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TheCountOfNowhere

If Interest Rates Were 5% Today Where Would House Prices Be?

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Sometimes I get disheartened by the HPC cause ( and I think many of us have recently ), what with the crazy government schemes and the relentless media propaganda, it's hard to keep positive.

Then, I take a step back and ask myself the question:

If interest rates were 5% today and there were no FLS/HTB/HTB2 schemes where would house prices be?

I think we all know the answer would be lower, but by just how much.

When you ask yourself this question then ultimately you have to come to the conclusion that by following the policy of low interest rates and the FLS/HTB/HTB2 schemes the government are deliberately trying to keep house prices up. Maybe the Haliwide/Rightmove indexes are more a measure of the governments stupidity or corruption levels that of the true value house prices.

For me, this single question, shows the market up for what it is.....crocked.

First time buyers should all be asking themselves this self same question.

Caveat Emptor.

Edited by TheCountOfNowhere

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First time buyers should all be asking themselves this self same question.

Sure, but what are their options?

The UK government has shown that it will do anything to both protect the private banks and keep house prices elevated.

They will:

Introduce 30 years plus mortgages

Continue to devalue the currency

Undermine the pension companies

And drag this out for another 5 years. Maybe 10.

Fe people have that kind of determination and patience.

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Sure, but what are their options?

Leave, move to Poland and become a plumber.

Sponge off the state for their whole lives.

Vote UKIP/BNP.

Why would buying a house given the obvious state intervention to keep prices up help any young person ?

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You should know that since you made it a public poll ;).

:lol::lol::lol::lol:

Yeah, that would make sense.

If interest rates shot up to 1% today prices would drop another 10%. :P

Edited by TheCountOfNowhere

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Why would buying a house given the obvious state intervention to keep prices up help any young person?

But if you have a job and you are in your 20s and 30s your choices are really slim. Especially if you either live at home with your parents or have a partner/children.

You can rent for the next ten years if you like, hoping that the government will stand buy and let prices correct, but very few people could do that.

And if you have savings where do you put them? In the bank getting interest blow RPI?.

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But if you have a job and you are in your 20s and 30s your choices are really slim. Especially if you either live at home with your parents or have a partner/children.

You can rent for the next ten years if you like, hoping that the government will stand buy and let prices correct, but very few people could do that.

And if you have savings where do you put them? In the bank getting interest blow RPI?.

If you intend to spend those savings on a house, the only relevant inflation is house price inflation (or deflation).

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But if you have a job and you are in your 20s and 30s your choices are really slim. Especially if you either live at home with your parents or have a partner/children.

You can rent for the next ten years if you like, hoping that the government will stand buy and let prices correct, but very few people could do that.

And if you have savings where do you put them? In the bank getting interest blow RPI?.

Or you can buy and after ten years have nothing to show for it. You might as well spank you cash, have a good time, move abroad, live your live and come back when the lunacy stops. What;s the point in saving OR buying a house, neither is going to help a young person right now.

The best thing they could do is take their savings and buy a one way ticket out of here.

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Or you can buy and after ten years have nothing to show for it. You might as well spank you cash, have a good time, move abroad, live your live and come back when the lunacy stops. What;s the point in saving OR buying a house, neither is going to help a young person right now.

The best thing they could do is take their savings and buy a one way ticket out of here.

I hear this all the time. 'Move abroad, everything is so much better abroad'. I have tried this about 5 years ago and it was extremely difficult. Unless you can speak a foreign language to a level close to fluency where could you go? Australia? Good luck getting the Visa. Same with the USA.

Most young people will have savings under £10,000. If they are lucky. Probably under £5,000. Even if they lived like a monk that wouldn't last you 1 year abroad. Even if you got a part-time tourist job.

I am not saying they should just go and buy a house. I just think that their options are so limited and the government so hell bent on protecting the banks that their choices are really limited. I don't see interest rates going above 3% in the next 10 years so maybe a mortgage is not a bad idea.

