Interest rate rise?

michaels

Ozymandias73 wrote: »

If someone is in steady work, I expect they would get a mortgage even if interest rates go up.

Although if house prices are falling then the banks will factor in that any purchaser equity is likely to disappear pretty quickly and if unemployment is rising that 'secure' employment may not be. As a blender you would therefore increase the risk premium component of the rate for anyone without a huge wedge of equity....

lisyloo

If someone is in steady work

It's not just about steady work.
An increasing proportion of Surveyors have been down-valuing.
They are just covering their backs in a falling market.


There seems to be a consensus that it's harder for people to buy in a falling market. Do you not accept this?

System

michaels wrote: »

Although if house prices are falling then the banks will factor in that any purchaser equity is likely to disappear pretty quickly and if unemployment is rising that 'secure' employment may not be. As a blender you would therefore increase the risk premium component of the rate for anyone without a huge wedge of equity....

True. If unemployment starts climbing from its current historic lows, mortgage borrowing will not be so easy. Increased automation and AI are likely to cause much more unemployment before too long.

Filo25

michaels wrote: »

Although if house prices are falling then the banks will factor in that any purchaser equity is likely to disappear pretty quickly and if unemployment is rising that 'secure' employment may not be. As a blender you would therefore increase the risk premium component of the rate for anyone without a huge wedge of equity....

Yes, falling property markets tend to end up locking out a lot of FTBs as high LTV products disappear, and high LTV products are what the majority of FTBs need.

System

lisyloo wrote: »

It's not just about steady work.
An increasing proportion of Surveyors have been down-valuing.
They are just covering their backs in a falling market.


There seems to be a consensus that it's harder for people to buy in a falling market. Do you not accept this?

A functioning market will find its level. A non-functioning market will have difficulty.

System

ilovehouses wrote: »

Carney warns that anyone expecting 'normal' anytime soon is going to be disappointed. Pre crisis rates of 5%+ are coming back - in the long term consider 3% a maximum.

I liked Simon Jack's comment on the BBC..

If, say, 3% is currently the normal level (or neutral level), it means 3% interest rates will now have the same effect as a normal level of 5% would previously have had. In other words, where previously 5% would have caused discomfort, now a lower level 3% will lead to the same level of discomfort.

System

ilovehouses wrote: »

It means we're likely to remain in a period of benign inflation and wage growth for an extended period.

Is 3% the new 5%? I don't think so but we won't be finding out anytime soon.

I read the current normal (or neutral) level is somewhere between 1.5% and 2.5%, which means this level would cause the same pain as 5% caused previously. Perhaps there are only 3 hikes until the pain sets in. If there is no pain, the bank will just carry on raising until there is pain.

lisyloo

I don't really understand the obsession with finding the "normal" number.
We are facing a lot of uncertainty i.e brexit so we are not in normal times.
Even if by some miracle we all agreed on a number it looks likely we are in for "interesting times" and not normal times.

michaels

Ozymandias73 wrote: »

A functioning market will find its level. A non-functioning market will have difficulty.

It is interesting, in most financial markets there are futures, options etc so if the price is currently 100 but everyone expects it to be 90 is a years time then actually the price will have to adjust immediately to 90 as otherwise forward sellers could lock in a certain profit and no one would buy now at 100 when they know they could just put in a future order to buy at 90.

The housing market is different, even if the vast majority know that in future prices will be higher or lower there are no instruments to lock in those future prices now so instead of seeing current prices jump to the new level we see 'slow' rises or falls but this means that some are buying knowing that what they have bought will be worth less in 12 months - ok as they are buying for the long term, not so ok for the lender who might have to repossess at any point.

westernpromise

ilovehouses wrote: »

I'm glad you've got on board with realising normal is a moving feast rather than arbitrary average of rates over the last few centuries.

Or indeed of rates over the last 30 years. Those were the real aberration.