1992 6.88
Fri, 16 Oct 1992 7.88
Tue, 22 Sep 1992 8.88
Tue, 05 May 1992 9.88
Wed, 04 Sep 1991 10.38
Fri, 12 Jul 1991 10.88
Fri, 24 May 1991 11.38
Fri, 12 Apr 1991 11.88
Fri, 22 Mar 1991 12.38
Wed, 27 Feb 1991 12.88
Wed, 13 Feb 1991 13.38
Mon, 08 Oct 1990 13.88
Fri, 06 Oct 1989 14.88
Fri, 08 Sep 1989 13.75
Mon, 04 Sep 1989 13.88
Thu, 31 Aug 1989 13.84
Thu, 25 May 1989 13.75
Fri, 25 Nov 1988 12.88
Thu, 25 Aug 1988 11.88
Mon, 08 Aug 1988 10.88
Thu, 21 Jul 1988 10.38
Thu, 07 Jul 1988 9.88
Fri, 24 Jun 1988 8.88
Fri, 10 Jun 1988 8.38
Fri, 03 Jun 1988 7.88
Tue, 17 May 1988 7.38
Fri, 08 Apr 1988 7.88
Thu, 17 Mar 1988 8.38
Mon, 01 Feb 1988 8.88

I remember there was 5yr fixed rate savings at 10% available for a fair while and it turned out to be a really good deal