How interest rates affect property values

mwpt

wotsthat wrote: »

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.

In which case I will campaign against this nanny state imposing MMR on me. After all, at 100% LTV IO at 0.5% rates I won't have to put up a deposit and I can afford the repayments easily each month on my £3m house on the river.

It is morally unfair (I quote the illustrious cells) that the regulators are denying me the right to this home with such high rates and requirements.

#NoNoMMR

wotsthat

mwpt wrote: »

In which case I will campaign against this nanny state imposing MMR on me. After all, at 100% LTV IO at 0.5% rates I won't have to put up a deposit and I can afford the repayments easily each month on my £3m house on the river.

It is morally unfair (I quote the illustrious cells) that the regulators are denying me the right to this home with such high rates and requirements.

#NoNoMMR

Although nanny has plenty to say on the matter I don't think the lenders themselves would exactly be falling over themselves to lend you £3m IO at 0.5% with 0% down on your wages.

Your theory fails in the real world of house buying because whatever link there is between interest rates and house prices is muted by regulation and lending requirements. You know it's true - try telling a lender you should be able to borrow more for no other different variable than interest rates have fallen.

Its still other people's money you're trying to borrow and they're going to take a view. Would you lend someone extra money for no other reason than you'd lent it to them at lowering interest rates. If the answers yes PM me - there's this place on the river I've heard about.

mwpt

https://twitter.com/RBS_Economics/status/719845093952352256

Chart shows that at certain periods the primary driver of house prices is mortgage rates (meaning the lowering of).

wotsthat

mwpt wrote: »

https://twitter.com/RBS_Economics/status/719845093952352256

Chart shows that at certain periods the primary driver of house prices is mortgage rates (meaning the lowering of).

That's a butcher's muddle of a graph

So your theory has only been demonstrably working since 1990 during a period of rapid wage growth. Also co-incides with a lowering of regulation and general increase in lending as people moved from rented to owned. Lower interest rates make owning look safer vs rented. It's a correlation and not necessarily a causation.

The fact remains. If there's a direct link between house prices and interest rates the effect is capped by regulation and lending rules and it's a minor factor anyway.

In the grim North your theory just doesn't work so you're trying to explain Londonitis which hasn't been caused by low interest rates.

mwpt

wotsthat wrote: »

That's a butcher's muddle of a graph

So your theory has only been demonstrably working since 1990 during a period of rapid wage growth. Also co-incides with a lowering of regulation and general increase in lending as people moved from rented to owned. Lower interest rates make owning look safer vs rented. It's a correlation and not necessarily a causation.

The fact remains. If there's a direct link between house prices and interest rates the effect is capped by regulation and lending rules and it's a minor factor anyway.

In the grim North your theory just doesn't work so you're trying to explain Londonitis which hasn't been caused by low interest rates.

Oh, your argument is now a fact is it?

I'll just stop debating then because if you say it's a fact, well what can I do.

The fact remains, lower interest rates increase ability to pay for housing increasing effective demand. In any other scenario you would accept more demand = greater prices, but you have a blind spot when it comes to housing.

mwpt

wotsthat wrote: »

So your theory

In this case it is RBS' theory. I'd invite you to offer your services to correct them but I'm sure you are otherwise engaged.

Cornucopia

The fundamental issues of the UK Housing market are about lack of supply (certainly in critical, sought-after areas, and housing is fundamentally stationary).

A market with limited supply and a degree of flabbiness on price will inevitably lead to price increases. The flabbiness on price is derived from many, many factors: foreign money, BTL investors, bank of Mum & Dad, lower interest rates, double incomes, bonuses etc. etc.

The nature of the market is that some of the things that people are routinely doing to help themselves into a position where they can buy are exactly the same things that are causing HPI.

Perhaps someone could explain this to James O'Brien? His programmes on LBC on HPI this week were strangely lacking any economic insight.

mwpt

Cornucopia wrote: »

The fundamental issues of the UK Housing market are about lack of supply (certainly in critical, sought-after areas, and housing is fundamentally stationary).

Absolutely agree. That is why, with the trend to concentrate productivity in cities, we see prices in all major capital cities around the world growing, and growing fast. Demand is the biggest driver.

A component of demand is the ability to pay with credit. A simple test to see if credit contributes to prices is to ask and answer honestly, if you are a home owner who has bought in the last 7 years since the crash, would you buy your current house at the current market price at a mortgage rate of 7% on a regular 25 year term.

If people are being honest, my guess is no in most cases. My repayments would be 38% above the rent price for the property in that scenario. However, with my current repayments on a 30 year term at 2.4% rates, they are 24% below rent. It completely makes sense for me to buy the property at these rates, but no way would I pay the current price at 7% rates on a 25 year term.

Crashy_Time

SENTIMENT is by far the biggest driver, as many of you will find out soon. If that changes they can literally drop money from helicopters, people still won`t bid up houses. Thousands of people now know they paid too much and that they have only been saved (for now) by emergency intervention. Posters from London are just too close to the madness to have any worthwhile perspective on the overall market IMO.

Crashy_Time

mwpt wrote: »

Absolutely agree. That is why, with the trend to concentrate productivity in cities, we see prices in all major capital cities around the world growing, and growing fast. Demand is the biggest driver.

A component of demand is the ability to pay with credit. A simple test to see if credit contributes to prices is to ask and answer honestly, if you are a home owner who has bought in the last 7 years since the crash, would you buy your current house at the current market price at a mortgage rate of 7% on a regular 25 year term.

If people are being honest, my guess is no in most cases. My repayments would be 38% above the rent price for the property in that scenario. However, with my current repayments on a 30 year term at 2.4% rates, they are 24% below rent. It completely makes sense for me to buy the property at these rates, but no way would I pay the current price at 7% rates on a 25 year term.

You don`t know where rates are going though? Trump victory and EZ deterioration (Improvement IMO) are two issues that could force rates up.