House Crash

mystic_trev

Generali wrote: »

CPI is up to 3.1%.

I notice Betfair are giving odds od 5:1 on there NOT being a IR hike next month!

Now 11:1 for NO CHANGE!

fivemice

A_Fool_&_His_Borrowed_Mon wrote: »

Exception rather than the rule, your case though.

Average wage 25k, Average Price, around 180k.

That's just over 7x salary.

In the Mid-Late 90's, the average wage was around 18k, the average price around 80k.

That's some difference today compared to then (which wasnt long ago)....

How many people do you know that borrow based on just one salary though?
I think the rises in divorces definitely plays a part in the demand.

And as for "house prices only go up" well that statement is true in the long term. Sure, we may crash or have corrections but as long as you don't need to sell for 10-15 years then the crash is unlikely to affect you, isn't it?

We are borrowing 100% on repayment, based on just one salary though. We have a £500pm buffer spare before we need to start cutting down on luxuries and beyond that I would return to work if necessary.

We aren't buying a house as an investment though, we are buying it as an essential, we are simply sick of the instability of renting. We are going into it expecting a crash, so we are making sure we can afford it even if the rates go right up to 10+% before we need to make adjustments to our lifestyle.

I am amazed that people bought at 3.5% not expecting the rates to rise.. friends of ours did that and are maxed out now on a 4.5% fixed rate mortgage (they didn't borrow 100%), they can't afford to have children or anything and rates are still low IMO.

Affordability is surely the key thing, rather than how much you borrow?

mystic_trev

ruggerboy wrote: »

Hi pollyanna

*Inflation - currently at 2.8%, and needs to continue rising so as to trigger further interest rate rises and cause a sharp rise in defaults and repossessions. (But, as far as I know, inflation is due to fall sharply later on in the year once last year's energy price hikes fall out of the statistics. So, prospects of further interest rate rises are, at the moment, unlikely.)

Interest rates - currently at 5.25% and, as just discussed, need to rise sharpish to cause repossessions. But with inflation due to fall sharply later this year, they are not likely to rise.

I think you might like to reconsider these comments?

Sorry Chris, I know you bought a house recently, do you still think it was such a good idea?

ruggerboy

do you want to reconsider that comment in the light of this morning's inflation number?

Hi Sisyphus

Not really! Whilst 3.1% is clearly an embarrassment for the Bank of England, where we go next with interest rates all depends on the inflation trend. If the inflation trend is still predicted to fall later on in the year, then today's news is just a storm-in-a-teacup. It'll be interesting to see what the BoE letter has to say on this when it's published at 10.30am this morning.

The question begs whether, on the back of this news, the BoE will want to raise interest rates again as a face-saving measure. But, from an economics perspective, I'm struggling to understand why it would want to. As I have said earlier, inflation is due to fall substantially later on this year when the lower gas prices kick in. Also, the £'s current strength against the dollar and euro also acts as a deflationary pressure. So there are deflationary forces already at work.

Whilst politically breaching the 3% threshold is clearly embarrassing for the BoE, economically it's not the end-of-the-world. Far from it, in fact!

All the best

Chris

ruggerboy

Hi

Here's the BoE letter for information.

http://www.bankofengland.co.uk/monetarypolicy/pdf/cpiletter070417.pdf

Regards

Chris

Generali

ruggerboy wrote: »

Hi

Here's the BoE letter for information.

http://www.bankofengland.co.uk/monetarypolicy/pdf/cpiletter070417.pdf

Regards

Chris

I have been wondering for a while what form this letter would take when it was finally written (it was inevitable eventually). Another one of life's mysteries is cleared up.

[Deleted User]

To many people have borrowed more then they can afford also too many people have borrowed against their mortgages. House prices will definatly crash now that the interest rates will be going up to 6% and maybe even higher.

ruggerboy

Hi MysticTrev

Just to respond to your points:

I think you might like to reconsider these comments?

See my earlier comments to Sisyphus. CPI at 3.1% is not the end-of-the-world. What's more important is what the inflation trend is over the coming months. I note from the BoE's letter that their central prediction essentially remains unchanged:

But, on first sight, the news seems unlikely to alter the broad picture painted in the February Report. As the substantial increases in household gas and electricity prices that occured a year ago drop out of the annual comparison, and the falls in those prices which have already been announced take effect, CPI inflation is likely to fall back within a matter of months.

Don't ignore this!

Sorry Chris, I know you bought a house recently, do you still think it was such a good idea?

Absolutely! Remember - not everybody enters the market to chase capital gains! Furthermore, each person's circumstances will differ. In my case, I see my house as a long-term and reasonably safe savings vehicle which, once the mortgage is paid off in 25 years time, will give me an asset that I can liquidate on re-sale to pay for a place in a retirement home (that I am likely to need in my dotage!). It has to be said that this strategy of mine was heavily influenced by two key factors:

1) I put down a substantial deposit to hedge against short-term housing market fluctuations;

2) where I live in Watford, rents are still substantially more expensive than equivalent IO mortgages. Therefore, it's a no brainer to buy on a repayment mortgage and use the mortgage as a "forced savings" vehicle to meet my long-term retirement needs.

Of course, if you live in an area where rents are cheaper than equivalent IO mortgages and are contemplating taking on a 100% mortgage with no deposit down, then I wouldn't see this as a wise long-term investment strategy. That's because this scenario would suggest that you're in an over-valued area, and you would be totally at the mercy of the vagaries of housing market fluctuations! So, as ever, the maxim of "Do Your Own Research" before making an investment decision always applies!

Regards

Chris

real1314

mystic_trev wrote: »

I notice Betfair are giving odds od 5:1 on there NOT being a IR hike next month!

Now 11:1 for NO CHANGE!

Edited - must put brain into gear before typing.

Sisyphus

ruggerboy wrote: »

do you want to reconsider that comment in the light of this morning's inflation number?

Hi Sisyphus

Not really! Whilst 3.1% is clearly an embarrassment for the Bank of England, where we go next with interest rates all depends on the inflation trend. If the inflation trend is still predicted to fall later on in the year, then today's news is just a storm-in-a-teacup. ...
Chris

It's like the weather, if they can't predict CPI for next month or the month after, they haven't a chance in hell of predicting year end inflation. Don't forget their target for CPI is supposedly 2%.