We Need Rates At 6% Before The Market Corrects

[sam]

Not had much time lately due to a heavy work load, and there has been a question i have wanted to get on this board for a week now, sorry for the rush, but i just want a bit of feedback.

I am one of the Bears who think this property correction is going to be a long drawn out affair UNLESS we get a substantial or fast and furious shock. When it comes to interest rates i beleive that they need to be close to the magic 6% before any real damage is done, even though i except some homeowners are suffering now(and were before the 0.25% rise), a few small 0.25% hikes will not do the job.

The initial Buzz i had last week when rates went up has now vanished, we still have a way to go

thoughts please

Sam

[Realistbear]

Not had much time lately due to a heavy work load, and there has been a question i have wanted to get on this board for a week now, sorry for the rush, but i just want a bit of feedback.

I am one of the Bears who think this property correction is going to be a long drawn out affair UNLESS we get a substantial or fast and furious shock. When it comes to interest rates i beleive that they need to be close to the magic 6% before any real damage is done, even though i except some homeowners are suffering now(and were before the 0.25% rise), a few small 0.25% hikes will not do the job.

The initial Buzz i had last week when rates went up has now vanished, we still have a way to go

thoughts please

Sam

http://news.bbc.co.uk/1/hi/business/4790067.stm

Last Updated: Monday, 14 August 2006, 09:20 GMT 10:20 UK

House price inflation in the UK is slowing, official government figures have shown.

The Department for Communities and Local Government (DCLG) - formerly the ODPM - said prices rose by 5.2% in the year to June, down from 5.6% in May.

Price inflation slowed sharply in London, with annual price inflation in the capital slipping from 7.0% in May to 5.8% in June.

Findings mirrored

Overall, the findings of the DCLG mirror those of other house price surveys.

The most recent Halifax and Nationwide surveys have shown that the housing market in most parts of the UK running out of steam as the summer progresses.

Both have said they anticipate a further slowdown in the second half of 2006 as the latest Bank of England interest rate rise takes hold.

http://icbirmingham.icnetwork.co.uk/birmin...-name_page.html

Survey shows fall in house prices

Aug 15 2006

A soaring number of estate agents have reported a drop in house prices in the West Midlands, a study has found.

The Royal Institution of Chartered Surveyors (RICS) report yesterday came as separate Government study showed a year-on-year fall in price inflation in the region.

The RICS found the number of members in its survey reporting a price drop "increased to 22 per cent last month, up from eight per cent in June".

http://business.timesonline.co.uk/article/...2309688,00.html

The Sunday Times August 13, 2006

Rate rises threaten house price revival

By Clare Francis

Linda and Steve Harmer-Strange, own 30 student buy-to-let properties in Brighton and are considering selling some to cope with the latest rate rise, which has added about £700 to their mortgage costs. Most of their properties — 21 — are on fixed rates, but they have variable loans on the other nine.

Linda said: “We suspected interest rates would rise this year so have already sold two houses that weren’t profitable. We will have to decide what to do with the other nine that are on variable-rate mortgages. We are tied in with penalties but it might be worth taking the hit and switching them all over to fixed rates or selling some more.

A bit of reality among the VI fluff out there after the BoE hiked.

Edited August 15, 2006 by Realistbear

[faloos]

If you have a £200000 Mortgage then going from a cheapy 2.5 % to 6% is no ITCH !! More like a deep scar with alittle bit of HIV thrown in !!

[MadJock]

Not had much time lately due to a heavy work load, and there has been a question i have wanted to get on this board for a week now, sorry for the rush, but i just want a bit of feedback.

I am one of the Bears who think this property correction is going to be a long drawn out affair UNLESS we get a substantial or fast and furious shock. When it comes to interest rates i beleive that they need to be close to the magic 6% before any real damage is done, even though i except some homeowners are suffering now(and were before the 0.25% rise), a few small 0.25% hikes will not do the job.

The initial Buzz i had last week when rates went up has now vanished, we still have a way to go

thoughts please

Sam

It's not 5% vs 5.25% that's the issue - it's that the house prices are 10x salary.

When this thing starts to go, it won;t matter that IRs are 4%,6% or 8% - it will collapse under its own weight. When the cheap fixed rate deals run out, and the cheap liquidity the Fed and BOJ pump out dries up, and the MEW has stopped, and the job losses in retail begin, and the banks start questioning the loans they made to BTL with negative cash flow on every property, prices will stagnate, sentiment will turn sour, and away we go. The IR rises having an effect are more on the psychology than the wallet, and in many ways that's more important.

