Interest Rates could hit 6% very soon!

phlash

As mentioned previously, I think people are underestimating the effects that small rises in interest rates can have. It affects the people who currently own, hitting them harder in the pocket, and it affects those who want to own since they cannot borrow as much. This is worst case for the owner, who may struggle to meet repayments and chooses to sell, only to find that his potential market to sell to has been slashed due to affordability of credit.

A third affect is the change on sentiment, the 1% rise in recent months has had a huge bearing on the market, and that evidence will filter through into the Land Registry figures as and when. The trouble is, people fail to realise that we won't really know what is going on now, we'll only know what happened 6 months ago.

So if a correction is happening or starts to happen, we won't know about it for 6 months!!

My opinion is that rates above 6% will have a huge bearing on the housing market, and that will be due to the three main reasons above. There's alot of people coming off fixes at the moment and getting huge increases in their monthly outgoings. Because 2/3 years ago they stretched themselves to get on the "housing ladder before its too late" at low rates (~3.5-4.5%), and will now face a whopping new bill.

Melissa177

It is what has happened in the USA. The Fed rate is 5.25, lower than our base rate, but it has doubled in a very short space of time, and so their payments as a percentage of their income (esp if they were measured on an affordability basis) have shot up.

I have heard all kinds of horror stories about the US mortgage market. Firstly, lenders don't always have systems in place to check your income and whether you can afford the loan. One couple I was talking to the other night (I'm in the USA at the mo) took out a $450,000 mortgage. The wife was a nurse on $35K, the husband self-employed (they didn't check his income). They agreed to the house sale, the mortgage etc, and only on completion they found that the monthly payments were $3800 a month, which they could not possibly afford. Who on earth would sign up to a mortgage where they didn't know they could afford the repayments??

Secondly, and it follows on from point one, consumers are much less financially savvy than in the UK. Many have no clue what their mortgage interest rate is. My parent's neighbours are paying 8% on a 25 year loan. They are 55 and 73 years old :eek: They have three brand new cars on credit, and added them to the mortgage :eek: Anyway, that's their choice, I suppose.

Romani_Ite_Domum

Melissa177 wrote: »

Firstly, lenders don't always have systems in place to check your income and whether you can afford the loan.

and we do in this Country? Just from people I know, mortgage application fraud is alive and well here too.

Melissa177

Romani_Ite_Domum wrote: »

and we do in this Country? Just from people I know, mortgage application fraud is alive and well here too.

Fraud is one thing, but not checking it at all is another!

I haven't come across any lender who would be prepared to lend money without proof of income. Maybe with self-cert mortgages - I'm not familiar with that process.

mystic_trev

Melissa177 wrote: »

I haven't come across any lender who would be prepared to lend money without proof of income. Maybe with self-cert mortgages - I'm not familiar with that process.

I wonder how many Kensington dished out?

Melissa177

Do Kensington do mortgages without proof of income? :eek:

Maybe I'm just too sheltered from the world of bad credit

prudryden

US Commerce Department announced that April purchases of new homes surged 16% - the most in 14 years. The median drop of 11% of home prices during the month has stirred demand.

Is this a blimp or is the correction over?

Melissa177

I think the problem with the US is that it isn't one market. It's so huge, that you can't really compare the property market in a small town in the midwest with, say a popular retirement community.

Demand is soaring in the town where my parents live in North Carolina, because it's in one of the "top ten places to retire in the US". A new block of flats have just been built downtown, all at the $500M (which the locals have been scoffing at), but they've all been sold bar one before they've even finished building them!

Compare that with the horror stories we've been hearing in the news about the US market - we need to understand that the market is not homogenised.

prudryden

Agreed! It is a fragmented market. Evidently, prices in San Francisco are the same as in London and still going up - but then it is at $1.98+ to £1 in currency.

phlash

Looks like interest rates could go beyond 6% not just hit 6%. The Swap rates are up to above 6.2%.
The markets perceive interest rates to go higher. The latest CPI figure at 2.5% looked good on the surface, because it "dropped" from 2.8%. One must remember though that this is a statistical anomaly since it measures Year on Year comparisons. The core inflationary products actually increased from 1.8% to 1.9%, and the CPI index increased from 104.5 (April 2007) to 104.8 (May 2007) which equates to an increase of 0.287% in the month. At that rate the medium term would see CPI back above 3%.

Interest rate rises to come people.

http://www.swap-rates.com/UKSwap.html