Advice: Interest Rates going up and house prices going down

custardly

tooldle said:

CSI_Yorkshire said:

fackers_2 said:

MobileSaver said:

BendyTaffies said:

There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west,

I don't know where you got that idea from, can you share some of the respected sources predicting such a thing?

Most of the UK housing market players are predicting at worst a drop of 10% over the next few years and pretty much everyone expects house prices to be higher than they are now in just four years time...

I’ll help you with some information. 

Ohh just to help, this is from The Bank of England themselves  

What's an "implied" fall in house price?

Is it a forecast?  A relative calculation against a baseline (like price vs inflation)? I don't get where those numbers come from.

I mean, that graph seems to suggest that any mortgage rates above 2% result in prices falling, which clearly isn't true based on what's actually happened in the past?

Not a forecast. Output of a research model. Very likely connected to this work, although not referenced in the earlier post. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf

Chaps, how does any of this help OP?

CSI_Yorkshire

custardly said:

tooldle said:

CSI_Yorkshire said:

fackers_2 said:

MobileSaver said:

BendyTaffies said:

There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west,

I don't know where you got that idea from, can you share some of the respected sources predicting such a thing?

Most of the UK housing market players are predicting at worst a drop of 10% over the next few years and pretty much everyone expects house prices to be higher than they are now in just four years time...

I’ll help you with some information. 

Ohh just to help, this is from The Bank of England themselves  

What's an "implied" fall in house price?

Is it a forecast?  A relative calculation against a baseline (like price vs inflation)? I don't get where those numbers come from.

I mean, that graph seems to suggest that any mortgage rates above 2% result in prices falling, which clearly isn't true based on what's actually happened in the past?

Not a forecast. Output of a research model. Very likely connected to this work, although not referenced in the earlier post. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf

Chaps, how does any of this help OP?

Because half of the OP's question was how do I protect myself from the massive crash.

surely understanding how likely and how large any crash might be is an important part of the analysis?

tooldle

I’ll help you with some information. 

Ohh just to help, this is from The Bank of England themselves  

What's an "implied" fall in house price?

Is it a forecast?  A relative calculation against a baseline (like price vs inflation)? I don't get where those numbers come from.

I mean, that graph seems to suggest that any mortgage rates above 2% result in prices falling, which clearly isn't true based on what's actually happened in the past?

Not a forecast. Output of a research model. Very likely connected to this work, although not referenced in the earlier post. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf

Chaps, how does any of this help OP?

Learning the importance of ‘sources’ for context and understanding, rather than worrying self about anything and everything including mis quotes on the internet. The OP is worried about “the expectation of UK suffering the worse housing crash in the west”.  

MultiFuelBurner

Someone mention implied drop earlier and this is what I think it means. 

e.g. over the next two years the CPI (inflation) should potentially effect your house price with a rise of up to 20%. Add to that a fall of your current house price of 10% and that is where the 30%+ doom mongers are flooding the internet with their figures of the 30%+ crash.

Joe and Jane public sees this as their house e.g. worth £250,000 now being worth £175,000 overnight in the big property price crash when in reality the implied drop means at 30% in two years time it may be worth £210,000-£225,000. (Because the inflation meant in two years time it should have been worth approx £300,000)

However click bait wins every time.

GDB2222

MultiFuelBurner said:

Someone mention implied drop earlier and this is what I think it means. 

e.g. over the next two years the CPI (inflation) should potentially effect your house price with a rise of up to 20%. Add to that a fall of your current house price of 10% and that is where the 30%+ doom mongers are flooding the internet with their figures of the 30%+ crash.

Joe and Jane public sees this as their house e.g. worth £250,000 now being worth £175,000 overnight in the big property price crash when in reality the implied drop means at 30% in two years time it may be worth £210,000-£225,000. (Because the inflation meant in two years time it should have been worth approx £300,000)

However click bait wins every time.

I agree that implied fall probably means the effect of an increase in interest rates, on its own ignoring all other factors. 

