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Whole Generation Of First-Time Buyers Face Financial Squeeze When Interest Rates Jump

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Graham Beale, the chief executive of Nationwide, said around one million people have bought a property since interest rates fell to 0.5 per cent in March 2009. This means they have never had to experience an increase in the cost of mortgages. Mr Beale added that a rise in interest rates could see the cost of the average mortgage soar by a staggering £230 a month. Link

Who said house prices stay the same?

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It goes without saying, those with over stretched high amounts of debt will suffer the most if or when interest rates rise....that should have been taken into consideration when the debt was initiated. ;)

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It goes without saying, those with over stretched high amounts of debt will suffer the most if or when interest rates rise....that should have been taken into consideration when the debt was initiated. ;)

........and they will rise it is a question of when, it may be six moths a year or maybe two or three and when they do so many people will just not be able to pay their mortgage. and then what.

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........and they will rise it is a question of when, it may be six moths a year or maybe two or three and when they do so many people will just not be able to pay their mortgage. and then what.

Lots of things......walk away, rent like many people already do, move to a cheaper place, move back home......high risk does not always bring with it high reward. ;)

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........and they will rise it is a question of when, it may be six moths a year or maybe two or three and when they do so many people will just not be able to pay their mortgage. and then what.

See Ireland and the US for the template. Mass forbearance, optionally mortgage repayment becomes the norm, or not paying and stay put for 4/5 years at the expense of renters.

The banks will do ANYTHING to keep stock from the market.

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The source of this is interesting. There's also something a bit odd about a guy who is running a lending factory warning people about the dangers of interest rate rises- surely it's his job to make sure that this danger has already been accounted for in the rates and LTV's he offers to his customers?

He talks like some hapless bystander who has no control- not the CEO of a Major Mortgage lender.

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Who said house prices stay the same?

well spotted.

does the pope sh1t in the woods?

this is just sooooo feckin obvious.

standard (unscrupulous) drug dealer tactics.

offer them all a free hit or two to get them hooked, then pull the plug....crank the price up and watch them squeal in desparation.

...then get them to do really naughty stuff like prositutuin to pay for their nex fix.

..credit dealers should be treated in much the same manner as drug dealers.

...pity the UK isn't singapore!....a few public floggings and a hanging or two will soon stop them

..actually we should do that first, and then make sure it's licenced heavily....that gives a clear message in no uncertain terms what will happen if you break the rules.

Edited by oracle

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The source of this is interesting. There's also something a bit odd about a guy who is running a lending factory warning people about the dangers of interest rate rises- surely it's his job to make sure that this danger has already been accounted for in the rates and LTV's he offers to his customers?

He talks like some hapless bystander who has no control- not the CEO of a Major Mortgage lender.

What funnier is Nationwide's chief economist Robert Gardner said the other day that affordability isn't stretched because interest rise are low.

Do they work for the same bank! Maybe they should have a chat and get their story straight! :rolleyes:

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Interest rates are not going to go up.

No, you only say that because they haven't gone up recently. And so you think it will be ever thus.

I once watched a local Meridian TV news report, during a period when it hadn't rained for a couple of months. The reporter stood by a dried-out river and solemnly announced "water will never flow in this river again". No doubt local residents have spent the last month piling sandbags up against the front door.

Interest rates will go up, they will go up a month or two after the Federal Reserve raises US interest rates, and the Federal Reserve do not take into account British mortgage debt when deciding policy.

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Interest rates will go up, they will go up a month or two after the Federal Reserve raises US interest rates, and the Federal Reserve do not take into account British mortgage debt when deciding policy.

Of course, what makes this more likely is that at least in the States they have had some kind of house price correction (mortgage debt too is escapable). It is a dangerous game to play on these shores. When the tide does eventually go out we will see a lot of naked people.

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Carney and Osborne will hold rates down even if it destroys the UK, they both exhibit sociopathic tendencies with Osborne's war on the unemployed and Carney's view that low savers' rates are good for savers. They both believe everything they do is right, end of.

I am pretty certain we are now subject to Japanification - just a a version with positive inflation.

The banks are broke if house prices fall, and that means high interest rates won't be permitted until there has at least been substantial wage inflation.

The other aspect is that we need low interest rates to deprive the boomers of their comfortable retirement, we can't have a load unproductive people squeezing the life out of the economy. So better to inflate away the value of their measly annuity rates.

Edited by Mikhail Liebenstein

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Interest rates are not going to go up.

