Interest rate increase wrong time to buy?

toonfish

meanmachine wrote:

In a poll of turkeys, 99.9% predicted there would be no Xmas this year and it was fine to carry on gobbling up grain like there's no tomorrow.

Also, I would expect any "adviser" of mine to be able to spell consensus.

Call me old fashioned.

But seriously: if you can afford rates of 20%, my advice is to borrow more at a 10 year fix and stay put in a place you like rather than squeeze into a first rung dung hole.

thank you for your economic opinion - time will tell which of us is most right

luckily my clients are more concerned with the quality of my mortgage recommendations than my results in a spelling test

talksalot81

toonfish wrote:

your points are valid, but folk who chose not to buy 2 or 3 years ago as "the market was about to crash" are now those struggling to get on the ladder. Also, in some areas buying can be not much dearer than renting

That may well be the case. But right now there are a great many young people who actually cant afford to buy (no choice involved). The longer the market continues to grow beyond income, the worse this situation gets and the more people who will be struggling.

I just dont buy into the concept that in another 10 years, the young persons will be totally and completely priced out (which is hat the current trend indicates). If young people in 10 years are to be able to afford housing, a correction is essential.

Martinslovechild

talksalot81 wrote:

I just dont buy into the concept that in another 10 years, the young persons will be totally and completely priced out (which is hat the current trend indicates). If young people in 10 years are to be able to afford housing, a correction is essential.

Absolutely,

In 10 years, a hefty proportion of those young people will potentially have young sons or daughters of their own. There are also a good few pundits who suggest that the number of single people buying houses will increase over the next 20 years (I can't remember the reasons for this).

On top of that, there will be marriages, divorces, births & deaths - plus those people who just get bored of where they're currently living and fancy a change, either to a bigger place, smaller place, place in the country, place in the city etc.

roswell

well for an idea of whats happening taking into account one lender woolwich (barclays) before BOE rate increase in January fixed rate 5 year mortgage 4.98 %, day after anouncment 5.24 %, after last night 5.39% ... banks dont make 3 increases in a 10 days unless there expecting something longterm thats going to cost them money.

raq

Reading all the above is really scarry.. I got a mortgage and just waiting for the day the letter from the mortgage company drops the letter with our new fee.

God think I'll buy a wigwam for me, hubby and three small children and live of tins of beans. no honestly. Bloody worrying time

Martinslovechild

raq wrote:

Reading all the above is really scarry.. I got a mortgage and just waiting for the day the letter from the mortgage company drops the letter with our new fee.

God think I'll buy a wigwam for me, hubby and three small children and live of tins of beans. no honestly. Bloody worrying time

Totally agree Raq.

People often forget that the Bank Of England Monetary Policy Committee have to target inflation. It's not that they're not interested in house prices, it's just that you can't focus on house prices if there are many other things to consider.

People also forget that higher inflation benefits certain parts of the population. During the late 80's/early 90's, inflation hit 15% which meant that wage increases were pegged somewhere around that level. Therefore, if you took out a mortgage for £40,000 in 1985, and this was followed by years of high inflation, then your mortgage was obviously also a high rate but your earnings increased substantially over the years to counteract this somewhat. Because inflation was eventually curbed in the early 90's, you effectively came out of the other side with a much higher salary than you'd been paid some 7-8 years earlier and therefore your ability to service your mortgage had increased substantially (this didn't necessarily help those who now found themselves in negative equity however!). In summary, your earnings may have doubled in a relatively short space of time and therefore the mortgage debt appears to be much smaller compared to your earnings.

Jumping forwards to 2007, inflation has been historically low, especially since the mid-90's. As a result, average wage increases have been far smaller. In summary, your earnings have been increasing by only small amounts and the large mortgage debt you took on a number years ago is still large compared to your earnings.

Inflation could have been controlled earlier by the MPC. There now appears to be almost a state of panic from the BoE MPC in attempting to reduce CPI back towards the 2.0% target. Recent lower oil prices will help, but certainly not as much as people tend to think - possibly just 0.1%. Lower gas & electricity prices will start to trickle through in the Spring, but the issue right now is the cost of items on the high street starting to pick up. This in turn is fuelled by the higher cost of commodities, caused in part by China buying up vast quantities of steel, aluminium & copper.

