Friday, May 16, 2008
How many considered this scenario when they took on their mortgage?
Telegraph: Housing crisis: Mortgage rates at 8-year high
The average rate for a two-year loan, the most popular mortgage, have reached 6.64 per cent. This is the highest rate since 2000 and compares to an average rate of 4.34 per cent two years ago.
Posted by quiet guy @ 12:46 AM (804 views) Add Comment
17 Comments
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1. who stole my pension? said...
6.64% is still a lot less than 15% which is were we are going!
2. Jimmylad said...
that's the big problem.
Jumping from 4.64 to 6.34 is a jump of 43% !!!!!!!!!!!!!!
Factor in the huge mortgages to start with & this is worse than those "15%" rates that people like to go on about (but no one actually paid them)
I'm so glad I'm out of it...........................................Including the UK !!!
My late mum did say that "Everytime Labour get in they make a right mess of things"
3. Jimmylad said...
it may be less but the mortgages are 4 times as much so a rise of 53% is gonna hurt big time. The game would be over for everyone at 10%
No one ever paid 15% anyway and......................................................
not everyone back then had big credit card bills & cars on finanace
Glad im out of it
4. str 2007 said...
6.64% is almost 50% more than 4.34%.
I recall the property bulls 2 years ago saying prices weren't overvalued as it was down to affordability ie monthly repayments.
Using their same arguement I therefore deduce that just to get back to 'affordable' levels of 2 years ago a 30% drop is house prices is on the way.
The truth is they weren't really affordable 2 years ago.
5. sold 2 rent 1 said...
But even IRs at a 8-year high don't tell the real picture.
LTV availability is the key to an 80pc HPC
£15,000 deposit will get
£300,000 loan at 95pc LTV
£100,000 loan at 85pc LTV
£60,000 loan at 75pc LTV
LTVs dropping from 95pc to 75pc to has the power to inflict an 80pc HPC
With higher unemployment, higher IRs and lower disposable income and we could see 75pc LTV as the norm.
The power of deleveraging is amazing
6. mark wadsworth said...
Whole Stole, this whole 15% interest rates is a red herring. What would you rather pay, 15% on a mortgage that's twice your salary (and see the debt eroded by inflation) or 7.5% on four times your salary?
As str2007 explains, jumping from 4.34% to 6.64% is just as bad as jumping from 10% to 15%.
S2R1, nice maths, but bung in the rate increase as well and you get
£15,000 = 5% deposit on £300,000 house, interest 4.34%, repayments £12,369 (£285,000 x 4.34%)
£15,000 = 25% deposit on £60,000 house, interest 6.64%, repayments £2,988 (£45,000 x 6.64%)
High interest rates and strict mortgage lending criteria make houses cheaper and more affordable.
7. str 2007 said...
s2r1
You are of course correct to re-iterate the LTV situation which added to the cost of borrowing will I'm sure have a huge impact.
The LTV's aren't so significant (right now) to larger houses as the purchasers already have 50% or so deposits from equity already built up.
However these LTV's will make a huge difference in the BTL/FTB market place and ultimately sales at this level allow sales at the upper levels.
In all honesty given our 2 examples above I'm surprised we're not yet seeing 3,4 or even 5% monthly price falls. (Maybe those figures are too conservative).
How anyone is managing to achieve a sale at within 1 or 2 % of the previous month is quite beyond me.
And the above comments still don't take account of real inflation at 12-15% against wage rises at 3 - 5%.
8. sold 2 rent 1 said...
str 2007,
"The LTV's aren't so significant (right now) to larger houses as the purchasers already have 50% or so deposits from equity already built up."
Plus the big BTL landlords will still be the only ones able to afford the new city centre flats even after they have crashed by 50pc.
Hence Greenbay's optimism.
As I said earlier the redistribution of wealth will continue and continue until we demand change.
No change without chaos.
9. inbreda said...
I love reading the mathematics of LTV calculations. It doesn't matter how many times I see the working out, I just love the inevitability of the effect it's going to have on house prices.
Mark W - thanks for your calculations - that is another fantastic way of pointing out the frivolity of recent times. What's the betting that less than a fraction of a percent of sheeple ever get to understand this.
And what are the chances of our really intelligent chancellor and ex-chancellor understanding this? a big fat zero.
10. the haunted said...
The more I see this the more I believe that the LTV is what will bring the whole house of cards down, OK its pretty obvious now but I had never considered it before the last few months. Had anyone predicted this last year? I am not bright enough to have thought of it myself.
11. str 2007 said...
I'd certainly been talking about it for a long time, it's the LTV that, combined with extended multiples and self cert. mortgages that has caused the biggest problem.
We're now about to see a reversal of that.
You can see from the calculations above just how powerful, what appears to be a small change, is.
If the lenders and government don't know this they should all resign immediately. It's very simple mathematics.
The truth is the majority of them are well aware and will have had property portfolios in place which are likely to have been sold last year. (or not hence the desperate attempts to prop the market)
I don't hide my opinion/interest in the situation - I think it would be very prudent for commentators and politicians to openenly declare their personal property position. These should also be attached articles on which their 'professional opinion' is being put forward.
See the next article with Peter Spencers opinion Chief Economist at Ernst & Young (or nursing a large btl portfolio he's trying to protect).
12. Distant_adz said...
"Swap rates have risen through the roof, as people face up to the fact that interest rates will be higher for longer than they had expected."
Hector Sants, the head of the (FSA), said....consumers should "not expect a return to very easy credit for the next few years". ......"100 per cent mortgages were not a good proposition for the long-term health of the economy."
I don't believe all this. I thought they are meant to experts? Higher interest rate are to be expected? No sh*t Sherlock. What are these people paid for? There are more insightful discussions and debates on this board than seems to be expressed by these 'experts'. The head of the FSA has just publicly acknowledged that 100% deals are not good for the economy? I thought this was bl**dy obvious????? What have these people been doing over the last 5 years?????? Jesus.
13. % said...
Hands up who honestly thinks 6.34% is an expensive rate at which to borrow a large amount of money. Stop whingeing!
14. inbreda said...
10. the haunted said...
Had anyone predicted this last year?
It is at least a few years ago when I first saw it talked about on this site.
The beauty of it lies in the negative feedback loop. Just like estate agents will try to convince sellers to drop their prices in order to make sales and gain commission, thus lowering prices and discouraging more buyers from jumping in, the same is true of the LTV. The fact that banks are lowering the LTV is their way of reducing their risk. For example, if they think house prices might drop 5%, they won't let anyone borrow more than 95% LTV - thus maintaining sufficient equity in the property to ensure the bank can always get its money back. By dropping their LTV by a small amount, they make house price drops a reality by far more than they predicted - forcing them to reduce their LTV even more. It is a race to the bottom.
15. Sold My Soul To The Never Never Never said...
Don't forget MIRAS when we had 15% interest rates - that made interest rates a lot nearer to 11.25% on the first 30K of the mortgage! And in my area most properties were valued around this mark at that time.
16. Kruador said...
Mark, you haven't compounded the interest or paid off the capital.
Your £285,000 mortgage costs £824,357.64 over 25 years, repaying 300 monthly payments of £2,747.86.
The £45,000 mortgage costs £224,499.78 over 25 years, repaying 300 months at £748.33.
(Multiply capital amount by e.g. 1.0434 ^ 25 = 2.8925.)
17. Kruador said...
Damn! got my own sums wrong. I haven't allowed for the payment reducing the capital every month. BBC Homes calculator at http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml reckons £1,575.40 for the £285,000 mortgage and £311.42 for the £45,000 mortgage.