Strictly, it probably means an unexpected increase, which hadn’t already been factored into prices, but that is the case, as nobody was really expecting 6% interest rates a year ago, say. 

I’m not expecting a huge crash, with lots of repossessions like we had back in the 1990s, but I don’t see any point in buying now rather than waiting a few months to see how things go. 

RetSol

gazfocus said:

I read that if you're currently on a low interest rate with your fixed mortgage, your best option would be to squirrel away as much as you can into a high interest rate savings account (there's a few that are 4-5% now), then when your fixed term comes to an end, make a lump sum overpayment to your mortgage and then move onto a new fixed rate.

There's no point overpaying your mortgage at the moment because the interest rate is low so you'd 'earn more' in a savings account by comparison.

In principle, this is correct. 

However, depending on how disciplined you are, there may be something to be said for overpaying now (to the extent that you can without paying a penalty).

Once paid into the mortgage account, the cash is "gone" and you won't be tempted to spend it on anything else. 

GDB2222

RetSol said:

gazfocus said:

I read that if you're currently on a low interest rate with your fixed mortgage, your best option would be to squirrel away as much as you can into a high interest rate savings account (there's a few that are 4-5% now), then when your fixed term comes to an end, make a lump sum overpayment to your mortgage and then move onto a new fixed rate.

There's no point overpaying your mortgage at the moment because the interest rate is low so you'd 'earn more' in a savings account by comparison.

In principle, this is correct. 

However, depending on how disciplined you are, there may be something to be said for overpaying now (to the extent that you can without paying a penalty).

Once paid into the mortgage account, the cash is "gone" and you won't be tempted to spend it on anything else. 

You may be right about human nature, but are people really that childish about their mortgage money?

simon_or

RetSol said:

gazfocus said:

I read that if you're currently on a low interest rate with your fixed mortgage, your best option would be to squirrel away as much as you can into a high interest rate savings account (there's a few that are 4-5% now), then when your fixed term comes to an end, make a lump sum overpayment to your mortgage and then move onto a new fixed rate.

There's no point overpaying your mortgage at the moment because the interest rate is low so you'd 'earn more' in a savings account by comparison.

In principle, this is correct. 

However, depending on how disciplined you are, there may be something to be said for overpaying now (to the extent that you can without paying a penalty).

Once paid into the mortgage account, the cash is "gone" and you won't be tempted to spend it on anything else. 

I don't disagree with the gist of your post, especially where the gap between mortgage and savings rates is minor.

But on the flip side, if you do fall into financial difficulty (lose your job, unexpected caring needs, business goes down, etc.), you've not only lost the extra interest that you would've got in your savings, you've also lost access to those funds with most mortgages.

Sarah1Mitty2

MobileSaver said:

TerryDuckworth said:

MultiFuelBurner said:

MobileSaver said:

BendyTaffies said:

There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west,

I don't know where you got that idea from, can you share some of the respected sources predicting such a thing?

Most of the UK housing market players are predicting at worst a drop of 10% over the next few years and pretty much everyone expects house prices to be higher than they are now in just four years time...

I believe this is one of the many faces. Moving home with Charlie rings a bell with a lot of rhetoric on this users few posts so far.

Trying their hardest not to be too crashy too early.

I have just discovered his channel on youtube. Not sure I agree with his predictions

Considering he himself admits to "20 years of repeated failures" and that he went personally bankrupt  in 2015, I think you have made the right decision to take his predictions with a very large pinch of salt... much of his content is just clickbait to generate traffic to his various sites.

That`s right, "doom-mongering" is popular now, just click-bailt, in the real world at least 40,000 people EVERY month are taking out mortgages.

https://www.mortgagesolutions.co.uk/news/2023/06/29/mortgage-lending-and-approvals-rise-in-may-despite-interest-rate-hikes-boe/

snowqueen555

Just a 1% increase in interest rates reduces your purchasing power by 10%.

House prices really need to reduce by 10-20% I think to be at the same affordability. I don't think that will happen across the board and if it does, it will be slow.

I'm seeing some reductions on the less desirable flats near me but still not enough.