interest rates and house price direction 2010/11

mbga9pgf

Bristol, what they advertise online and what they actually offer are two very different things. I believe the average lending multiple is currently around 3.

franklee

bristol_pilot wrote: »

Whilst in theory I agree with the above post by franklee, I note that we already have Deflation/unemployment/falling wages but this has not led to cautious lending. A quick check on the Halifax website today and I see that they would be willing to lend me five times my income the monthly repayments for which I could afford now but if base rates went to 1.5% or 2% after a few years I would struggle to repay. If base rate goes to 5% the repayments would be more than my take-home pay.

Yes I agree, but this has to stop sometime, else we get back to where we were when the banks were failing (assuming they ever stopped failing). The problem is Joe Bloggs seems to buy a house based on affording the monthly payments at the start, a dangerous thing to do in such an unusually low interest rate environment as your figures show. I think after the election whatever government gets in will have to make sure lending stays sensible as none of us can go on living on borrowings we can't afford to pay back long term.

I don't think a new government, who ever it is, will continue as is. At the moment Brown is continuing to borrow just to get through the next election.

bristol_pilot

franklee wrote: »

Joe Bloggs seems to buy a house based on affording the monthly payments at the start

This hits the nail on the head. Starting payments on a hypothetical £0.5M house are about the same as my rent at the mo, but how those monthly payments rocket when base rate rises only a little!

The other thing is, in deflationary times, for those of us lucky enough still to have a job life is pretty good. For example, I used to eat out once in a blue moon but now its 2-3 times a week as there are so many special offers and cheap deals available. Same at the supermarket. My income rises little, if at all, but it goes further every week. Very very tempting to dive in and get a big mortgage , so I can understand why so many people do.

I can't figure out where it will all end - massive inflation probably, but in that case it's surely better to buy that house now(?). Well, the limit of my knowledge of economics has been reached anyway.

MiserlyMartin

theartfullodger wrote: »

Last time Conservatives came in interest rates hit 17% quite soon & stayed about 10% for a surprisingly long time.. (I remember, it 'urt!).

So, budget for "worst case" financial situation..

Cheers!

Lodger

But then house prices were only about £50,000 for an average house. 9% interest rates on that amount borrowed wasn't too much. Plus you had MIRAS which was tax relief on your mortgage interest payments, which helped everyone pay the mortgage, not just the greedy who overstretched. But that was abolished by Labour in 2000.

Anyway, 15% actually it was and that wasn't for long. By October 1992 rates were down to 8%. You also have to remember that Labour inherited a sound economy with rates of 6%. Under Labour rates have at one point been as high as 7.5% in June 1998.

If we see higher interest rates to counter inflation, it will only take rates of 4% to double peoples mortgage repayments. 6% would be the new 15%?

MiserlyMartin

mbga9pgf wrote: »

Bristol, what they advertise online and what they actually offer are two very different things. I believe the average lending multiple is currently around 3.

I was offered 4 times earnings recently. Its true that I could easily afford that now, but if rates doubled it would be a squeeze. They are suckering people in on discount trackers.

MiserlyMartin

myk3 wrote: »

hi all,


my only worry is A. Interest rates start to move up and by the time i have the 25% the rate i get with a 25% will be the same if not more with the 15% i have in today’s climate and/or the prices of property rise.

what i would like to have is views on peoples opinions where

a. when interest rates will start to move up?
b. the direction of the house prices?

I do understand and read that there is a good chance we are seeing a dead cat bounce since Aprils rises and the price will start to fall again start of 2010.

Im sure there are many others in my situation on here and i would just like to hear your plans or just opinions with the direction of house prices and interest rates.

thanks!

michael

BUYING NOW: On the mortgage side you could get a low tracker or discounted rate for a few years, but if the rates rise you are still stuffed ie you gain nothing than if you bought later. If you get a long fixed rate then they have priced this in already but you may get a lower long fixed rate now than in a years time. Prices may fall and you would have overpaid for the house. If prices rise they are bound to fall back later if not in nominal terms then real terms eg house prices to earning ratios going back to 4. But more likely will crash one way or the other within the next 7 years. If you will be better off saving up and sitting it out is up to you. Do you NEED to buy now? If not sit back and watch.

Only thing that concerns me the most is the possibility of our savings being wiped out by QE and hyperinflation. In that case buying a house now is a good idea.

I am asking myself the same questions as you but I am not a FTB all I want to do is trade up, I would advise a FTB to wait if you can. If anyone knows a good way of protecting your savings against wipe out please suggest it.

franklee

bristol_pilot wrote: »

I can't figure out where it will all end - massive inflation probably, but in that case it's surely better to buy that house now(?). Well, the limit of my knowledge of economics has been reached anyway.

At face value you may think that massive inflation means the price of everything goes up, but that's not quite the full picture for house prices. The difference is that in order to buy a house most people need to take out a mortgage. If inflation goes up then interest rates charged on loans go up meaning the loan payments are harder to meet. If the interest charged on the loan didn't keep pace with inflation then no one would lend any money as they would be making a loss. This means inflation will in the beginning make house prices fall. It's only those people who keep their jobs, get wage rises and can scrimp to meet the higher loan payments that come out the other side with a house eventually "worth" more over the long term. It's hard going as wage rises usually lag inflation whereas interest payments on the loan, unless the person has a fixed deal, tend to at least keep pace with inflation. Not that savings rates will keep up, so savers would lag too.

The banks are out to make a profit after all and won't lend you money if they are going to be paid back what will then be a worthless amount of cash in the future, so they have to charge interest to keep up with inflation. Take it to the extreme if no one was prepared to lend money to buy a house then houses would change hands at a price the majority of buyers could pay in cash for. I know that today some people have the cash to buy outright but there aren't enough of them to have enough influence on prices to fully set the market value so the amount people can borrow is a big influence in setting house prices.

theartfullodger

Re....

Anyway, 15% actually it was and that wasn't for long.

- you are sadly misinformed, rates went higher eg....

Thu, 15 Nov 1979 17.00%
Thu, 03 Jul 1980 16.00%

see the Bank of Engerland website here...
http://www.bankofengland.co.uk/mfsd/iadb/Repo.asp?Travel=NIx

Cheers!

Lodger

puddy

i often read on here that the general rule is that its better to borrow less at a slightly higher rate, than more at a lower rate

so with your 15% now and a rate of nearly 6% you would be worse off, than if you had 25% deposit but paying a rate of about 7%

however, obviously the information about the really high interest rates is correct, i remember that and am really worried about the tories coming in, although luckily im on a 10 year fixed rate, with 8 years left

i honestly cant work out what is happening or going to happen with house prices, apparently they have definately been going up in the last few months, however home.co.uk shows a drop in my area not a rise, but this isnt for all types of property. i cant imagine that they are going to go through the roof though, there just isnt enough people wanting or able to buy at the moment

bulktrans

I am a FTB - Scotland and have just decided to buy a house and can spare 15% deposit - any advice on what type of mortgage I should go far - I dont want to worry about my finances and would quite like a fixed rate .. but any advice would be welcome on the type of mortgage and the initial duaration of mortgage....thnx