Interest rate rise leads to house price drop?

mattcook1978

Hi everyone,

I wondered what people's thoughts were on the interest rate rise. I have read in some places that it is expected to rise further - with rates of 6 or even 7.5% predicted by some. If people can't afford their mortgages, and homes are repossessed in large numbers, is this likely to lead to a drop in house prices?

In addition to the general query above I wondered if anyone would be kind enough to comment on my position specifically. I've just made an offer on a house in an up and coming area of London (Forest Hill - it gets a tube station in 2010). My greatest fear is finding myself in negative equity due to house prices dropping. The alternative for me is to continue living rent and bill-free as a live-in security guard and put the £800+ I would be spending on a mortgage into a savings account every month. Would it be better in today's economic climate to not buy a house and put money into high interest savings accounts or investments instead?

Thanks in advance,

Matt

m00m00

if you are buying a 'home' rather than an investment, negative equity is not that great an issue. It is an issue when you want to move, and when you come to remortgage, so if you are worried about short term negative equity, a longer 'fix' on your mortgage terms would be sensible.

There are plenty of people who think that house prices will come down soon

and plenty of people who think they won't come down very much at all, more likely just stop rising

and a few people who think they will still keep rising at these exponential rates.

no one knows for sure what's going to happen, you can only make a decision on what's right for your own personal situation.

in your case, living rent free, I'd be inclined to keep doing this as long as possible, and filling your savings account as much as possible, higher interest rates are good for this.

kingkano

That depends. Do you want a home or an investment? How long do you anticipate staying at the property? If your a FTB and this is just your first step on the ladder, and you anticipate moving in a few years, don't do it. Stay as you are and save/invest the money.

If your looking at what can potential be a 10yr home for you, and you can afford it on your salary, then don't worry about rates/HPC/etc and do what you want to do. (as WE have just this week) get a nice long fixed rate, or a tracker if you can afford a few rises in rates and enjoy you new home.

Then again your in London so who knows lol

meanmachine_2

Forest Hill DOESN'T get a tube in 2010.

Jeez. It's the biggest cost of your life and you haven't even done basic research.

The East London line is going to become part of the overground system. Forest Hill already has an overground.

And if its an up and coming area I'm a banana.

lynzpower

Oh come on MM forest hill is quite nice. http://www.tfl.gov.uk/corporate/projectsandschemes/networkandservices/eastlondonrailway/2117.asp Looks like it will be getting a tube from this info here

At 800pcm repayment Im presuming the place is less than 180k ( rough idea)

Of 800pcm that you are expecting to pay out- how much of that is interest in the first 5 years? AFAIAC you might as well take this money and sling it down the drain - its pure DEAD MONEY.

If you continue to invest this wisely. it will lead to a larger deposit.

Living rent free is my idea of pure heaven. you have a good deal. Dont forget that!

Dithering_Dad

bananas aside, why not hedge your bets and buy the property and then let it out so that you can remain in your rent/bill free accomodation and have someone pay your mortgage (or heavily subsidise it if the rental doesn't cover the mortgage).

Then when you are ready to move into the property (you didn't say how long you could stay at the live-in accomodation) a chunk of the mortgage will have been paid and you'll have some savings to get it decorated after the tenants leave.

mattcook1978

Ok slip of the tongue. No need for the patronising tone, meanmachine. I won't get too annoyed because you know nothing about me. I'm fully aware that Forest Hill becomes a destination on the London Overground - an extension to the East London line which will put Forest Hill on the tube map, which in turn, rightly or wrongly, will make people believe it's more accessible to Central London, which in turn should drive property prices up. Tell me I'm wrong and why and I'll listen. Belief in an area being up and coming is certainly subjective, but factors such as the above limit against the chances of my guessing wrongly. In my humble opinion.SE1, New Cross, Stratford and Forest Hill. Nobody knows for sure which areas are up and coming, but these are the places I think are, and for valid reasons. I've done my research. Of all those three places Forest Hill is the place I feel least likely to get mugged right now. That's why I chose it. Whether you're a banana or I'm a plum remains to be seen.Any ideas on the questions I asked? I'm guessing from your opinion of Forest Hill you'd suggest I save my money. Any specific reasons why you think it's not up and coming? It's not too late for me to change my mind.

meanmachine_2

The East London line will officially become part of the Overground network.

At least, that's what I'd been lead to believe. But whlo knows - Ken might change his mind next week.

Forest Hill is actually served very well by the existing overground, which makes me suspicious that it will ever "up and arrive".

It's very difficult to gentrify an area that has the South Circular driving a stake right through the middle.

Still, if the OP likes the house and the area, then go for it.

mattcook1978

Thanks Lynzpower and DitheringDad. I didn't want to bore anyone with specific figures but if you can offer advice it would be great. I am a first time buyer, the rent-free accomodation can last forever. The mortgage I have in place is an interest only for 170100 (the property is 2 bed for 189,000 - the rest is covered by deposit) and is 925 per month (I am self emloyed and self cert hence higher rate of interest). I was very roughly basing the figures of 800 on renting out a spare room and including other bills, council tax etc - as at the moment I pay literally nothing. No bills, no council tax no nothing.In case anybody is interested in living cheaply in London, the security firm I work/live in a property for only accepts personal recommendations for new caretakers, but this place offers subsidised rents for the same sort of set up.camelotproperty.com

meanmachine_2

Apols to the OP.

Quite right - the orange line will remain on tube maps, although officially it won't be part of the underground.

Meh, it might help the area.

To be honest, Forest Hill/ Honor Oak was an area on my own radar - until I paid it a visit.

Not for me. Honor Oak is nicer than Forest Hill, though.

meanmachine_2

Overground clarification.

OK, this is what concerned me about the Forest Hill extension.

"To mark this new journey the East London Line will be re-named the East London Railway. Collectively the railways will be known as London Overground.

London Overground services will be shown on the Tube map and deliver an Underground-style service. Passengers will benefit from similar fast, frequent services, ticketing arrangements and safety and security standards. New high-capacity air-conditioned trains with audio and visual announcements will operate on the East London Railway when it opens by June 2010."

Now I take that to mean it'll come off the standard tube map, but be put on a larger map that includes rail and tube (something that Forest Hill is already part of).

I could be wrong though.