He's right you know. they are not going to go up, because they are going up already.

NOT+GOING+UP.png

The Bank of England policy rate is not all she wrote. Intervention is not without consequences and cannot continue indefinitely and without limit. The Fed has been doing the heavy lifting and we've been riding on their coat tails.

A bunch of naive and suggestible households might buy some BS from David Miles about 2% being the new 5%, but the markets don't, by the looks of things. The banks can't structure their mortgage books on the basis of the hope that rates will stay low for the next 25 years.

I wonder where they might look for a clue about the future path of interest rates?

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The banks are broke if house prices fall.

I don't want to disagree with you for the sake of it, but isn't it more correct to say that the banks are broke if people stop paying their mortgages.

As we have, unlike the US, recourse lending things only go bad for the banks in the UK if you have a weakening of people's ability to pay their mortgages which is not matched with a lessening of the burden of paying their mortgages.

In the UK, because of recourse lending, house price falls do not produce a spike in repossessions. It's rate rises and recessions acting together on the ability of households to service their mortgages that produces the repossessions.

Even then the banks only face losses as a consequences if house prices have collapsed at the same time, (as the disposal proceeds may not extinguish the loan).

That was the problem in 2008 - you had the full set. A recession weakening incomes, a collapse in house prices sending the loans underwater relative to the assets they were secured on and the banks' cost of borrowing rocketing to reflect the fact that everyone knew they were screwed.

In gentler times, back in 2004, when all we were worried about was a massive credit boom that was almost certain to end in tears later, David Miles was whining about all the risks associated with the fact that so much UK mortgage borrowing was variable rate.

However, it is the fact that so much UK residential mortgage borrowing is variable rate (or short term fixed rate) that allowed the Bank of England to square the circle of weakening household incomes as the recession bit by pulling down people's mortgages, and in that way prevent/delay a crisis of bank solvency. That intervention coupled with extraordinary forbearance by the banks has produced a great illusion, that somehow those people who bought with interest-only mortgages late in the bubble, say 2003-2007, didn't make a colossal mistake.

I recall working through the Lloyds Group balance sheet a couple of years ago and determining that something bonkers like 60%-70% of their lending is residential mortgages or property companies.

The Bank of England will keep rates low as long as they can and find other ways to bolster bank profits, but they must know that sooner or later external forces will push UK mortgage rates up to a point where the repossessions that are baked in but presently on ice (he said mixing metaphors horribly) will show up.

You can't go through a credit boom like this, and the beginning of the corresponding crash and keep all the weak borrowers in their homes. We've never done it in the past and we've never tried to do it in the past. The present apparent pandering to over leveraged so-called 'homeowners' is in reality an artefact of the time honoured tradition of defending the banking sector at all costs. When it's in the best interest of the banks to cease 'extending and pretending' the mortgages of the many zombie households, SVRs will tick up and the repos will also tick up.

That's my marker for a real return to normal - repos. Still tracking down in the latest Land Registry, so further into the rabbit hole we go...

What a ridiculous mess. House prices soar again, as the fellah says. ;) .

Edited by ChairmanOfTheBored

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I don't want to disagree with you for the sake of it, but isn't it more correct to say that the banks are broke if people stop paying their mortgages.

As we have, unlike the US, recourse lending things only go bad for the banks in the UK if you have a weakening of people's ability to pay their mortgages which is not matched with a lessening of the burden of paying their mortgages.

In the UK, because of recourse lending, house price falls do not produce a spike in repossessions. It's rate rises and recessions acting together on the ability of households to service their mortgages that produces the repossessions.

Even then the banks only face losses as a consequences if house prices have collapsed at the same time, (as the disposal proceeds may not extinguish the loan).

That was the problem in 2008 - you had the full set. A recession weakening incomes, a collapse in house prices sending the loans underwater relative to the assets they were secured on and the banks' cost of borrowing rocketing to reflect the fact that everyone knew they were screwed.

In gentler times, back in 2004, when all we were worried about was a massive credit boom that was almost certain to end in tears later, David Miles was whining about all the risks associated with the fact that so much UK mortgage borrowing was variable rate.

However, it is the fact that so much UK residential mortgage borrowing is variable rate (or short term fixed rate) that allowed the Bank of England to square the circle of weakening household incomes as the recession bit by pulling down people's mortgages, and in that way prevent/delay a crisis of bank solvency. That intervention coupled with extraordinary forbearance by the banks has produced a great illusion, that somehow those people who bought with interest-only mortgages late in the bubble, say 2003-2007, didn't make a colossal mistake.

