Jump to content
House Price Crash Forum
Sign in to follow this  
tuthai

New To This.......

Recommended Posts

As a FTB in London I, like the rest of us are hoping for a drop in prices. However (and pardon my ignorance), I'm a little unclear on the advantage this will actually bring. I hope you guys can clarify.......

I understand that there is merit in holding back and waiting for a HPC but as this will be the result of higher interest rates, while I may be able to purchase the property at a lower price, I'm now going to be stuck with a higher IR.

Isn't there something to be said in securing a fixed, long term mortgage now, while the rates are still attractive?

I've seen 4.68% being offered over 10 years by some lenders and even fixed for 25 years is possible.

So isn't it all just a case of 'out of one frying pan and into the other'. :unsure: I hope not???

Share this post


Link to post
Share on other sites

As a FTB in London I, like the rest of us are hoping for a drop in prices. However (and pardon my ignorance), I'm a little unclear on the advantage this will actually bring. I hope you guys can clarify.......

I understand that there is merit in holding back and waiting for a HPC but as this will be the result of higher interest rates, while I may be able to purchase the property at a lower price, I'm now going to be stuck with a higher IR.

Isn't there something to be said in securing a fixed, long term mortgage now, while the rates are still attractive?

I've seen 4.68% being offered over 10 years by some lenders and even fixed for 25 years is possible.

So isn't it all just a case of 'out of one frying pan and into the other'. :unsure: I hope not???

It's a bit like asking if you should bet a large amount on short odds on a horse race, or bet smaller amounts on higher odds.

Whatever advice you accept, it is you left with either the benefit or the pitfall.

House prices may continue to rise, or they may halve next week?

Do you feel lucky punk?

Share this post


Link to post
Share on other sites

Isn't there something to be said in securing a fixed, long term mortgage now, while the rates are still attractive?

There is a great deal to be said for it, IMHO. As long as you are in it for the long term, and accept that there will be dips in the road ahead, you can buy now with confidence, particularly if you can get a decent long term fixed rate. Personally I'd avoid 100% and interest-only mortgages at the moment.

The main clientele of this website is much more bearish than me, so expect people to offer 'alternative advice'. :)

Edited by brassfarthing

Share this post


Link to post
Share on other sites

Well lads which is it?

High interest rates are needed to cause the crash and, as this person so eloquently points out, your mortgages will cost more.

Where is the benefit in a crash?

Or are we now in a 'we're going to have a crash regardless of interest rates' scenario. Because, if that is the present line, you have failed to observe what the market has done since IRs went down last Autumn.

Share this post


Link to post
Share on other sites

Well lads which is it?

High interest rates are needed to cause the crash and, as this person so eloquently points out, your mortgages will cost more.

Where is the benefit in a crash?

Or are we now in a 'we're going to have a crash regardless of interest rates' scenario. Because, if that is the present line, you have failed to observe what the market has done since IRs went down last Autumn.

I started a thread on this not so long ago, 'negative equity so what', use the search facility to view it.

It is a purely personal choice based on history & personal opinion.

Do you feel lucky punk?

Share this post


Link to post
Share on other sites

As a FTB in London I, like the rest of us are hoping for a drop in prices. However (and pardon my ignorance), I'm a little unclear on the advantage this will actually bring. I hope you guys can clarify.......

I understand that there is merit in holding back and waiting for a HPC but as this will be the result of higher interest rates, while I may be able to purchase the property at a lower price, I'm now going to be stuck with a higher IR.

Isn't there something to be said in securing a fixed, long term mortgage now, while the rates are still attractive?

I've seen 4.68% being offered over 10 years by some lenders and even fixed for 25 years is possible.

So isn't it all just a case of 'out of one frying pan and into the other'. :unsure: I hope not???

Hi Tuthai and welcome to the site.

Two advantages to a crash, even if it foes involve IRs going up:

1) IR rises could easily (and most likely will be) the trigger for far greater falls in prices, e.g. IRs go up 20% (to around 5.5%, say), but prices fall 35%.

2) Higher wage inflation (which is often associated with higher IR, though not always) means that your debt feels less as time goes on. With "low inflation", once you taken on debt, it doesn't go away as quickly.

Share this post


Link to post
Share on other sites
Guest Alright Jack

There is nothing abnormal about the level of HPI we've seen given the amount of money and credit that has been poring into the system. I see no end to the money creation and so I do not see how a price crash can occur. Maybe minor corrections as we just saw in the stock markets but basically the only way is up.

As a nation we are in a tremendous amount of debt that will never be paid in full. Not even by half. This means one thing only: an abrupt currency revaluation at some point in the near future. This revaulation, in my opinion, will be more severe than we have EVER experienced before in this country.

Just watch those STR funds vaish... 'just like that!'

Share this post


Link to post
Share on other sites
Just watch those STR funds vaish... 'just like that!'

Yes i too see the £pound going down but STR can always buy Euro's or something else to ride the storm out.

Puying at a peak just to get a low fix is not smart and with jobs going by the ton i would say it's stupid just now

Share this post


Link to post
Share on other sites

I've seen 4.68% being offered over 10 years by some lenders and even fixed for 25 years is possible.

