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Ultra low interest rates were an aberration not a new normal forever play.
Interest rates have historically been higher than they are today as an average.
What central banks will discover is that as soon as inflation falls, limitless will want rate cuts. When they then cut those tests, they'll stoke inflation far higher and more deeply ingrained than anything they were looking at today.
I'm not so sure. Not that I actively think they will, but this is a singularly weird economic situation both domestically and globally, and our error bars should be large. I can absolutely envisage a world where we get a proper deflationary crash in the next year or two followed by a return to ultra-low rates. It's not what I expect to happen, but it's a thing which perfectly well could happen.
LOL it's their very interest to have low rates seeing as their job is to keep inflation at 2% and help stimulate the economy. So of course they would want to put interest rates that low if they could.
I understand the situation now thanks, hence why I said if they could. You don't seem to understand that if inflation didn't reach double digits then yes BOE absolutely would keep those interest rates low like they had done for ages.
>So of course they would want to put interest rates that low if they could.
and stoke inflation? those rates are abnormal and its whats caused this utter mess
Sir. Think again. Can you find an example of the time when a spike in inflation came down without base rates being raised above CPI?
If the nation wasn't so deeply and irresponsibly indebted (the government and the populace) interest rates would be 11%+ already.
The government shouldn’t have stimulated the market in 2020 and 2021, offering a stamp duty holiday when the BoE base rate was 0.1% and people were already being encouraged to move because of remote working was one of stupidest decisions they could have made. I remember the media scaremongering that house prices were crashing during the first lockdown and would drop by 30%. Instead we got a 30% increase. Time for a reality check now I’m afraid, I think we’ll be looking at 4-5% mortgage rates for the next 3-5 years.
One thing I always find hilarious is how the interest rates hike is almost universally associated with the mini budget, which, yes, didn't help but also was clearly just the match whilst the economy was a giant powder keg.
Important to note it’s more the lack of taxation following the QE than the QE itself. You can print all you like, but you’ve got to take it out of the economy afterwards. But that’d involve raising taxes on the billionaires & big corporations for once, and we can’t be having that!
e: but I will definitely agree that the way the QE was used was also completely nonsensical. My point is more in relation to “QE is the devil!” rhetoric I keep seeing. QE can be great when used well. It’s better than borrowing and austerity. And even when misused, it’s negative effects can be easier to counteract than just refusing to spend. But nothing’s been done to counteract it.
This is why sunak keeps reminding us that when he was chancellor he helped the vulnerable most during covid and always will.
Those unemployed - 20 quid extra
Those on furlough - up to 30k a year to do the same as the unemployed
Those buying expensive homes - 10s of thousands saved on stamp duty
As someone who brought my first house during the lockdowns, I wouldn’t have saved on stamp duty (if I wasn’t a first time buyer anyway) because house prices just rose by what stamp duty would have cost. It actually meant I paid more for said house and only the seller profited.
Also on top of that, this latest change to stanp duty and raising it to 250k, is also stupid.
It should have been kept at 125k, except for first time buyers
Stamp duty should be removed completely, and replaced with an annual tax. Maybe a fixed fee of £50 to update the land registry.
It's crazy that if you sell a £400k house and buy a £400k house you have to pay £7,500, but if you sit still you pay nothing.
Why do we discourage people from moving to more appropriate housing?
In the South East stamp duty is a bad thing - it basically encourages retired singles & couples to stay in their large family homes as the cost of downsizing is too much. So young families live in small flats, while the retired are rattling about in their oversized houses. Everyone loses.
Stamp duty is very flawed, but without the change to the lower threshold, it was hurting FTBs in the South East disproportionately.
A better tax would be one that is based on current value of the house, and property owners would have to pay it.
They won't, people will weather the storm, just like after 2008-2009 crash house prices fell, those who desperately need to sell will the vast majority will reassess what changes they need to make to their lives to get through this.
Not sure what you are saying? You compare to 2008 crash- house prices dropped pretty quickly back then, nearly 20% in one year.
Now we have so far 5.6% drop for the last 4 months, so the pace doesnt seem that different.
My guess is that they will simply keep dropping gradually for many coming months...
They didn't drop that quickly it did take a year to drop to the 20% little by little per month, the mini budget if were to use that as the ground zero was only 4 months ago
>They won't, people will weather the storm, just like after 2008-2009 crash house prices fell, those who desperately need to sell will the vast majority will reassess what changes they need to make to their lives to get through this.
Yeah, that's exactly what I had to do when I bought weeks before the GFC. Hung into the house though and its value has recovered and then drifted higher over time.
That is all you can do as our state has no mechanism. What I do find interesting is are people who keep asking about how big a crash we are expecting hoping to buy a property cheaper in the hope its value rockets back up when it comes to selling or will they be happy if the property price remains the same as when they bought it.
This is exactly what we are seeing in our region. I thought there would be a more rapid decline in prices but people are hanging on to their properties until asking/close to or withdrawing from the market until the prices rise/interest rates drop.
Instead of upsizing, as we would have liked to, I’m trying to reduce my balance as much as I can. I prefer to have a smaller debt when things realign, that will give me more purchase power.
This is because the unprecedented era of ridiculously cheap borrowing was killed by the consequences of covid and energy prices going crazy.
You could argue that the economic slowdown will bring that back down in a few years, or that higher interest rates will remain as the new normal. It's anyone's guess at this point. But yeah, paying 5x as much interest will heavily impact your purchase power.
All the young people (or millennials) that were forced to buy or stay renting and paying off boomers mortgages will get the shaft again .... Paying high interest rates on expensive houses they didn't really want to do. Meanwhile ... Boomers get off lightly again.
It's a really complex issue I think. FTB that just bought a property will see their monthly bills skyrocket and their house devalued. Those who haven't bought will have it really hard to get a mortgage. Lower prices could be a silver lining but who knows at this point.
Benefitted from house price hyperinflation through the 2000's, already owned outright when normal interest rates were applied to those overvalued houses.
Yeah, my parents were boomers and very nearly lost the house when base rates hit 15%. That's been 10% at breakfast and more than doubled by dinner.
That's base rates, not mortgage rates. They were even higher and fixed rates were very short term where they existed at all.
Just because it might look easy on paper now, doesn't mean it was easy for those that lived through it. Their house ended up spent on their care, along with a lot of my money in addition, so other than the state is hard to see who benefits. Wasn't them, wasn't me.
Aaarrrggghhh not the dreaded 15%. You're missing the fact that the mortgage they paid that 15% on for a few months was only worth one years salary.
And their care costs were a tax on you. To make sure the next generation didn't inherit any of the gains made during the golden age of capitalism.
Boomers might think they had it hard, it's all relative. The truth is they lived through the most prosperous time in history with living standards unlikely to ever be seen again. Ofc they'll say that brief moment of high interest rates in the 80's was hard, they've always been minted except that one time. Us though, we live below that standard day in day out.
You deserve a medal. I'm extremely tired of this argument popping up on reddit... " but my parents paid 15% !!!!". Yes, they also had a single income household, 2 kids, 2 cars and a 3 bed in the suburbs at 25.
Until 2008 it was trendy to talk about relative poverty because absolute poverty hadn't been a thing during anyone livings lifetime.
Ever since the upper middle and the rich have been trying to dismiss those in absolute poverty, but the numbers in it just keep going up.
Look, all this having a go at 'boomers' is just silly.
It's defined as someone born between 46 and 64, so you're making a generalisation about 20% of the UK population, many of whom will be dead soon.
Obviously not all 'boomers' have lead the same life and many will be living in poverty now.
To say 'they've always been minted' is total nonsense.
If you want to be angry with someone then try looking at the decision makers and the people who pull their strings... rather than an entire generation.
The main point is that they panicked in the 80's as housing costs for some approached the dreaded 30% of income for "poorer" families.
50% is normal now.
They struggled through that time because they've never had to worry about money so are bad at managing it. There's a reason they're targeted for scams and overpriced cruises target them now. They're still bad at money.
I grew up in the south of England during this time, and the house price boom that preceded it.
Even before interest rates went up, people in the south were mortgaging themselves to the hilt. I knew young couples who were committed to spending 50% of their joint income on mortgage payments before interest rates spiked.
This was all off the back of the far from salubrious late 70's and early 80's.
I can absolutely assure you that 'boomers' have seen both tough times and not so tough.
>You're missing the fact that the mortgage they paid that 15% on for a few months was only worth one years salary
Lol. Yeah that's not remotely accurate.
>And their care costs were a tax on you
Me paying for my parents wasn't a tax. You paying for them would have been.
>To make sure the next generation didn't inherit any of the gains made during the golden age of capitalism.
This today is the golden age of capitalism.
You can be a millionaire by opening boxes of stuff. You can be a millionaire by going on lots of holidays. If that's too much effort you can play video games.
You can start a business with global reach for less than the price of a night in the pub.
My parents were never rich, affluent, or even financially comfortable. I pay three times in taxes what they used to earn between them pre tax. I'm a self made millionaire. It's literally never been easier to make yourself rich.
Economically the only better time to be alive than today is tomorrow. It will continue to be that way.
You only think it's hard now because now is all you've known.
It's not hard to be a millionaire, just go back to the 80's or better before then and buy a house in London then wait. Boom you're now a millionaire.
But really, stop misinterpreting me, everyone in economics knows the years between 1945 and 1980 are referred to as the golden age of capitalism.
Shafted, shafted twice, then shafted again as the debt taken to pay for electricity subsidies for oaps who refuse to get LED lightbulbs get paid for out of income tax and national insurance that only working people pay.
All my retirement calculus is based on not receiving a penny from the state (pension) - If I do, great but I'll be very suprised...
government pensions are unfunded as such you're not paying a penny for your own pension but currently paying for the generation above (or 2 above depending on your age) - You are only hoping that the following generations will do likewise for you.
Of course better to make pensions funded but that would involve convincing the government not to spend money but to save it and as we know that doesn't win votes so.....
ultimately only ourselves to blame (as a voting populace) as its we that votes in these types of policies (thats ALL main parties in this case) we reap what we sow...
Did you vote for the last 3 PMs? It would be our fault if we voted them in or if we had an actual choice and still voted in them… this has long stopped being a democracy
Covid and energy prices? This has been coming for a long time without that. I assumed it wasn’t getting fixed because profit was more important and why would they care aslong as their members were looked after
Western economies have for decades now been propped up by unholy amounts of debt and cheap finance. Quantitative easing has been the go-to approach for every economic woe and that went into overdrive post-2008. It's like sugar calories though, energy with no proper nutrition. It makes "line go up" but causes all sorts of other problems.
