Interest rates vs Price drops

setmefree2

Happy to be proven wrong but if £100,000k costs the following over 25 years:-

7%, £212,034(£18,744 more than at 6%)
6%, £193,290 (£17,913 more than at 5%)
5%, £175,377

then

£100, 000 @ 5% costs £175, 377 (£1.75377 * £100,000)
£90,732 @ 6% costs £175,377 (£1.9329 * £90,732)
£82,713 @ 7% costs £175,377 (£1.75377 * £82,713)

Therefore,
Prices have to drop 9%, then 8% to be equal to the cost of £100k at 5%.
Thus, when interest rates move 1% the market has to drop 9% for things to be the same and 17% for a 2% rise.

Happy to be proven wrong

SMF2

jaype

All very good, but the relationship between Bank of England interest rates and what mortgage lenders actually charge has decoupled now. That's why very few passed on the last cut to mortgage holders. Because of he credit crunch banks are very unwilling to lend to each other and so borrowing the cash to hand out to people seeking mortgages has become more expensive (that old supply and demand thing). It will be a long time before the market rates drop 1 percent, I'm afraid, no matter what the BOE does.

setmefree2

Hi

If interest rates go up 1% then the market has to drop 8% (roughly) for the cost of a £100k house to be the same (over the life of a mortgage)

And if rates go up 2% then the market has to drop 17% for the cost of the house ober the life time of a mortgae to be the same. to be the same.

So the market moving down by 8% in house prices is really the same as mortgage rates going up by 1%.

Gorgeous_George

House prices have loosely tracked average mortgage rates for many years. Mortgage rates are still quite low, if a tad higher than would be necessary if it wasn't for the credit crunch.

Now it is different.

Bank of England base rates will probably fall over the coming months. Mortgage rates are likely to fall too, but less dramatically.

The biggest difference is that lenders have less money available and will choose the better applicants. That is those with sensible deposits and requiring lower multiples.

How much a loan costs overall is immaterial really. In the final years, the payments are worth less due to the effects of inflation. The figures are useful for comparison purposes. Besides, rent isn't free.

GG