So will interest rate rises have very little impact?

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mcc100 wrote: »

I know it's a different scenario, but the crisis in Ireland was mainly due to interest rates being too low for too long.

The longer that interest rates are kept low in this country, the bigger the impact on house prices when they finally do rise.

Ireland had a massive boom because of a combination of rates being too low and excessive lending. The latter has gone. The velocity of money is through the floor and with low money velocity, I dont think we will see rates rising any time soon.

benb76

moneysaver84 wrote: »

Buy now? Why I have a large amount of cash but you think i'm gonna buy a house whilst prices are continuing to fall each month and whilst interest rates can only go up! I live at home rent free so why rush

No I don't flip burgers, to be honest I can't cook, thank God for parents cooking, you really appreciate it when you come back from uni!

Financial arguments aside, why don't you just rent a place instead? I'm assuming from your username that you're 26, isn't it about time you moved out and stood on your own 2 feet?

Girls prefer independent men, not boys who live with their parents and rely on mum to cook their tea!

Really2

This is one of those threads that tries to relate a scenario to now. But ignores the fact it is very unlikely to happen in the short to medium term.

It is like saying Would the reintroduction of 95% loans at 1% over base have little impact on transactions.
Of cause it would have an impact but we all know that wont happen over night, just like IR's we wont see this again until we are well on the road back to normality.

Generali

At the risk of muddying the waters here, there are 2 different things when we talk about interest rates:

- The base rate (aka the BoE Repo Rate)
- Market interest rates

The base rate is the rate at which the Bank of England will lend money to banks in one of its roles as 'lender of last resort'. It lends money using something called a repo (short for repurchase agreement) where it buys an asset from a bank and then sells it back at a preagreed time for a preagreed price. In effect it is a loan that uses the collateral of a Government bond*

The mortgage rate is a rate of interest agreed between a lender and a borrower using a house or other property as collateral. Rates of interest are set in the market and reflect supply of and demand for mortgages.

There is a connection between the 2 things as the more cheaply the banks can borrow from the BoE the more cheaply they can lend to customers. They are not the same thing though. The gap between the base rate and market lending rates (known as the 'spread') is unusually high right now. It would be possible to argue that mortgage rates, by that measure, are unusually high.

When base rates rise, which will happen at some point, mortgage rates might not rise at all. It is quite possible that all that will happen is that the spread will fall. Most likely of all is that a base rate rise of for example 0.5% would lead to mortgages rising by perhaps 0.35% on average.

My feeling is that the BoE is going to have to be very cautious about rate rises. Raise too slow and you will get inflation. Getting the inflation Genie back in the bottle is very painful as we saw in the late 70s/early 80s**. Raise too fast and all those consumers with big mortgages and credit card debts will either stop spending (bad) or default (worse).

Getting back to normal is going to be very tough and probably impossible without some pain along the way.

*At the moment the BoE will take pretty much any old crap as collateral, usually it insists on UK Government bonds only
**Labour introduced monetarist policies not the Tories, contrary to popular belief

RenovationMan

It will have a huge impact on my and my renovations, but I do have a plan b. I read somewhere, probably on here, that many people are at 5% already with fixed rates and rip off mortgage companies.

I dont think it will be the end of the world when rates go up because rates will only go up once we are out of the woods with the economy and banks, so a hike in rates will probably be accompanied with a reduction in taxation and an increase in pay.

My mortgage rate is currently 2.55% @ 573.75 per month. If Boe rates hit 5%, then my mortgage rate would be 7.55% and my mortgage would be £1698.75 per month. Painful, but not a disaster. However, rates will not go up like that overnight, so most people will be able to sort out a fixed deal to steady their finances.

Percy1983

benb76 wrote: »

Financial arguments aside, why don't you just rent a place instead? I'm assuming from your username that you're 26, isn't it about time you moved out and stood on your own 2 feet?

Girls prefer independent men, not boys who live with their parents and rely on mum to cook their tea!