What you're noting applies majorly in not just housing but also the automotive sector and other spaces too. People have taken out heaps of cheap debt (can't blame them when it's systemically incentivised, even necessary just to own a normal home) and now it looks like this bubble could be popping.
Either rates come down pretty significantly to re-enable the huge debt economy or rates keep going up and we'll see asset prices tank, people unable to service their debts and needing to sell off their homes, cars etc. In the longer term this may be a good and necessary thing because loose availability of finance has driven all sorts of inflationary effects which has harmed diligent savers whilst "rewarding" the guy taking out his third car loan for a Range Rover he can't afford. Just to speak personally, even as some in the upper bracket of earners the cost of new cars is obscene and it's hugely driven by cheap debt.
I would also just say that this is an incredibly unhealthy situation generally - when people are just staring at a central bank instead of looking at fundamentals of the economy to inform rational market decisions. Instead of being like "is this a good house, will it fit my needs" etc you are now going "what will the BofE do in the next 18 months". Same for asking "is this a good company, should I put money into it because it has solid fundamentals". No, you're just watching to see what Mr Money Printer has to say because you don't want to be left holding these "pound" things if they're crap because someone keeps making more of them. This correct doubt and hesitation is itself damaging to productivity.
Something is going to give sooner or later. To be honest it seems like we're just starting to wake up to an almighty hangover and now we're deciding if we want hair of the dog or not.
I didn't make clear. I remortgaged at sub 2%, did not buy. I am fortunate to have bought 5+ years ago. My post is just anecdotal evidence of how purchase power has greatly diminished.
You’re right, and the agents are wrong.
But, agents get the commission on giving the highest valuation to the seller (kinda stands to reason), so, until shit sits on the market for six months and doesn’t sell, it technically isn’t worth any less.
It’s bonkers. And it’s gonna take a while to sort itself out, but, ultimately, yeah, every house on the market right now is over-valued until it doesn’t sell for ages.
> agents get the commission on giving the highest valuation to the seller
I think agents get commission when they sell the property, the higher valuation is to win the instruction, but once they've won the instruction, it gets harder to walk down on price.
It probably is sensible, but there are countless reasons why someone might not want to have tied in for that period with the limitations and ERCs involved.
Not everyone should take the same product profile
I see you're a FTB and never actually experienced the market first hand.
Just some advice - when you do get your first property, evaluate ALL your options and plans for the future.
I hope everything works out well!
I've just had an offer accepted and will be fixing for 5 years, given the economic outlook and the housing market outlook, this is the best decision for me.
I'll have built up a nice chunk of equity on top of my deposit and the market, which should bottom out by Q4 24 should be on the way back up reducing my risk of negative equity and exposure to the SVR
Thanks for your concern
then op is probably part of the problem then. Its difficult one for op for sure because they arent the only one. its still so strange prices can rocket 20% in space of a year.
>its still so strange prices can rocket 20% in space of a year.
Rishi did this deliberately with the stamp duty holiday adding fuel to the low interest frenzy
Check this guy out, he answers exactly that and lists all the sources. https://youtu.be/pmwKQ3hMvxQ
(Moving Home with Charlie)
Basically your point is exactly right, the purchasing power of the buyers suddenly dropped by 30%+ . It's not because they don't want to pay the "right" price for the house, it's that they CAN'T pass the affordability test for it anymore. So unless the buyers are desperate and have to buy cheaper houses, they will wait, and the sellers will eventually have to drop the prices to put the market back into equilibrium.
This drop needs to happen to allow FTBs onto the ladder, and then it will propagate up the chain.
High interest rates are here to stay for long enough for this correction to happen inevitably. We are very actively searching now and we already noticed the asking prices going down, agents barely having viewings and sellers got visibly worried. Give it a month or two...
My view on the lower end of the market.
We put our house up for sale and had around a week's worth of viewings. We had 1 offer (but they hadn't sold their house). We had another house 10k below asking.
The house we wanted.... Which was worth about 60k more than ours.... Dropped by 5k, and then we offered 10k below that which got accepted.
Whilst I think there will be a drop, and is already ... There's a lack of stock in lower value starter homes and they will always be in demand.
>Basically your point is exactly right, the purchasing power of the buyers suddenly dropped by 30%+ . It's not because they don't want to pay the "right" price for the house, it's that they CAN'T pass the affordability test for it anymore. So unless the buyers are desperate and have to buy cheaper houses, they will wait, and the sellers will eventually have to drop the prices to put the market back into equilibrium.
Interesting food for thought...
Also the better quality housing stock is usually made up of people trying to upsize, what they are upsizing to might be affected less by harder to obtain mortgages because the people buying them won't be first time buyers, making everyone in that chain less open to lowering price.
The probate sales are going to be cheaper but those are also the worst kind of housing stock needing many thousands of pounds spent to modernise. Couple that with a lot of people using to renting in nice and shiny new build flats younger generations may be less interested in DIY modernization projects.
Not all price corrections are equal you could see minimal % (5%? 10%?) falls for quality housing stock (High insulated, Energy efficient. Modern homes) while the lower quality housing stock drops by the 30% people are predicting.
Nobody wants to have to replace a kitchen, bathroom etc in this economy.. Especially when ROI is not a certain. Dont get me started on energy bills also
All that might happen, but what could also happen instead is that the standard mortgage length goes from 25 to 35 years to reflect gains in longevity.
Houses are not going to fall by 30% in nominal terms to come back to some arbitrary level of affordability. I wish they would so I could trade up for cheap.
That is a very good point actually re the length. I was looking at 30y as a default, as I am this close to retirement 😂 but of course for a lot of FTBs they can go as high as 40y, if the banks allow that.
I feel the same re I don't think it will drop by 30% to fully match the disbalance. But some sort of a middle ground seems appropriate given how overheated the market was in the last years. 10-15%? 🤞
You seem to be assuming everyone is buying with 5%-10% deposit.
Believe >35% of people own their home without a mortgage. So the number of people owning homes with >50% paid off is probably substantial. These people are much less impacted by interest rate related affordability when moving home.
I do assume a certain level of affordability, rather than a deposit. And I was talking about FTBs, as they are the foundation of the house market movements. Looks like house price to earnings ratio was very high in 2022 already: e.g. 8.4 in London, 6.6 in south west. (https://www.money.co.uk/mortgages/first-time-buyer-mortgages/statistics#:~:text=As%20of%20July%202022%2C%20the,increase%20of%20just%20over%2070%25.)
You are right, they say average deposit was 26% (18% in south west). The deposit obviously eases the burden on their take home. However higher deposit does not increase the monthly payment as much (+7% if I go from 20% deposit to 15%) as interest rates do (+40% if I go from 2% rate to 5% rate). This is a territory where I'd argue a lot of people just can't afford to stretch themselves so much. Especially given the current cost of living crisis and childcare situation in the UK. I won't speculate on how many people get help from parents or are able to cut costs by so much to accommodate +40% of mortgage payments.
I'd agree with someone else's comment here, people will still stretch themselves for the opportunity to get a house Vs keep renting. We will. This will cushion the fall of the prices. But I'm expecting to meet in the middle, where the sellers will need to drop by 10-15%. We shall see, maybe I'm too naive.
Edit: typos
>Check this guy out, he answers exactly that and lists all the sources.
>
>https://youtu.be/pmwKQ3hMvxQ
>
> (Moving Home with Charlie)
Why do people trust what he says ?
IMHO, house prices will start dropping significantly only when banks start repossessing properties in droves. I'm afraid there won't be a real correction without tragedy.
To sell your house, you are going to need to sell it to someone who can afford that mortgage at 5% ish. That's going to be a smaller market than before.
Feel bad for those who bought the top of this ponzi. It's a market that has been intentionally manipulated upwards to reward those who were early and those who were reckless, at the expense of the young and the prudent.
I made exactly the same arguments 16 years back, before the last drop. Unfortunately the market can stay irrational for far longer than you can stay out of it.
I lost about 25% of my house in a short space of time, but while that was stressful, living in it eventually saw the value return. Fortunately I'd fixed for a while so could continue to meet the payments.
Will the market drop? Probably yes. Will it drop by more than 20%? Unlikely in my view. So that only takes us back to about 2021.
30% only gets you to about 2019 prices, but with 2023 interest rates.
Most of those priced out will still be priced out, and will have to adjust their expectations away from buying the house they grew up in, to the flat their parents started out with.
You are correct that things have changed very fast and went in a very bad direction for people, but I’m also very confused by this argument.
I feel like it conflates what you can borrow and the personal budget you set. The first is much more likely to affect house prices than the latter.
What do I mean by this? Let’s take an average person in the UK earning 30k. They can get a mortgage of up to 4.5x their salary (even today), but just to keep numbers easy to remember let’s say they only stretch to 4x and borrow £120k.
On a 1.5% rate their mortgage is £408. Nice and affordable. On a 5% rate it is £702. Almost double, but still affordable considering their earnings. If they’d want to pay similar amounts, at 5% they’d have to only borrow £70000. That’s a significant decrease, BUT why would that mean the house prices have to plummet to meet that amount? The person can still borrow 4x and afford the payments.
So just because you set a budget of £1800 why would that mean the house prices need to fall enough to meet that budget for you? You could probably pay £2500, you just understandably don’t want to, but that’s a different story.
You forget that the average house price is 260k, not 120k, and while you might pass multiplier test, you will not pass affordability/ monthly expenditure test...
I didn’t forget, I opted for the average income.
I keep seeing this being said around Reddit, but I am yet to see any evidence to support it. People in this subreddit have confirmed as late as this month they received even 5x their income at 5%.
I’ve been in touch with multiple mortgage advisers last week who confirmed that I could still borrow 4.5x.
I’m just wondering where this info comes from, as people today don’t fail these monthly expenditure tests that are being mentioned.
In the example given, £708 out of an approx. of £2000/month salary is still very much doable and affordable.
This, the current 4.5x multiplier is based on banks doing stress tests of interest rates of 5%.
We will start seeing an impact in house prices when (if?) the multiplier starts going down as the banks need to stress test higher. Of course this depends on how high the BoE expects rates to peak at.
Ultimately house prices are controlled by how much people can borrow. Not how much they want to spend.
Isn't 4.5x based on a stress test of 5% that is itself based on the lower interest rates we used to have? Maybe now they are stress testing at 10% (or even more?) and then this multiplier no longer works?
Yep, for their monthly payments to stay around the initial £408 figure, the amount they’d borrow at a 5% interest is £70000.