[Realistbear]

If you have a £200000 Mortgage then going from a cheapy 2.5 % to 6% is no ITCH !! More like a deep scar with alittle bit of HIV thrown in !!

Repossession growth has been accelerating which suggests that a sizeable number of people can't even afford their current mortgages let alone ones that will cost more. Remember, a HPC does not require a large percentage of people to default. Not everyone is affected as they already own and have no mortgage or a very small debt. 5% default rate will flood the market and crash prices significantly.

[Harry]

Not had much time lately due to a heavy work load, and there has been a question i have wanted to get on this board for a week now, sorry for the rush, but i just want a bit of feedback.

I am one of the Bears who think this property correction is going to be a long drawn out affair UNLESS we get a substantial or fast and furious shock. When it comes to interest rates i beleive that they need to be close to the magic 6% before any real damage is done, even though i except some homeowners are suffering now(and were before the 0.25% rise), a few small 0.25% hikes will not do the job.

The initial Buzz i had last week when rates went up has now vanished, we still have a way to go

thoughts please

Sam

I think I agree. Most of the sentiment (including my own) immediately after the rate rise was bearish for house prices, but it's clear from reading the press two weeks on that this is now seen as old news. Most of the comment in the last few days has been around the strength of housing demand & the lack of supply. Owners and BTL investors do not appear to have been spooked in to selling up (yet). Commentators seem to be expecting the most recent rate rise and the one expected at the end of the year to put a brake on the market, but not to crash it. A much bigger shock would be needed for that.

So what form would the shock take? Regarding interest rate rises, I think your 6% figure is probably about right - but as things stand, this is not looking very likely. The other event that would precipiate sharp falls would, of course, be a recession - but that's not on the cards either (and I'm sure none of us would want that anyway.) I'm keeping my eye on the US economy at the moment...a recession there would certainly put a brake on ours, but how much of a brake is anyone's guess.

In the absence of further bad news for the economy, I'm expecting prices to stay pretty much where they are over the next 12 months (+/- 3%). I still describe myself as a bear, but that's only because I think the US slowdown will spread here. But accept that this could take a long time...and God knows we've all being waiting long enough already.

[Realistbear]

Builders are seeing reality if the VIs and EAs say they are not:

http://www.bloomberg.com/apps/news?pid=206...9Q&refer=uk

Barratt, U.K. Homebuilders May Fall Further on Higher Rates

Aug. 15 (Bloomberg) -- Shares of nine of the 10 largest U.K. homebuilders have fallen since the Bank of England unexpectedly raised interest rates this month. The decline may have further to go if U.S. housing companies are any indication.

``With the first rate increase, the house-building sector comes off dramatically,'' said Colin Morton, a fund manager at BWD Rensburg Ltd., which oversees $2 billion in Leeds. ``It's the first reaction and the same has happened in the U.S.'' He owns only one homebuilder, Bovis Homes Group Plc.

Newcastle upon Tyne-based Barratt Developments Plc, the biggest U.K. homebuilder by number of houses sold, has lost 6.6 percent since Aug. 3, when the BOE lifted its key interest rate to 4.75 percent in the first increase in two years. London-based George Wimpey Plc, the second-biggest by that measure, is down 4.3 percent. Berkeley Group Holdings Plc, up 1.2 percent, is the only stock to gain among the 10 biggest companies.

For the past year, all 10 stocks are up, gaining an average of 42 percent. Persimmon Plc, the biggest in the industry by market value, has gained 56 percent. The FTSE All-Share Index has risen 11 percent.

In the U.S., a Standard & Poor's index of 16 homebuilders has lost 42 percent in the past year. All but one of the stocks has declined as the Federal Reserve lifted the benchmark U.S. interest rate to 5.25 percent, making home mortgages more expensive. The index had soared more than sixfold from the end of 1999 through 2005.

[Michael]

I've been on the site for 2 years and was initially a bull but like Marina dont think there will be a crash except for overpriced new build hotel-style flats.....

I know Ordinary people on below average incomes who're quite happily coming into the market as first-time buyers......usually on self-certs......borrowing huge amounts of money.

Do the maths !.....

