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Time to raise the rents.

Do You Think It Would Crash If The Base Rate Rose 500%

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na, 20% should do it :D

So you think it would crash if the base rate rose from 3.5% (shall we start from the low point that the base rate was at?) to 4.2%?

That's a 20% rise in the base rate - just so we can be clear on our method of calculation.

Well it's 4.5% now & the market hasn't crashed, so I think we can rule out a 20% rise.

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Guest muttley

Ok, I'll bite. If IRs went up that dramatically the housing market would collapse. I'm sure it would.

At the present I'm in the "could be a crash" camp.

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A .50% hike will have a impact. At this stage of the econmic cycle, I doubt if a IR hike will derail the "bust" part of the cycle. The biggest factor now is confidence. Its eroding as evidenced by yesterday's Daily Express headline.

The only difference for this boom-bust cycle is its magnitude and the fact that its starting in the US whereas the last two crashes began with us.

Edited by Realistbear

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TTRTR

but it is crashing already and yes the USA has gone up 500% and yes it's crashing too

Ooh, well done. I've been sussed!

Yes, the base rate has risen close enough by 475% from it's 1% low. It will probably go to the full 500% more than it was to 5%.

No bloody wonder we're starting to get stories of pain from the U.S. How many buyers would like to buy today in America with no certain knowledge of where rates might peak?

So I'd just ask you all to take this in. America is certainly in a different boat to us at the moment.

Edited by Time to raise the rents.

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I'm trying to get to a point here. I would just like to hear your opinions first.

It does depend on what happens to salary inflation, a 500% increase would put rates at 22.5%.

Surely rates at this level would indicate a far higher level of inflation, or a massive financial crisis.

I'll go with it, 22.5% would definitely cause a crash...

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It does depend on what happens to salary inflation, a 500% increase would put rates at 22.5%.

Surely rates at this level would indicate a far higher level of inflation, or a massive financial crisis.

I'll go with it, 22.5% would definitely cause a crash...

I agree. 22.5% would certainly cause pain.

But even a UK rise to match America (a 4% rise), say 3.5% to 7.5% would IMO be very painful at the moment.

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Ooh, well done. I've been sussed!

Yes, the base rate has risen close enough by 475% from it's 1% low. It will probably go to the full 500% more than it was to 5%.

No bloody wonder we're starting to get stories of pain from the U.S. How many buyers would like to buy today in America with no certain knowledge of where rates might peak?

So I'd just ask you all to take this in. America is certainly in a different boat to us at the moment.

What a drama queen, what was you hoping for TTRTR, everyone would jump out of their seats and think GOD, this man has a point, my life and beliefs have been a complete sham.

I am no expert on US mortgages, but i think i am right in saying that their system is very different to ours, whatever the base rate increase they might have does not automatically effect the mortgage rate, like i said i am no expert so i might stand corrected.

When it comes to UK rates i think that anything between 5.25% and 6%(and it would have to get there quickly to include a little panic into the equation as well) would bring property down at this point, roughly a 30% increase.

Sam

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Well, do you?

If the main stream press even began hinting at future rate rises it would put the bakes on.

Property purchase in the UK appears to run on little more than blind faith in low interest rates and high employment. Even with evidence to the contrary leaking into the news people still believe it.

I can see little more than sentiment propping this beast up and believe the threat of rising rates would be suffiecient to start a U-Turn.

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Ooh, well done. I've been sussed!

Yes, the base rate has risen close enough by 475% from it's 1% low. It will probably go to the full 500% more than it was to 5%.

No bloody wonder we're starting to get stories of pain from the U.S. How many buyers would like to buy today in America with no certain knowledge of where rates might peak?

So I'd just ask you all to take this in. America is certainly in a different boat to us at the moment.

AIUI mortgage rates are linked to long term lending rates defined by the market price of government bonds. Those rates haven't changed much even though central bank base rates have risen recently. If the Chinese and Japanese decided they didn't want to buy, or worse, decided to sell, British and US interest rates would rise steeply, and huge numbers would not be able to afford their mortgages.

The house market has boomed when interest rates have been higher, and crashed when they have been lower. The risk is all on the downside now, though, too many people have too much debt, and the rate of increase of house prices has already crashed.

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Ooh, well done. I've been sussed!

Yes, the base rate has risen close enough by 475% from it's 1% low. It will probably go to the full 500% more than it was to 5%.

No bloody wonder we're starting to get stories of pain from the U.S. How many buyers would like to buy today in America with no certain knowledge of where rates might peak?

So I'd just ask you all to take this in. America is certainly in a different boat to us at the moment.

There is a problem with this reasoning. IR in the US were never 1%. The Fed rate might have been 1% but the lowest point in IR for fixed 30 year loans was around 5.5%. It is now just under 7%. What you say is true about the US market--it is starting to collapse where the froth has been evident.

Don't forget Al's conumdrum--this is unwinding now.

The UK and US have always risen and fallen together (since WW2 at least). We are in exactly the same boat again. The US market is tanking on relatively small IR hikes--around 1.70% from the 30 year fixed rate low perpsective.

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I agree. 22.5% would certainly cause pain.

No it wouldn't. Some of us have a fixed rental contract. :lol:

It would be painful for over leveraged landlords and owner occupiers who had over extended themselves.

Those who had stayed within the 3x the main salary mortgage would feel something, but would be able to cope.

This boom is all about low interest rates that are unsustainable. There's no speculative money to be made any more because there just isn't any money to push the market any higher. On the way down there certainly isn't any advantage in being speculator, a landlord or a second property owner, which will exacerbate the situation.