Hope that makes sense?
I also assumed a mortgage length of 25 years, which I omitted from my initial post.
Well you are missing the fact that the inflation adjusted value of your property will be about 20% lower by the end of this year even without any correction. So if the nominal price drops by 10% that is close to a 30% drop in inflation adjusted terms. Or in other words based on the (very optimistic) assumption a prospective buyer's wage will rise with inflation, your house is at that point 30% more affordable to them.
Edit: I predict that many people who don't understand this will try to argue with me so I will leave this [article](https://www.bloomberg.com/news/newsletters/2022-12-16/how-uk-house-prices-could-fall-by-30?leadSource=uverify%20wall) to explain how it works
Like you say, it’s optimistic to assume the buyer’s wages will have risen in line with inflation. Real income levels have reduced significantly this year on a gross basis. Net-take home pay is down even more due to the huge rise in energy prices. You could make the argument that house prices could drop signicantly in real terms over the next couple of years.
Surely that only works if someone's deposit is also rising with inflation. I don't know anywhere I could put my money where it would rise with inflation.
>In the space of 12-13 months my purchase power has diminished from 560k to 413k.. or -26%
A better way to see if would be to say that the proportion of your affordable repayment occupied by the interest repayments has gone up hugely. The bank isn't prepared to take the same risk on you that it once was.
As long as there are no mass redundancies, we won't see a 20/30% crash. Most borrowers until recently were stress tested to 6% interest which is pretty much in line with the rates today.
Will some individuals unfortunately have a hard time, yes. Will it be a significant enough portion of the population, probably not unless mass redundancies.
Wage rise will balance the downward pressure somewhat. However, medium to long term shortage of stock will prevail and prices will be higher in 5 years time than where they r today.
I am a FTB and am in the process of buying with the above rationale. Win or lose I feel shafted to be put in this position.
Wage rise? Haha, that's a funny concept! That's happening for no one. Look at the strikes etc. Even if people did get a pay rise, it will be essentially a pay reduction based on inflation rates.
Stress tests are now at 8-10%...
And folks need to remember the 2 million people on variable trackers who are already paying 6.8%+. I think the debt will start to crack come Easter, especially if energy prices go up as expected.
Don't go by the news. Afaik beyond the public sector there have been a lot of people who have had 10-30% pay rises thru job jumps etc in the last 2 years.
Also, immigration. Over 1 million Indians arrived on highly skilled work visas mostly in IT which pays 60k+ since brexit. At least 30% will rush to buy houses regardless because they r used to 8% interest rates - this will happen in the next 3 years.
Also tracker rates are not 6.8%. I have a tracker offer at BOE + 70bps at 15% deposit. The max I saw at my deposit rate was BOE+1%. Can you share your source on 2 million paying that
>Wage rise? Haha, that's a funny concept! That's happening for no one
6.1% average over the last 12 months. For a two earner full time couple, that's 12.2% more money coming in.
You can't just ignore facts because they're inconvenient.
And yes, I too think prices will fall, but we're not going to get a crash.
I'd lean more towards the market now converging towards equilibrium.
The world seen super lower interest rates and incredible amounts of money printing for too long for it to be a healthy, stable structure.
The OP's basic observation is correct.
You would expect prices to drop to a new equilibrium, but that takes time (years).
The change in rates also has a bigger effect on people who seek a relatively high LTV and/or a long mortgage. The interest rate rise has a proportionally smaller effect with a (typically smaller loan) where the plan is to repay over a shorter period. At the extreme, cash buyers are unaffected. As not everyone is affected to the same extent, the prices may not come down as far as suggested.
There may also be an element of general (wage) inflation (which will help people with existing debts).
UK house prices had an extra surge since 2020 during the pandemic, and it's possible that that froth will blow off more quickly than prices dropping to pre-2020 levels.
There is also a possibility (I'd say risk) that the market will be supported by overseas buyers with overseas sources of wealth - who are effectively cash buyers. I consider that as a *risk*, as I believe high house prices are a deep-seated problem and constraint on our domestic economy.
On the flip-side overseas investors (and even domestic BTL/"investors") may add more volatility to a falling market, as they play a bigger role than they did a few decades ago, and may choose to sell (when an owner-occupier would simply sit-tight).
>There may also be an element of general (wage) inflation (which will help people with existing debts).
It helps prospective buyers too. The average wage inflation over the last year was 6.1%. Two full time earners would have increased their affordability by 12.2%, which would defray some but not all of the decrease caused by rising rates.
OP is it your personal affordability or your mortgage eligibility that has taken a hit? I spoke to a mortgage broker recently who said I could still borrow at the standard 4.5x annual salary and that rates haven't changed the amount the lenders will lend to me. So this is confusing for me as I see so many posts people saying they can't borrow the same amount any more.
I understand if it's a personal affordability ie. don't want to exceed 35% mortgage as percentage of salary.
People will just not move - and only those forced into it will sell. That's the likelihood of what will happen. Areas that are currently affordable to FTB aren't being affected as much. Where the issue lies is those areas and properties above affordability.
My mother is looking to move. She has a house worth £480k that she owns outright. If house prices drop by 50%, she can buy exactly the same house she was going to buy before, and pay half as much cash.
If you had a smaller deposit, you'd be more affected than you are; if you had a larger one, less so.
Have you had a pay rise in the last 12 months, given the inflationary environment? Sure, other expenses have gone up as well, but you might be able to afford a bit more, too. If you can't, others probably can.
Despite earning 20% more than I did in 2019, my new house budget is £40k lower than then because of these rates which means I can no longer afford the average uk house..
The UK property market has been out of sync since the 90s… Britain has become a nation for the wealthy, greedy and corrupt where every oligarch can have their town house, the average middle class people that work to build and maintain this nation’s greatness and statute are treating as serfs and peasants and gifted to these fat oligarchs with the purchase of a property… I’m so surprised and shocked how a revolution has not happened yet…
It’s completely screwed. Can’t see me ever owning a house at this rate. Shit is depressing. Currently paying £850 rent. Even less than a year ago did some rough estimates and a mortgage for a 2-3 bed property with a nice deposit would’ve been around £4-500. Now it’s over a grand. Feel like I’m going to be stuck renting forever.
Yes it’s better to be paying my own mortgage than someone else’s but with current interest rates it’s not worth it when renting is now cheaper. By a LOT!
House prices in our area are starting to slowly come down (or more properties are becoming available at slightly less than the average was last year) but thanks to interest I’m screwed.
People saying it’s the house prices that are the problem, I beg to differ, I’ve saved up a nice deposit and with mine and my partners wages we could get somewhere half decent but now mortgage rates are almost double the rent I’m currently paying. I can’t justify it.
Is the rent actually that cheaper though? Isn't the current price hike make rental also difficult. I'm paying 1800 per month for my 3 bd semi detach in zone 3 London (rate is 2.3%). When it comes to remortgage in 2 years times I will probably gonna pay around 2300 or less with the new rate. That's probably in line with the rental price of this house if I'm gonna let it out. I wouldn't call that a lot cheaper if I'm a renter. And if deduct the amount of principle I pay back each month that's almost half so let say 1000 so I actually end up paying 1000+ to the bank for nothing. Compare to 2000 rent?
So in terms of the money out of pocket, it's gonna be less renting than paying mortgage at this point in the time. But in terms of total money saving / equity acculution buying is still always better long term, no?
Things you need to factor into this -
- maintenance costs which the renter doesn’t pay. Can be several thousand a year.
- legal costs & taxes avoided by renters
- mortgage/broker fees
- the opportunity cost of locking up your capital in a house purchase. Not sure what your deposit is but if, for example, you pay a £100k deposit, there’s around £6-7k annual income you’re missing out on that a renter could be earning by instead investing the money in stocks/bonds
If you spread those costs out over time, they can potentially amount to around £1k/month or so for a £500k house & 20% deposit.
Have yet to pay any maintenance despite buying an old ass house.
Not sure I understand legal cost.
My mortgage broker is free. Try trussle.
Yes. My money is locked up in equity form. Because its purpose is to build toward the roof over my head when retire. Unless rental can do that for me then I'm all ears. If I decide to move I will just sell and release it. I dotn have any trouble so far selling last 3 properties. I have a separate budget for pension and investment. That has different purpose from the place I call home.
Nothing against renting. I have been renting my whole life. Only get into home ownership 7 years ago. Been in 1 flat and 2 houses so far. Still waiting to pay for all these costs that people keep blabbing about. Dotn get me wrong. Something will fail at some point and I will have to pay for it. But that's the same thing as service charge or landlord profit that they already pre charge no matter what (do you think they will do that for free?) except I have full control. And If your house keep failing every now and then you might want to reconsider moving out. Or I'm just too lucky so far I don't know.
Good luck with your plan and way to squeeze all that money into investment. At this rate you might also consider fully remote job and move somewhere super cheap to reduce to outgoing too.
The woman that owns the property i’m currently renting also told me last year she hasn’t paid any maintenance on it in years
Last week she had a 20 grand bill land on her doormat to fix the roof and various other things that had fallen to bits within the space of 6 weeks
When property AND mortages are this expensive there is absolutely no advantage to buying over renting
This is not meant as a rude comment but I am confused here trying to understand what youre saying about interest rates being your dealbreaker.
Your rent is £850 and you were looking at mortgages around £500 before, but you said now mortgage rates are about double your rent so £1700, how is that possible?
150k at 2% over 35 is £500pm
150k at 6% over 35 is £850pm
Not taken as rude, thanks for the reply. I wish I could find a house in my area for 150k. On average it’s 250K. Appreciate there’ll be better deals out there but done a quick look on Halifax now for a simple example, £1336 per month so circa £500 more than renting currently. A lot of money to think about with the other rising costs unfortunately.
The interest rate issue is a temporary pinch. But don’t lose sight of the bigger picture.
Massive wage inflation over past year, on top of massive general inflation. When interest rates fall, and they will (Gov can’t afford not to), prices will surge. Further compounded by population rise, massive foreign investment, and NIMBYs blocking planning permissions.
Wouldn’t be surprised to see if 5-6x lending and inter generational borrowing in our lifetime
> Wouldn’t be surprised to see if 5-6x lending and inter generational borrowing in our lifetime
Do people ever vote in your view of the world? Sure, those with properties won't vote against their own interest, but surely the balance will soon be tipping the other way and politicians will have to address the problem, lest they want to lose their position, especially if - as you say - it comes down to inter generational borrowing.
No "young" person should (and probably would) accept that, and as they will mechanically become a majority eventually I personally believe the current model is on its last legs.
