How interest rates affect property values

ukcarper

mwpt wrote: »

You should write to the economist from S&P and ask.

I thought you started this post and its up to you to provide evidence for your claims.

mwpt

ukcarper wrote: »

I thought you started this post and its up to you to provide evidence for your claims.

Let me know what S&P say. You should send them your stats.

wotsthat

Generali wrote: »

That isn't necessarily the case. Someone buying a house as an asset rather than as a home isn't buying a different asset. If we accept that interest changes impact on the price and yield of non-house assets then they will also impact on the price of houses.

The formula earlier in the thread calculated a maximum debt that could be serviced based on interest rate and length of term. It was implied that this result determined house prices

i.e. interest rate goes down therefore max sustainable debt goes up and so do house prices therefore there's a direct link between house prices and interest rates.

If we follow this backwards then interest must be even less correlated to house prices where debt isn't involved?

ukcarper

mwpt wrote: »

Let me know what S&P say. You should send them your stats.

I asked you before how much of the recent rise do you think is down to low rates I've said it can have a small effect but can't explain the big jump we have had recently.

mwpt

http://www.ft.com/cms/s/0/eefcc9aa-11e7-11e6-91da-096d89bd2173.html#axzz47sNSeY6R



Can't post the article in full but perhaps a couple of quotes:

All types of borrowers — first-time buyers, home movers and those remortgaging — are opting to take longer to repay their loans, according to data from the Council of Mortgage Lenders

and

A longer term length means they pay less back each month as the loan is stretched out over a longer period. This makes it possible for borrowers to squeeze in under the tighter affordability requirements.

Depending on your view this is either a result of high prices or one of the drivers of high prices. We can probably skip all subsequent rehashed arguments.

* You can paste "Mortgage terms lengthen as house prices rise" into google search to click through to the full article.

michaels

1) Could this just be where borrowers who previously went IO are showing up?
2) Extending the term adds flexibility, generally there is nothing stopping you paying the loan back according to a shorter timescale (over-paying) but agree on a shorter term at the start and then try to reduce payments and you need to remortgage.
3) Japan has intergeneration mortgages - on average a person lives in a home (at their expense ire not whilst a child)) for what? - 50+ years - why should they choose to pay for it in only 25 years? WE do not expect to buy a car with at least 25 years of our life remaining and never replace it.

wotsthat

mwpt wrote: »

Depending on your view this is either a result of high prices or one of the drivers of high prices. We can probably skip all subsequent rehashed arguments.

The FT say it's high prices and gaming the regulation.

The former is obvious - the trend follows house prices.

The latter is an unintended consequence. Before MMR it was actually more likely that the mortgage holders would have gone for a 25 year mortgage and got on with it. Now they've probably got a similar sized mortgage but have to take it over a longer term because nanny doesn't always know best.

Anecdotal alert. I know a couple who took a 30 year term - purely because they wanted to get the biggest mortgage available they could to skip a rung or two on the housing ladder. I told them to go for it - it's expensive and a pain to move and if you find a forever home at 30 why not go for it? I said they'd look back in a few years and laugh how they were even bothered.

mwpt

wotsthat wrote: »

The FT say it's high prices and gaming the regulation.

The former is obvious - the trend follows house prices.

The latter is an unintended consequence. Before MMR it was actually more likely that the mortgage holders would have gone for a 25 year mortgage and got on with it. Now they've probably got a similar sized mortgage but have to take it over a longer term because nanny doesn't always know best.

Anecdotal alert. I know a couple who took a 30 year term - purely because they wanted to get the biggest mortgage available they could to skip a rung or two on the housing ladder. I told them to go for it - it's expensive and a pain to move and if you find a forever home at 30 why not go for it? I said they'd look back in a few years and laugh how they were even bothered.

I said we could skip the arguments. Nevertheless, I disagree with your view.

However, as a pragmatic person, just in case you are correct, I am waiting for 100% LTV IO mortgage at 0.5% interest rates so I can afford a £3m house either in Wimbledon village or near the river. I mean, the price is the price obviously since changes in interest rates and terms do not move them (*), and this house will remain £3m when we reach that point and I'll be laughing all the way to my subterranean swimming pool.

(*) Widely accepted theory based on many (**) opinions on a back water sub forum populated with raging HPI bulls.

(**) Well, three at least.

Generali

michaels wrote: »

3) Japan has intergeneration mortgages - on average a person lives in a home (at their expense ire not whilst a child)) for what? - 50+ years - why should they choose to pay for it in only 25 years? WE do not expect to buy a car with at least 25 years of our life remaining and never replace it.

Because a typical Japanese house is built to last 40 years..?

wotsthat

mwpt wrote: »

I said we could skip the arguments. Nevertheless, I disagree with your view.

However, as a pragmatic person, just in case you are correct, I am waiting for 100% LTV IO mortgage at 0.5% interest rates so I can afford a £3m house either in Wimbledon village or near the river. I mean, the price is the price obviously since changes in interest rates and terms do not move them (*), and this house will remain £3m when we reach that point and I'll be laughing all the way to my subterranean swimming pool.

(*) Widely accepted theory based on many (**) opinions on a back water sub forum populated with raging HPI bulls.

(**) Well, three at least.

Skip the arguments? You might have missed the name of this forum.

You've found a lovely house with a swimming pool and your theory dictates you can have it because interest rates are low. It doesn't work like that - you can't afford the deposit, you can't afford the payments and the mortgage will be too many multiples of your earnings.

These rules are there to save you from yourself and they do somewhat limit the effect of low interest rates on house prices. Try not to be upset - maybe you'll get a pay rise.