Mortgage Rise Will Plunge A Million Homeowners Into Perilous Debt

[cybernoid]

Putting up interest rates would lower house prices, but that would mainly benefit cash rich buyers. So even though it would make houses cheaper it wouldn't make them any more affordable for those buyers needing a mortgage.

Monthly payments may not move that much as the ratio of repayment to interest portion varies, yes. But it is far safer to buy when a small rate rise won't increase your payment by a large percentage… that is the situation you have when rates are low.

[billybong]

"Matthew Whittaker, senior economist at the Resolution Foundation, said ministers should consider "locking in" cheap credit for those who are heavily indebted. He added:"Even if we take a somewhat rosy view of how the economy will develop over the next few years, the number of households severely exposed to debt looks as though it will double."

That sounds like another bailout/welfare scheme for the banks. Does it apply to all debt - the way he's quoted it sounds like it even covers loans for stuff like cars and trinkets and suchlike.

It's the taxpayers etc that are locked in - not the borrowers.

About Resolution Foundation

The goal of the Resolution Foundation is to improve living standards for the 15 million people in Britain on low and middle incomes. To achieve this we conduct rigorous research, analysis and policy development to inform public debates and influence key decision makers in government, the private sector, and civil society.

Our Funders

The Resolution Foundation is primarily funded by the Resolution Trust.

We are also grateful for the support of the following organisations:

· Barrow Cadbury Trust

· Nationwide Foundation

· Thames Valley Housing

· Unbound Philanthropy

Sounds like their "goal" or "mission" is a bit opposed to the interests of some if not all of their funders.

Apparently Resolution are " UK Think Tank of the Year 2013" - awarded by the magazine Prospect.

Prospect Publishing © 2013 | 5th Floor, 23 Savile Row, London, W1S 2ET

Resolution Foundation 23 Savile Row, London, W1S 2ET

Farce - to say the least.

Edited December 29, 2013 by billybong

[winkie]

I'm not convinced. I think the central reason we're not building more houses is NIMBYism, especially when it's enfranchised in batty schemes like green belts. Make low price land available in the areas where the jobs are and low price houses will follow.

Not sure that would work.....I will give you an example: Housing estate built not so far away, a number of homes were sold at an affordable price, didn't take that long for many who bought at that affordable price were selling them or renting them out at an unaffordable price......all homes then became unaffordable for new buyers.

When you clearly have banks and governments, forbearance, IO and benefits propping up land and building prices you can not have a free market.....we all end up paying the high prices at the end of the day.

Edited December 29, 2013 by winkie

[SarahBell]

Surely no bank in their right mind would not have done an affordability calculation to show people what would happen if rates went up?

[Monkey]

Surely no bank in their right mind would not have done an affordability calculation to show people what would happen if rates went up?

The bank probably has a check box the 'advisor' ticks to say he has explained it to the customer, they may have to sign something to say they understand, but what people will say or listen to is anyones guess.

A person may have failed the affordability, but if they add in the pay rise the customer might get next april, then they pass the flimsy affordability check. Hell they might even take a lodger untill then, so thats extra money as well

The bank as an entity has done its bit by entrusting the advisor to be 100% honest and transparent buy offering that advisor money to get the customer to sign up to a mortgage. Scaring a customer never earned any salesman commission

Edited December 29, 2013 by Monkey

[the_duke_of_hazzard]

Mixed signals on rises/falls here:

http://themortgagemeter.com/#/latest_changes

A closer look at the Skipton changes it looks like a mild tightening, as do the Halifax ones.

[Eddie_George]

hotairmail @hotairmail

I keep reading about poor homeowners being "at risk of eviction".That is the perpetual state of affairs for the nation's renters - on a whim

12:38 PM - 24 Dec 2013

Damn right.

[Venger]

Putting up interest rates would lower house prices, but that would mainly benefit cash rich buyers. So even though it would make houses cheaper it wouldn't make them any more affordable for those buyers needing a mortgage. In any event the argument's moot, interest rates are unlikely to meaningfully increase for many years to come.

Do not agree with you .

Some of us are well positioned with deposits. Why should I worry about someone needing 95% mortgage in a job that can only be sustained in boom-world/low interest rate economic conditions.

Cash-rich buyers can't buy up all the houses that fall in value. If mortgage rates are higher, so no buyers, house prices will need to fall further still.

[Monkey]

Do not agree with you .

Some of us are well positioned with deposits. Why should I worry about someone needing 95% mortgage in a job that can only be sustained in boom-world/low interest rate economic conditions.

Cash-rich buyers can't buy up all the houses that fall in value. If mortgage rates are higher, so no buyers, house prices will need to fall further still.

Also, if the article is to be beleived there will be at least 1 million reposessions to help dilute/lower the prices

Edited December 29, 2013 by Monkey

[Venger]

Also, if the article is to be beleived there will be at least 1 million reposessions to help dilute/lower the prices

That argument about higher interest rates not being to non-owners/savers/, because mortgage rates will go up.

