Mortgage Rate Rises

Richie said:
Its just an exercise in curiosity.

Essentially he wants to see if the interest paid over the mortgage has been eroded away by the increase in house price e.g.

  • Paid £100,000 for house in 1995
  • Use the calculator in his link to estimate what £100,000 is now equal to in today's money - £198,000 (rounded from that calculator)
  • House is now "worth" £300,000 today (price if you were to sell it today)
  • £300,000 less £198,000 (value of house currently less value of house in 1995 adjusted for inflation) = £102,000 "gained value"
  • Total Paid in Deposit+Mortgage Payments = £250,000 (so £100,000 for house (point 1) and therefore £150,000 paid in interest)
  • £150,000 interest paid less £102,000 "gained value" = £48,000 in interest paid (comparatively)

At least I think that's what he is trying to see.
Click to expand...

I still don't get the point being made. Isn't it obvious that the house prices increase effectively erodes away the interest paid?

Buying outright will always be the better option, unless you can guarantee a better return on your money than the interest being paid.
 
slinxy said:
yub this....

on some sites/groups, they say it's better to pay for something now on interest free as the value of the pound lowers with inflation.

for example, rather than paying 10k for a watch outright in 2021, I took three years to pay off the watch interest free.. in theory I would have to spend £11,925.54 in today's money for it to be "worth" the same as the 10k I spent in 2021. Swiss watch prices are going bonkers at the moment. also if you had the cash it can be sitting there in a high interest account earning 5% APR.
Click to expand...
Even if there was no inflation it's always* better to pay for something on interest free because you can leverage the money whilst waiting to pay it back, even if that's just sat in a savings account per your last point. Even with zero interest rates and zero inflation it's arguably still better because it gives you more liquidity so you have more cash at your disposal in the short term.

*barring the hassle of taking out the credit and a few niche cases like it meaning you have too much credit, or you lack the discipline to keep the money set aside for repaying it.
 
Jono8 said:
I still don't get the point being made. Isn't it obvious that the house prices increase effectively erodes away the interest paid?

Buying outright will always be the better option, unless you can guarantee a better return on your money than the interest being paid.
Click to expand...
I think it was a thought experiment
 
200sols said:
Adjust those figures for inflation.
Click to expand...
The inflation in summer 2023 was under 7%, and the latest figures for year to March was 3.2%, so inflation since summer 2022 in totality will be under 10% over the 21 months or whatever.

So really it all depends what one considers to be a 'crash', for me a 4% nominal fall against a backdrop of inflation under 10%, isn't really that huge. Some might call it a crash, I'd call it a fall or correction.
 
HangTime said:
The inflation in summer 2023 was under 7%, and the latest figures for year to March was 3.2%, so inflation since summer 2022 in totality will be under 10% over the 21 months or whatever.

So really it all depends what one considers to be a 'crash', for me a 4% nominal fall against a backdrop of inflation under 10%, isn't really that huge. Some might call it a crash, I'd call it a fall or correction.
Click to expand...
Inflation is cumulative. They'd already fallen a decent amount in real terms by October last year.

www.ft.com

UK house prices drop 13.4% from peak in real terms

Inflation masks extent of decline from March 2022 record level
www.ft.com www.ft.com

I find some of the article interesting.

"Inflation has masked the true extent of recent falls in UK house prices, with many regions and nations of the UK no better off in real terms housing wealth than on the eve of the 2008 financial crisis, research has found. UK house prices have fallen by a modest 2.8 per cent in nominal terms since their peak in March 2022, but 13.4 per cent in real terms, according to analysis of the Nationwide house price index by estate agent Savills. After adjusting for inflation, average real house prices are no higher than they were in late 2015, Savills said."

I guess many will find that surprising and meaningless at the same time. Its very regional as well.

I think to see real nominal falls as well people actually have to be unable to afford housing, mortgage lending has to dry up etc. Basically a full financial crash and a deep recession.
 
Last edited:
NotAGolf said:
What's your prediction then?
Click to expand...

I don't have a hard and fast prediction as such.

I just fear we might not be out of the woods yet, and things could get worse before they get better.

Still a lot of people on 1-2% fixed deals to come off them over the next year or so, and it looks like the banks dont think interest rates will be dropping much, if at all, anytime soon.
 
Jono8 said:
I don't have a hard and fast prediction as such.