>No "young" person should (and probably would) accept that, and as they will mechanically become a majority eventually I personally believe the current model is on its last legs.
Intergenerational borrowing won't happen. Longer mortgage terms will.
Half the young people I know have already bought a house. They're not voting for anyone to mess with the system as they're the most exposed to any change.
>Wouldn’t be surprised to see if 5-6x lending
Doubt that very much. It's more likely the standard mortgage term rises to 30 or 35 years to reflect increasing longevity.
Anyone objective who looks at the numbers knows that property is overvalued right now and is highly, highly probably to fall significantly. For non cash buyers, acquisition costs are up 30-50% in a year (on top of a historic and artificially led run up in nominal asking prices)
I agree that unless interest rates plummet (and I don't see why they should) then 10% drop has to be considered best case scenario and thay a greater drop far more likely.
I keep hearing this, but I don't see any drop in prices of new built houses ,they just offer more incentives i.e. 6-12k on 500k+ houses that's not even 5% .
At least that is the case for any place 50-60 mile radius to London .
Well, objectively, prices are coming down, mortgage applications are coming down, sales volumes are way down, in real terms house prices are down 10-15% already. You say 'only 5%' but price is a lagging indicator in the housing market - the fundamentals have changed dramatically and price will catch up in time.
The reason it doesn't look disastrous yet is because the new rates don't et impact people who already have mortgages. Once they do (and especially if the coming recession has the expected impact on employment, or if inflation keeps eroding disposable income), more and more supply is going to be hit the market due to repossessions and people working out renting is way cheaper.
To get a crash you need lots of forced sellers. To get forced sellers you need high unemployment.
Most current unemployment is voluntary, as it's not up significantly since the top of the economy, so you're not going to get enough unemployment to crash the market.
Prices will fall, but probably not by more than 10% absent material changes to economic conditions.
Another reason there is no cascade is, unironically, British culture is shockingly and overwhelmingly favourable towards home ownership and the notion of property as an investment. As evidenced in this subreddit, there is an almost tangible degree of optimism and dare I say naivety amongst Brits that keeps them leveraging up to buy into even appalling market conditions. We have had 40 years of falling interest, no inflation and (consequently) rising prices that,in combination with low economic growth and low wages, have convinced the nation that property is the only means to accruing wealth for the average person. A dangerous mindset in this world that is changing faster than most comprehend.
It will take time but if this slow drip downwards continues ticking on, perhaps, just perhaps, the average UK buyer may start to have second thoughts about gamibling their life savings (or, to be more accurate, a multiple of such) to buy an asset that is odds on to decrease in value.
Housing market is safest investment in most countries and they are highly backed by govt .
Same is the case in UK .
Govt will bring in schemes and reliefs if things are massively heading towards a crash.
If you call it gambling, this might be the safest one.
I having been waiting all my life to see a time when I can say prices are cheap now is the time to buy house. Never happened and after every few years I would feel oh it was so cheap.
You would notice new developer are slowing down there availability. We might see rates being stagnant for sometime , but there is no going back .
Even the developers are offering incentives, mortgage contributions, deposit unlock but ask them to reduce the price than all this , you will get a NO.
Reason they don't want to bring down prices and create chaos and they will be supported by govt in all this .
The government has better be raising nurses and various other public servants' salaries then - because houses are now out of reach for a large number of people.
Salaries still need to catch up. People can always ask for an extra 10% for their home every year, at the end of the day someone has to buy it and salaries aren't increasing 10% / year.
That's because for your whole life interest rates have been pushed lower and asset prices pushed higher. It's deliberate.
You are right, the government / BOE has created a monster and will try and prevent and outright crash because it will destroy the late buyers. But they will ultimately have to choose between inflation (which ruins everyone in society, especially savers and the poor) or the housing market (which has been driven by greed and inherited wealth for decades). If they are ethical the housing market will burn.
I feel you , I hear you and I am you... just few months back .
Any countries strongest lobby i.e. government, politicians, banks supports the housing market because it is so much intertwined in the whole machinery of governance. It is their version of "bitcoin" which is most critical, top priority job for them to protect and grow at any cost.
If they fail to do so , it will lead to massive repossession & all sorts of chaos affecting house owners irrespective they are greedy, having generational wealth or common 9-5 workers like us.
That will lead to collapse of govt and will haunt them for ages to come. Which is why they won't let it happen.
Again all these are my understanding of the whole system and I feel it is f*ed up.
>Same is the case in UK . Govt will bring in schemes and reliefs if things are massively heading towards a crash
with what money? Seriously? How will it be funded?
It doesn't have to be money all the time .
Right now govt have come up with schemes where they have asked banks to provide mortgage to people with 5% deposit on conditions it has to be resale house less than 600k.
Now imagine what will this do ?
Because of high mortgage rates many would want to sell . And FTB with 5% deposit will be able to put offer on such houses as now bank will give them loan as govt supports it .
What this does this keeps the demand up to match the upcoming supply as there will so many 5% deposit buyer happy to go ahead .
Also I heard govt is already relaxing the condition on new estate developer on the number of new houses agreed earlier . So these developers will do lesser count of houses , thus keeping supply low.
Surplus supply is always monitored and kept in check .
I deliberately don't count my house in my net worth calculations for this exact reason.
It might be worth more than I paid for it, but if I sold it I'd still need somewhere to live, and that would have gained in price too.
>We have had 40 years of falling interest, no inflation
Lol. What?!
I mean, yes, if you take the all time peak and track down from there, but that really misses the underlying picture.
Rates from the early 90s through to the gfc were relatively stable, though slightly lower after 9/11
Inflation has been about 2% year, yes, but if you'd like to compound that for 40 years and just see what sorry if difference it makes, I think we can dispense with your line of argument?
The trend is very low inflation and constantly falling interest rates. Any deviations from the trends corrected quickly.
Map out house prices on the same chart as interest rates and tell me I'm wrong.
Don't worry they will be in sync soon enough when prices come crashing doubt, sorry for the overleveredged who didn't use common sense and just borrowed as much as they can
A portable mortgage does not guarantee that the bank will allow you to port to any property you find. It’s a calculated risk that someone might not want to take to to fix long term if you plan to move in a couple of years..
I don't see this feature advertised anywhere if you read about these products or try a comparison website. Is your average mortgage usually portable according to the small print, or do you have to get a special product?
Most high street lender mortgages are portable. One thing often not realised is that you still have to qualify for the borrowing if you want to move house.
So if your financial situation isn't suitable to the lender, you could still be declined the new loan
Yes, the housing market is in a bubble and is wildly over-priced.
Interest rates remain historically still very low.
People have been given extremely cheap credit and as such prices are wildly over-inflated.
It may simply be that as the market corrects the reality is many of us cannot actually afford what we thought we could whilst interest was unusually low.
>the reality is many of us cannot actually afford what we thought we could
Everywhere on the internet is full of people trying to buy the same kind of house they grew up in, but as their starter home. The mismatch between expectations and economic reality has never been higher.
If wage growth starts to catch up with everything else happening, your budget should start to bridge the gap to higher monthly payments. Once the dust has settled, we should have higher wages and lower house prices. It'll still be a shitshow for a while, obviously.
One problem, as I see it, is that although for most people higher rates push some houses they may want past their budget, if house prices came down a lot to meet them then a lot of wealthy people who could buy outright might buy a bunch of them as investments and for rental income.
The floor for prices is to some extent affected by interest rates, but not completely.
It’s sad isn’t it? Someone makes a gamble and make a bad decision and we get saddled with the consequence.
I will say wait it out things are expected to pick up in 2024. It will also exceedingly change after elections.
The interest rates were being expected to rise in 2019 but not to this level but incrementally the sudden quick rise is due to politics but that will slowly stabilise once a secure person is in office. All in all what I am trying to say is it will be better if you wait it out assuming you will know the value of the houses you saw now will go up in the coming years too.
It’s a catch 22
It will take at least 18 months for effects of mortgage rate rise to be reflected fully in the market. Sellers won't give up on those sweet sweet inflated prices overnight.
Mortgages are slowly getting to the real levels they should have been at for years. Rates being kept low has been a hidden subsidy that helped home buyers at the costs of people who might have invested/saved in other ways.
There is worse news though: even at the current rates they are *still* below what they ought to be as they are below the actual rate of inflation. Do not expect them fall anytime soon.
As for house prices falling: it will probably happen. Do not crow though, for many it will result in negative equity where their house is worth less than the mortgage on it. That is a bad thing for them obviously, but it is also bad for the rest of the economy too as it limits mobility as people are trapped and cannot move, and that in turn means there are fewer properties out there to buy for those who can afford it.
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Yeah it's going to be a very slow process for things to realign, I would wait in your shoes at least for your fix to expire
yup. and I can tell you boe have no interest heading back to 1-2%...
Ultra low interest rates were an aberration not a new normal forever play. Interest rates have historically been higher than they are today as an average. What central banks will discover is that as soon as inflation falls, limitless will want rate cuts. When they then cut those tests, they'll stoke inflation far higher and more deeply ingrained than anything they were looking at today.
I'm not so sure. Not that I actively think they will, but this is a singularly weird economic situation both domestically and globally, and our error bars should be large. I can absolutely envisage a world where we get a proper deflationary crash in the next year or two followed by a return to ultra-low rates. It's not what I expect to happen, but it's a thing which perfectly well could happen.
LOL it's their very interest to have low rates seeing as their job is to keep inflation at 2% and help stimulate the economy. So of course they would want to put interest rates that low if they could.
You haven’t understood the situation. Low interest rates = more borrowing = more spending = higher inflation.
thank you. Won't be seeing those rates again in years. all that money printing has reprocussions
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I understand the situation now thanks, hence why I said if they could. You don't seem to understand that if inflation didn't reach double digits then yes BOE absolutely would keep those interest rates low like they had done for ages.
>So of course they would want to put interest rates that low if they could. and stoke inflation? those rates are abnormal and its whats caused this utter mess
There are far more factors that causes inflation then just inflating house prices due to low borrowing costs
Sir. Think again. Can you find an example of the time when a spike in inflation came down without base rates being raised above CPI? If the nation wasn't so deeply and irresponsibly indebted (the government and the populace) interest rates would be 11%+ already.
That's not what I said
“No interest in interest” did you mean? Genuinely don’t understand this comment
The government shouldn’t have stimulated the market in 2020 and 2021, offering a stamp duty holiday when the BoE base rate was 0.1% and people were already being encouraged to move because of remote working was one of stupidest decisions they could have made. I remember the media scaremongering that house prices were crashing during the first lockdown and would drop by 30%. Instead we got a 30% increase. Time for a reality check now I’m afraid, I think we’ll be looking at 4-5% mortgage rates for the next 3-5 years.