I recall working through the Lloyds Group balance sheet a couple of years ago and determining that something bonkers like 60%-70% of their lending is residential mortgages or property companies.

The Bank of England will keep rates low as long as they can and find other ways to bolster bank profits, but they must know that sooner or later external forces will push UK mortgage rates up to a point where the repossessions that are baked in but presently on ice (he said mixing metaphors horribly) will show up.

You can't go through a credit boom like this, and the beginning of the corresponding crash and keep all the weak borrowers in their homes. We've never done it in the past and we've never tried to do it in the past. The present apparent pandering to over leveraged so-called 'homeowners' is in reality an artefact of the time honoured tradition of defending the banking sector at all costs. When it's in the best interest of the banks to cease 'extending and pretending' the mortgages of the many zombie households, SVRs will tick up and the repos will also tick up.

That's my marker for a real return to normal - repos. Still tracking down in the latest Land Registry, so further into the rabbit hole we go...

What a ridiculous mess. House prices soar again, as the fellah says. ;) .

Good thought provoking post, as usual.

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Why? Houses are only the collateral.

There are 1m still in negative equity, it was 1.8m. It would be worse if prices halved.

People in serious NE generally walk away, though the bank will pursue them for the debts years later. But generally the banks have to take a write down.

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I don't want to disagree with you for the sake of it, but isn't it more correct to say that the banks are broke if people stop paying their mortgages.

As we have, unlike the US, recourse lending things only go bad for the banks in the UK if you have a weakening of people's ability to pay their mortgages which is not matched with a lessening of the burden of paying their mortgages.

In the UK, because of recourse lending, house price falls do not produce a spike in repossessions. It's rate rises and recessions acting together on the ability of households to service their mortgages that produces the repossessions.

I agree with your sentiments , though I'd challenge the sentence in bold. Yes, it was correct this time round 2007-2012, but in previous crashes repossessions did link quite tightly to price falls as people just walked away.

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........and they will rise it is a question of when, it may be six moths a year or maybe two or three and when they do so many people will just not be able to pay their mortgage. and then what.

Same as they did in 1989 (or any other time). Sell up, or if they're not quick enough, get repossessed. Go into rental, pay off their debts or go bankrupt, then start again. The people in rental trade places and buy (like I did in 95). Although I don't recall much government intervention back then to prevent the course of nature.

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It seems no coincidence that he's focused on 3%.

http://

www.theguardian.com/business/2014/feb/27/bank-of-england-homeowners-interest-spike

The Bank of England's base rate would peak close to 3% to protect mortgage payers from a big increase in monthly interest payments, a senior Bank of England official said .

From the GUKG10 chart it's lately been toying with the 3% level. If it passes through that level then it looks like there could be a fair bit of upside.

Edited by billybong

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I am pretty certain we are now subject to Japanification - just a a version with positive inflation.

The banks are broke if house prices fall, and that means high interest rates won't be permitted until there has at least been substantial wage inflation.

The other aspect is that we need low interest rates to deprive the boomers of their comfortable retirement, we can't have a load unproductive people squeezing the life out of the economy. So better to inflate away the value of their measly annuity rates.

Even if that is true - and I'm not sure it is - isn't it possible some outside interest could pick up UK bank assets. Lloyds picked up Halifax. Before that wasn't it ING or some other Dutch bank who picked up Barings merchant for £1, with savers not suffering any losses. Maybe some US banks or Asian can muscle in.

It's how it should be. Failures fail. Then the new entrant banks (backed by QE or Asian capital) can let rip on majority owned-outright UK house prices, to allow whole load of fresh lending at much lower prices to younger people.

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See Ireland and the US for the template. Mass forbearance, optionally mortgage repayment becomes the norm, or not paying and stay put for 4/5 years at the expense of renters.

The banks will do ANYTHING to keep stock from the market.

Sometimes the only way you can sell stock is to induce buying pressure into the market. Happens all the time in the FX markets, a period of accumulation, markup, then the final climax, ending in a stop loss run, then massive mark down, as the banks go short and sell off.

Think we are nearing the end of the forbearance/accumulation phase for housing.

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we can't have a load unproductive people squeezing the life out of the economy.

There are quite a lot of them in Westminster already.... and Brussles too.

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