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Sometimes I get disheartened by the HPC cause ( and I think many of us have recently ), what with the crazy government schemes and the relentless media propaganda, it's hard to keep positive.

Then, I take a step back and ask myself the question:

If interest rates were 5% today and there were no FLS/HTB/HTB2 schemes where would house prices be?

I think we all know the answer would be lower, but by just how much.

When you ask yourself this question then ultimately you have to come to the conclusion that by following the policy of low interest rates and the FLS/HTB/HTB2 schemes the government are deliberately trying to keep house prices up. Maybe the Haliwide/Rightmove indexes are more a measure of the governments stupidity or corruption levels that of the true value house prices.

For me, this single question, shows the market up for what it is.....crocked.

First time buyers should all be asking themselves this self same question.

Caveat Emptor.

hold_fast_2_web.jpg

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No gov props in 2007 at peak,boe interest rate was,

jan 2007 5.25%

july 2007 5.75%

dec 2007 5.5%

& still hpi was occuring.

There were also 90-95 -100-125% self cert mortgages available at that time along with 90% IO BTL mortgages which all that was need to obtain one was a pulse

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I think apart from London & The South East we are in the capitulation phase. Up here in the North West very little is moving and stuff that is must be going for vastly less than headline price. I think it will not be long till everyone works out that anything is only worth what someone can pay and with the mortgage rates available to HTB2 buyers at a minimum of near 5%.......

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There seems to be a trend by several high profile and influential pundits towards the view that we're stuck in a low intensity slump that will likely persist for decades. Larry Summers appears to be the latest convert.

http://www.businessweek.com/articles/2013-11-18/larry-summers-has-a-wintry-outlook-on-the-economy

If they're right, and I believe they are, then we'll also see ultra low interest rates for decades to come.

That's why I believe talking about 5% interest rates is a bit like asking where house prices would be if an asteroid crashed on London...it might be an interesting thought experiment but the likelihood of it happening is vanishingly small. In my view a more realistic question is, "where will house prices be if the base rate stays at 1% or lower for the next ten years?"

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Higher.

If rates were 5% there wouldn't have been a credit derivatives crash or a global recession and thus nominal GDP would more than likely have continued on trend and be reflected in higher house prices.

Pretty straightforward.

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There seems to be a trend by several high profile and influential pundits towards the view that we're stuck in a low intensity slump that will likely persist for decades. Larry Summers appears to be the latest convert.

http://www.businessw...-on-the-economy

If they're right, and I believe they are, then we'll also see ultra low interest rates for decades to come.

That's why I believe talking about 5% interest rates is a bit like asking where house prices would be if an asteroid crashed on London...it might be an interesting thought experiment but the likelihood of it happening is vanishingly small. In my view a more realistic question is, "where will house prices be if the base rate stays at 1% or lower for the next ten years?"

Well the interest rates on most if not all the HTB2 mortgages are around the 5% mark ,for me the big question thats needs an answer is if the BOE base at 0.5% goes up by 2% dose the 5% mortgage rate go up by 2% or does the margin the banks make come down ?

IIRC the margin banks worked on before the crash was around 1.5-2% ( could be wrong on that) but the talk of the banks stress testing HTB2 mortgages for a 2% increase suggests the current margin is now classed as the norm

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I'm starting to think that interest rate normalization isn't the driver we're looking for. Both because it isn't likely to happen anytime soon and because, as others have pointed out, banks have a sizable spread that could absorb any shocks.

But maybe the cost-of-living crunch will do it instead. If ZIRP is here to stay then so is inflation, and with real wages stagnating at best the disposable income available for housing has to shrink. Once that starts to bite, the (conscious) speculators dash for the exits and the herd follows.

Timing? No idea.

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I think interest rates affect sentiment but not much else. I think the real drivers are HB which is being propped up by rentiers in collusion with local government officials and benefit recipients which enables decent yield in suburbs of London, and secondly cash rich global investors in prime locations.

