cant see them falling anytime in the next 24 months, not unless something happens with inflation that is drastic !
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
cant see them falling anytime in the next 24 months, not unless something happens with inflation that is drastic !
Agree. Not by anything meaningful. Maybe 0.5pc but all bets are on. An increase to 6pc+ so no guarantee they'll even be lower at all in 2 years.
If they don't fall then house prices need to take a large tumble.
As a rough guide, if you were buying a £1m house 2 years ago borrowing £700k at ~2% you would be paying £3k/month. Now you would be paying about £4.3k/month.
If you did a very simple scaling of house prices to that increase you would have to have spent an extra £300k (£1.3m vs £1m) 2 years ago to be paying £4.3k/month. Thats ignoring the fact that you will be paying off an insanely higher amount over the life of the mortgage due to higher interest rates.
House prices simply have to readjust and by quite a bit.
As a rough guide, if you were buying a £1m house 2 years ago borrowing £700k at ~2% you would be paying £3k/month. Now you would be paying about £4.3k/month.
If you did a very simple scaling of house prices to that increase you would have to have spent an extra £300k (£1.3m vs £1m) 2 years ago to be paying £4.3k/month. Thats ignoring the fact that you will be paying off an insanely higher amount over the life of the mortgage due to higher interest rates.
House prices simply have to readjust and by quite a bit.
Agree they have to adjust but not necessarily by that much. Wage growth is a component of inflation, if everything goes up except house prices then they are already falling in real terms. Also, price anchoring by sellers can persist for years to come.
Why do prices of existing houses need to go down? Hate to break it to you but they're not. People overexposed might need a quick sell but other than that there's not enough houses as it is, they will continue to rise in the medium to long term. Bank on it
A reduction in property prices seems to be the global trend, the global market is generally overleveraged and with increasing interest rates they are struggling to service the debt which will lead to offloading of the assets, creating a downwards pressure on prices.
Given that we've turned our property market into a global investment and/or speculation instrument, the prices are no longer about local supply, demand and affordability but global market investment and speculation forces.
Because if people can't afford their mortgages they will have to sell up and downsize or rent. If interest rates are still 5% in 2 years there will be millions of people going from less than 2% to 5%. Plenty won't be able to afford that.
Property is purchased using leverage. Demand for houses requires a supply of money, which is becoming much tighter and more expensive.
Keeping it even more simple, these boom-bust cycles are pretty common throughout history. We've had a 15 year global boom period by increasing supply of cheap money, therefore creating demand for housing. Now that trend is reversing and we're entering a bust cycle.
As you say, the downturn will pass, nobody is claiming the downturn will continue until the cold death of the universe.
Yeah.
The reason prices are mostly holding up is that banks are still lending people up to 4.5x people's annual salaries which turns every recent mortgage into a subprime one. People usually borrow as much as they can without thinking about long-term consequences of paying the mortgage. So on paper affordability (in terms of people's ability to make offers on houses) hasn't changed as banks lend you just as much as they did before interest rate rises.
Someone on £50k can borrow £225k, which at 6% means £1450 per month, or about 45% of their take home pay. 2 years ago at 2% this would have been about 25% of their take home pay. Yet banks lend you just as much as before, assuming you can afford this.
Sooner or later banks will lower lending multiple and as soon as that happens, people won't be able to make the same offers on houses, and that's when we see the real downturn.
Last edited:
Affordability will determine prices, not supply.
Not when people have to finance the costs. Affordability > Demand > Supply.
Doesnt matter how few, or many houses you have in supply if people cant afford them then prices will fall until they can.
Last edited:
[
Depends on the wealth and how many are wealthy.
You can have 1person buy 5 homes, put the homes out of reach for the majority.
Put it this way corporations companies have bigger pockets and more incentives ie tax deductions.
While avg Joe does not.
IHT leads to forced sells by Joe public, companies don't need to force sell as the entity can live for 100 years plus.
Joe forced to sell because of IHT, ( restrictive trade practices) while big pockets can outbid the public.
The only way you will make homes affordable, would be not to make them an investment for corporations.
That is not allowing them to apply any deductions from residential properties and apply costly yearly legal requirements.
Unfortunately the housing market is too far gone to have any meaningful crash for Joe public.
This is where the property market will end up.
Depends on the wealth and how many are wealthy.
You can have 1person buy 5 homes, put the homes out of reach for the majority.
Put it this way corporations companies have bigger pockets and more incentives ie tax deductions.
While avg Joe does not.
IHT leads to forced sells by Joe public, companies don't need to force sell as the entity can live for 100 years plus.
