Another Interest Rate Prediction

JonnyBravo

Generali wrote: »

Beware of 'confirmation bias', that is seeing in all news confirmation that your trade is correct.

Blimey don't start warning people about this.

It's a very long list and most people won't thank you for it.

Procrastinator333

RenovationMan wrote: »

I agree that FTB's with smaller deposits cant get the sort of rates that an existing OO with +40% equity can get, but they will still be able to get lower rates now than they will in 5 years, so it must hold true for FTB's as well as existing OOs.

Unless they can get a lower rate fixed for the term, it is irrelevant.

The more I think about this, the more I convince myself that >25% equity, now is as good a time as any to buy (I subscribe to stagnation or small falls view).

But the FTB I do think is going to better off waiting. I'm off out now, but will put some examples up later.

Exocet

I understand the interest rate v economy argument.. I think. But what about external factors and inflation? Like the wheat thing for example..

http://www.bbc.co.uk/news/business-10892637

Maybe the BOE / govenment (I can't tell the difference) hand could be forced sooner than expected.

RenovationMan

Procrastinator333 wrote: »

Unless they can get a lower rate fixed for the term, it is irrelevant.

The more I think about this, the more I convince myself that >25% equity, now is as good a time as any to buy (I subscribe to stagnation or small falls view).

But the FTB I do think is going to better off waiting. I'm off out now, but will put some examples up later.

How long will they have to wait? You risk falling into the trap of hoping for market changes to go your way rather than adapting to how the market is actually is.

I'm afraid I dont understand why you think rates are irrelevent unless they're fixed for term. Low rates are welcome regardless of their duration, especially if they occur during the first few years of home ownership, which are traditionally the most difficult as people adjust to their new finances.

chucky

Exocet wrote: »

I understand the interest rate v economy argument.. I think. But what about external factors and inflation? Like the wheat thing for example..

http://www.bbc.co.uk/news/business-10892637

Maybe the BOE / govenment (I can't tell the difference) hand could be forced sooner than expected.

would there hand be forced using monetary, rate or fiscal policy?

Procrastinator333

Bot examples assume rental rate is 5.5% of property value - This does vary around, but isn't far off, and can be adjusted for individual locations.

Example 1:

50% Equity sitting in the bank. £200k house.

First bank I look at, hsbc:

2.19% tracker for 60%. :eek:
https://mortgages.hsbc.co.uk/product/188-life-time-tracker-special

So if they buy, £100k mortgage. The interest element is £2.2k per annum. It therefore costs £2.2k to live in that house for a year.

If this person rents instead the rent will be £11k. But on the flipside they may make 3% after tax on their savings. So net cost £8k.

It therefore costs £5.8k more to rent and wait for the year. Prices need to fall 2.8% for this to break even. That is about the bottom end of my ecpectation and with such low interest rates forecast I think I would buy (or not sell).

Example 2:

10% Equity. Mortgage rate is actually lower than I thought. HSBC 10% tracer 4.5% - But it could be brown trouser time sitting on a 4% over base tracker with even mild rises. The other thing to consider and the naysayers will say it doesn't allow like for like, but I believe most FTB rent or share in a house smaller than they buy. We are renting in a property about 50% of the value we are intending to buy in the end. I don't think the person above would do that (probably have a family and own the home a while to have 50% equity).

So the comparison here becomes:

Buy £200k. Ignore deposit for simplicity. Interest cost £9k.

Alternative is rent for £100k, costing £5.5k. So in doing this the renter saves £3.5k. And then a year later or 2 years later they wil have an extra £3.5k or £7k of equity compared to buying.

For them not to own more of their home by renting in this scenario prices need to rise by less than 1.8% per year.


On a seperate point about why the future rate is irrelevant if they can't fix - If they can't fix, then buy now or in 5 years, they will end up on the same rate, the banks won't offer a better rate just because someone has been a loyal customer. They may offer a better rate for a higher ltv. Which if the person believes prices are going to stagnate they will achieve more quickly be renting initially.

Each to their own, but for me this maths speaks for itself and isn't really debateble. The numbers that get put in to it of course are and if in the local area rent is 7% and the person thinks prices are going to rise by 3-5% in line with inflation, it will give a very strong buy indicator for the FTB.

Thrugelmir

Procrastinator333 wrote: »

Example 1:

50% Equity sitting in the bank. £200k house.

First bank I look at, hsbc:

2.19% tracker for 60%. :eek:
https://mortgages.hsbc.co.uk/product/188-life-time-tracker-special

So if they buy, £100k mortgage. The interest element is £2.2k per annum. It therefore costs £2.2k to live in that house for a year.

If this person rents instead the rent will be £11k. But on the flipside they may make 3% after tax on their savings. So net cost £8k.

It therefore costs £5.8k more to rent and wait for the year. Prices need to fall 2.8% for this to break even. That is about the bottom end of my ecpectation and with such low interest rates forecast I think I would buy (or not sell).

£80k sitting in the bank......... that will exclude around 99% of FTB's .......;)

Procrastinator333

Thrugelmir wrote: »

£80k sitting in the bank......... that will exclude around 99% of FTB's .......;)

That is pretty much a given. But the 2 examples just show there is no one size fits all approach in this market.

There is also the fact that if everyone followed this advice there would be no FTB out there and prices would collapse. But the fact is this post won't influence any and there are very few who think about it in these terms. I may even be the only one! Which should probably tell me more about myself than anything. But hey, I'm a bean counter by trade, can't help it.

Thrugelmir

Procrastinator333 wrote: »

That is pretty much a given. But the 2 examples just show there is no one size fits all approach in this market.

Also highlights the fact that certain lenders are becoming stronger. Leaving their financially weaker competitors with a poorer quality mortgage books. Which will add pressure to interest rates for many newer borrowers in time.

chucky

Procrastinator333 wrote: »

Which if the person believes prices are going to stagnate they will achieve more quickly be renting initially.

here is where i question you for two reasons but it doesn't mean delaying buying is a bad thing.

1. don't buy, current stagnating prices with higher inflation and lower pay rises means that it's harder for an FTB to save for a higher deposit to get a lower LTV in the future..

2. buy now with a decent tracker (if you can get one) it should allow you to over pay so that it helps you lower your deposit for when you can remortgage to a better rate if rates do go up.

both are slightly contradictory reasons but independently affect your maths medium term.