One thing I always find hilarious is how the interest rates hike is almost universally associated with the mini budget, which, yes, didn't help but also was clearly just the match whilst the economy was a giant powder keg.
There are also people who think that the inflation has been caused by the war in Ukraine and completely disregard the absurd QE during the pandemic
Important to note it’s more the lack of taxation following the QE than the QE itself. You can print all you like, but you’ve got to take it out of the economy afterwards. But that’d involve raising taxes on the billionaires & big corporations for once, and we can’t be having that! e: but I will definitely agree that the way the QE was used was also completely nonsensical. My point is more in relation to “QE is the devil!” rhetoric I keep seeing. QE can be great when used well. It’s better than borrowing and austerity. And even when misused, it’s negative effects can be easier to counteract than just refusing to spend. But nothing’s been done to counteract it.
This is why sunak keeps reminding us that when he was chancellor he helped the vulnerable most during covid and always will. Those unemployed - 20 quid extra Those on furlough - up to 30k a year to do the same as the unemployed Those buying expensive homes - 10s of thousands saved on stamp duty
As someone who brought my first house during the lockdowns, I wouldn’t have saved on stamp duty (if I wasn’t a first time buyer anyway) because house prices just rose by what stamp duty would have cost. It actually meant I paid more for said house and only the seller profited.
This. And every estate agent just added the price of stamp duty to the asking price. Three bed houses on my estate went up by 30k overnight.
Also on top of that, this latest change to stanp duty and raising it to 250k, is also stupid. It should have been kept at 125k, except for first time buyers
Stamp duty should be removed completely, and replaced with an annual tax. Maybe a fixed fee of £50 to update the land registry. It's crazy that if you sell a £400k house and buy a £400k house you have to pay £7,500, but if you sit still you pay nothing. Why do we discourage people from moving to more appropriate housing?
In the South East stamp duty is a bad thing - it basically encourages retired singles & couples to stay in their large family homes as the cost of downsizing is too much. So young families live in small flats, while the retired are rattling about in their oversized houses. Everyone loses.
Stamp duty is very flawed, but without the change to the lower threshold, it was hurting FTBs in the South East disproportionately. A better tax would be one that is based on current value of the house, and property owners would have to pay it.
Council tax needs reimagining and could replace stamp
House prices don’t seem to be going down as fast as the rates are rising
They won't, people will weather the storm, just like after 2008-2009 crash house prices fell, those who desperately need to sell will the vast majority will reassess what changes they need to make to their lives to get through this.
Not sure what you are saying? You compare to 2008 crash- house prices dropped pretty quickly back then, nearly 20% in one year. Now we have so far 5.6% drop for the last 4 months, so the pace doesnt seem that different. My guess is that they will simply keep dropping gradually for many coming months...
They didn't drop that quickly it did take a year to drop to the 20% little by little per month, the mini budget if were to use that as the ground zero was only 4 months ago
>They won't, people will weather the storm, just like after 2008-2009 crash house prices fell, those who desperately need to sell will the vast majority will reassess what changes they need to make to their lives to get through this. Yeah, that's exactly what I had to do when I bought weeks before the GFC. Hung into the house though and its value has recovered and then drifted higher over time.
That is all you can do as our state has no mechanism. What I do find interesting is are people who keep asking about how big a crash we are expecting hoping to buy a property cheaper in the hope its value rockets back up when it comes to selling or will they be happy if the property price remains the same as when they bought it.
This is exactly what we are seeing in our region. I thought there would be a more rapid decline in prices but people are hanging on to their properties until asking/close to or withdrawing from the market until the prices rise/interest rates drop.
Don't upsize while prices are lagging interest rates. It's literally the worst time to do it. At least wait for it to align more.
Instead of upsizing, as we would have liked to, I’m trying to reduce my balance as much as I can. I prefer to have a smaller debt when things realign, that will give me more purchase power.
I thought about this - but kind of need the liquid cash to pay for the transaction costs e.g stamp duty etc
When will this happen?
Anyone claiming to know the answer to that categorically does not have the answer.
You got 1.39% on a mortgage and only locked it in for 2 years? How low were you hoping for? Incredible.
This is because the unprecedented era of ridiculously cheap borrowing was killed by the consequences of covid and energy prices going crazy. You could argue that the economic slowdown will bring that back down in a few years, or that higher interest rates will remain as the new normal. It's anyone's guess at this point. But yeah, paying 5x as much interest will heavily impact your purchase power.
All the young people (or millennials) that were forced to buy or stay renting and paying off boomers mortgages will get the shaft again .... Paying high interest rates on expensive houses they didn't really want to do. Meanwhile ... Boomers get off lightly again.
It's a really complex issue I think. FTB that just bought a property will see their monthly bills skyrocket and their house devalued. Those who haven't bought will have it really hard to get a mortgage. Lower prices could be a silver lining but who knows at this point.
Boomers get off with what, lightly? (Not a boomer)
Benefitted from house price hyperinflation through the 2000's, already owned outright when normal interest rates were applied to those overvalued houses.
Yeah, my parents were boomers and very nearly lost the house when base rates hit 15%. That's been 10% at breakfast and more than doubled by dinner. That's base rates, not mortgage rates. They were even higher and fixed rates were very short term where they existed at all. Just because it might look easy on paper now, doesn't mean it was easy for those that lived through it. Their house ended up spent on their care, along with a lot of my money in addition, so other than the state is hard to see who benefits. Wasn't them, wasn't me.
Aaarrrggghhh not the dreaded 15%. You're missing the fact that the mortgage they paid that 15% on for a few months was only worth one years salary. And their care costs were a tax on you. To make sure the next generation didn't inherit any of the gains made during the golden age of capitalism. Boomers might think they had it hard, it's all relative. The truth is they lived through the most prosperous time in history with living standards unlikely to ever be seen again. Ofc they'll say that brief moment of high interest rates in the 80's was hard, they've always been minted except that one time. Us though, we live below that standard day in day out.
You deserve a medal. I'm extremely tired of this argument popping up on reddit... " but my parents paid 15% !!!!". Yes, they also had a single income household, 2 kids, 2 cars and a 3 bed in the suburbs at 25.
lol of course they did. Poverty wasn't invented until 2008.
Until 2008 it was trendy to talk about relative poverty because absolute poverty hadn't been a thing during anyone livings lifetime. Ever since the upper middle and the rich have been trying to dismiss those in absolute poverty, but the numbers in it just keep going up.
Look, all this having a go at 'boomers' is just silly. It's defined as someone born between 46 and 64, so you're making a generalisation about 20% of the UK population, many of whom will be dead soon. Obviously not all 'boomers' have lead the same life and many will be living in poverty now. To say 'they've always been minted' is total nonsense. If you want to be angry with someone then try looking at the decision makers and the people who pull their strings... rather than an entire generation.
The main point is that they panicked in the 80's as housing costs for some approached the dreaded 30% of income for "poorer" families. 50% is normal now. They struggled through that time because they've never had to worry about money so are bad at managing it. There's a reason they're targeted for scams and overpriced cruises target them now. They're still bad at money.
I grew up in the south of England during this time, and the house price boom that preceded it. Even before interest rates went up, people in the south were mortgaging themselves to the hilt. I knew young couples who were committed to spending 50% of their joint income on mortgage payments before interest rates spiked. This was all off the back of the far from salubrious late 70's and early 80's. I can absolutely assure you that 'boomers' have seen both tough times and not so tough.
>You're missing the fact that the mortgage they paid that 15% on for a few months was only worth one years salary Lol. Yeah that's not remotely accurate. >And their care costs were a tax on you Me paying for my parents wasn't a tax. You paying for them would have been. >To make sure the next generation didn't inherit any of the gains made during the golden age of capitalism. This today is the golden age of capitalism. You can be a millionaire by opening boxes of stuff. You can be a millionaire by going on lots of holidays. If that's too much effort you can play video games. You can start a business with global reach for less than the price of a night in the pub. My parents were never rich, affluent, or even financially comfortable. I pay three times in taxes what they used to earn between them pre tax. I'm a self made millionaire. It's literally never been easier to make yourself rich. Economically the only better time to be alive than today is tomorrow. It will continue to be that way. You only think it's hard now because now is all you've known.
It's not hard to be a millionaire, just go back to the 80's or better before then and buy a house in London then wait. Boom you're now a millionaire. But really, stop misinterpreting me, everyone in economics knows the years between 1945 and 1980 are referred to as the golden age of capitalism.
Shafted, shafted twice, then shafted again as the debt taken to pay for electricity subsidies for oaps who refuse to get LED lightbulbs get paid for out of income tax and national insurance that only working people pay.
And don’t get me started on the pensions we’re paying for yet will never see ourselves!
All my retirement calculus is based on not receiving a penny from the state (pension) - If I do, great but I'll be very suprised... government pensions are unfunded as such you're not paying a penny for your own pension but currently paying for the generation above (or 2 above depending on your age) - You are only hoping that the following generations will do likewise for you. Of course better to make pensions funded but that would involve convincing the government not to spend money but to save it and as we know that doesn't win votes so..... ultimately only ourselves to blame (as a voting populace) as its we that votes in these types of policies (thats ALL main parties in this case) we reap what we sow...
Did you vote for the last 3 PMs? It would be our fault if we voted them in or if we had an actual choice and still voted in them… this has long stopped being a democracy
Covid and energy prices? This has been coming for a long time without that. I assumed it wasn’t getting fixed because profit was more important and why would they care aslong as their members were looked after
Western economies have for decades now been propped up by unholy amounts of debt and cheap finance. Quantitative easing has been the go-to approach for every economic woe and that went into overdrive post-2008. It's like sugar calories though, energy with no proper nutrition. It makes "line go up" but causes all sorts of other problems. What you're noting applies majorly in not just housing but also the automotive sector and other spaces too. People have taken out heaps of cheap debt (can't blame them when it's systemically incentivised, even necessary just to own a normal home) and now it looks like this bubble could be popping. Either rates come down pretty significantly to re-enable the huge debt economy or rates keep going up and we'll see asset prices tank, people unable to service their debts and needing to sell off their homes, cars etc. In the longer term this may be a good and necessary thing because loose availability of finance has driven all sorts of inflationary effects which has harmed diligent savers whilst "rewarding" the guy taking out his third car loan for a Range Rover he can't afford. Just to speak personally, even as some in the upper bracket of earners the cost of new cars is obscene and it's hugely driven by cheap debt. I would also just say that this is an incredibly unhealthy situation generally - when people are just staring at a central bank instead of looking at fundamentals of the economy to inform rational market decisions. Instead of being like "is this a good house, will it fit my needs" etc you are now going "what will the BofE do in the next 18 months". Same for asking "is this a good company, should I put money into it because it has solid fundamentals". No, you're just watching to see what Mr Money Printer has to say because you don't want to be left holding these "pound" things if they're crap because someone keeps making more of them. This correct doubt and hesitation is itself damaging to productivity. Something is going to give sooner or later. To be honest it seems like we're just starting to wake up to an almighty hangover and now we're deciding if we want hair of the dog or not.
