HousePrices..Waht Should I Do?

mrtickle

I borrowed only as much as I needed, <4x sal, and used a big deposit from every penny saved over 4 years, plus parents money. It was either that or never get on the housing ladder at all. I did allow for a rise as far as 7%, but budgeting for "double the payment" is OTT and would have had me renting for the rest of my life. Interest rates would have to be 11.7% for my mortage to double and no-one is predicting that.

What I objected to most was the insensitivity of your post, the "For most mortgage payers, that isnt a great amount" sweeping statments - at least you have now admitted there is a large number of people for whom it IS a great amount. Being told that it's "nothing" doesn't help anyone. I said my budget is tight, it is to be expected in the first few years of ownership, not overborrowed.

DiggingOut

If someone came to an IFA (as DD is) and told him they were considering buying a house, but could not afford it if interest rates were to go over 7%, he would properly tell them they were over-borrowing -- unless they were going for a long-term (at least five years) fixed rate.

Sorry, but someone on a variable rate mortgage who thinks increases of £70 on their mortgage over the last 6 months is a lot to take is in trouble. Rates are still very low.

Anyone who takes out a variable rate mortgage without being prepared for the base rate to go up to at least 8% over the next 3-4 years has been very poorly advised, or has disregarded advice. It's not that I think they will go that high (I don't), but if it isn't in someone's budget, they shouldn't borrow that much.

It is better to never get on the housing ladder than to get on it and get knocked off because you can't afford your mortgage.

DD said, "For most mortgage payers, that isn't a great amount." He was right. Most mortgage payers remember much higher mortgage rates than we have today, and their payments are lower than they used to be. It's not that we like paying higher rates than last year, but that we recognise that if the rate cycle has peaked or even goes 0.5% higher, we are fortunate with rates the way they are right now.

Pal

If DD was being insensitive I have no doubt that it wasn't deliberate. Most mortgage payers have quite small mortgages compared to their house values because they bought years ago at much lower prices.

The first people to be impacted by current interest rate rises will be those who borrowed a lot of money compared to their incomes to get on the housing ladder. Unfortunately for people like mrtickle, the Bank of England is attempting to control demand by reducing the disposable income of everyone, including those with small mortgages, which suggests that interest rates will rise above the level at which recent purchasers are able to cope with their mortgage payments.

It is interesting to see commentators saying that interest rates will rise to about 5.5% at the top of this cycle. I am not sure we are at the top of the cycle. The global economy is still relatively weak, China is still forcing inflation down and the outlook is not that great. Although interest rates may peak at 5.5% (ish) for a while, when the next period of sustained global growth starts, they could rise sharply above 5.5%.

Personally I believe that house prices will begin to bob up and down within a range for a few years, in a similar way to the stock market. There will be a significant downwards correction at some point, probably when BTL investors and FTBs stop hocking themselves up the eyeballs just to buy property at any cost, but it might not be for a number of years yet.

I would suggest that anyone in mrtickle's position reviews their mortgage, including possibly moving to a fixed rate.

lisyloo

It is interesting to see commentators saying that interest rates will rise to about 5.5% at the top of this cycle.

The recent information that I've seen is that most are now predicting either 5% or 5.25% with a few outsiders giving either 4.75% or 5.5%.

I think market expectations have lowered recently.

One of us (at least) is a little out of date

The recent Bank of England inflation report is a good source. I think they have 5.1% as their prediction for the top.

dunstonh

If my post appeared insensitive, that was not the intention. I was just posting information that seems to have been forgotten by a large group of borrowers.

Interest rates have been very low. They are still fairly low and you shouldnt budget on what is affordable now. You should budget on what you can afford if the rate was much higher.

Last time round it was those that borrowed too much when the rates were low that got repossessed because they couldnt afford the payments.

This time round, it would probably hit people a lot harder as consumer borrowing is much higher than it was then so it wouldnt just be the mortgage going up. It would be the credit cards, personal loans, store cards etc.