Couple each on £20k /year.....prepared to spend the whole of one net income on an interest-only mortgage which of course is far more than any of us would LIKE to pay but still affordable can get a self-cert loan of around £250k if they put down a 15% deposit and so get a house for £295k....

The loan is of course 6.25 times their joint income but they can fix at more or less 6% which no-one could do until 4 or 5 years ago...........to insure against IR rises............

My point is that affordability isn't as stretched as most people in here would have you believe..

In most cases people i know have borrowed about £200k in this manner.....

and in the area we live in they're not paying much more than renters whose rent will go up with inflation unlike the mortgage payments.....they will also eventually see capital gains.....

Edited August 15, 2006 by Michael

[bugged bunny]

I am one of the Bears who think this property correction is going to be a long drawn out affair UNLESS we get a substantial or fast and furious shock. When it comes to interest rates i beleive that they need to be close to the magic 6% before any real damage is done, even though i except some homeowners are suffering now(and were before the 0.25% rise), a few small 0.25% hikes will not do the job.

I'm in broad agreement with Sam and Harry - I personally reckon interest rates would need to hit 6.5% for significant impact. 5-6% is stagnation territory.

Repossession growth has been accelerating which suggests that a sizeable number of people can't even afford their current mortgages let alone ones that will cost more. Remember, a HPC does not require a large percentage of people to default. Not everyone is affected as they already own and have no mortgage or a very small debt. 5% default rate will flood the market and crash prices significantly.

As 70% of current mortgages are fixed rate, and for most vulnerable mortgages (FTB/BTL) an even higher percentage will be on fixed rate , this will both delay and dampen the effects of IR rises on the default rate compared with previous crashes. Other factors like rising unemployment and rising inflation, and tightening by banks on unsecured lending, are likely to be more important factors than a few piddly 0.25% interest rises, IMO.

I am a bear, but I reckon we're probably a couple of years, minimum, from a crash (bar BTL newbuilds) - though I expect some regions will continue to see modest price falls. And I don't rule out long-term stagflation.

[bugged bunny]

...

and in the area we live in they're not paying much more than renters whose rent will go up with inflation unlike the mortgage payments.....they will also eventually see capital gains.....

Good point - caught between a rock and a hard place, is it better to be at the mercy of the landlords or the banks?

I feel this depends very much on personal circumstances such as age, region and attitude to what you really need in a home. On the whole those are under 35 who want to be flexible in the labour market, and are not wanting to settle down to have kids in the near future, are better off renting and saving than they are buying right now.

[Realistbear]

I've been on the site for 2 years and was initially a bull but like Marina dont think there will be a crash except for overpriced new build hotel-style flats.....

I know Ordinary people on below average incomes who're quite happily coming into the market as first-time buyers......usually on self-certs......borrowing huge amounts of money.

Do the maths !.....

Couple each on £20k /year.....prepared to spend the whole of one net income on an interest-only mortgage which of course is far more than any of us would LIKE to pay but still affordable can get a self-cert loan of around £250k if they put down a 15% deposit and so get a house for £295k....

The loan is of course 6.25 times their joint income but they can fix at more or less 6% which no-one could do until 4 or 5 years ago...........to insure against IR rises............

My point is that affordability isn't as stretched as most people in here would have you believe..

In most cases people i know have borrowed about £200k in this manner.....

and in the area we live in they're not paying much more than renters whose rent will go up with inflation unlike the mortgage payments.....they will also eventually see capital gains.....

Move to the West Midlands and enjoy the crash! The latest:

http://icbirmingham.icnetwork.co.uk/birmin...-name_page.html

Survey shows fall in house prices

Aug 15 2006

A soaring number of estate agents have reported a drop in house prices in the West Midlands, a study has found.

The Royal Institution of Chartered Surveyors (RICS) report yesterday came as separate Government study showed a year-on-year fall in price inflation in the region.

The RICS found the number of members in its survey reporting a price drop "increased to 22 per cent last month, up from eight per cent in June".

EAs have growing numbers of "price reduced" "unexpectedly back on market" and the biggest sign of a dropping market: "no upward chain." If Jaguar gets sold off next month it will be a field day for dropping house prices. IR hikes will just speed things along.

[MadJock]

I've been on the site for 2 years and was initially a bull but like Marina dont think there will be a crash except for overpriced new build hotel-style flats.....

I know Ordinary people on below average incomes who're quite happily coming into the market as first-time buyers......usually on self-certs......borrowing huge amounts of money.

