House Prices All About Equity Release

[feltsorryfor]

http://www.bbc.co.uk/dna/actionnetwork/F16...?thread=2890327

Updated: 04 May 2006

"When will the lenders work out that house rises are due to a simple formulae. Lend silent money to a friend or relative to obtain a mortgage to get them on the pyramid. Plus also set up companies to buy houses at the top of your pyramid. Keep your non speculative property in your own name then watch the market rise. Every time the market rises helped by you of course, you borrow more and more on your speculative purchases and pull out more and more equity to fund your pyramid and lifestyle. The market will just keep on rising. Banks make fortunes the long term real loser will be the country, weighed down with old people unable to repay the loans. The brightest young will have fled to affordable shores.

PS you need to earn around £110 with national insurance to repay £60. Unless you leave the property pyramid."

a fellow HPCer?

[Pablo-silver or lead?]

Many people have mortaged their future. They now (the vast majority haven't woken up to this yet) have very little control of their lives.

Interest rates will go up .25 to .5% by the end of this year, to 4.75 or 5%! This will have a massive effect on sentiment. The headlines will come and the sheeple will see how stupid they've been (that will not stop them blaming others). There is no reason why IR by the end of 07 early 08 couldn't be at 6 to 6.5%. Interest Rates at 5.5 to 6% are still historically low. As a reflection to how screwed (and our peception of it) the whole thing has become, consider the folowing; We are in a situation where the level of IR that are probably needed to bring the economy back into balance will be a disaster for those who have borrowed out of ignorance, greed or fecklessness.

Here's the Headline "Property crashes as Interest rates reach 5.5%!"

The fact that low interest rates (albeit higher than the artificially low ones we saw post 9/11) can cause a crash demostraights that this housing market is out of balance.

Pablo Silver or Lead?

Edited May 5, 2006 by Pablo-silver or lead?

[Last Hun Standing]

"There is no reason why IR by the end of 07 early 08 couldn't be at 6 to 6.5%. Interest Rates at 5.5 to 6% are still historically low."

I concur, but the wide availability of 2 year fixes, will act to delay any impact from interest rate rises. Hence the two year timeframe for the full effect of any rate rise to feed through to the wider economy, which in itself is probably why the MPC look two years ahead with their inflation target.

[MarkG]

I concur, but the wide availability of 2 year fixes, will act to delay any impact from interest rate rises.

But fixed rate mortgages have been going up even while the MPC does nothing.

[no accountant]

"There is no reason why IR by the end of 07 early 08 couldn't be at 6 to 6.5%. Interest Rates at 5.5 to 6% are still historically low."

Absolutely - one of my early thoughts:

If you split out the inflation figures into 2 parts, into services and goods, you find that high inflation in the service sector has been offset by deflation in imported goods. You can buy a pair of jeans for £2 in Tesco. If we had to continue to make our own goods, inflation would be running much at a much higher rate. So when this source of deflation ends – ie when we run out of things to offshore - inflation will to go up.

If, heaven forbid, the imports become so expensive we have to start making things at home again, reversing the trend, then the price of goods could perhaps double, and rates would have to react accordingly.

We may well have moved to a new paradigm, and the prices reflect this. The new paradigm is a string of 'change events' that offset natural inflation. To maintain steady state, we need this to continue this, we need more sources of deflation. Deflation is a relative thing – to keep house prices at these high levels, we need the price of DVDs and labour to decrease year on year, every year, for ever.

... you find another source of deflation, i'll maintain your house price

[Last Hun Standing]

I believe the availability and pricing of fixed rate mortgages depends on the swap market, i.e the price it costs the bank to switch its borrowing that it used to fund the loan to fixed. With the recent macro news it would be surprising if it hadn't become more expensive to fix rates, since the market will try to anticipate future rises.

Hence fixed rates will change even before moves on the official BoE rate.

My point was that for purchasers who fix, will be protected but only temporarily from the cashflow effect of having to pay the higher rate.

As a result I wouldn't expect the effect of any interest rate rise to be instant, but take up to two years + to play out, restricting the number of forced sellers untill the cheapest fixes run out.

[Time to raise petrol prices]

As a result I wouldn't expect the effect of any interest rate rise to be instant, but take up to two years + to play out, restricting the number of forced sellers untill the cheapest fixes run out.

And as a result, the sheeple will sh!t themselves when their fixed rate ends and their repayments double! This is going to be the biggest economic bust in history. To look at it another way, the great depression began with a stock market crash, but there was far less cash swilling about then, and much less direct speculation. Could a property crash have the same effect, in conjunction with equally global credit-fueeled booms? They also had a decent manufacturing sector to fall back on back then, which we don't even have now. This crash will be legendary - your grandkids will get bored of hearing of it when you retell it 40 years from now!

Edited May 5, 2006 by Time to raise petrol prices

[MarkG]

This crash will be legendary - your grandkids will get bored of hearing of it when you retell it 40 years from now!

And we might even be able to afford to have grandkids after a crash...

[FreeFall]

I think the biggest problem is that people just have no concept of how much money they borrow - it's almost as though they wear blinkers because they can still get their hands on more.

For example, someone owing 20 grand would probably not think of it as much of an issue - it's not a lot after all? I wonder if they'd feel the same though if they thought of it as having to repay nearly 400 quid a month for the next five years. Or perhaps 120 quid a month for the next 25 years...and that's at just 5% IR's.

I sometimes wonder if people in debt have even considered the impact repaying the loan will have on their lifestyle, never mind their future financial security?