30% fall in property if no deal brexit

AG47

MaxiRobriguez wrote: »

Brexit itself isn't the driver. Like people have said, if house prices just drop because of a confidence thing then people will simply wait it out before selling.

If Brexit however causes a spike in inflation which sees the BoE react by increasing the base rate, that may precede a drawn out "crash" of some sort, starting with those on trackers/non-fixed mortgages and lasting two years whilst the majority of the remaining fixes expire. If people are getting hit with 4-5% interest rates on houses they overstretched themselves on at half that then there may be a much bigger need for people to sell, and sell quickly.

4-5% is still low, even the base rates will have to go to that so imagine what the average rates on mortgages will be?

MaxiRobriguez

Herzlos wrote: »

But even selling quickly due to a mortage rate rise isn't that likely - they are stress tested now and people need to live somewhere. Few people will sell their house at a loss and go on to rent, and there's not that much money to be saved in downsizing by 1 or 2 rooms.
Most likely if mortgages became more expensive is that people would go without everything else to keep the house.

The banks are stress tested, not the housing market, and there's plenty of people who are making do without everything currently to fund a mortgage.

A house worth £300k whereby the owners have a 20% equity stake which is a fairly common number for both new build purchases and those climbing the ladder would see a £5k increase in cost per year if their mortgage went from 2% to 5%. That would be enough to force a lot of those owners to try and move at the same time.

Herzlos

Sure there will be some people who are already teetering on over-leveraged but what are they going to do? They'll be just as over-leveraged if they are kicked out and need to rent?


Most people will be able to make some sacrifice to keep the mortgage payments up (going without food/heat, extending the term another 10 years and so on). Even then there are relief options - skipping payments to undo previous overpayments, government help with interest.



A 4-5ppt increase in mortgage rates will really hurt and cause all sorts of problems, but the only people having to sell will likely be those who lose jobs and divorce.


a 4-5ppt increase will make it so much harder to get a mortgage in the first place.



All those pensioners single occupying the 4+ bedroom houses will have paid their mortgage off years previously and be immune to house pricing changes (but may be screwed by cost of living changes).

MobileSaver

MaxiRobriguez wrote: »

The banks are stress tested, not the housing market,

This is simply incorrect, lenders check affordability (AKA stress test) on all mortgages and have done for years. I think the current stress test is to assume mortgage rates of 5.5%.

MaxiRobriguez wrote: »

A house worth £300k ... if their mortgage went from 2% to 5%. That would be enough to force a lot of those owners to try and move at the same time.

The average house price is around £230k so your £300k house is way more than most people's risk and banks already stress test at 5.5% so your example, all other things being equal, would result in very few owners being forced to move.

MaxiRobriguez

MobileSaver wrote: »

This is simply incorrect, lenders check affordability (AKA stress test) on all mortgages and have done for years. I think the current stress test is to assume mortgage rates of 5.5%.

Hence why I said banks are stress tested. But we're not talking about banks stress testing defaults here at the point of purchase/remortgage here, we're talking about individuals and families making decisions to reduce the mortgage costs because they feel they have to.

MobileSaver wrote: »

The average house price is around £230k so your £300k house is way more than most people's risk and banks already stress test at 5.5% so your example, all other things being equal, would result in very few owners being forced to move.

I chose £300k deliberately as it was higher than the average but within standard deviation approach, and my assumption would be that it's in this price range where people stretch themselves the most, mostly related to growing family and wanting to get that forever home. Admittedly not a wonderful science but paints a possibility of who will be most effected in a rising interest rate scenario.

Thrugelmir

MaxiRobriguez wrote: »

Hence why I said banks are stress tested.

And the bar is going to be raised higher yet. The aim is to stop any systemic failure in the financial system as there was in 2006-2008.

Crashy_Time

Herzlos wrote: »

But even selling quickly due to a mortage rate rise isn't that likely - they are stress tested now and people need to live somewhere. Few people will sell their house at a loss and go on to rent, and there's not that much money to be saved in downsizing by 1 or 2 rooms.
Most likely if mortgages became more expensive is that people would go without everything else to keep the house.

Yes, but in the real world people sometimes just have to sell for whatever reason, and a BTL sell off could also happen, many people will do anything to keep their main residence, they won`t strive so hard to keep an empty BTL that is a money pit. The idea of owners "sitting it out" is a quaint idea based on a misunderstanding of supply and demand, but it isn`t really practical for the whole housing market in the real world.

lisyloo

Why do you think BTLs will be empty?

Crashy_Time

lisyloo wrote: »

This isn’t what is happening in reality.
In fact limited supply means buyers are sometimes in bidding wars.
Try the house buying board and check out the issues buyers are having.

This one has knocked 50k off already, will it sell, who knows? In reality people are panicking and reducing prices by as much as 75k over a few months, and that is before Brexit has even happened!

Herzlos

Crashy_Time wrote: »

This one has knocked 50k off already, will it sell, who knows? In reality people are panicking and reducing prices by as much as 75k over a few months, and that is before Brexit has even happened!

Are they, or did they just go to an estate agent who overvalued the property by 75k?