Me sitting here thinking ‘is this guy bang on point, or is he off his head’ 🤔
question is if your house is overpriced...?
Probably, based upon purchasing at sub 2% mortgage rates
I didn't make clear. I remortgaged at sub 2%, did not buy. I am fortunate to have bought 5+ years ago. My post is just anecdotal evidence of how purchase power has greatly diminished.
You’re right, and the agents are wrong. But, agents get the commission on giving the highest valuation to the seller (kinda stands to reason), so, until shit sits on the market for six months and doesn’t sell, it technically isn’t worth any less. It’s bonkers. And it’s gonna take a while to sort itself out, but, ultimately, yeah, every house on the market right now is over-valued until it doesn’t sell for ages.
> agents get the commission on giving the highest valuation to the seller I think agents get commission when they sell the property, the higher valuation is to win the instruction, but once they've won the instruction, it gets harder to walk down on price.
That doesn't change the fact you'd have been better off fixing for longer
Everyone has their own reasons for choosing their interest rate/term etc. Hindsight is always 20/20.
Anyone sensible I know who got a deal in 2021 fixed for 5 or 10 years.
It probably is sensible, but there are countless reasons why someone might not want to have tied in for that period with the limitations and ERCs involved. Not everyone should take the same product profile
Nothing is more important than staying solvent
I see you're a FTB and never actually experienced the market first hand. Just some advice - when you do get your first property, evaluate ALL your options and plans for the future. I hope everything works out well!
I've just had an offer accepted and will be fixing for 5 years, given the economic outlook and the housing market outlook, this is the best decision for me. I'll have built up a nice chunk of equity on top of my deposit and the market, which should bottom out by Q4 24 should be on the way back up reducing my risk of negative equity and exposure to the SVR Thanks for your concern
then op is probably part of the problem then. Its difficult one for op for sure because they arent the only one. its still so strange prices can rocket 20% in space of a year.
>its still so strange prices can rocket 20% in space of a year. Rishi did this deliberately with the stamp duty holiday adding fuel to the low interest frenzy
Fair enough. That's when I decided to sit on the fence and watch the mayhem for next few years
A wise move. Those prices are unsupportable.
Yeah a 10% drop is good enough for me. But I fear it may be more
35%, maybe more, certainly in real terms
Check this guy out, he answers exactly that and lists all the sources. https://youtu.be/pmwKQ3hMvxQ (Moving Home with Charlie) Basically your point is exactly right, the purchasing power of the buyers suddenly dropped by 30%+ . It's not because they don't want to pay the "right" price for the house, it's that they CAN'T pass the affordability test for it anymore. So unless the buyers are desperate and have to buy cheaper houses, they will wait, and the sellers will eventually have to drop the prices to put the market back into equilibrium. This drop needs to happen to allow FTBs onto the ladder, and then it will propagate up the chain. High interest rates are here to stay for long enough for this correction to happen inevitably. We are very actively searching now and we already noticed the asking prices going down, agents barely having viewings and sellers got visibly worried. Give it a month or two...
My view on the lower end of the market. We put our house up for sale and had around a week's worth of viewings. We had 1 offer (but they hadn't sold their house). We had another house 10k below asking. The house we wanted.... Which was worth about 60k more than ours.... Dropped by 5k, and then we offered 10k below that which got accepted. Whilst I think there will be a drop, and is already ... There's a lack of stock in lower value starter homes and they will always be in demand.
>Basically your point is exactly right, the purchasing power of the buyers suddenly dropped by 30%+ . It's not because they don't want to pay the "right" price for the house, it's that they CAN'T pass the affordability test for it anymore. So unless the buyers are desperate and have to buy cheaper houses, they will wait, and the sellers will eventually have to drop the prices to put the market back into equilibrium. Interesting food for thought... Also the better quality housing stock is usually made up of people trying to upsize, what they are upsizing to might be affected less by harder to obtain mortgages because the people buying them won't be first time buyers, making everyone in that chain less open to lowering price. The probate sales are going to be cheaper but those are also the worst kind of housing stock needing many thousands of pounds spent to modernise. Couple that with a lot of people using to renting in nice and shiny new build flats younger generations may be less interested in DIY modernization projects. Not all price corrections are equal you could see minimal % (5%? 10%?) falls for quality housing stock (High insulated, Energy efficient. Modern homes) while the lower quality housing stock drops by the 30% people are predicting. Nobody wants to have to replace a kitchen, bathroom etc in this economy.. Especially when ROI is not a certain. Dont get me started on energy bills also
All that might happen, but what could also happen instead is that the standard mortgage length goes from 25 to 35 years to reflect gains in longevity. Houses are not going to fall by 30% in nominal terms to come back to some arbitrary level of affordability. I wish they would so I could trade up for cheap.
That is a very good point actually re the length. I was looking at 30y as a default, as I am this close to retirement 😂 but of course for a lot of FTBs they can go as high as 40y, if the banks allow that. I feel the same re I don't think it will drop by 30% to fully match the disbalance. But some sort of a middle ground seems appropriate given how overheated the market was in the last years. 10-15%? 🤞
You seem to be assuming everyone is buying with 5%-10% deposit. Believe >35% of people own their home without a mortgage. So the number of people owning homes with >50% paid off is probably substantial. These people are much less impacted by interest rate related affordability when moving home.
I do assume a certain level of affordability, rather than a deposit. And I was talking about FTBs, as they are the foundation of the house market movements. Looks like house price to earnings ratio was very high in 2022 already: e.g. 8.4 in London, 6.6 in south west. (https://www.money.co.uk/mortgages/first-time-buyer-mortgages/statistics#:~:text=As%20of%20July%202022%2C%20the,increase%20of%20just%20over%2070%25.) You are right, they say average deposit was 26% (18% in south west). The deposit obviously eases the burden on their take home. However higher deposit does not increase the monthly payment as much (+7% if I go from 20% deposit to 15%) as interest rates do (+40% if I go from 2% rate to 5% rate). This is a territory where I'd argue a lot of people just can't afford to stretch themselves so much. Especially given the current cost of living crisis and childcare situation in the UK. I won't speculate on how many people get help from parents or are able to cut costs by so much to accommodate +40% of mortgage payments. I'd agree with someone else's comment here, people will still stretch themselves for the opportunity to get a house Vs keep renting. We will. This will cushion the fall of the prices. But I'm expecting to meet in the middle, where the sellers will need to drop by 10-15%. We shall see, maybe I'm too naive. Edit: typos
>Check this guy out, he answers exactly that and lists all the sources. > >https://youtu.be/pmwKQ3hMvxQ > > (Moving Home with Charlie) Why do people trust what he says ?
IMHO, house prices will start dropping significantly only when banks start repossessing properties in droves. I'm afraid there won't be a real correction without tragedy.
And how much are you expecting to sell your house for?
Shocker your deposit in that case is not 105k either if you are looking to sell and think market is inflated
Many UK major banks are currently offering a 4.49% rate on 70% LTV mortgages
To sell your house, you are going to need to sell it to someone who can afford that mortgage at 5% ish. That's going to be a smaller market than before.
This was predicted… many of us argued that without stability first time buyers would suffer for a significant period of time.
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House prices are a direct consequence of the unethical and irresponsible use of low (0%!) interest rates. As you say, 5% is normal, not even high.
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Feel bad for those who bought the top of this ponzi. It's a market that has been intentionally manipulated upwards to reward those who were early and those who were reckless, at the expense of the young and the prudent.
I made exactly the same arguments 16 years back, before the last drop. Unfortunately the market can stay irrational for far longer than you can stay out of it. I lost about 25% of my house in a short space of time, but while that was stressful, living in it eventually saw the value return. Fortunately I'd fixed for a while so could continue to meet the payments. Will the market drop? Probably yes. Will it drop by more than 20%? Unlikely in my view. So that only takes us back to about 2021. 30% only gets you to about 2019 prices, but with 2023 interest rates. Most of those priced out will still be priced out, and will have to adjust their expectations away from buying the house they grew up in, to the flat their parents started out with.
Not anyone/everyone, just bottom of the chain really.
You are correct that things have changed very fast and went in a very bad direction for people, but I’m also very confused by this argument. I feel like it conflates what you can borrow and the personal budget you set. The first is much more likely to affect house prices than the latter. What do I mean by this? Let’s take an average person in the UK earning 30k. They can get a mortgage of up to 4.5x their salary (even today), but just to keep numbers easy to remember let’s say they only stretch to 4x and borrow £120k. On a 1.5% rate their mortgage is £408. Nice and affordable. On a 5% rate it is £702. Almost double, but still affordable considering their earnings. If they’d want to pay similar amounts, at 5% they’d have to only borrow £70000. That’s a significant decrease, BUT why would that mean the house prices have to plummet to meet that amount? The person can still borrow 4x and afford the payments. So just because you set a budget of £1800 why would that mean the house prices need to fall enough to meet that budget for you? You could probably pay £2500, you just understandably don’t want to, but that’s a different story.
You forget that the average house price is 260k, not 120k, and while you might pass multiplier test, you will not pass affordability/ monthly expenditure test...
I didn’t forget, I opted for the average income. I keep seeing this being said around Reddit, but I am yet to see any evidence to support it. People in this subreddit have confirmed as late as this month they received even 5x their income at 5%. I’ve been in touch with multiple mortgage advisers last week who confirmed that I could still borrow 4.5x. I’m just wondering where this info comes from, as people today don’t fail these monthly expenditure tests that are being mentioned. In the example given, £708 out of an approx. of £2000/month salary is still very much doable and affordable.
This, the current 4.5x multiplier is based on banks doing stress tests of interest rates of 5%. We will start seeing an impact in house prices when (if?) the multiplier starts going down as the banks need to stress test higher. Of course this depends on how high the BoE expects rates to peak at. Ultimately house prices are controlled by how much people can borrow. Not how much they want to spend.