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There is a problem with this reasoning. IR in the US were never 1%. The Fed rate might have been 1% but the lowest point in IR for fixed 30 year loans was around 5.5%. It is now just under 7%. What you say is true about the US market--it is starting to collapse where the froth has been evident.

Don't forget Al's conumdrum--this is unwinding now.

The UK and US have always risen and fallen together (since WW2 at least). We are in exactly the same boat again. The US market is tanking on relatively small IR hikes--around 1.70% from the 30 year fixed rate low perpsective.

There is only a flaw in your thinking. I said base rates, I meant base rates.

No it wouldn't. Some of us have a fixed rental contract. :lol:

It would be painful for over leveraged landlords and owner occupiers who had over extended themselves.

Those who had stayed within the 3x the main salary mortgage would feel something, but would be able to cope.

This boom is all about low interest rates that are unsustainable. There's no speculative money to be made any more because there just isn't any money to push the market any higher. On the way down there certainly isn't any advantage in being speculator, a landlord or a second property owner, which will exacerbate the situation.

So you're OK for up to 6 months then! Yippee.

What a drama queen, what was you hoping for TTRTR, everyone would jump out of their seats and think GOD, this man has a point, my life and beliefs have been a complete sham.

I am no expert on US mortgages, but i think i am right in saying that their system is very different to ours, whatever the base rate increase they might have does not automatically effect the mortgage rate, like i said i am no expert so i might stand corrected.

When it comes to UK rates i think that anything between 5.25% and 6%(and it would have to get there quickly to include a little panic into the equation as well) would bring property down at this point, roughly a 30% increase.

Sam

Oy Sam....they're intertwined regardless of the degree of impact. Let's not forget that variable rate mortgages became very popular in America when the base rate was 1%.

Anyway the idea that a person is protected by a fixed rate is false IMO. In the end, they all must step off their magic carpet into the reality that awaits them at the end of the fixed period. Many of them may loise money whilst on their magic carpets too.

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There is only a flaw in your thinking. I said base rates, I meant base rates.

So you're OK for up to 6 months then! Yippee.

And then the landlord is going to pass on a 20 odd % rise in rent? Get real. My rent is fixed at a low value and fully paid for by my investment portfolio. As soon as interest rates go up house prices fall and then I'd be in a great position to buy, probably with cash. I've nothing against buying. I just feel that now is not the right time and renting is much better value for money.

Head I win, tails you lose when interest rates on on their way up.

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There is only a flaw in your thinking. I said base rates, I meant base rates.

So you're OK for up to 6 months then! Yippee.

The rate that matters to HPI is the lending rates. The Fed rate had little effect on the house market until recently. Mortgage rates continued to remain low in the US despite hikes in the Fed rate, hence Al's conumdrum.

The point is that a 500% increase in lending rates is not necessary to tip the housing market. Less than 2% is doing that already in the US.

The UK operates a little differently as the BoE rate hikes are immediately felt in the mortgage rates. In the US the effect has been delayed due to liquidity and availability of cheap money from Japan and other Asian economies. We will see the tightening in world credit markets work through our lending rates soon. A 500% rise from where we are today would undoubtedly be devastating. But for a market on the knife edge a .25% hike could be enough.

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I've been reading that one of the sources of financial pain for the yanks has been the huge rise in petrol prices. With very low tax rates on fuel they have seen pump prices more than triple, and many of them have long commutes by car - monthly fuel bills have increased by hundreds of dollars.

This has led to a collapse in values of properties requiring the longest commutes, which has fed through into the general market.

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The rate that matters to HPI is the lending rates. The Fed rate had little effect on the house market until recently. Mortgage rates continued to remain low in the US despite hikes in the Fed rate, hence Al's conumdrum.

The point is that a 500% increase in lending rates is not necessary to tip the housing market. Less than 2% is doing that already in the US.

The UK operates a little differently as the BoE rate hikes are immediately felt in the mortgage rates. In the US the effect has been delayed due to liquidity and availability of cheap money from Japan and other Asian economies. We will see the tightening in world credit markets work through our lending rates soon. A 500% rise from where we are today would undoubtedly be devastating. But for a market on the knife edge a .25% hike could be enough.

A blast from the past just for you RB. I'm suprised you didn't post it yourself!

http://www.post-gazette.com/pg/04220/357345.stm

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So I'd just ask you all to take this in. America is certainly in a different boat to us at the moment.

Indeed. They do not have the same level of debt as we do.

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Ooh, well done. I've been sussed!

Yes, the base rate has risen close enough by 475% from it's 1% low. It will probably go to the full 500% more than it was to 5%.

Did anyone spot TTRTR's deliberate mistake?

5% is a 400% rise from 1%, not 500%*.

Not hugely significant for this argument, but similar mathematical errors applied across a property empire could be quite damaging...

(*5 is 500% of 1, but a rise from 1 to 5 is a 400% rise)

Edited by Magpie

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Those who had stayed within the 3x the main salary mortgage would feel something, but would be able to cope.

Uh, 22.5% x 3 x your income is 67.5% of your income. In other words, unless you're earning so little that you pay minimal tax, you'd be paying more than your entire take-home pay purely in interest on the mortgage.

Needless to say, having to pay more than their entire take-home pay just on mortgage interest would be painful for most people.

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Did anyone spot TTRTR's deliberate mistake?

5% is a 400% rise from 1%, not 500%*.

Not hugely significant for this argument, but similar mathematical errors applied across a property empire could be quite damaging...

(*5 is 500% of 1, but a rise from 1 to 5 is a 400% rise)

Well spotted. It was deliberate, I was just trying to keep things simple for the bears.

:D

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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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