End of QE

Thrugelmir

Cleaver wrote: »

Again, I understand all that and it makes sense. And fully agree that property may stagnate because of it and that investors will probably find a new fad for the next decade. I just can't get my head around why some think that stopping QE would cause prices to drop significantly over the short to medium term.

It won't cause prices to drop suddenly. Despite all the hype. Net mortgage borrowing is very low. People with money will always be in a position to buy. As many receive inheritances that are based on previous generations property wealth for example. Also to agree with Hamish on one point, supply and demand will also hold prices up but will not cause HPI.

However rather than move every 5 years. We may have a generation of homeowners who are basically stuck where they are. Unable to move for many many years. Interest only mortgages and no little increase in disposable income.

So property transactions will remain low. This will be a prop to prices falling. But there isn't the money as we've discussed to take the market forward.

Lenders have money to lend. There aren't enough borrowers to borrow. Many are already choking on their current debt. Others have no debt and don't wish to borrow. QE in this regard has worked as credit supply for mortgages isn't an issue.

abaxas

The issue is that GB and even the BOE are stupid.

The reason for this is they didnt acaully realise what was building the boom. The boom was built on the fact that money was lent to people who had a history of not paying it back.

As if my magic, when these people were asked to pay the money back, they didnt.

The reason they didnt know, was that most of this money was from outside of the uk banking sector, or even outside of the banking sector. It was impossivle to regulate something you can barely see, but worse of all almost 30% of the personal lending in 2007 was done this way.

QE cant bring them back into the market and they dont want back. So we are, stuffed, in the medium term.

Radiantsoul

carolt wrote: »

Well, if you're right and we go back to an environment where you have base rates at 5% and can get a long-term fixed rate at half a percentage point higher - as was the case a few years back - then no, house prices don't need to fall.

But I suspect that with less money swilling around, mortgage rates will be quite a lot higher, meaning that those who've been hanging on by the skin of their teeth during the recession due to job losses etc will fall off. Increasing supply. Whilst demand is reduced due to the fact that monthly mortgage payment are higher. So prices fall.

I would not be surprised to see how prices fall, being neither a bull nor a bear. But I think it is quite unlikely that rates are going up by much over the next couple of years. I just can't see inflation being a big enough factor in the medium term for base rates to go above 2%. And whilst LIBOR<>base rates I think it seems unlikely that mortgage rates faced by consumers will rise. There are probably likely to be several new mortgage players entering the market; TSB, Virgin, Tesco and a new bit of RBS. That is likely to keen competition keen.

Cleaver

Thrugelmir wrote: »

It won't cause prices to drop suddenly. Despite all the hype. Net mortgage borrowing is very low. People with money will always be in a position to buy. As many receive inheritances that are based on previous generations property wealth for example. Also to agree with Hamish on one point, supply and demand will also hold prices up but will not cause HPI.

However rather than move every 5 years. We may have a generation of homeowners who are basically stuck where they are. Unable to move for many many years. Interest only mortgages and no little increase in disposable income.

So property transactions will remain low. This will be a prop to prices falling. But there isn't the money as we've discussed to take the market forward.

Lenders have money to lend. There aren't enough borrowers to borrow. Many are already choking on their current debt. Others have no debt and don't wish to borrow. QE in this regard has worked as credit supply for mortgages isn't an issue.

Thanks for all your patient explaining Thrugel, it's appreciated. The above makes sense (again). I guess I'm more questioning the "wait till the Tories get in and QE stops, house prices will crash" line that gets touted on here quite a bit.

The line in bold: is this the case? I must move in very savy fanancial circles you know. I always thought that I knew a wide mix of people with varying incomes at, dare I say it, different levels of society. And I don't know anyone 'choking on debt'. Maybe they're all just lucky or clever.

carolt

Radiantsoul wrote: »

I would not be surprised to see how prices fall, being neither a bull nor a bear. But I think it is quite unlikely that rates are going up by much over the next couple of years. I just can't see inflation being a big enough factor in the medium term for base rates to go above 2%. And whilst LIBOR<>base rates I think it seems unlikely that mortgage rates faced by consumers will rise. There are probably likely to be several new mortgage players entering the market; TSB, Virgin, Tesco and a new bit of RBS. That is likely to keen competition keen.

Well, I hope you're right, as I might wish to buy within that period

But I suspect average rates will be somewhat higher.

Mr.Brown_4

I can't quite fathom where all these mortgages come from if no one actually has any money. We're broke, the Euros broke, the US is broke, etc. Therefore, won't money just become more expensive to borrow? A case of, and I can't believe I'm borrowing this term, a case of supply and demand?

carolt

Cleaver wrote: »

The line in bold: is this the case? I must move in very savy fanancial circles you know. I always thought that I knew a wide mix of people with varying incomes at, dare I say it, different levels of society. And I don't know anyone 'choking on debt'. Maybe they're all just lucky or clever.

But would they shout about it?

Especially to you, who are so financially savvy and all...

Thrugelmir

Cleaver wrote: »

Thanks for all your patient explaining Thrugel, it's appreciated. The above makes sense (again). I guess I'm more questioning the "wait till the Tories get in and QE stops, house prices will crash" line that gets touted on here quite a bit.

The line in bold: is this the case? I must move in very savy fanancial circles you know. I always thought that I knew a wide mix of people with varying incomes at, dare I say it, different levels of society. And I don't know anyone 'choking on debt'. Maybe they're all just lucky or clever.

You never know. I doubt some of the bulls on here are as savvy as they suggest. I saw a great cartoon the other day. Teacher in front of Class. Written on blackboard were different terms. Bull, Bear and Headless Chicken. Made me chuckle.

Thrugelmir

carolt wrote: »

Well, if you're right and we go back to an environment where you have base rates at 5% and can get a long-term fixed rate at half a percentage point higher - as was the case a few years back - then no, house prices don't need to fall.

But I suspect that with less money swilling around, mortgage rates will be quite a lot higher, meaning that those who've been hanging on by the skin of their teeth during the recession due to job losses etc will fall off. Increasing supply. Whilst demand is reduced due to the fact that monthly mortgage payment are higher. So prices fall.

We will never get back to .5% margins being the norm.

Expect rates above base of 2.0% - 2.5% for low LTV borrowers rising to 4% - 5% for 90% borrowers, in the years to come.

System

The only people who are going to be choking on debt after IR's have decreased so much is those made unemployed or given less hours surely? Everyone else is paying at worst the same as pre-crash?

Edit: Ok not everyone, but y'know.