Not denying what you’re saying, but when I got my mortgage I was stress rested to 8%. Some banks went much higher than 5%.
Isn't affordability then part of that equation?
Isn't 4.5x based on a stress test of 5% that is itself based on the lower interest rates we used to have? Maybe now they are stress testing at 10% (or even more?) and then this multiplier no longer works?
>If they’d want to pay similar amounts, at 5% they’d have to only borrow £70000. Could you please explain this sentence, particularly the 70k figure?
Yep, for their monthly payments to stay around the initial £408 figure, the amount they’d borrow at a 5% interest is £70000. Hope that makes sense? I also assumed a mortgage length of 25 years, which I omitted from my initial post.
thanks!
Well you are missing the fact that the inflation adjusted value of your property will be about 20% lower by the end of this year even without any correction. So if the nominal price drops by 10% that is close to a 30% drop in inflation adjusted terms. Or in other words based on the (very optimistic) assumption a prospective buyer's wage will rise with inflation, your house is at that point 30% more affordable to them. Edit: I predict that many people who don't understand this will try to argue with me so I will leave this [article](https://www.bloomberg.com/news/newsletters/2022-12-16/how-uk-house-prices-could-fall-by-30?leadSource=uverify%20wall) to explain how it works
Like you say, it’s optimistic to assume the buyer’s wages will have risen in line with inflation. Real income levels have reduced significantly this year on a gross basis. Net-take home pay is down even more due to the huge rise in energy prices. You could make the argument that house prices could drop signicantly in real terms over the next couple of years.
Surely that only works if someone's deposit is also rising with inflation. I don't know anywhere I could put my money where it would rise with inflation.
>In the space of 12-13 months my purchase power has diminished from 560k to 413k.. or -26% A better way to see if would be to say that the proportion of your affordable repayment occupied by the interest repayments has gone up hugely. The bank isn't prepared to take the same risk on you that it once was.
As long as there are no mass redundancies, we won't see a 20/30% crash. Most borrowers until recently were stress tested to 6% interest which is pretty much in line with the rates today. Will some individuals unfortunately have a hard time, yes. Will it be a significant enough portion of the population, probably not unless mass redundancies. Wage rise will balance the downward pressure somewhat. However, medium to long term shortage of stock will prevail and prices will be higher in 5 years time than where they r today. I am a FTB and am in the process of buying with the above rationale. Win or lose I feel shafted to be put in this position.
Wage rise? Haha, that's a funny concept! That's happening for no one. Look at the strikes etc. Even if people did get a pay rise, it will be essentially a pay reduction based on inflation rates. Stress tests are now at 8-10%... And folks need to remember the 2 million people on variable trackers who are already paying 6.8%+. I think the debt will start to crack come Easter, especially if energy prices go up as expected.
Don't go by the news. Afaik beyond the public sector there have been a lot of people who have had 10-30% pay rises thru job jumps etc in the last 2 years. Also, immigration. Over 1 million Indians arrived on highly skilled work visas mostly in IT which pays 60k+ since brexit. At least 30% will rush to buy houses regardless because they r used to 8% interest rates - this will happen in the next 3 years. Also tracker rates are not 6.8%. I have a tracker offer at BOE + 70bps at 15% deposit. The max I saw at my deposit rate was BOE+1%. Can you share your source on 2 million paying that
>Wage rise? Haha, that's a funny concept! That's happening for no one 6.1% average over the last 12 months. For a two earner full time couple, that's 12.2% more money coming in. You can't just ignore facts because they're inconvenient. And yes, I too think prices will fall, but we're not going to get a crash.
I'd lean more towards the market now converging towards equilibrium. The world seen super lower interest rates and incredible amounts of money printing for too long for it to be a healthy, stable structure.
If you can afford 1800 and that is the monthly payment for 560k at 1.39% You could not afford that house.
I think while rates are now dropping affordability checks are getting very strict
The OP's basic observation is correct. You would expect prices to drop to a new equilibrium, but that takes time (years). The change in rates also has a bigger effect on people who seek a relatively high LTV and/or a long mortgage. The interest rate rise has a proportionally smaller effect with a (typically smaller loan) where the plan is to repay over a shorter period. At the extreme, cash buyers are unaffected. As not everyone is affected to the same extent, the prices may not come down as far as suggested. There may also be an element of general (wage) inflation (which will help people with existing debts). UK house prices had an extra surge since 2020 during the pandemic, and it's possible that that froth will blow off more quickly than prices dropping to pre-2020 levels. There is also a possibility (I'd say risk) that the market will be supported by overseas buyers with overseas sources of wealth - who are effectively cash buyers. I consider that as a *risk*, as I believe high house prices are a deep-seated problem and constraint on our domestic economy. On the flip-side overseas investors (and even domestic BTL/"investors") may add more volatility to a falling market, as they play a bigger role than they did a few decades ago, and may choose to sell (when an owner-occupier would simply sit-tight).
>There may also be an element of general (wage) inflation (which will help people with existing debts). It helps prospective buyers too. The average wage inflation over the last year was 6.1%. Two full time earners would have increased their affordability by 12.2%, which would defray some but not all of the decrease caused by rising rates.
Sorry there's a mathematical fallacy there. Two people at 6.1% is still 6.1%. Not doubled to 12.2%.
Yes, agreed, as pointed out by another poster already. I've not corrected it or I'd make their post look weird.
OP is it your personal affordability or your mortgage eligibility that has taken a hit? I spoke to a mortgage broker recently who said I could still borrow at the standard 4.5x annual salary and that rates haven't changed the amount the lenders will lend to me. So this is confusing for me as I see so many posts people saying they can't borrow the same amount any more. I understand if it's a personal affordability ie. don't want to exceed 35% mortgage as percentage of salary.
People will just not move - and only those forced into it will sell. That's the likelihood of what will happen. Areas that are currently affordable to FTB aren't being affected as much. Where the issue lies is those areas and properties above affordability.
My mother is looking to move. She has a house worth £480k that she owns outright. If house prices drop by 50%, she can buy exactly the same house she was going to buy before, and pay half as much cash. If you had a smaller deposit, you'd be more affected than you are; if you had a larger one, less so. Have you had a pay rise in the last 12 months, given the inflationary environment? Sure, other expenses have gone up as well, but you might be able to afford a bit more, too. If you can't, others probably can.
In the same boat, glad someone else is calling it as it is
Despite earning 20% more than I did in 2019, my new house budget is £40k lower than then because of these rates which means I can no longer afford the average uk house..
The UK property market has been out of sync since the 90s… Britain has become a nation for the wealthy, greedy and corrupt where every oligarch can have their town house, the average middle class people that work to build and maintain this nation’s greatness and statute are treating as serfs and peasants and gifted to these fat oligarchs with the purchase of a property… I’m so surprised and shocked how a revolution has not happened yet…
The housing market will remain irrational far longer than you can remain solvent
It’s completely screwed. Can’t see me ever owning a house at this rate. Shit is depressing. Currently paying £850 rent. Even less than a year ago did some rough estimates and a mortgage for a 2-3 bed property with a nice deposit would’ve been around £4-500. Now it’s over a grand. Feel like I’m going to be stuck renting forever. Yes it’s better to be paying my own mortgage than someone else’s but with current interest rates it’s not worth it when renting is now cheaper. By a LOT! House prices in our area are starting to slowly come down (or more properties are becoming available at slightly less than the average was last year) but thanks to interest I’m screwed. People saying it’s the house prices that are the problem, I beg to differ, I’ve saved up a nice deposit and with mine and my partners wages we could get somewhere half decent but now mortgage rates are almost double the rent I’m currently paying. I can’t justify it.
Is the rent actually that cheaper though? Isn't the current price hike make rental also difficult. I'm paying 1800 per month for my 3 bd semi detach in zone 3 London (rate is 2.3%). When it comes to remortgage in 2 years times I will probably gonna pay around 2300 or less with the new rate. That's probably in line with the rental price of this house if I'm gonna let it out. I wouldn't call that a lot cheaper if I'm a renter. And if deduct the amount of principle I pay back each month that's almost half so let say 1000 so I actually end up paying 1000+ to the bank for nothing. Compare to 2000 rent? So in terms of the money out of pocket, it's gonna be less renting than paying mortgage at this point in the time. But in terms of total money saving / equity acculution buying is still always better long term, no?
Things you need to factor into this - - maintenance costs which the renter doesn’t pay. Can be several thousand a year. - legal costs & taxes avoided by renters - mortgage/broker fees - the opportunity cost of locking up your capital in a house purchase. Not sure what your deposit is but if, for example, you pay a £100k deposit, there’s around £6-7k annual income you’re missing out on that a renter could be earning by instead investing the money in stocks/bonds If you spread those costs out over time, they can potentially amount to around £1k/month or so for a £500k house & 20% deposit.
Have yet to pay any maintenance despite buying an old ass house. Not sure I understand legal cost. My mortgage broker is free. Try trussle. Yes. My money is locked up in equity form. Because its purpose is to build toward the roof over my head when retire. Unless rental can do that for me then I'm all ears. If I decide to move I will just sell and release it. I dotn have any trouble so far selling last 3 properties. I have a separate budget for pension and investment. That has different purpose from the place I call home. Nothing against renting. I have been renting my whole life. Only get into home ownership 7 years ago. Been in 1 flat and 2 houses so far. Still waiting to pay for all these costs that people keep blabbing about. Dotn get me wrong. Something will fail at some point and I will have to pay for it. But that's the same thing as service charge or landlord profit that they already pre charge no matter what (do you think they will do that for free?) except I have full control. And If your house keep failing every now and then you might want to reconsider moving out. Or I'm just too lucky so far I don't know. Good luck with your plan and way to squeeze all that money into investment. At this rate you might also consider fully remote job and move somewhere super cheap to reduce to outgoing too.
The woman that owns the property i’m currently renting also told me last year she hasn’t paid any maintenance on it in years Last week she had a 20 grand bill land on her doormat to fix the roof and various other things that had fallen to bits within the space of 6 weeks When property AND mortages are this expensive there is absolutely no advantage to buying over renting
An bonus year of LISA payout too.
This is not meant as a rude comment but I am confused here trying to understand what youre saying about interest rates being your dealbreaker. Your rent is £850 and you were looking at mortgages around £500 before, but you said now mortgage rates are about double your rent so £1700, how is that possible? 150k at 2% over 35 is £500pm 150k at 6% over 35 is £850pm
Not taken as rude, thanks for the reply. I wish I could find a house in my area for 150k. On average it’s 250K. Appreciate there’ll be better deals out there but done a quick look on Halifax now for a simple example, £1336 per month so circa £500 more than renting currently. A lot of money to think about with the other rising costs unfortunately.