Do the maths !.....

Couple each on £20k /year.....prepared to spend the whole of one net income on an interest-only mortgage which of course is far more than any of us would LIKE to pay but still affordable can get a self-cert loan of around £250k if they put down a 15% deposit and so get a house for £295k....

The loan is of course 6.25 times their joint income but they can fix at more or less 6% which no-one could do until 4 or 5 years ago...........to insure against IR rises............

My point is that affordability isn't as stretched as most people in here would have you believe..

In most cases people i know have borrowed about £200k in this manner.....

and in the area we live in they're not paying much more than renters whose rent will go up with inflation unlike the mortgage payments.....they will also eventually see capital gains.....

You assume they have continuous employment for both people, and no 'external shocks'. Living on the limit doesn't take kindly to any disruptions

When house prices stagnate, and MEW isn't available, jobs will be lost in a number of areas as consumer spending drops. What happens when one of the couple loses the job and replaces it with a 10k a year job? Or they have kids and not only do their expenses go up, income goes down?

How many have fixed rates for 10 years? How many bought in 2002/03 with 5 year fixed? How many readjust next year?

Rents may go up, but rents can't go up much faster than wages. Unlike mortgages, rent is paid with real money. Landlords like to believe otherwise, but wages dictate rents, not landlords.

Finally, you don't need 100% of buyers to go into foreclosure to kill the market - property prices are set at the margins, that is the last couple of sales set the price even if 100s of the things exist. When someone has to sell due to death, or divorce, or debt, and they bought in 1985 and can sell at 1999 prices and still make a profit, then you have a comp that lowers prices. One or two of them in an area can drop prices double-digit % overnight.

Edited August 15, 2006 by MadJock

[Realistbear]

You assume they have continuous employment for both people, and no 'external shocks'. Living on the limit doesn't take kindly to any disruptions

When house prices stagnate, and MEW isn't available, jobs will be lost in a number of areas as consumer spending drops. What happens when one of the couple loses the job and replaces it with a 10k a year job? Or they have kids and not only do their expenses go up, income goes down?

How many have fixed rates for 10 years? How many bought in 2002/03 with 5 year fixed? How many readjust next year?

Rents may go up, but rents can't go up much faster than wages. Unlike mortgages, rent is paid with real money. Landlords like to believe otherwise, but wages dictate rents, not landlords.

Finally, you don't need 100% of buyers to go into foreclosure to kill the market - property prices are set at the margins, that is the last couple of sales set the price even if 100s of the things exist. When someone has to sell due to death, or divorce, or debt, and they bought in 1985 and can sell at 1999 prices and still make a profit, then you have a comp that lowers prices. One or two of them in an area can drop prices double-digit % overnight.

Finally, you don't need 100% of buyers to go into foreclosure to kill the market

Agree. The figure I saw mentioned was 5%. That is, if 5% go into repossession it will cause a crash. I am not sure how many are in repo as of this date--maybe 1%?? The rate is accelerating and I read that 100,000 are expected to get repossessed this autumn. See earlier posts about a week ago when all the debt stuff was hitting the net.

[sam]

Finally, you don't need 100% of buyers to go into foreclosure to kill the market

Agree. The figure I saw mentioned was 5%. That is, if 5% go into repossession it will cause a crash. I am not sure how many are in repo as of this date--maybe 1%?? The rate is accelerating and I read that 100,000 are expected to get repossessed this autumn. See earlier posts about a week ago when all the debt stuff was hitting the net.

5% of all homes in the UK must be over a million, i am certain we are nowhere near that figure.

[Guest wrongmove]

Move to the West Midlands and enjoy the crash! The latest:

http://icbirmingham.icnetwork.co.uk/birmin...-name_page.html

Survey shows fall in house prices

Aug 15 2006

A soaring number of estate agents have reported a drop in house prices in the West Midlands, a study has found.

The Royal Institution of Chartered Surveyors (RICS) report yesterday came as separate Government study showed a year-on-year fall in price inflation in the region.

The RICS found the number of members in its survey reporting a price drop "increased to 22 per cent last month, up from eight per cent in June".

EAs have growing numbers of "price reduced" "unexpectedly back on market" and the biggest sign of a dropping market: "no upward chain." If Jaguar gets sold off next month it will be a field day for dropping house prices. IR hikes will just speed things along.

RB, you must think we are all as stupid as you !

