Low interest rates will support house prices until 2014

worldtraveller

HammerSmashedFace wrote: »

Who knows, I just have a feeling we are reaching a high water mark in current manufactured upturn, the news going forward isn't good. As Labour used to say..... "Things..... can only get [STRIKE]better[/STRIKE] worse".

Very true!

However, IMHO people are still concentrating too much on interest rates. The much larger factor in the next 2-3 years will be the general state of the UK economy. I hate to keep mentioning the 'Global' economy, but the fact is that we are not somehow protected from what is happening elsewhere. We have largely lost our way and, unless we can actually manufacture/produce something competitively, we are largely doomed as a world player. The impending EU legislation with regard to the financial sector will largely kill off much of the UK tax revenue take that has largely supported the UK economy for many years now, as many investment banks move away from the City. What else have we really got?

HammerSmashedFace

Cleaver wrote: »

My imaginary couple earn £60k between them. They bought a lovely house for £150k a good few years ago with a lovely £30k deposit that they had from the magic deopsit bunny.

Their gross income per month is around £5,000, or around £3,600 net after all that nasty stuff has been taken off.

Before the crash they were on an interest rate of 5%, then the crash came and lo and behold they find themselves on 2%. Happy times! Then inflation hits a few years later and they find themselves on 7%. Boo.

5% = £709 per month or 20% of net income
2% = £512 per month or 14% of net income
7% = £858 per month or 24% of net income

Please, for the love of sweet Christ on a unicycle, no debates on average wage. I'm just painting a picture.

Aside from the scenario of someone losing a job (which I know will be slightly more prevalent over the next few years, but can happen at any time if you're unlucky), is the above scenario such a nightmare for average people? You adjust your spending accordingly, tighten your belt in hard times and most sensible people will save a bit of money during the good times.

I fully realise that people who have stretched themselves stupid, fall on to bad luck and don't look around for sensible mortgage deals will go under. But what percentage meet this criteria? When we got our mortgage we worked out what it would be at 10%, understood that we'd be pretty much okay and live accordingly.

Of course Cleaver, everything you say here is correct, however it only takes less than 1% of all mortgage holders to go under and get repossessed for the crap to go through the fan, and prices to plummet, that means 99% could quite easily be your imaginary couple and things could still go pear shaped.

I believe a lot more than 1% of mortgage holders are having the reaper held from the door by low rates. Of course this is only my opinion.

Cleaver

HammerSmashedFace wrote: »

Who knows, I just have a feeling we are reaching a high water mark in current manufactured upturn, the news going forward isn't good.

As a genuine question, not just to score points...

Your feelings have turned out to be rather a touch on the pessimistic side in the past, haven't they? What gives you the feeling that your view is more on the money this time?

Cleaver

HammerSmashedFace wrote: »

Of course Cleaver, everything you say here is correct, however it only takes less than 1% of all mortgage holders to go under and get repossessed for the crap to go through the fan, and prices to plummet, that means 99% could quite easily be your imaginary couple and things could still go pear shaped.

I believe a lot more than 1% of mortgage holders are having the reaper held from the door by low rates. Of course this is only my opinion.

I would be in full agreement with you that maybe 1% (or more) of mortgage holders would go under if most rates hit 7% or so.

But would an extra 1% of people getting repossessed really cause 'prices to plummet' and would cause everything to go 'pear shaped'? How come?

Edit: I've just done a bit of Googling and seen that 50,000 houses or so were repossessed in 2008. Another google says that there are 16.5 million mortgages out there. So does that mean around every 1 in 330 people are repossessed each year? Very rough numbers of course. 1% of 16.5 million is 165,000 so actually I can fully see that 1% would have a major effect.

Do you see repos quadrupling over the next few years then?

chucknorris

HammerSmashedFace wrote: »

Fair point, but I believe back in the day banks were fighting each other for business, they were quite happy with 0.5% above base rate on many fixed rates and trackers, they were all after quantity rather than quality.

Now, many believe that the banks are not fussed about taking on crappy risky business and may keep their rates considerably higher than the base rate hence if/when rates hit 5%, trackers and fixed rates will be 7%+ and SVR's (which millions seem to have fallen onto) will be higher than that, this would cause havoc, but is plausible.

I'm not too sure how it will play out but 2-4% above base rate, I feel is more likely than loans available just above base and if there are loans available just above base, large deposits are likely to be required (60% LTV's).

Who knows, I just have a feeling we are reaching a high water mark in current manufactured upturn, the news going forward isn't good. As Labour used to say..... "Things..... can only get [STRIKE]better[/STRIKE] worse".

I also think that banks will be trying to get a decent mark up on their products for quite some time but not as much as 4%

StevieJ

worldtraveller wrote: »

Very true!

However, IMHO people are still concentrating too much on interest rates. The much larger factor in the next 2-3 years will be the general state of the UK economy. I hate to keep mentioning the 'Global' economy, but the fact is that we are not somehow protected from what is happening elsewhere. We have largely lost our way and, unless we can actually manufacture/produce something competitively, we are largely doomed as a world player. The impending EU legislation with regard to the financial sector will largely kill off much of the UK tax revenue take that has largely supported the UK economy for many years now, as many investment banks move away from the City. What else have we really got?

We have a very flexible talented workforce and a country that has the 6th largest manufacturing sector in the world that is in addition to being one of the world top financial centres.

HammerSmashedFace

Cleaver wrote: »

As a genuine question, not just to score points...

Your feelings have turned out to be rather a touch on the pessimistic side in the past, haven't they? What gives you the feeling that your view is more on the money this time?

I agree that I'm a little pessemistic, however this whole scenerio since Autumn 2007 has yet to play out, so my pessimistic outlook as yet to be proved either way. The current bounce in stocks, house prices etc, has been solely on the back of unsustainable policies, when these policies are withdrawn, that is the time when I will have been proved right or wrong.

It's like giving crutches to a man who has had a severe accident, he can walk with them, but without them ???, we are yet to know.

StevieJ

chucknorris wrote: »

I also think that banks will be trying to get a decent mark up on their products for quite some time but not as much as 4%

I think it used to be around 2% on SVR, I think it is likely to settle at this.

chucknorris

StevieJ wrote: »

I think it used to be around 2% on SVR, I think it is likely to settle at this.

Was it really that much I always thought it was around 1% (but admit I don't really know)

nembot

HammerSmashedFace wrote: »

I believe a lot more than 1% of mortgage holders are having the reaper held from the door by low rates. Of course this is only my opinion.

Considerably more I would say, in fact this was probably the biggest factor as to why rates fell so rapidly. Don't understand how some say things weren't fine before the drop in IR's, when they clearly weren't.