House prices in a market with rising interest rates

Grizebeck

Just a random question here 
Where mortgage rates are rising does this in anyway drive up demand for houses at the "lower" end of the market? Is there any evidence in this from past mortgage hikes ?
Is it wrong to assume that people lower their sights when budgets tighten

The reason i ask if we have brought a "in between house" whilst we find what we want with cash in the bank for this new house and will either rent out or sell on the house once the new one is finished etc

caprikid1

I think it pulls buyers out of all parts of the chain , it takes a long time for buyers to accept they can no longer afford the house they could and sellers to accept that the house is no longer worth what it was 12 months ago.

First time buyers are always believed to be the lifeblood of the market and they are the first to go, no one wants to stretch themselves to buy a house that will be worth 10% less in 12 months time.

[Deleted User]

Unfortunately these days a lot of FTBs are getting scammed with Shared Ownership schemes. It's a relatively new thing so it's hard to predict how it will affect the market.

Grizebeck

I just wonder if some parts of the house market do better as a result of rising rates etc

spoovy

FTBers would tend to have the largest mortgages (I'm guessing), and the larger the mortgage the bigger the monthly cost increase from higher rates. So I would expect FTBer, lower-rung properties to take bigger hits.

That being said, who knows what crazy scheme the government have got cooking to boost prices before the next election. I'd guess another big H2B scheme, but who knows, they've even looked at allowing people to raid pension pots for deposits. Whatever it is though, it will be designed to *look like* it's helping FTBers most, so will likely boost FTBer-type property prices the most.

Gavin83

Firstly there's no way for anyone to really predict what will happen to house prices over the coming year. They might be worth less, they might even be worth more. We'll have to wait and see.

I'd actually say it's the opposite way around though. Those buying at the bottom end of the market are generally poorer, can afford mortgage increases less and will be more wary. Those buying more expensive houses will typically have the funds to cope with interest rate rises and many won't be needing a mortgage at all.

Grizebeck

Gavin83 said:

Firstly there's no way for anyone to really predict what will happen to house prices over the coming year. They might be worth less, they might even be worth more. We'll have to wait and see.

I'd actually say it's the opposite way around though. Those buying at the bottom end of the market are generally poorer, can afford mortgage increases less and will be more wary. Those buying more expensive houses will typically have the funds to cope with interest rate rises and many won't be needing a mortgage at all.

Good point

[Deleted User]

Interest rates are higher than before but by no means are they high by historical standards. The cost of renting is also high. I think people will still buy if they can, even if the higher interest rates gobble up some disposable income, because home ownership will still be the best idea for many . In the modern world, with both partners working, and in some cases with decent payrises, there is affordability. Nationally, there has been a slight downturn in prices in the past year, nothing that vendors would worry over,  and welcome for prospective buyers. In my local area, prices are on the rise.

JJR45

From what I am seeing larger house sales (4 bed detached and larger) have slowed the most, as people have re-evaluated what they can afford.
There is no doubt there are far more houses coming on the market than are selling.

[Deleted User]

Higher interest rates cause lower house prices. Which may mean buy to let landlords selling up as they may have interest only mortgages and need to maintain loan to house value ratio. And need to increase rents to cover increasing mortgage payments but can only increase rents once a year or at the end of a fixed term tenancy. And lower house prices usually means lower rents as more people opt to buy rather than rent. Many small properties are owned by buy to let landlords. So they might fall in price by a higher percentage.

Also with falling house prices first time buyers savings, their 5% deposit, goes further enabling them to get a bigger home. Rather than settling for a smaller home because it was all they could get. 

MultiFuelBurner

We have dug out our rents covering the last interest spike to 5.75% in 2007. 

It looks like we had very good long term tenants across all the properties so rents were not increased July 2007-2008 but were in 2009.

The problem we have at the moment in the UK is demand for rental properties is 5x that of 2007-2009 so the expectation that rents will decrease or even stay the same may not be the same argument it used to be.

There appears to be some people considering selling and renting for up to a year on the board and from our own records and knowledge spanning 20+ years of being LL's doesn't support anyone leaving the property market (paying high rent) then returning to the market. It really is only for those that can afford the gamble. It may pay off it may not🤞