Here is the next few lines af that article: the bit RB quoted is in italics - now read the next few lines:

"A soaring number of estate agents have reported a drop in house prices in the West Midlands, a study has found.

The Royal Institution of Chartered Surveyors (RICS) report yesterday came as separate Government study showed a year-on-year fall in price inflation in the region.

The RICS found the number of members in its survey reporting a price drop "increased to 22 per cent last month, up from eight per cent in June".

However, 28 per cent of surveyors reported an increase and 49 per cent reported no change in prices.

That indicated "a slower pace of price increases during July".

The RICS said house prices in the region continued to rise during July at a modest rate, while agreed sales rose at their fastest pace in almost three years.

RB, you are a bulls dream. Are you an EA ? You posts would only convince idiots who don't do their own research. I though bears were the clever ones. I am a longterm bear, but when bears have to resort to arguments this weak, I have to wonder.......

[trompe le monde]

I think society is so hooked on debt that the odd 25 base point hike will not make a substantial difference in the short term - people just borrow more, while they can. What could swing it is energy inflation (i.e. gas bills) as we head into winter. Energy bills drop to a fraction of their usual rates this time of year - also everyone's in holiday mode during the silly season.

Factor in another gas hike and look at peak usage with bills coming in around Jan/Feb, a depressing time of the year, on top of another IR rise in maybe November and I'd guess that home finances in stretched households will be looking tight. Add to that grain prices rising, with other food inflation on the cards and further credit tightening due to increased bad debt from the banks, and sentiment may well turn at this point.

So yes, I guess I agree that there would need to be substantial rate hikes (in isolation) for a turn. However, I also think there's various other nasties waiting in the wings that could precipitate a change in sentiment. That's without even looking at terrorism, oil, etc.

TLM

[faloos]

I've been on the site for 2 years and was initially a bull but like Marina dont think there will be a crash except for overpriced new build hotel-style flats.....

I know Ordinary people on below average incomes who're quite happily coming into the market as first-time buyers......usually on self-certs......borrowing huge amounts of money.

Do the maths !.....

Couple each on £20k /year.....prepared to spend the whole of one net income on an interest-only mortgage which of course is far more than any of us would LIKE to pay but still affordable can get a self-cert loan of around £250k if they put down a 15% deposit and so get a house for £295k....

The loan is of course 6.25 times their joint income but they can fix at more or less 6% which no-one could do until 4 or 5 years ago...........to insure against IR rises............

My point is that affordability isn't as stretched as most people in here would have you believe..

In most cases people i know have borrowed about £200k in this manner.....

and in the area we live in they're not paying much more than renters whose rent will go up with inflation unlike the mortgage payments.....they will also eventually see capital gains.....

But what about the secondary affect of unemployment ? or reduced bonuses / hours etc America will cause a slow down here and not every one has a cushy job in government , the private sector is ruthless and in a downturn you could be out of work in a week , then try and pay a mortgage from a part time even if you wanted to compete with an immigrant doing a job for £ 3 per hour. Sorry for being glum but I do have the scars from the 90s crash

[needle]

.... i just want a bit of feedback.

I am one of the Bears who think this property correction is going to be a long drawn out affair UNLESS we get a substantial or fast and furious shock.

Dont get fixated on interest rates?

Oil has doubled in 2 years. And its going to keep on going up.

People are missing the big picture.

Not much point in having an affordable mortgage if you cant heat the place or drive to work!

When it comes to interest rates i beleive that they need to be close to the magic 6% before any real damage is done, even though i except some homeowners are suffering now(and were before the 0.25% rise), a few small 0.25% hikes will not do the job.

You might be right, but why did an 0.25% cut cause a spurt in house prices last year?

Further you might like to note that one bank has raised their borrowing rate by 0.35%.

The initial Buzz i had last week when rates went up has now vanished, we still have a way to go

thoughts please

Simplistic example - With a new (regular not IO) mortgage you pay something in the region of 90% as interest, 10% as capital in the first few years. The recent interest rate hike from 4.5 - 4.75 is an increase of roughly 5% on interest payments.

Thus from monthly outgoings of £1000 - used to be £900 interest and £100 mortgage.

Now its £900 +5% extra (£45) = £945 + £100 off your capital = £1045.

This is why the government are worried. £45 may not seem much but one or two more hikes could put a lot of people very close to trouble. What about those BTLs on narrow-margins how attractive will it look now?

