Will Kwarteng’s U-turn mean lower interest rates?

mi-key

billy2shots said:

TonyTeacake said:

Anyone with any common sense would know these prices are not sustainable. Just take a look at a mortgage calculator and see the difference in payments between 2 and 6%.

£150,000 over 30 years 

2%=£554 per month

6% = £899 per month

Context - The average UK mortgage for 2021 was £138,000. (2022 not compiled as far as I could see). 

Which is still cheaper than renting for those that can buy. For a couple taking home say £1800 a month each, then £899 is still affordable 

Cheesy77

TonyTeacake said:

I agree big hikes in interest rates are needed to get inflation down. I was saying this at the beginning of the year and this is why we have to start looking at the bigger picture and the wider economy. With rampant inflation, I really don’t see any way out of this one as we can’t just flick a switch and turn inflation off. There is a bad choice and a worse choice. The bad choice is to fight inflation and let interest rates go up so everything will collapse. The worse choice is to continue to create inflation to avoid that and postpone to consequences of hyperinflation.

It looks like the BOE along with the Fed are going to keep raising interest rates until inflation starts coming down because if they don't the economy will totally collapse. Unfortunately, we are going to see a lot of pain, especially in the housing market and I can see house prices dropping by 20-50% depending on where you live. In the last 3 months prices have already started to drop and from now on we will see this accelerate.

What are you basing this on? 20-50%? I've not seen a single report, article, or anything mentioning anything more than 10-20%. You can say about estate agents but comments like this based purely on speculation also cause a lot of unnecessary worry for people 

mi-key

The only time house prices have dropped significantly in the last 20 years has been when the stock market crashed in 2008, and they recovered to the previous level within 2 years. Even then the drop wasnt massive ( about 15% in most areas ).

We are a long way from that sort of catastrophe at the moment. Yes things will be hard for first time buyers, but they always have been.  

In any case a big drop in the value of your home only really matters if you are looking to sell and not buy another place, or if you end up in negative equity and default. If you stay living there it makes no difference. If you are downsizing the smaller place will be cheaper, if you are moving up the ladder the new place will be cheaper. It all tends to balance itself out; 

TonyTeacake

I think people should be cautious of buying a house in the current market, especially FTB. I am not saying don't proceed with buying a house but unless you have enough savings to act as a cushion I would be very cautious.

I'm not sure how old you are but it's not like we haven't been here before, I remember 2008 and especially the early 90s saw the average house price drops around 25%, but this was not the case for everyone has some houses dropped by 50%. Many ended in negative equity and had to give the keys back to the building societies which is the last thing I would like to see but unfortunately it's going to happen for some people.

Lots of reports coming out about 10-20% house price drops written out there recently. It just depends who you want to believe because everyone will have their own views. Personally I hope I'm wrong but with inflation this high interest rates are only going to keep going up.

SeanG79

TonyTeacake said:

It looks like long term interest rates are only going one way and that is up.

Higher interest rates look like they are going to be here for a very long time, I can't really see them coming down for quite few years at least. As long as we have high inflation numbers I can't see interest rates coming down anytime soon. This will cause a lot of pain in the housing market which I have seen coming from the beginning of this year. The longer inflation stays high it will be disastrous for the economy. Expect to see house price drop over the next 2-3 years by 20-50% depending on where you live. Fixed rate mortgages are now 6% which has killed the affordability for most FTB.

We all should be prepared for some very nasty shocks in the economy over the next couple of years. I wouldn't be surprised if we have a Black Swan event.

Is there any basis or fact behind this comment, or are you like everyone else guessing!!!!???? 

The fact is there is a housing shortage in the UK, this has not changed. Inflation is circa 10% + currently, and so even if mortgage rates are 6/7% currently, that is still below inflation. 

We have been told about massive house price drops for most of the last decade! Whilst I can see stagnation in the housing market and possibly a small drop in the short term, longer term, all the reasons behind the high price of UK housing remains the same.

RobM99

The fact is there is a housing shortage in the UK, this has not changed. Inflation is circa 10% + currently, and so even if mortgage rates are 6/7% currently, that is still below inflation. 

Price inflation yes. Income inflation - no. Well, not mine anyway.

We have been told about massive house price drops for most of the last decade!

Before Covid and the war, you mean?

OhWow

The Bank of England was slow to raise the rate, despite the warning from the IMF.

The US responed quickly to try to keep to their inflation rate target, but are still expected to raise rates again by another 0.75 next month.

https://www.fxstreet.com/news/us-inflation-still-elevated-fed-to-continue-to-raise-interest-rates-sharply-commerzbank-202210131437

We are in a worse position than the US. The markets will react accordingly.

People are only guessing at how far house prices will drop and how long for. Nobody knows.

km0193

50% drop in house prices is fantasy stuff. Zero chance of this happening. I can see 10-15% in the short term, maybe 20% if things get worse from here (energy, inflation etc). 

Markets now pricing in interest rates peaking at 5% now. Some better news for those of us having to remortgage next year. 

RogerPensionGuy

km0193 said:

50% drop in house prices is fantasy stuff. Zero chance of this happening. I can see 10-15% in the short term, maybe 20% if things get worse from here (energy, inflation etc). 

Markets now pricing in interest rates peaking at 5% now. Some better news for those of us having to remortgage next year. 

Maybe central banks interest rates will stay about 5/5.75% for a couple of years May2023/May2025 then drift down a bit slowly to between 3/4% maybe.

Mortgage rates may sit about 2/2.5% above central bank rates, so maybe mortgage rates will be steady between 4.25/6% for a fair number of years after the middle of 2025.

dander

I think it highly likely property prices will drop back as mortgage prices rise - it just stands to reason that people won't be able to access as much money to fuel the higher prices. However 20-50% seems exceedingly unlikely. I bought my first flat in the early 90s and it's definitely true that where I was buying prices had dropped by a full 50%. However, that size of drop wasn't across the board by any means. Those price drops were fuelled by huge amounts of repossessions, rather than just lack of first time buyers and there's been a lot put in place over the years to prevent that scale of repossessions. Banks are much more likely now to extend mortgage terms and similar to keep people in their homes - it pays them to do it because repossessions just cost them money in the long run. If people don't need to sell, the result is just fewer houses on the market, and reduced supply is what pushes prices up, or at least would stop them falling.

The wildcard is the buy-to-let market. I think there's a lot more small-time buy-to-letters these days who may get stung by increasing mortgage costs and prefer to get rid of the liability. But even in that case it might mean there's an over-supply of city centre flats, but the rest of the market would still be in low supply and relatively resilient.