Yet I look around in nowhere that special South Manchester areas and terraces at £175,000 to £250,000. Average semis £200,000 to £350,000. Detached houses £300,000 to £600,000. Then houses all the way up, given planners were big on giving planning permission to luxury mansion houses during the boom and even today, existing larger older homes and new mcmansions at £750,000 to £12M+.

And higher interest rates not to non home-owners advantage? Well ofc, not to advantage of someone with no deposit who wants house now because of their chronic entitlement. Not prepared to hold out until rebalancing plays out.

When the entire market values depends what happens at the margin. With sellers and buyers setting values each month on prices they agree to transact at. As you suggest, in background all these people on the edge financially, who existing owners want to see helped, so they don't have to transact at lower prices at the margin, so their own homes don't drastically fall in value.

[Venger]

The problem is that most of these buyers will be in SE and have bought recently. Prices are rising and are still rising in London and the SE ... this is where there are lots of tory voters so there will be some scheme to save them. We have had SMI and the SMI extension, HtB 1 and 2 to help keep prices high. Only a matter of time before a Help To Keep scheme to stop tory voting home owners being evicted. Expect MIRAS to come back to treat home owners the same as landlords, as houses are really an investment so need tax relief.

The government will do everything they can to keep house prices high and stop re-possessions. They had a chance to allow the market to correct, did nothing and have since re-inflated the bubble. Labour's stance on the housing market is a massive silence but they will save you £50 per year on you electricity bill.

It's non-owning savers who've waited for value, younger people coming through who refuse to sign up to HTB2 vs the sufficient flow of entitled ones in lessor jobs who will always snap up as much debt as they can possibly get, who suffer and get it ever more deeply in the neck. Policies to feed on your life blood.

All the rescue schemes and concern is not even really anything about being worried for those who've overborrowed/overpaid, and at risk.

It's all about keeping house values at massive highs for older owners, including the majority who own their homes outright... houses worth £500K+.

[winkie]

The problem is that most of these buyers will be in SE and have bought recently. Prices are rising and are still rising in London and the SE ... this is where there are lots of tory voters so there will be some scheme to save them. We have had SMI and the SMI extension, HtB 1 and 2 to help keep prices high. Only a matter of time before a Help To Keep scheme to stop tory voting home owners being evicted. Expect MIRAS to come back to treat home owners the same as landlords, as houses are really an investment so need tax relief.

The government will do everything they can to keep house prices high and stop re-possessions. They had a chance to allow the market to correct, did nothing and have since re-inflated the bubble. Labour's stance on the housing market is a massive silence but they will save you £50 per year on you electricity bill.

Ha......when a mortgage arrangement fee is £1000 +.......the debt will never be paid back, if it ever is a cup of smell the coffee will be £50 a cup......we will all then be rich.

[olliegog]

It's all about keeping house values at massive highs for older owners, including the majority who own their homes outright... houses worth £500K+.

don't think this is at all true - most older owners could not give a stuff about how much their house is worth - they live in it whether it is worth 100K or 200K - it is the inheritors of said houses who would be devastated if their inheritance was diluted.

I would welcome house prices to halve (including my own) - to help the coming generations (and give a side swipe to all those disgraceful BTLers boasting of their property wealth)

[SarahBell]

In 2006/2007 when the bubble part 1 was in full swing, interest rates were 5%+. Why do people always say that if interest rates rise, people would not be able to afford their mortgage? What was different then?

Cos prices were going up so if you had to sell you'd make your money back and then some.

[Venger]

don't think this is at all true - most older owners could not give a stuff about how much their house is worth - they live in it whether it is worth 100K or 200K - it is the inheritors of said houses who would be devastated if their inheritance was diluted.

I would welcome house prices to halve (including my own) - to help the coming generations (and give a side swipe to all those disgraceful BTLers boasting of their property wealth)

You're projecting, imo. I admire your stance on it, and I would be exactly the same if I were an older home-owner. Couldn't care less about value and would want prices to fall.

However, I disagree entirely. Too many older home-owners take great pride in how much their homes are worth. For some it's the most important things in their lives, above the fate of their own children, telling them one day they will inherit. Then there are those who've borrowed against their own home inflated value, to play bomad to help their own kids get on ladder, cause it only goes up.

Where do you think the misinformed widespread view that houses only go up in value comes from? Older owners, that's where. They love the values of their homes going up and up in value, to preposterous levels, and hate thought of them falling in value.

[olliegog]

Really, how many old people are rattling around in family houses, living in one room, because 'they are not giving it away'. They never go upstairs unless the council (taxpayer) has installed a stair-lift and they will gleefully tell you what they paid for the house and what it is now worth.

you really must know some very selfish old people - you need to change your circle of older acquaintances and stop tarring all members of a certain age group with the same brush.

[winkie]

don't think this is at all true - most older owners could not give a stuff about how much their house is worth - they live in it whether it is worth 100K or 200K - it is the inheritors of said houses who would be devastated if their inheritance was diluted.