READ THIS http://www.mortgagesexposed.com/ it'll open your eyes to how mortgages actually work.

[bugged bunny]

Further you might like to note that one bank has raised their borrowing rate by 0.35%.

Simplistic example - With a new (regular not IO) mortgage you pay something in the region of 90% as interest, 10% as capital in the first few years. The recent interest rate hike from 4.5 - 4.75 is an increase of roughly 5% on interest payments.

Thus from monthly outgoings of £1000 - used to be £900 interest and £100 mortgage.

Now its £900 +5% extra (£45) = £945 + £100 off your capital = £1045.

This is why the government are worried. £45 may not seem much but one or two more hikes could put a lot of people very close to trouble. What about those BTLs on narrow-margins how attractive will it look now?

Nope - just tried an online mortgage calculator with a rise in SVR (worse case scenario for a borrower) from 6.25 to 6.5% (no-ones on the base rate). This equates to an increase of monthly payments of less than £24 on a £150,000 repayment mortage, that's an increase of £1012.81 to £1036.36.

Don't make assumptions. Find out the facts. Then form an opinion.

[needle]

Nope - just tried an online mortgage calculator with a rise in SVR (worse case scenario for a borrower) from 6.25 to 6.5% (no-ones on the base rate). This equates to an increase of monthly payments of less than £24 on a £150,000 repayment mortage, that's an increase of £1012.81 to £1036.36.

Don't make assumptions. Find out the facts. Then form an opinion.

Like it says simple example.

Your calculations arent the same as mine (try the calculator here for a better one.)

But lets use your figures.

Outgoings of 1012.81 which rise to 1036.36 you claim equate to an increase of £24 per month.

This is 2.25% increase in payments for your .25% increase in rates.

So now with energy prices increasing 10-20% your mortgage outgoings increase by 2.25%.

Put up some more figures so we can see how much your outgoings increase by if rates go to 5% or even 5.25%.

Theres a good man.

[bugged bunny]

Like it says simple example.

Your calculations arent the same as mine (try the calculator here for a better one.)

But lets use your figures.

Outgoings of 1012.81 which rise to 1036.36 you claim equate to an increase of £24 per month.

This is 2.25% increase in payments for your .25% increase in rates.

So now with energy prices increasing 10-20% your mortgage outgoings increase by 2.25%.

Put up some more figures so we can see how much your outgoings increase by if rates go to 5% or even 5.25%.

Theres a good man.

Sure.

It would take a mortgage of £175000 over 25 years to need repayments of circa £1000 per month at 4.75%.

In this case the monthly payment would be £997.71.

If the rate increased to 5.00 % the monthly payment would go up to £1,023.03

That's a difference of less than £26 per month.

As I said before, no-one is paying base-rate. But even on base rate, the difference is nowhere near the figure you quoted. I got exactly the same figures using both the Guardian's mortgage calculator (which I used previously) and using the one you suggest (http://www.mortgagesexposed.com/), but must confess I don't know the maths behind it. I would guess that the figure is lower then you expect due to compound interest operating.

[needle]

Sure.

It would take a mortgage of £175000 over 25 years to need repayments of circa £1000 per month at 4.75%.

In this case the monthly payment would be £997.71.

If the rate increased to 5.00 % the monthly payment would go up to £1,023.03

That's a difference of less than £26 per month.

As I said before, no-one is paying base-rate. But even on base rate, the difference is nowhere near the figure you quoted. I got exactly the same figures using both the Guardian's mortgage calculator (which I used previously) and using the one you suggest (http://www.mortgagesexposed.com/), but must confess I don't know the maths behind it. I would guess that the figure is lower then you expect due to compound interest operating.

I know people dont pay base rate but I was using the original post to illustrate a simple point - if rates rise by .25% it doesnt mean your mortgage payment rises by .25%.

A lot of people dont understand this.

£26 per month is not a huge amount, I agree.

But when other costs are rising and potential further rate rises are on the way it matters.

Look here for the average UK wage of £25,170 or 1555.89 per month after tax.

Even adding £26 extra to the monthly outgoings is equivalent to a 1.66% paycut.

All of this for a .25% rate increase?

You think this doesnt matter???????

You think this will have no knock-on effects????

EDITED - to source figures.....and its late...im tired...apols for any sp mistakes

Edited August 16, 2006 by needle

[bugged bunny]

I know people dont pay base rate but I was using the original post to illustrate a simple point - if rates rise by .25% it doesnt mean your mortgage payment rises by .25%.

