Thursday, Apr 19, 2007
Why IR rises will be slow to work
finance markets: More buyers choose fixed-rate mortgages
85 percent of first-time home buyers chose a fixed-rate mortgage, while 70 percent of those moving from one house to another did so
This explains why 3 rate rises have had no impact at all.
Why inflation will run away...
1. Inflation has more to do with global influences than local.
2. With so many people on fixed rate mortgages - IR rises will have to go much higher to have any impact.
This boom will run to the end of the year.
the effects will last a decade or more.
Posted by sold 2 rent 1 @ 03:55 PM (413 views) Add Comment
8 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. Stopbuyingproperty!!! said...
And no doubt there'll be a new web site in ten years time too.. Convincing everyone that the house prices will eventually pick up again.. at this time people will have lost a lot of money and many people will have trouble believing it!
2. dugmug said...
S2R1, not sure I entirely agree with you on those points I'm afraid:
"3 rate rises have had no impact at all" - OK, the crash hasn't happened yet, but reposssessions are already up even though it takes so long for these to come through the system, FTB numbers are even lower than they were before, there are reports of price reductions (even if small) in some areas already, more mortgage applications are being rejected and, possibly the most important, even some national rags and VIs are now mentioning the C word when before it was just, "it will always go up and up and up!".
"Inflation has more to do with global influences than local" - general inflation seems to, I agree, with the oil and China factors, but HPI in this country is heavily influenced by how much people can physically raise to pay for a house, which is firmly wedded to UK interest rates.
"With so many people on fixed rate mortgages - IR rises will have to go much higher to have any impact." - if all the fixed rate mortgages really shield the market from IR raises, as you are suggesting, then surely it doesn't matter how high those raises are? A fixed rate mortgage won't go up whether you raise the rate by 0.25% or by 10%, after all. However, I think there are still enough variable rate mortgages out there to make a difference - 40% of all mortgages, in fact, according to an article from earlier today (which broadly matches with the figures from your article stating 15% of FTBs and 30% of existing owners). Even 10% of home owners falling into difficulties would have a big effect, I reckon, let alone 40% - and every month there will be more and more fixed-raters coming to the end of their fixed-rate term and looking to remortgage, who will find rates are potentially much higher than the last time they set their rate!
Having waffled on about all that though, I agree it could be until towards the end of the year, or even later, before prices actually start coming down significantly, because it simply takes so long for all the relevany factors to work through the system - high prices are "sticky", because no-one wants to be the first person on their street to drop their price and so "lose" all that (imaginary) money.
3. fahrenheit451 said...
I agree.
Its the buyers & sellers that are going to be hit, it will take time to filter though into the general market.
But we should expect that rates will rise above 6%. 7% is not unrealistic.
And when all the fixed rate deals come to an end, how many will be able to afford a 50%+ increase in payments.
The party-crashers are in the wings, get ready to fly.
4. Jason Cropper said...
yes fixed rates will cause a lot of mortgage holders to be happy,however its a short term fix in that in x years ie 2 or 3 they will need to re fix at higher rates and no doubt higher fees !!! so rates need to be up by 0.5 % in may and the same 0.5% in july with 0.25% in sept to bring rates back to the long term average 6.5 % base and 8.5 % svr mortgage.
the base rate delay of some 18 months is not being reported and i wonder why not !!!
5. lvmreader said...
Interest Rates do not need to go up for banks to widen their Credit Spreads.
Once the reality of the major losses most are hiding come to light, those spreads (the difference between the rate a bank borrows money from the BoE and the rate it lends to consumers at) will grow.
They will also beign to withdraw all new fixed rate products, and terminate some older ones. If they all do this in concert, Joe Consumer will be squeezed.
6. magnifico said...
Dugmug, I tend to agree with the fact that the effects of IR rises are mitigated by fixed rates mortgages.
That is not to say that a HPC will not happen, on the contrary it will delay it to a point at which the word 'crash' really mean collapse.This is due to people's different attitudes towards debt: as for myself I have a very competitive fixed rate until Jul next year, but I'm making extra payments and trying to substantially reduce my mortgage, in anticipation to the crunch, many believe you me are not and are just taking the view of "I'll deal with the increase when it comes"... then again they may be right as in a year and a half time inflation and inflationary pay rises will have halved their debt in real terms...
7. Matt_the_hat said...
Ladies and gentlemen the reality of the situation is this: no matter how high interest rates go people will carry on speanding, the only time this will stop is when the banks finally decide to pull the plug! This I'm afraid will only happen when house prices are worth less than the liability of the debtors (i.e. HP fall). Therefore it is my view that the BOE will carry on raising interest rates wondering why nobody will stop speading (and why should they when they can get £2k a week from their house) until rates have been raised to such heights that BTL's and home owners will come off their fixed rates and then the penny will drop. HPC but not for at least another year!!!!
8. george monsoon said...
What about if rates go to 6 or 7% before the year is out. There must be a lot of fixed rate deals due to expire before then, that were fixed at 4.5 or 5% how does that pan out on a 100k mortgage.
(sorry I am in work and dont have the time to work this one out)