Owners have seen no rises nominal or real for the last 6 years and are now trying to force the prices up just because they want to in the same way they managed to force rents through the roof post 2008

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There seems to be a trend by several high profile and influential pundits towards the view that we're stuck in a low intensity slump that will likely persist for decades. Larry Summers appears to be the latest convert.

http://www.businessweek.com/articles/2013-11-18/larry-summers-has-a-wintry-outlook-on-the-economy

If they're right, and I believe they are, then we'll also see ultra low interest rates for decades to come.

That's why I believe talking about 5% interest rates is a bit like asking where house prices would be if an asteroid crashed on London...it might be an interesting thought experiment but the likelihood of it happening is vanishingly small. In my view a more realistic question is, "where will house prices be if the base rate stays at 1% or lower for the next ten years?"

Glad to see I am not the only one that thinks rate wont go up.We are Japan.

I think secpticus was right it's zirp or nirp all the way. Bonds and share will go on up until there is no yield to be had anywhere. The 99% has been sucked dry by the 1% and once the 99% can not take on any more debt the 1% can't get any more yield off them.

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Glad to see I am not the only one that thinks rate wont go up.We are Japan.

I think secpticus was right it's zirp or nirp all the way. Bonds and share will go on up until there is no yield to be had anywhere. The 99% has been sucked dry by the 1% and once the 99% can not take on any more debt the 1% can't get any more yield off them.

Maybe or maybe not.

IR are not only a function of inflation.

Third world countries have high IRs cause they have low growth and are perceived as a bad risk.

Wonga does not charge poor people high ITs coz they have high inflation.

If we are facing a sustained period of low IRs then we facing a period of b.gger all growth.

In which case, there will be b.gger money for mortgages and there will be no growth premium on UK assets.

Just look at Japan's house price over the last 20 years 80%+ down.

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Glad to see I am not the only one that thinks rate wont go up.We are Japan.

I think secpticus was right it's zirp or nirp all the way. Bonds and share will go on up until there is no yield to be had anywhere.

It could be in the UK zirp or nirp is not enough to protect the value of over-inflated assets in the UK. And the hunting for yield in bonds and shares might only tightening all the deflationary impulses. Values are not money.

Then all the other triggers, including if and when US tapers, on the UK. Including possibility of big change in capital flows to the US. Or HTB1+2 to 'help' less well-placed buyers meet VI asking prices causing further malinvestment and drag on the economy, fuelling more imbalances, to the continued detriment of others, who have to rent and wait, and hold-fire on their own plans and who tend to limit their spending in the economy.

Massive gap between the older housing haves (in values) vs the younger housing don't-haves. When HPC comes it will be abrupt again, like in 2008, except this time there will be little policy-makers can do.

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There seems to be a trend by several high profile and influential pundits towards the view that we're stuck in a low intensity slump that will likely persist for decades. Larry Summers appears to be the latest convert.

http://www.businessweek.com/articles/2013-11-18/larry-summers-has-a-wintry-outlook-on-the-economy

If they're right, and I believe they are, then we'll also see ultra low interest rates for decades to come.

That's why I believe talking about 5% interest rates is a bit like asking where house prices would be if an asteroid crashed on London...it might be an interesting thought experiment but the likelihood of it happening is vanishingly small. In my view a more realistic question is, "where will house prices be if the base rate stays at 1% or lower for the next ten years?"

If interest rates were 5% today where would house prices be....all depending on the available credit, how many with cash to buy putting it into housing rather than say a bank or the stock market or investing it in another property friendly country.......interest rates can be 5% if only paying the interest, like government debt, interest only none of the debt is being repaid only rolled over......when anyone is having to pay more for debt be it interest or the initial amount the principal they do not buy other things....fixed income with a greater percentage going to repay debt makes us all less well off.....purchases are bought and consumed in a mater of moments debt is repaid over many years.......high house prices with ultra low interest rates mean people can't move they can't progress, they are stuck if they fail to repay because they fail to earn enough when so many other pressures are put on their limited budgets......where will house prices be if interest rates stay at 1% or zero for many years, not in a pretty place......the debt will expand to match it. ;)

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