So will interest rate rises have very little impact?

Graham_Devon

Seems that theres a common them at the moment.

That is, that interest rates will have very little impact on the housing market if they rise.

This is mainly because:
A) People could pay that in 2007
People have saved loads of money
C) People have been paying down debts by keeping mortgage payments the same as they were when rates were higher, therefore, paying down the mortgage.

Yet those, such as the CML, deeply involved in the housing market, state interest rates at the rate they currently are, are one of the biggest reasons as to why reposessions have fallen back, and the biggest reason houses have not fallen in price as sharply as they may have done.

Mortgage arrears and possessions continued to decline in the third quarter, according to CML data published today, showing that a combination of low interest rates, a responsible approach by borrowers and lenders, and support from the government and debt advisers has been helping to keep payment problems in check.

My theory is that interest rate rises, say, up to 3-4%+ will have a rather large impact on the housing market*. I'm thinking from a wide angle type point. People finding it hard to pay. People finding it harder to get onto the market in the first place, people finding it hard to sell due to those finding it harder to get on the market etc.

So which camp are you in? Little impact...people could pay it, so it's not an issue....or interest rate rises will indeed have a rather large impact on the market?

I've been told my head is in the sand for thinking such a thing. Right, or wrong?

* Dependant on any new stimulus we may see at the same time.

CloudCuckooLand

If it has no impact on the way back up, how did it have impact on the way down, and why was it done if it had no effect?

purch

Big impact.

Percy1983

Will be interesting to see how many on the edge have been saved by the drop and how many will be back over the edge if it rises.

Of course those with trackers are doing great but many on SVR's will be doing well too.

I am not buying just yet but I would rather rates rise before I do as right now the deals are base +4-5% to which I would arther have a higher base and lower margin. The way I see it as a buyer is the only way is up and with the potential off further house price drops I will be paying most attention to what the SVRs.

I am only getting 3% on my saving right now which is a bit annoying too, why should my savings suffer to bail the overstetched out?

phil_b_2

Low interest rates are keeping things supported and preventing disaster. Thus they should be kept low for a fair while yet and they will be.

I don't think I've seen anyone say that rate rises wouldnt have an impact.

ess0two

Percy1983 wrote: »

Will be interesting to see how many on the edge have been saved by the drop and how many will be back over the edge if it rises.

Of course those with trackers are doing great but many on SVR's will be doing well too.

I am not buying just yet but I would rather rates rise before I do as right now the deals are base +4-5% to which I would arther have a higher base and lower margin. The way I see it as a buyer is the only way is up and with the potential off further house price drops I will be paying most attention to what the SVRs.

I am only getting 3% on my saving right now which is a bit annoying too, why should my savings suffer to bail the overstetched out?

Percy, who do you think pays you the 3%,the mugs that are paying rates around 4+% on a mortgage,yet many assume 0.5% rates are benefiting people with mortgages.

blueboy43

Graham_Devon wrote: »

Seems that theres a common them at the moment.

That is, that interest rates will have very little impact on the housing market if they rise.

This is mainly because:
A) People could pay that in 2007
People have saved loads of money
C) People have been paying down debts by keeping mortgage payments the same as they were when rates were higher, therefore, paying down the mortgage.

Yet those, such as the CML, deeply involved in the housing market, state interest rates at the rate they currently are, are one of the biggest reasons as to why reposessions have fallen back, and the biggest reason houses have not fallen in price as sharply as they may have done.



My theory is that interest rate rises, say, up to 3-4%+ will have a rather large impact on the housing market*. I'm thinking from a wide angle type point. People finding it hard to pay. People finding it harder to get onto the market in the first place, people finding it hard to sell due to those finding it harder to get on the market etc.

So which camp are you in? Little impact...people could pay it, so it's not an issue....or interest rate rises will indeed have a rather large impact on the market?

I've been told my head is in the sand for thinking such a thing. Right, or wrong?

* Dependant on any new stimulus we may see at the same time.

Graham,

It will have a big impact when it happens.

Why ?

1) Prices are set at the margins - most people will be able to cope with higher rates, but a significant minority won't.

2) Once rates start going up, there will be no more QE stimulus. Increasing rates assume that the economy is picking up anyway.
The QE / special liquidity measures that has to be removed will also be a drag on mortgage lending.

3) The effect will not be uniform. It may be that London feels smaller effect than say Manchester.

Interest rates are low to nurse the banks back to health - but has the side effect that their are enough people who will be effectively insolvent once rates go up. These are usually people with no equity and mucho other credit as well. A combination of higher rates and more aggressive repo's will tip them over the edge.

blueboy43

phil_b wrote: »

Low interest rates are keeping things supported and preventing disaster. Thus they should be kept low for a fair while yet and they will be.

I don't think I've seen anyone say that rate rises wouldnt have an impact.

Phil, meet Hamish & Sibley !

HAMISH_MCTAVISH

Graham_Devon wrote: »

My theory is that interest rate rises, say, up to 3-4%+ will have a rather large impact on the housing market*. I'm thinking from a wide angle type point. People finding it hard to pay. People finding it harder to get onto the market in the first place, people finding it hard to sell due to those finding it harder to get on the market etc.

So which camp are you in? Little impact...people could pay it, so it's not an issue....or interest rate rises will indeed have a rather large impact on the market?

I've been told my head is in the sand for thinking such a thing. Right, or wrong?

* Dependant on any new stimulus we may see at the same time.

Graham, you're missing the most important part of the equation.

Time.

If you boosted base rates tonight to 5%, the market would struggle a bit, but the wider economy would tank.

If you left rates at 1% or less for another 5 years, and then increased them by 0.5% a year for the next 5 years, the market would soar along with the wider economy.

The trick is what are the in-between scenarios.

To figure out what the likeliest scenario is, you have to look at the purpose of keeping rates low.

Contrary to bear mythology, it is NOT to bail out the banks, homeowners, the over-indebted or to punish savers.

It is simply to spur liquidity, consumer spending and growth, and prevent deflation.

You're not going to see base rates at 4% or 5% until the middle to top of the next cycle. By which time the economy will be in solid growth, unemployment will be low, and there will be no problem with rates at that level.

And if we don't have an economy in growth, low unemployment, rising asset prices, etc, then there is no demand-pull inflationary pressure, and therefore no reason to raise rates.

Graham_Devon

HAMISH_MCTAVISH wrote: »

And if we don't have an economy in growth, low unemployment, rising asset prices, etc, then there is no demand-pull inflationary pressure, and therefore no reason to raise rates.

Theres still general inflation though, imported or not.

And yes, interest rates can help, before you tell me they can't as its all external. By raising the value of the pound (which is always ignored).

andykn

HAMISH_MCTAVISH wrote: »

You're not going to see base rates at 4% or 5% until the middle to top of the next cycle. By which time the economy will be in solid growth, unemployment will be low, and there will be no problem with rates at that level.

And even if base rates are at 4%, most people won't pay more than 6%, the same as when they took out the mortgage in the first place.