Joe forced to sell because of IHT, ( restrictive trade practices) while big pockets can outbid the public.
The only way you will make homes affordable, would be not to make them an investment for corporations.
That is not allowing them to apply any deductions from residential properties and apply costly yearly legal requirements.
Unfortunately the housing market is too far gone to have any meaningful crash for Joe public.
This is where the property market will end up.
Last edited:
Soldato
- Joined
- 4 Aug 2007
- Posts
- 22,000
- Location
- Wilds of suffolk
Its going to be interesting to see how this plays out.
Right now I dont know of a person who literally cannot afford the rises.
I hear a lot of people moaning without doubt, but everyone who needs to is renewing, and carrying on.
IMO being as most people have been stress tested to this level they should be able to cope. With some pain for sure.
There are always some people who **** goes bad for and end up repo'd but unless that reaches previous recession levels then IMO its still affordable.
This applies to all those who are in properties already of course.
New entrants could be interesting. The rate wont affect the first and for many largest hurdle, getting the deposit.
The rate may hurt sure, what would be most interesting is can they afford the stress test (not sure what rules they are using for this at this point in time).
Supply will be interesting. The house builders stop building quite quickly when prices drop. Why build now and use up a limited resource (land) when you can delay and build later for more profit.
With the population and hence demand creeping up (soaring in some peoples minds, ie brexiters) then naturally there would be an increase in demand at all times. IE a trickle of demand increase nigh on permanently.
So those combinations IMO mean whats more likely is that there will be more schemes created in order to get people the option to get onto the market as opposed to a significant correction (I use this term loosely).
Happy to be proven wrong, and expect there will be some softening of prices since the market seems quite weak right now, but I dont see a correction to restore affordability as it was say 12 months ago.
IF however we enter a sustained and notable recession I can see prices falling significantly.
But they clearly are. I can only speak anecdotally but I've been keeping a close eye on house prices locally while waiting to sell my house abroad and buy in the U.K. Around where I live I'm seeing large drops on a number of houses I have saved on rightmove - so much so we're going to hang fire on buying just to see how this pans out.
Interestingly, large numbers of houses have come onto the market with no onward chain, I'm assuming buy to let investors on interest only mortgages looking to get out quick.
They will be snap up by companies.
I work in new build housing for most of the largest house builders on the country. They are all suffering badly with average drops of the marketing values of around 10%
Several house builders are also agreeing large investor sales to keep their sales turnover reasonable. Without those some of the month by month sale stats would be shocking.
Existing houses over £500k are the ones struggling to resale. There is far less demand for them when rates are this high because they price people out who are working good jobs and are too cheap for people with serious money.
There’s a lovely detached 5 bed house near me on the market for 8 months now at £845k that isn’t shifting…
Those same houses were £650k before the pandemic.
Several house builders are also agreeing large investor sales to keep their sales turnover reasonable. Without those some of the month by month sale stats would be shocking.
Existing houses over £500k are the ones struggling to resale. There is far less demand for them when rates are this high because they price people out who are working good jobs and are too cheap for people with serious money.
There’s a lovely detached 5 bed house near me on the market for 8 months now at £845k that isn’t shifting…
Those same houses were £650k before the pandemic.
It'll come down to job losses.
Even though life would suck and I'd be wanting to leave the UK as I'd have no life for next 5 years I wouldn't be "forced" to sell up.
If BoE tip us into a recession that causes a cascade of job losses? Then all bets are off.
Even though life would suck and I'd be wanting to leave the UK as I'd have no life for next 5 years I wouldn't be "forced" to sell up.
If BoE tip us into a recession that causes a cascade of job losses? Then all bets are off.
I've mentioned this before.
Who wants these (or can even have them if they wanted) 4 bed huge houses way out of easy commuter range?
My parents whole village is like this. Before an average couple could easily end up in one. No more. I wouldn't be surprised if the mid tier 3-4 bed modest sized houses hold up best and these super houses fall most.
They aren't good for investment either.
Last edited:
Supply and demand is not the same everywhere. I want to live in a nice town, like St Alban's but not in Hatfield, these towns are next to each other. Nice towns have a very poor supply of homes and massive demand. Plus there are many cash buyers in the market, so I don't buy the whole crash happening everywhere.
Caporegime
- Joined
- 22 Oct 2002
- Posts
- 28,294
- Location
- Boston, Lincolnshire
I was delivering in Hatfield today at Booker. Lots of nice new housing estates built right next door to busy distribution centres. It amazes me how desperate people are to actually live in a place like that. It is actually quite sad as the houses are obviously not cheap either.