The BoE MPC may well get lucky and curb inflation at the 3.0% level (otherwise they'll have to write a grovelling letter to Gordon Brown), but in doing so, interest rates will almost certainly have to increase. It's quite bizarre really that in mid-2006, a number of economists predicted falls in Bank Rate, but it's actually gone the other way. At the time, economists who predicted that Bank Rate would hit 5.75% or even 6.0% by end-2007 were laughed at. Now I think that there'll be a lot of economists eating their words. Bank Rate may peak at some point in 2007 and then begin a small descent. Personally, I'm not so sure - I believe that Bank Rate will hit 6.0% by the end of 2007 and we'll not start to see reductions before 2008. But then again, who really knows?

One thing's for sure - there are some very clever people out there who are going to make a lot of money when the crash eventually does come, buying in right at the bottom of the next housing cycle.

ossie1_2

movieman wrote:

Banks have to lend money to make money, and to lend money right now they need insane lending multiples and 'lie to buy' even to justify those; they only worry about bad debts _after_ the crash begins.

And don't forget that they sell many of those mortgages on to 'investors', so they won't take a big hit if the borrowers default, the 'investors' will.



The housing market was stagnant in 2005 until the BoE morons cut interest rates; had that cut not occurred and encouraged speculators to believe that the BoE would always cut rates to prevent them losing money, we'd be having a full-blown crash by now.

Firstly, banks do not have insane lending multiples. Their multiples and affordability calculators with which they ascertain an applicants "maximum loan" are based upon their attitude to risk whilst still following the guidelines laid down by the FSA to be a responsible and prudent lender.
Secondly, all banks carry out risk calculations with their lending policies and procedures - most calculate the anticipated "fallout " way in advance of even lending the money - How do you think so many have managed to lend money in such a prudent way for the last 100 - 150 years.
Thirdly, only a relatively smaller section of the market " securitise " their loans by selling them on at completion and even then, this whole area is generally governed by the organisation/investors who will be buying it at that time ( investments priced depending on risk !!! )

Not all banks are the same - whilst they may not seem to care, they are not all imprudent in what they do or how they do it.

ossie1_2

Simply ask yourself the right questions?

Do you love the person you are with and want to live with them?

If the answer is yes, do you want to live in rented accomodation for the rest of your life or do you want to own your " dream home" which you both can call your own.

Do you know the area you want to live in and do the house prices seem fair for what you will be paying?

Do you intend to live there for a number of years, thereby effectively minimising the risk of negative equity being caused by a house price crash? Remember, no-one knows what will happen. No expert thought there would be a rate increase last week but there was.

Buying a house is scary but it is also one of the most exciting things that you can do, particularly if it is with the person that you love ( Been there, done that ). You are only on this planet once ( can't prove otherwise ) so take a chance and make an impact on this world. Do what your heart desires and reach out and grab it before life passes you by.

Enjoy........

talksalot81

ossie1 wrote:

Not all banks are the same - whilst they may not seem to care, they are not all imprudent in what they do or how they do it.

It is wise to remember whose best interests they look after.

OverlandLandy

Some thoughts that may see me as being branded as harsh...but here goes....

Now is a good time to buy as you may pick up a bargain.....are there any houses still on the market that were there last summer? Are there houses that look a bit 'sorry or run down? Basically - are there any houses that ain't shifting... where you can go in and make a 'low offer' and get it accepted? Many people are deep in debt at the moment and its getting worse....so they may accept an offer that they would previously declined.

The second point is along the same lines......are there any repossessions on the horizon? have a good look around, speak to agents and watch for property auctions (take all the usual auction buying advice- its not for the faint hearted!).........again you may grab a bargain at someone else's expense.....

Failing that personally, I would wait and see what the market does.......looking at events in the USA (we normally follow their lead) house prices will 'crash' this year....but it all depends on your definition of 'crash'! It sure looks like mortgage rates will be going up a few more times this year as it is the only 'tool' that the BofE can use to keep within its annual inflation target...

And of course all this depends on where you are in the UK