I would welcome house prices to halve (including my own) - to help the coming generations (and give a side swipe to all those disgraceful BTLers boasting of their property wealth)

There is much truth in that......if their kids don't get it, they could end up spending it on care home fees, many who end up inheriting anything will probably end up being retired themselves. May well be worth giving it away to live seven years.....can't see a 70 year old getting any kind of mortgage on state pension rates unless it is equity release at hyper interest rates sold to the lender at the lowest price.

You could say how one person values their over priced home could be how another person values their over valued job.....

[Billy soy]

you really must know some very selfish old people - you need to change your circle of older acquaintances and stop tarring all members of a certain age group with the same brush.

He is right as far as I am concerned, every older relative, except my father, have the same views. Even my mother and step father, not too happy that the house they bought for £50,000 is now only worth £120,000. They told me they're getting into B2L as bricks and mortar are the best investment.

[Andy T]

you really must know some very selfish old people - you need to change your circle of older acquaintances and stop tarring all members of a certain age group with the same brush.

+1

My parents think the current 'value' (relative to sales on their street) of their house is completely absurd relative to what they paid, they pretty much refuse to believe it's true. They don't see it as something to profit from, and would never borrow against it.

Are they the minority though, could it be a regional thing also?

[LuckyOne]

The title of the thread is a bit misleading. The debt was always perilous. Rising rates will simply expose the perils.

[red]

Really, how many old people are rattling around in family houses, living in one room, because 'they are not giving it away'. They never go upstairs unless the council (taxpayer) has installed a stair-lift and they will gleefully tell you what they paid for the house and what it is now worth.

Heh - I actually know a few people like this, living in huge family homes petrified that if they sell up and downsize they'll miss out on another boom in prices.

Also, what do they do with the profit? The average pensioner isn't going to want to risk their 'hard-earned' property cash in stocks etc. and there's bugger-all return on cash investment...

Oh, hang on - they can give the cash to their grandchildren to help them 'up the property ladder'.

Edited December 30, 2013 by red

[SarahBell]

How many SMI recipients will this affect too? Will it mean they have no free cash left over from the smi payments

[Bloo Loo]

Really, how many old people are rattling around in family houses, living in one room, because 'they are not giving it away'. They never go upstairs unless the council (taxpayer) has installed a stair-lift and they will gleefully tell you what they paid for the house and what it is now worth.

what a Barstard post. many old people are starving to death and freezing with cold as their savings are being taken from them to support the same people you say should be moving in to them...clearly you are a shill banker.....get the greedy old folks out by taking away their hard earned savings and put in 4 families all on mortgages...sounds like a form of Prima Nocta.

Old people have sold up around here...as the age of the housing is 50Plus years, the old place they were "rattling around" with all their memories in from Births and Birthdays to Deaths and Funerals, all get knocked down and replaced with a palace twice the size or two or even three places as qute often these small homes are on large plots.

Our Landlords son has planning approval for 4 4 bed homes on the plot we rent when his father dies...god knows where the ghost of the house is going to haunt next.

[(Blizzard)]

what a Barstard post. many old people are starving to death and freezing with cold as their savings are being taken from them to support the same people you say should be moving in to them...clearly you are a shill banker.....get the greedy old folks out by taking away their hard earned savings and put in 4 families all on mortgages...sounds like a form of Prima Nocta.

Old people have sold up around here...as the age of the housing is 50Plus years, the old place they were "rattling around" with all their memories in from Births and Birthdays to Deaths and Funerals, all get knocked down and replaced with a palace twice the size or two or even three places as qute often these small homes are on large plots.

Our Landlords son has planning approval for 4 4 bed homes on the plot we rent when his father dies...god knows where the ghost of the house is going to haunt next.

If you have an asset worth hundreds of thousands you are not poor.

Should houses be assets worth hundreds of thousands? No, it is a scandal, but owners cannot have it both ways.

If houses are to be investment vehicles, then we should expect people to use those investments to fund themselves when times are hard. Just like bank savings or stock market investments. They can't be a glittering treasure pile and a home full of treasured memories.

In many cases, this is what homeowners wanted. Too short-sighted to understand, or too greedy to care.

Edited December 30, 2013 by (Blizzard)

[Bloo Loo]

If you have an asset worth hundreds of thousands you are not poor.

Should houses be assets worth hundreds of thousands? No, it is a scandal, but owners cannot have it both ways.

If houses are to be investment vehicles, then we should expect people to use those investments to fund themselves when times are hard. Just like bank savings or stock market investments. They can't be a glittering treasure pile and a home full of treasured memories.

In many cases, this is what homeowners wanted. Too short-sighted to understand, or too greedy to care.

but it is only worth those sums because other people are happy to tangle themselves up in borrowing.

The Old people didnt invent the financial evil that now suggests they are greedy old Scrooges living in their own house, purchased when Financialisation was highly regulated and not 99% of the economy.

They are victims....not all, but most are like my parents...just living in a place....the fact that the wolves out there want them out to get the value divested is verging on Prima Nocta.