If they say BOE will peak at 4.5%...does this mean it will then start to drop to say 2% again?

ACG

snowqueen555 said:

PK_London said:

ZIRP (zero interest rate percentage) that we've had for the last 15 yrs, that have sky rocketed property prices, along with QE which leaves inflation in double digits today, the reason why you're seeing everything in the shops go up in prices and why every trade union is striking is the reason why low interest rates were an experimental disaster for the economy.

We need to get back to 5% and stay there.

Crazy low interest rates have been the root of all our economic evil.

I hope we never see 2% rates again in my lifetime.

House prices need to adjust though. Housing is so unaffordable now and haven't fallen anywhere near enough as of yet. 

The conference call I was on in the week, the economist was saying that if average mortgage rates are around 5.5-6%, house prices need to drop around 25% to keep things level (this assumes mass pay rises are not on the cards), however as mortgage rates are dropping, he thinks it will be much closer to 10%, which also assumes modest pay rises. 

Im not sure what how much you are hoping house prices drop by, but if you are thinking 20% plus by all accounts that is unlikely. If they do drop by 20%, arguably there are going to be many other problems to contend with than house prices. 

rc28

I think there will be pressure to start reducing interest rates once inflation has been dealt with. We're already seeing oil price deflation if they stay down this should start to feed through to other commodities.

I don't think that the peak rates (4.5%) will be sustainable for long, we've been too reliant on cheap debt for too many years. My guess is that rates may settle around 3% to give mortgage borrowing around 4%, it seems like a reasonable medium, mortgage rates like the current 5-6% would require too large a house price adjustment. 

mi-key

I can see a 10% drop possibly happening gradually over the next two years, but the other thing that may well happen is stagnation where prices just don't rise from where they are now for a few years, allowing wages etc... to catch up a bit and the interest rate to lower.

I think one thing we will see is lenders offering mortgages for less above the base rate, rather than the standard 2 - 2.25% they have been operating with. If they can't lend anyone money, then it hits them hard, so they will have to reduce their margins or offer higher income multiples etc... to get the business. 

People saying houses 'aren't affordable' are sort of missing the point.  

ElwoodBlues

ACG said:

snowqueen555 said:

PK_London said:

ZIRP (zero interest rate percentage) that we've had for the last 15 yrs, that have sky rocketed property prices, along with QE which leaves inflation in double digits today, the reason why you're seeing everything in the shops go up in prices and why every trade union is striking is the reason why low interest rates were an experimental disaster for the economy.

We need to get back to 5% and stay there.

Crazy low interest rates have been the root of all our economic evil.

I hope we never see 2% rates again in my lifetime.

House prices need to adjust though. Housing is so unaffordable now and haven't fallen anywhere near enough as of yet. 

The conference call I was on in the week, the economist was saying that if average mortgage rates are around 5.5-6%, house prices need to drop around 25% to keep things level (this assumes mass pay rises are not on the cards), however as mortgage rates are dropping, he thinks it will be much closer to 10%, which also assumes modest pay rises. 

Im not sure what how much you are hoping house prices drop by, but if you are thinking 20% plus by all accounts that is unlikely. If they do drop by 20%, arguably there are going to be many other problems to contend with than house prices. 

Given that house prices have shot up by 25% just over the last couple of years, a 20-25% fall would only take us back a bit.

JustDavid

The typical base rate pre 2008 was always around 5%. We've enjoyed an extended period of incredibly low borrowing. The rises seen this year are almost a market correction, and actually, if it does stabilise at 4 or 4.5%, that still on the low end of things in reality. Some stability is expected to return in 2023 but the days of 2% and below are done and dusted. At least until we go through another full financial cycle (10-15 years typically).

simon_or

As you can see from the best buy tables, high street mortgage costs have been falling slowly and steadily since the mini-budget fiasco and the BOE rate going up to 4.5% is already priced in.

Halifax is offering a 95% LTV 5yr fix at 5%. That was around 6.1% as recently as a month ago.

Tracker rates have cratered as well, all of it in the past month. You've got multiple banks offering ERC free trackers that are inside bank+0.5%.

Banks have to lend - volumes have dipped, transactions have fallen and banks have plenty of processing capacity now so I expect competition to heat up further in the new year, put pressure on bank margins and fixed rates to continue to slide slowly downwards as long as there aren't any major shocks to the system.

It's not going to go to 2% unless inflation crashes and the bank of england slashes the base rate (both of which are unlikely anytime soon imho) but I think high street high LTV mortgage rates will be around 4% or so by the end of 2023 or early 2024.

Aberdeenangarse

simon_or said:

It's not going to go to 2% unless inflation crashes and the bank of england slashes the base rate (both of which are unlikely anytime soon imho) but I think high street high LTV mortgage rates will be around 4% or so by the end of 2023 or early 2024.

That’s still twice what people were paying 12 months ago!

simon_or

Aberdeenangarse said:

simon_or said:

It's not going to go to 2% unless inflation crashes and the bank of england slashes the base rate (both of which are unlikely anytime soon imho) but I think high street high LTV mortgage rates will be around 4% or so by the end of 2023 or early 2024.

That’s still twice what people were paying 12 months ago!

Yes, but 4% would still be a LOT less than what a lot of people were paying 1 month ago.

BikingBud

rc28 said:

I think there will be pressure to start reducing interest rates once inflation has been dealt with. We're already seeing oil price deflation if they stay down this should start to feed through to other commodities.

I don't think that the peak rates (4.5%) will be sustainable for long, we've been too reliant on cheap debt for too many years. My guess is that rates may settle around 3% to give mortgage borrowing around 4%, it seems like a reasonable medium, mortgage rates like the current 5-6% would require too large a house price adjustment. 

And isn't this therefore the wake up call that's overdue by too many years? 

If house prices need to adjust because they have been overinflated for many years it will be just another periodic reset brought on by people who always think it's different this time. 

BikingBud

mi-key said:

I can see a 10% drop possibly happening gradually over the next two years, but the other thing that may well happen is stagnation where prices just don't rise from where they are now for a few years, allowing wages etc... to catch up a bit and the interest rate to lower.

I think one thing we will see is lenders offering mortgages for less above the base rate, rather than the standard 2 - 2.25% they have been operating with. If they can't lend anyone money, then it hits them hard, so they will have to reduce their margins or offer higher income multiples etc... to get the business. 

People saying houses 'aren't affordable' are sort of missing the point.  

Please could you explain as I seem to be one of those people who is constantly missing the point.

Definition:

The definition of affordable housing may change depending on the country and context. For example, in Australia, the National Affordable Housing Summit Group developed their definition of affordable housing as housing that is "...reasonably adequate in standard and location for lower or middle income households and does not cost so much that a household is unlikely to be able to meet other basic needs on a sustainable basis."[12] Affordable housing in the United Kingdom includes "social rented and intermediate housing, provided to specified eligible households whose needs are not met by the market."[13] In some contexts, affordable housing may only mean subsidized or public housing whereas in other cases it may include naturally occurring affordable housing or "affordable" by different incomes levels from no income households to moderate income but cost-burdened households.

The fact that:

• People have to restrict so much else within their lives so they are able to sacrifice their funds and pay for accommodation does not tend to indicate affordability.
• Many are panicking about interest rates rises, alongside other cost of living increases, does not support that their accommodation was affordable. 
• People have bought houses at prices that put them into financial difficulties does not support that housing is affordable.
• Some are happy and willing to consider that the perpetuation of HPI is good despite the fact that their own children and grandchildren may not be able to "AFFORD" is the real point that is being missed!