A lot of people dont understand this.

£26 per month is not a huge amount, I agree.

But when other costs are rising and potential further rate rises are on the way it matters.

Even adding £26 extra to the monthly outgoings is equivalent to a 1.66% paycut.

All of this for a .25% rate increase?

You think this doesnt matter???????

You think this will have no knock-on effects????

EDITED - to source figures.....and its late...im tired...apols for any sp mistakes

I agree that your point is valid and might need to be pointed out to a few muppets - a monthly mortgage payment rises by more than .25% when a 0.25% rise in interest rates occurs. However, a change of 4.5 to 4.75% constitutes an increase in IR of 5.6% so I would expect the more common misconception to be the one that you had (?), that payments would rise by 5.6%. The actual difference in repayment is approx. 2.6%.

I think it'll take a few rises of 0.25 percent to make a difference, other things being equal, which I'll admit they're not. Inflation is apparently rising, as is unemployment.

Also, bear in mind that there is far more disposable spending to cut back on now, in order to tighten one's belt, than there was during the last HPC 1989-94, e.g. people didn't have broadband or mobile phones back then and there were fewer new or newish cars on the road. Hardly anyone travelled abroad for a stag/hen do. A return flight to Europe cost over £150 (slight guestimate here, the first flight I bought was in 1994, £200 return to Spain). Also, young'un's on the site would be surprised at how little the cost of the basics has increased since then. As I was a student throughout the period, I can remember well that the price of a loaf of bread was around 60p, pint of milk 25p, tin of beans 30p, tin of tuna 50p, pair of Levis £45, Converse baseball boots £29, non-branded jeans £25, a top-40 CD £15, a recently released film on video around £15, £4 for a cinema ticket, a 1-hour long-distance phonecall in the UK over a pound (BT had a monopoly and there were no all-inclusive deals to be had back then).

Oh dear, I'm sounding like CO - I swear I'm not that old! Oh yes, and the poll tax was around £500 per person per annum where I lived. I'm currently paying less than £650 council tax per annum as a single occupier, 17 years later, admittedly living in the South West now, no longer the South East. Energy costs seemed to stay static for at least a decade before the recent rises. Personally speaking, I've experienced very low inflation over the last 17 years, barring house prices. IMO people's spending has gone up so much principally because they consume more, not because prices have gone up. Ciggies are the only thing except housing that I can think of that have undergone any significant inflation since 1989 (I seem to recall they cost £1.20 a pack back then). Oh and train fares. Maybe prescription prices have doubled too. Don't know about petrol.

Don't get excited by one tiny IR rise - that's all I'm saying. It will slow down average price rices and another 0.25% rise in November should bring the market to stagnation.

Tired too...

Edited August 16, 2006 by bugged bunny

[faloos]

I agree that £26 a month is not much however as has been pointed out there are other factors.

What about the secondary affect of unemployment ? or reduced bonuses / hours etc . America will cause a slow down here and not every one has a cushy job in government , the private sector is ruthless and in a downturn you could be out of work in a week , then try and pay a mortgage from a part time even if you wanted to compete with an immigrant doing a job for £ 3 per hour. Sorry for being glum but I do have the scars from the 90s crash.

We have a generation that has not gone through the 90s housing and ecoomic slump.

Think about a normal business cycle of 10 years and ask yourself (dont know about business cycles ? well read up about them then !!)" Why has this one lasted longer" reason is that the great Gordo B has been underpinning this one with cheap credit, business cycles cannot go on forever. I do get very tired pointing this out and I am weary now as theBulls are deaf.

This crunch is going to be severe. I would not be worrying so much if we had an economy that was resilient to downturns but this one is made up of paper mache !! consisting of public service workers (parasitic side ) no offence ), phone shops , coffee shops , fast food , leisure centres , Gyms etc, What do we actually make? Zilch Squared thats what.

Get out now if you have bought in the past 4 years an take the money and sit tight and batten down the hatches. Rent a home in Goa for 50 quid a week and ponder your next move. As I say I have been and done it mate and still have the scars but will not be fooled this time .

Gordo has no dosh left and he will have to raise taxes some way or other and you do not have to have a PHd in economics to know what that will do to blighty.

[faloos]

6% will kill this market as 6% rate will surely mean 6.75% for you at the high street.