The problem scenario with taking on a fixed to adjustable rate mortgage (like the 10 yr one you mention above) is laid out as follows:

1) You fix for 10 years at nice low rate

2) At the end of the 10 year period interest rates have doubled

3) Your house is not worth any more than it was when you bought it (or even less)

4) Your rate resets to the higher rate after 10 years

5) You don't earn enough to pay

6) You can't release the equity in it because rates are so high and lenders are much more wary

7) You foreclose and get reposessed

This may be far fetched now, but it is exactly what is hapenning in some parts of the US right now.

Share this post


Link to post
Share on other sites

The problem scenario with taking on a fixed to adjustable rate mortgage (like the 10 yr one you mention above) is laid out as follows:

1) You fix for 10 years at nice low rate

2) At the end of the 10 year period interest rates have doubled

3) Your house is not worth any more than it was when you bought it (or even less)

4) Your rate resets to the higher rate after 10 years

5) You don't earn enough to pay

6) You can't release the equity in it because rates are so high and lenders are much more wary

7) You foreclose and get reposessed

This may be far fetched now, but it is exactly what is hapenning in some parts of the US right now.

Yes it does seem very far fetched. Just as it is appaently happening in some parts of America, it would apparently happen only in same parts of the UK.

99% of the rest of the UK could keep rising in which case 10 year fixed low IR is worth considering. The only problem then would be a redemption fee should the borrower want to move or change mortgages.

Share this post


Link to post
Share on other sites

Prices are high now.

If rates go up and prices come down later, then think about trying to sell a house you bought at peak prices when

they've fallen in 5 years - not a nice thought.

Also with higher rates and cheaper house, its easier to overpay and reduce the term of the mortgage.

Share this post


Link to post
Share on other sites

First, higher interest rates are not necessary, but may be sufficient, to cause a HPC. There's lots of potential for other factors to cause a HPC even as rates are held or come down.

Second, if there actually is a crash, it's unlikely that rates will be higher to the extent that they cancel out any of the benefits to you of lower house prices.

For example, take a £100k 25yr mortgage at current 10-year fixed rates (approx 6%). Monthly repayments: £644

Now imagine a 20% drop in house prices, so an £80k mortgage. Interest rates would have to rise to 8.5% to make the monthly repayments £644. More importantly, they would have to stay at or above 8.5% FOR 10 YEARS for you to have been better off buying now and taking the fix. Given that an HPC would likely trigger a recession, it's unlikely rates would stay so high for so long.

Share this post


Link to post
Share on other sites

As a FTB in London I, like the rest of us are hoping for a drop in prices. However (and pardon my ignorance), I'm a little unclear on the advantage this will actually bring. I hope you guys can clarify.......

I understand that there is merit in holding back and waiting for a HPC but as this will be the result of higher interest rates, while I may be able to purchase the property at a lower price, I'm now going to be stuck with a higher IR.

Isn't there something to be said in securing a fixed, long term mortgage now, while the rates are still attractive?

I've seen 4.68% being offered over 10 years by some lenders and even fixed for 25 years is possible.

So isn't it all just a case of 'out of one frying pan and into the other'. :unsure: I hope not???

Perhaps with higher interest rates you should aim to save a higher deposit? And thus avoid the debt trap.

Share this post


Link to post
Share on other sites

What are your alternatives to buying right now? If you can rent cheaply/live with parents or whatever, you also need to consider how much you could save before you buy, thus reducing your mortgage when you do buy at the higher interest rates.

All depends on whether prices do fall though!

Share this post


Link to post
Share on other sites

Thanks for the resonse guys.....and that's very interesting Biriani.

I was starting to think that it was all a bit of swings and roundabouts. 'Bad' high house prices but "Good' IR's now....and after a HPC it would just switch round and we'd all still be complaining.....this time about the interest rates. A no win situation for borrowers.

I guess it depends on your financial circumstance. The security of a fixed rate for 10+ years appears attractive, especially when I'll be stretched financially by this current London/UK market.

In 10 years time, year 2016, while my home may have lost value, I expect to be financially better off (that, or living on another, cheaper planet!). My income will have increased and I'll be more likely to be able to meet any increase in my mortgage payments .....well at least more likely that I am now.

If I could afford to gamble with the rates now, then maybe I could swallow any significant rate increases and go with a 3 year fixed or tracker mortgage but if IR's did increase to 8.5% in 2010, I have a feeling you'd find me in a tent in Hyde Park not being a particularly happy camper.

It's a crazy situation.

Share this post


Link to post
Share on other sites

Hi Immigrant,

I personally find rent in London expensive and my parents find the novelty (me) wears off after 3 or 4 days, so that's not really an option.

I could wait and have been doing for the last 2 years. I even took the extreme measure of leaving the country for 18 months so I could save and increase my deposit (London has a funny habit of eating away at savings).

I've lived in London for 7 years, pretty much moving from one rented accommodation to the next each year. At 32, I'm now looking for a base.

A 2 bed flat is required, to help with the repayments but I won't deny that it's going to be tough. Prices truly are unreal and you get nothing for your money........at least that tent in Hyde Park has a view. :D

Share this post


Link to post
Share on other sites

It's interesting that most Bears consider IR increases as the main catalyst for a HPC.

I have a sneaking feeling that increased income tax on higher rate tax payers might be Brownie's preffered method of curbing inflation over the next couple of years which in turn is more likely to curb House Price Inflation as their will be less affluent speculators and investors in the market.

Putting the pressure on the wealthy earners could ensure he returns Labour to being the champion of the working classes and average joe on the street, which could ensure he survives the next election!

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 333 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.