I just fear we might not be out of the woods yet, and things could get worse before they get better.

Still a lot of people on 1-2% fixed deals to come off them over the next year or so, and it looks like the banks dont think interest rates will be dropping much, if at all, anytime soon.
Click to expand...
The help that was put in place after the mass repossession of houses during the last recession has spread the problem.
 
Jono8 said:
I don't have a hard and fast prediction as such.

I just fear we might not be out of the woods yet, and things could get worse before they get better.

Still a lot of people on 1-2% fixed deals to come off them over the next year or so, and it looks like the banks dont think interest rates will be dropping much, if at all, anytime soon.
Click to expand...
We'd need a deep recession and meaningful job losses for it to get a lot worse. In my opinion of course but it looks unlikely right now.
 
200sols said:
I guess many will find that surprising and meaningless at the same time. Its very regional as well.

I think to see real nominal falls as well people actually have to be unable to afford housing, mortgage lending has to dry up etc. Basically a full financial crash and a deep recession.
Click to expand...

Completely meaningless. Unless my salary has increased massively and I somehow don't have to pay tax on that increase and somehow I am not paying silly interest rates on a property I buy its complete BS. Its using numbers to prove something that simply isn't true in reality.

Purely on affordability its BS. Based on what we could have afforded to move into before interest rates rose vs now we are looking at ~1/3-1/4 less buying power. Neither of us have had a 25-33% payrise and thats ignoring the fact that everything else has shot up massively in that time. We are worse off and housing has got way more expensive as well.

How on earth they come up with these statements with a straight face. "Yes I know you haven't had a pay rise that keeps up with inflation. Yes I know that you are actually spending 20% more on everything other than your mortgage and I know that your mortgage has also gone up by 30-40% but fun fact, in "real terms" house prices have dropped. No, when you go to buy a new house you will find that actually you can afford far far less than you could 3 years ago but...real term drop."
 
Last edited:
fez said:
Completely meaningless. Unless my salary has increased massively and I somehow don't have to pay tax on that increase and somehow I am not paying silly interest rates on a property I buy its complete BS. Its using numbers to prove something that simply isn't true in reality.

Purely on affordability its BS. Based on what we could have afforded to move into before interest rates rose vs now we are looking at ~1/3-1/4 less buying power. Neither of us have had a 25-33% payrise and thats ignoring the fact that everything else has shot up massively in that time. We are worse off and housing has got way more expensive as well.

How on earth they come up with these statements with a straight face. "Yes I know you haven't had a pay rise that keeps up with inflation. Yes I know that you are actually spending 20% more on everything other than your mortgage and I know that your mortgage has also gone up by 30-40% but fun fact, in "real terms" house prices have dropped. No, when you go to buy a new house you will find that actually you can afford far far less than you could 3 years ago but...real term drop."
Click to expand...
Thats because its talking about house prices and not affordability. Even if prices dropped in nominal terms you'd still find them less affordable if you need to finance it after rate hikes.
 
200sols said:
Thats because its talking about house prices and not affordability. Even if prices dropped in nominal terms you'd still find them less affordable if you need to finance it after rate hikes.
Click to expand...

Which is why I said its completely meaningless. House prices up to a point are irrelevant. Affordability is what matters to 90% of people.
 
fez said:
Which is why I said its completely meaningless. House prices up to a point are irrelevant. Affordability is what matters to 90% of people.
Click to expand...

In the short term, because thats about liquidity and liquidity rules in the short term.
Once you think longer term, into retirement etc, then the value of the property in relative terms to everything else matters.
 
fez said:
Which is why I said its completely meaningless. House prices up to a point are irrelevant. Affordability is what matters to 90% of people.
Click to expand...

Affordability is what drives house prices.

The data for house prices is variable zoopa vs ons vs some other stuff.

To say house prices fallen relative to inflation, depends what date you start, @200sols what date does the FT article say because im not paying for it and 12 foot ladder doesn't work.

We should start January 2020, very quickly after that we have, a drop in rates and inflation expectations which drove house prices up 25% in 2 years to a peak towards the end of 2022.

At which point it began to decline, if you talk about the last 2 years then certainly house prices have fallen relative to inflation, but when calculating from jan 2020, no, they should be flat vs inflation.

Prediction wise, i think house prices should be flat for the next 5 years tbh.
 
You must log in or register to reply here.
Back
Top Bottom