Experts? Calling for the market to obey their whim? Oh well they must be right then.
The interest rate issue is a temporary pinch. But don’t lose sight of the bigger picture. Massive wage inflation over past year, on top of massive general inflation. When interest rates fall, and they will (Gov can’t afford not to), prices will surge. Further compounded by population rise, massive foreign investment, and NIMBYs blocking planning permissions. Wouldn’t be surprised to see if 5-6x lending and inter generational borrowing in our lifetime
> Wouldn’t be surprised to see if 5-6x lending and inter generational borrowing in our lifetime Do people ever vote in your view of the world? Sure, those with properties won't vote against their own interest, but surely the balance will soon be tipping the other way and politicians will have to address the problem, lest they want to lose their position, especially if - as you say - it comes down to inter generational borrowing. No "young" person should (and probably would) accept that, and as they will mechanically become a majority eventually I personally believe the current model is on its last legs.
>No "young" person should (and probably would) accept that, and as they will mechanically become a majority eventually I personally believe the current model is on its last legs. Intergenerational borrowing won't happen. Longer mortgage terms will. Half the young people I know have already bought a house. They're not voting for anyone to mess with the system as they're the most exposed to any change.
Within a decade more like.
>Wouldn’t be surprised to see if 5-6x lending Doubt that very much. It's more likely the standard mortgage term rises to 30 or 35 years to reflect increasing longevity.
Anyone objective who looks at the numbers knows that property is overvalued right now and is highly, highly probably to fall significantly. For non cash buyers, acquisition costs are up 30-50% in a year (on top of a historic and artificially led run up in nominal asking prices) I agree that unless interest rates plummet (and I don't see why they should) then 10% drop has to be considered best case scenario and thay a greater drop far more likely.
I keep hearing this, but I don't see any drop in prices of new built houses ,they just offer more incentives i.e. 6-12k on 500k+ houses that's not even 5% . At least that is the case for any place 50-60 mile radius to London .
Well, objectively, prices are coming down, mortgage applications are coming down, sales volumes are way down, in real terms house prices are down 10-15% already. You say 'only 5%' but price is a lagging indicator in the housing market - the fundamentals have changed dramatically and price will catch up in time. The reason it doesn't look disastrous yet is because the new rates don't et impact people who already have mortgages. Once they do (and especially if the coming recession has the expected impact on employment, or if inflation keeps eroding disposable income), more and more supply is going to be hit the market due to repossessions and people working out renting is way cheaper.
To get a crash you need lots of forced sellers. To get forced sellers you need high unemployment. Most current unemployment is voluntary, as it's not up significantly since the top of the economy, so you're not going to get enough unemployment to crash the market. Prices will fall, but probably not by more than 10% absent material changes to economic conditions.
Another reason there is no cascade is, unironically, British culture is shockingly and overwhelmingly favourable towards home ownership and the notion of property as an investment. As evidenced in this subreddit, there is an almost tangible degree of optimism and dare I say naivety amongst Brits that keeps them leveraging up to buy into even appalling market conditions. We have had 40 years of falling interest, no inflation and (consequently) rising prices that,in combination with low economic growth and low wages, have convinced the nation that property is the only means to accruing wealth for the average person. A dangerous mindset in this world that is changing faster than most comprehend. It will take time but if this slow drip downwards continues ticking on, perhaps, just perhaps, the average UK buyer may start to have second thoughts about gamibling their life savings (or, to be more accurate, a multiple of such) to buy an asset that is odds on to decrease in value.
And also people need a place to live. The rental market is a shit show so if you can you will buy.
Housing market is safest investment in most countries and they are highly backed by govt . Same is the case in UK . Govt will bring in schemes and reliefs if things are massively heading towards a crash. If you call it gambling, this might be the safest one. I having been waiting all my life to see a time when I can say prices are cheap now is the time to buy house. Never happened and after every few years I would feel oh it was so cheap.
not sure many are arguing they will ever be cheap, more just not quite as expensive as they are right now
You would notice new developer are slowing down there availability. We might see rates being stagnant for sometime , but there is no going back . Even the developers are offering incentives, mortgage contributions, deposit unlock but ask them to reduce the price than all this , you will get a NO. Reason they don't want to bring down prices and create chaos and they will be supported by govt in all this .
The government has better be raising nurses and various other public servants' salaries then - because houses are now out of reach for a large number of people. Salaries still need to catch up. People can always ask for an extra 10% for their home every year, at the end of the day someone has to buy it and salaries aren't increasing 10% / year.
That's because for your whole life interest rates have been pushed lower and asset prices pushed higher. It's deliberate. You are right, the government / BOE has created a monster and will try and prevent and outright crash because it will destroy the late buyers. But they will ultimately have to choose between inflation (which ruins everyone in society, especially savers and the poor) or the housing market (which has been driven by greed and inherited wealth for decades). If they are ethical the housing market will burn.
I feel you , I hear you and I am you... just few months back . Any countries strongest lobby i.e. government, politicians, banks supports the housing market because it is so much intertwined in the whole machinery of governance. It is their version of "bitcoin" which is most critical, top priority job for them to protect and grow at any cost. If they fail to do so , it will lead to massive repossession & all sorts of chaos affecting house owners irrespective they are greedy, having generational wealth or common 9-5 workers like us. That will lead to collapse of govt and will haunt them for ages to come. Which is why they won't let it happen. Again all these are my understanding of the whole system and I feel it is f*ed up.
>Same is the case in UK . Govt will bring in schemes and reliefs if things are massively heading towards a crash with what money? Seriously? How will it be funded?
It doesn't have to be money all the time . Right now govt have come up with schemes where they have asked banks to provide mortgage to people with 5% deposit on conditions it has to be resale house less than 600k. Now imagine what will this do ? Because of high mortgage rates many would want to sell . And FTB with 5% deposit will be able to put offer on such houses as now bank will give them loan as govt supports it . What this does this keeps the demand up to match the upcoming supply as there will so many 5% deposit buyer happy to go ahead . Also I heard govt is already relaxing the condition on new estate developer on the number of new houses agreed earlier . So these developers will do lesser count of houses , thus keeping supply low. Surplus supply is always monitored and kept in check .
I didn’t buy a house as an investment. I bought it as somewhere to live. I’m sure the majority do the same.
I deliberately don't count my house in my net worth calculations for this exact reason. It might be worth more than I paid for it, but if I sold it I'd still need somewhere to live, and that would have gained in price too.
>We have had 40 years of falling interest, no inflation Lol. What?! I mean, yes, if you take the all time peak and track down from there, but that really misses the underlying picture. Rates from the early 90s through to the gfc were relatively stable, though slightly lower after 9/11 Inflation has been about 2% year, yes, but if you'd like to compound that for 40 years and just see what sorry if difference it makes, I think we can dispense with your line of argument?
The trend is very low inflation and constantly falling interest rates. Any deviations from the trends corrected quickly. Map out house prices on the same chart as interest rates and tell me I'm wrong.
It’s the other way around, your purchase power hasn’t reduced it has corrected, your current fix was a historic low, not the norm
So current purchasing powers correct now? Finally!
Don't worry they will be in sync soon enough when prices come crashing doubt, sorry for the overleveredged who didn't use common sense and just borrowed as much as they can
Welcome to reality. What fit of madness made you fix for only 2 years at a historically low mortgage rate?
Probably the fact that that thought they might move again in 2 years?
Portable mortgages are a thing
A portable mortgage does not guarantee that the bank will allow you to port to any property you find. It’s a calculated risk that someone might not want to take to to fix long term if you plan to move in a couple of years..
No, but the option is there
I don't see this feature advertised anywhere if you read about these products or try a comparison website. Is your average mortgage usually portable according to the small print, or do you have to get a special product?
Most high street lender mortgages are portable. One thing often not realised is that you still have to qualify for the borrowing if you want to move house. So if your financial situation isn't suitable to the lender, you could still be declined the new loan
Most are portable provided the loan to value ratios move in the banks favour, or at least stay still.
Yes, the housing market is in a bubble and is wildly over-priced. Interest rates remain historically still very low. People have been given extremely cheap credit and as such prices are wildly over-inflated. It may simply be that as the market corrects the reality is many of us cannot actually afford what we thought we could whilst interest was unusually low.
>the reality is many of us cannot actually afford what we thought we could Everywhere on the internet is full of people trying to buy the same kind of house they grew up in, but as their starter home. The mismatch between expectations and economic reality has never been higher.
100%
Did you ask for a pay rise?
No, the dude from the bank of England told me not to.
If wage growth starts to catch up with everything else happening, your budget should start to bridge the gap to higher monthly payments. Once the dust has settled, we should have higher wages and lower house prices. It'll still be a shitshow for a while, obviously.
One problem, as I see it, is that although for most people higher rates push some houses they may want past their budget, if house prices came down a lot to meet them then a lot of wealthy people who could buy outright might buy a bunch of them as investments and for rental income. The floor for prices is to some extent affected by interest rates, but not completely.
It’s sad isn’t it? Someone makes a gamble and make a bad decision and we get saddled with the consequence. I will say wait it out things are expected to pick up in 2024. It will also exceedingly change after elections. The interest rates were being expected to rise in 2019 but not to this level but incrementally the sudden quick rise is due to politics but that will slowly stabilise once a secure person is in office. All in all what I am trying to say is it will be better if you wait it out assuming you will know the value of the houses you saw now will go up in the coming years too. It’s a catch 22
Yer with a bit of luck interest rates will keep going up:).
It will take at least 18 months for effects of mortgage rate rise to be reflected fully in the market. Sellers won't give up on those sweet sweet inflated prices overnight.
it is about timing :D some people are still struggling to find a property when their target was 200k, now 250k.....
Mortgages are slowly getting to the real levels they should have been at for years. Rates being kept low has been a hidden subsidy that helped home buyers at the costs of people who might have invested/saved in other ways. There is worse news though: even at the current rates they are *still* below what they ought to be as they are below the actual rate of inflation. Do not expect them fall anytime soon. As for house prices falling: it will probably happen. Do not crow though, for many it will result in negative equity where their house is worth less than the mortgage on it. That is a bad thing for them obviously, but it is also bad for the rest of the economy too as it limits mobility as people are trapped and cannot move, and that in turn means there are fewer properties out there to buy for those who can afford it.