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apom

Interest Rates, Cost Of Borrowing.

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Okay.

What sets house prices?

The amount we can afford to pay.

We can afford more at low interest rates.

Less at high.

Insanity to take up a 25 year loan at variable rate just because IR's are low now.

But that is exactly what has happened.

It has been speculated that at todays debt levels, properties bought at peak or near peak become as unaffordable at 6-7% IR's as they were in 1989.

House prices showed drops as rates climbed.

Then they rallied a bit in the august drop.. Chances are also related to promises of more drops.

Okay FTB's...

£180,000 at 4% fixed rate = £600 interest

£180,000 at 5% fixed rate = £750 interest

£180,000 at 6% fixed rate = £900 interest

£180,000 at 7% fixed rate = £1050 interest

a month.

Now I can afford an interest only mortgage at 4%

I am struggling at 5%

I am doing a tescoes value beans on toast and pumping up the tires on my pushbike at 6%

at 7%, well I hope that I don't have to pay bills, insure anything.. eat much.. Have any unexpected home repairs... Need new shoes..

£180,000

and that was a two bed flat when interest rates were 3.5%

now the same flat is £130,000

I have quoted interest only... Why?

Well.. for some unknown reason it is sensible to get a 25 year loan at historically low interest rates at a time of strictly managed low inflation for an amount where you can't actually afford to make any repayments against the loan.

£180,000 / £1425 = 10.52

or the amount of years it would take me to pay of the capital with every penny of my take home pay..

and I have been told I can afford the loan interest only????

Can I my ****

So, people need to borrow money, if Interest rates rise they will have to pay more a month.

People are coming to the end of fixed rate terms from the low IR's at peak market.

So.. discuss.

Are Interest Rates set to rise,

Can people afford todays prices at the future Interst Rates?

Is there a correlation

£758.33 at 7%

So that would be at the 5% fixed rate level of £180,000

Now there has to be a correlation here..

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and with interest rates in eurozone at 2%, that £180,000 morgage only costs £300 a mounth, you can see why the bubble is so large in ireland and why everyone has jumped on the property bandwaggon.......

Are interest rates set to rise : yes, we are at historically low levels around the world and inflation is on the up...

Can people afford todays prices at the future Interst Rates : It depends how high they go on the numbers, but no :P However the higher interest rates go, the more the debt is eroded and the better for savers/STRers...

Edited by moosetea

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So does this mean that now is a great time to buy and get a long term rate fix. I know that Nationwide do a 10 year fix and I'll be surprised if there are not other longer term deals about. You could lock in to historically low rates for your entire mortgage. What could be better?

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I posted along these lines (although not in as much detail) last week.

Basically what I have seen happening is that the money market rates - which most financial institutions use to price their mortgage rates have been on the increase. In real terms this means a rise in the rates they can afford to offer to their customers.

In short the trend of the last two weeks have seen the rates rise by 0.15% if this is passed on by the financial institutions to advoid cutting into their margins, then the real cost of borrowing for mortgages will increase. All this without the Bank of England rate increasing.

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If rates go up, many people undoubtedly think -'if the worse comes to the worse we can always sell'.

Alas no, as the cost of money goes up, the cost of houses will go down and the liquidity trap snaps shut. Hello negative equity and years of misery

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So does this mean that now is a great time to buy and get a long term rate fix. I know that Nationwide do a 10 year fix and I'll be surprised if there are not other longer term deals about. You could lock in to historically low rates for your entire mortgage. What could be better?

A colleague at work has done this - although they only have a mortgage for £50K or so - lol

Great - They can service the debt and plan their expenditure to suit.

But

If in a years time rates are higher, the fixed rates will likely rise to take account of this as well.

Hence the affordability will be reduced for people who didn't fix at that level. Let alone prospective FTB'ers who've no mortgage yet.

If FTB'ers can't afford to buy your house, even if you are not a forced seller, then its value must fall to a value they can afford, and if they see that prices are falling, then why buy right now?

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Guest Guy_Montag

Which is exactly why I will not buy at this time.

I would rather buy a house currently valued at £160k, for £90-100k with interest rates at 12 or 13%, because at those levels rates are more likely to drop (& my savings will do better), but at current levels rates are more likely to rise.

I'm public sector parasite, so my job is fairly safe.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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