Yet again another who assumes that we could just buy a home and call it done like the generations before us.

As you may see from my user name I am most probably a year older.

Have you considered that due to higher prices and bigger deposits it is taking us longer to get on the market?

Now the way I see it is if you class us as crawling now, to 'just move out' and end up renting would be just getting on our knees as we would be at the mercy of a landlord any maybe never be able to buy ourselves. So why don't we crawl a little longer and buy later and truely stand on our own 2 feet.

As for your idea of girls like it, shockingly my other half also still lives at home due to the same reasons and she thinking nothing of the fact we both still live with parents (I will add I am only 1 month older than her).

In short unlike the generation before us, we have had to invest a lot of time and money into careers to have a chance of buying, we couldn't just meet at 23 and buy a house with any old minimum wage job.

Now this is where you say I am one of those lazy young ones who is just sitting here moaning about it and not doing anything about it, the reality is we have worked harder than many of those before us and we are doing everything about it and hope to buy when we are both 28 which is actually well ahead of the average age of the 'normal FTB'.

Generali

RenovationMan wrote: »

It will have a huge impact on my and my renovations, but I do have a plan b. I read somewhere, probably on here, that many people are at 5% already with fixed rates and rip off mortgage companies.

I dont think it will be the end of the world when rates go up because rates will only go up once we are out of the woods with the economy and banks, so a hike in rates will probably be accompanied with a reduction in taxation and an increase in pay.

My mortgage rate is currently 2.55% @ 573.75 per month. If Boe rates hit 5%, then my mortgage rate would be 7.55% and my mortgage would be £1698.75 per month. Painful, but not a disaster. However, rates will not go up like that overnight, so most people will be able to sort out a fixed deal to steady their finances.

Unless your mortgage agreement is BoE base rate + 2.55% then base rates of 5% would more likely mean a mortgage rate of something like 6.5-7%.

Don't assume that because interest rates have moved slowly for the last 10 years or more they will continue to do so. The BoE will act quickly if they have to.

andykn

Percy1983 wrote: »

Yet again another who assumes that we could just buy a home and call it done like the generations before us.

Generation, singular. My Parents didn't buy until they married in their late 20s and were both brought up in rented accomodation.

ukcarper

Percy1983 wrote: »

Yet again another who assumes that we could just buy a home and call it done like the generations before us.

As you may see from my user name I am most probably a year older.

Have you considered that due to higher prices and bigger deposits it is taking us longer to get on the market?

Now the way I see it is if you class us as crawling now, to 'just move out' and end up renting would be just getting on our knees as we would be at the mercy of a landlord any maybe never be able to buy ourselves. So why don't we crawl a little longer and buy later and truely stand on our own 2 feet.

As for your idea of girls like it, shockingly my other half also still lives at home due to the same reasons and she thinking nothing of the fact we both still live with parents (I will add I am only 1 month older than her).

In short unlike the generation before us, we have had to invest a lot of time and money into careers to have a chance of buying,

Now this is where you say I am one of those lazy young ones who is just sitting here moaning about it and not doing anything about it, the reality is we have worked harder than many of those before us and we are doing everything about it and hope to buy when we are both 28 which is actually well ahead of the average age of the 'normal FTB'.

Years ago you could not just meet at 23 and buy a house unless you were on a very good wage. But I would ignore all the jibes about living at your parents because that is just what we did in 70s, it’s just that most of us started works at 16 instead of 21. Although you sometimes post thing which I find annoying with the things such as “we couldn't just meet at 23 and buy a house with any old minimum wage job”. I don’t’ think there is anything wrong in what you are doing.

Generali

andykn wrote: »

Generation, singular. My Parents didn't buy until they married in their late 20s and were both brought up in rented accomodation.

Owner occupation rates have risen dramatically from the 1930s until the mid 2000s I believe.

Many will have been raised in OO by those raised in rented housing.