Interest rates go up! Now 4.75%

Xbigman

mdb99jh wrote:

Isn't that a contradiction? Something is worth what someone is prepared to pay for it...

Yes, but I was talking historically and relatively. If you paid 200k for your house it will cost you an extra 7k in interest to buy it.
Or put another (more accurate) way, for each pound you borrow you would have eventually repaid about £1.90. That will now go up to £1.93 1/2.

If you are talking about future purchases then you need to realise that most lower end and first time buyers ask how much they can borrow, then ask when they can move in, then work out how to pay for it. Most borrowers are just not sensible. Just look at those who have no deposit and then run up credit cards to equip the house... So my point is, only the sensible will worry about the affordability of a .25% rise. IE MSE'ers.

Affordability of multiplier based mortgages will not have been effected UNLESS the lenders were to cut the multiplier, maybe lending 3.9 times income instead of 4?

Borrowing limits of affordability based mortgages SHOULD have been affected, but it would all depend on how the calculations were done. I suspect you will see little difference. Also consider, there are 6.5 times multipliers out there now so who needs to go the affordability route these days?
Regards




X

mi-key

Sadly I think your right, most buyers ( FTBs in particular ) probably have no idea how much their house is actually going to cost, and how much they would save in wasted interest payments if they overpaid a bit each month ( rather than pi55ing it up against the wall ) and took 20 rather than 25 years ( for example ) to pay off the mortgage.

We are working on a rough timescale of 7 or 8 years to pay off the complete mortgage, rather than 25, which means interest rates make much less of a difference to the overall price.

My view though is that because the cost of buying a house has now risen, sellers shouldnt expect to be getting the same price for their house as they could before the rise.

Likening it to buying second hand cars - if the price of petrol doubled overnight, people wouldnt be paying top whack for cars that have low mpg's - they would either look at small engined cars ( equivalent of cheap houses ) or would be looking to pay a lot less for the fuel guzzling ones to offset the higher running costs ( paying less for the big expensive house ).

PoorDave

mystic_trev wrote:

I didn't realise history started in the 1950's Obviously you must have learnt all you know at Bash Street School of Economics.

Thanks for this valuable post!

I never claim to know anything about economics (unlike some people - i don't mean you, before you ask...).

I was innocently trying to look at some data to get a more accurate feeling about what happened to prices in the last property price crash.

How far back would you consider prices to be related to our current situation?

F_T_Buyer

Brace yourseleves for more interest rates hikes:

http://news.bbc.co.uk/1/hi/business/4775359.stm

http://investing.reuters.co.uk/news/articleinvesting.aspx?type=savingAndLoansNews&storyID=2006-08-09T094216Z_01_NOA934774_RTRUKOC_0_ECONOMY-BRITAIN-BOE.xml

Here's the full BoE inflation report: http://www.bankofengland.co.uk/publications/inflationreport/ir06aug.pdf

You can't say I didn't tell you so.

mystic_trev

F_T_Buyer wrote:

Brace yourseleves for more interest rates hikes:

http://news.bbc.co.uk/1/hi/business/4775359.stm

http://investing.reuters.co.uk/news/articleinvesting.aspx?type=savingAndLoansNews&storyID=2006-08-09T094216Z_01_NOA934774_RTRUKOC_0_ECONOMY-BRITAIN-BOE.xml

Here's the full BoE inflation report: http://www.bankofengland.co.uk/publications/inflationreport/ir06aug.pdf

You can't say I didn't tell you so.

It certainly isn't looking good for anyone not having a fixed rate mortgage. Looks like another hike by the end of the year, and another one (probably two) next year. The trouble with inflation is that it's usually very stubborn which is why the BoE should have done something to stop it months ago!
All IMVHO