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mjhodgson

Britain's Housing Market Is One Interest Rate Hike Away From A Crash

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This is one thing I am really struggling with at the moment as a "non expert".

Everything is telling me with the limited knowledge I have is that the biggest economic concerns are inflationary, I just cannot see anything else. Yet Carney will have you believe he will lower rates and even print more inflationary money.

Someone please help me with this, because I just see rising rates with the Brexit scenario, is it just me?

The problems are deflationary. The powers that be are trying to combat it with inflationary policy.

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Just as well prices are rising then to offset this terrible news.....

http://www.bbc.co.uk/news/business-36833533

Inflation which is a better bell weather is also taking off. The deprecation in Sterling post BREXIT will have made imports more expensive.. That is yet to flow through to the headline figures so expect some fireworks on next Months figure.

As to whether it continues it's surge remains to be seen as does what the BOE will do about it......

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This is one thing I am really struggling with at the moment as a "non expert".

Everything is telling me with the limited knowledge I have is that the biggest economic concerns are inflationary, I just cannot see anything else. Yet Carney will have you believe he will lower rates and even print more inflationary money.

Someone please help me with this, because I just see rising rates with the Brexit scenario, is it just me?

I am not an expert either and I'm considering these two possibilities: inflationary - deflation or deflationary - inflation.

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Mortgage lenders are scared of causing defaults, especially amongst people that bought since 2007 with high LTV

They will also be scared of doing the lending they have been over the last few years when it becomes clear London has topped and surveyors start downvaluing.

When that happens they have a range of things they can do such as raise rates for new business to drive people away, apply a higher rental cover ratio on BTLs, move people whose house has fallen into a higher LTV bracket to higher rates, etc etc. I'm with Venger that the banks are set for an HPC and sooner or later are going to move to protect themselves.

We also have the prospect of owner-occupiers coming to the end of IO deals and being forced to move to repayment.

Edited by Patient London FTB

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The hikes that break the market won't come from the BoE, they'll come from the mortgage lenders.

And that is the correct policy. Real companies probably can't take a rate hike, we need a focused mortgage rate rise - even better if its focused on landlord mortgages.

Reserve requirements for landlord mortgages should have been hiked years ago, but we're still waiting for Basel 3.

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As much chance as Japan raising their rates as the UK doing the same. Ain't gonna happen. Rate cut to 0.25% in August. Turning Japanese, including the rabbit-hutch size houses.

Edited by canbuywontbuy

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They will also be scared of doing the lending they have been over the last few years when it becomes clear London has topped and surveyors start downvaluing.

When that happens they have a range of things they can do such as raise rates for new business to drive people away, apply a higher rental cover ratio on BTLs, move people whose house has fallen into a higher LTV bracket to higher rates, etc etc. I'm with Venger that the banks are set for an HPC and sooner or later are going to move to protect themselves.

We also have the prospect of owner-occupiers coming to the end of IO deals and being forced to move to repayment.

IO beens banned for OO for a while.

IO mortgages are abigproblemfor banks as Baslpel3 gets closer. Bank should be not doing IO lending full stop. The new rules will make IO BTL loans 6 to 8 timesmore expensive that repayment loans.

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Apparently we are one rate hike away from a crash:

http://uk.businessinsider.com/hsbc-housing-chartbook-uk-house-prices-affordability-household-incomes-2016-7

Hopefully not one rate cut from a boom though.

I'm surprised there hasn't been more discussion about the last chart in that article, the one that ostensibly measures affordability by looking at how much of a mortgage holder's pre-tax income is taken up on mortgage repayments.

The chart in the article shows that a first time buyer is currently paying less than 10% of their pre-tax income on their mortgage, where as a longer term average would be roughly 15%, and has previously peaked at over 20%. On the face of it you might expect that chart would be printed on the reverse of every Estate Agent's business card, because it appears to suggest house prices could comfortably increase by 50%, and wouldn't be in bubble territory unless they doubled.

However, the CML, who produced that chart, were clearly very concerned that it gave a misleading impression. They published a long article which explains that the data, although technically correct, needs very careful interpretation because it obscures as much as it reveals. For example, macro prudential policy is demanding larger deposits, which is acting to push down the figures. And of course it's post-tax income that really counts, not pre-tax, and on that basis the real mortgage repayments for first time buyers are in fact slightly above the historic average. There are other factors that the CML doesn't highlight, but which are certainly relevant, for example the burden of student loan repayments means first time buyers increasingly will be unable to shoulder the level of repayments they could previously carry.

Unfortunately I can't link to the more complete CML article, but if you google "CML affordability and first time buyers" you'll find a pdf.

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The chart in the article shows that a first time buyer is currently paying less than 10% of their pre-tax income on their mortgage

Really? I mean....someone earns £28,000 gross, and their average mortgage repayment will be £280 a month? Only if the average FTB is putting down a 60% deposit. A £280 a month repayment would be roughly a £60,000 mortgage or so. It's really not adding up.

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Really? I mean....someone earns £28,000 gross, and their average mortgage repayment will be £280 a month? Only if the average FTB is putting down a 60% deposit. A £280 a month repayment would be roughly a £60,000 mortgage or so. It's really not adding up.

I think the disparity is that the chart is labelled mortgage interest payments - i.e. just the interest and not the capital repayment

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Really? I mean....someone earns £28,000 gross, and their average mortgage repayment will be £280 a month? Only if the average FTB is putting down a 60% deposit. A £280 a month repayment would be roughly a £60,000 mortgage or so. It's really not adding up.

The graph makes sense as the only first-time buyers now are probably 40-year old investment bankers and/or Bank of Mum and Dad borrowers. The rest are "no-time buyers".

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The hikes that break the market won't come from the BoE, they'll come from the mortgage lenders.

And Brexit makes that more likely to happen, however hard the BoE pushes on the string of loosening monetary policy.

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Really? I mean....someone earns £28,000 gross, and their average mortgage repayment will be £280 a month? Only if the average FTB is putting down a 60% deposit. A £280 a month repayment would be roughly a £60,000 mortgage or so. It's really not adding up.

Really!??!!

You don't say!!! After all -- the "CML" --- the Council of Mortgage Liars NEVER lie do they...?! :o

EVERYTHING THEY HAVE EVER SAID is a COMPLETE LOAD OF SH 1 TE....

They are the BIGGEST BUNCH OF LIARS I have ever known. :rolleyes:

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Almost like it's a ponzi scheme.....

Oh REALLY?!!! :D

You DON;T SAY!!!?!

A GIANT PONZI SCHEME IT IS!!

FUELLED FOR 20+ YEARS WITH

MASSIVE PREDATORY LIAR LOANS.

THE GREATEST FRAUD IN ALL HISTORY.

Edited by eric pebble

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And that is the correct policy. Real companies probably can't take a rate hike, we need a focused mortgage rate rise - even better if its focused on landlord mortgages.

Reserve requirements for landlord mortgages should have been hiked years ago, but we're still waiting for Basel 3.

Indeed why not have two base rates, business lending rate and mortgage lending rate. Seems like a logical idea to curb housing excesses due to loose money policy.

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Indeed why not have two base rates, business lending rate and mortgage lending rate. Seems like a logical idea to curb housing excesses due to loose money policy.

Because they're both mediated by gilt issuance. Rolls eyes.

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