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Ir Needs To Go Up A Full Point...

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BBC City analyst just said on BBC News 24.

<_<

Your thoughts...!

I think they're massively underestimating the number of people who borrowed at IR low of around 3.5% - particularly those whose fixed terms are coming to an end and whose rates will shoot up.

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In terms of affordability, he's probably not to far off the mark - most people have enough slack to cover the £15-35 extra a month from a 25bp rise through cutting back on non-necessities. Finding £60-140extra a month is a different story.

That said, the sentiment factor can only be guessed at. Maybe some FTBs and potential BTLers will adopt a wait and see approach in this climate of possible further rises. For someone considering a BTL, IR raises are a double disincentive - less profit ( :lol: ) and it also makes the hassle free and safe alternative of a savings account seem more attractive

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BBC City analyst just said on BBC News 24.

<_<

Your thoughts...!

I think they're massively underestimating the number of people who borrowed at IR low of around 3.5% - particularly those whose fixed terms are coming to an end and whose rates will shoot up.

Interest rates rose to 4.75% on 05/08/2004 - so most people whose had standard 2-yr fixed deals below that have already seen their's run out. Those who fixed at 3.5% may well be paying closer to 6% if they have not sought a better deal elsewhere - a near doubling in payments.

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BBC City analyst just said on BBC News 24.

<_<

Your thoughts...!

I think they're massively underestimating the number of people who borrowed at IR low of around 3.5% - particularly those whose fixed terms are coming to an end and whose rates will shoot up.

They have failed to distinguish between those who have bought, and therefore have no choice but to cough up, and those who are about to buy.

Needless to say, its those who are about to by that set house prices.

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They have failed to distinguish between those who have bought, and therefore have no choice but to cough up...

...or be repossessed.

Supply and demand set prices.

Edited by IamSpartacus

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It certainly makes a difference to me as a STRer upon my decision on when to return to the market.During theSummer my gross earnings on savings have crept over £15000 helped by the recent increase and Northern Rock@ 5.3% and the Post Office @ 5.0% responding with rises.You look at that and think,Should I buy?Nah.

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Don't listen to analysts whatever you do!

It's not as simple as saying x% will crash the market. Time will also play a significant part.

I can cook a nice piece of meat at any temperature between about 140 and 180 degrees. It just takes a little longer at 140.

If rates were raised 1% tomorrow, then yes I think we'd see a sharp fall in prices PDQ. However, if they were only raised another 0.5% over the next 6 months then I still think we'd see a fall in prices - it would just happen over a longer period of time.

It's either a case of shooting the market in the head to sort it out quickly, or starving it slowly over many months.

The final outcome will be the same.

Don't listen to analysts? :huh: But the views of a shower of random members of an economic doomsday cult are copper-bottomed?

Expectations (those of the city, not just mine) suggest that interest rates will reach 5pc either later this year or early 2007; and that is likely to be the limit. Inflation is not soaring out of control.

An increase to 5pc will dent affordability, but it will not send it into free-fall. I'm afraid that while the underlying factors driving the market (supply, immigration, desire to own) remain in place, then the most your can hope for is a late-2005 style softening.

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BBC City analyst just said on BBC News 24.

<_<

Your thoughts...!

I think they're massively underestimating the number of people who borrowed at IR low of around 3.5% - particularly those whose fixed terms are coming to an end and whose rates will shoot up.

Who was it?

If it was only IRs in isolation that affected property they would probably be right.

The comment about cooking meat is apt.

But just wait til the Uni fees start to bite, increased postal costs, oil on the up again and the rumoured 10% inflation figures.

Doesnt take a genius to figure out whats going to happen....

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My fixed rate is coming to an end this month after 3 years - I fixed when IR were at their lowest. The rise is quite noticable. My mortgage is only 2x my salary, as I'm risk adverse so would rather stay in my one bed flat than get something which the bank thinks I can afford. Even so, my mortgage will go up by about 10%. Not a big deal to me as I'm overpaying anyway, but a hit like that could really make a big difference so someone who believed the hype 3 years ago and overstretched themselves. What has to be remembered is that fixed rates have went up by more than the increase in interest rates.

What is noticable is the new builds which I remember seeing people queuing up for 3 years ago. Their fixed rates must've come to an end at the same time, as half of one building is now up for sale!

Interest rates rose to 4.75% on 05/08/2004 - so most people whose had standard 2-yr fixed deals below that have already seen their's run out. Those who fixed at 3.5% may well be paying closer to 6% if they have not sought a better deal elsewhere - a near doubling in payments.

With my bank, 3 year fixed rates were standard 3 years ago - it is only recently that they've changed to 2 year deals. I don't recall if other banks were the same or not.

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Don't listen to analysts? :huh: But the views of a shower of random members of an economic doomsday cult are copper-bottomed?

How many analysts were surprised/shocked by the IR rise? How many of us on HPC were shocked?

Says it all! B)

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An increase to 5pc will dent affordability, but it will not send it into free-fall. I'm afraid that while the underlying factors driving the market (supply, immigration, desire to own) remain in place, then the most your can hope for is a late-2005 style softening.

Factors affecting the market:

Supply - this is only an issue if demand exceeds supply. Supply may be poor but demand is even lower becasue you cannot include people on the demand side who cannot afford to buy the product (It's like me saying I would like a Ferrari - the price doesn't go up as a result of this sort of 'demand' because even if the price was 50% lower I still couldn't actually afford to buy one)

Immigration - I don't accept this is fuelling the freehold market. Most economic migrants rent so are not fuelling the demand side for freeholds. Interestingly, they are having a limited effect on the rental market because the large average household size keeps the rent per person pretty stable.

Desire to own - the same goes for this point as for the supply point - prices don't rise because of 'demand' from people who couldn't afford the product in the first place.

The only thing fuelling the market is Spin and as we've seen with Pakistan when we get a reverse swing people get twitchy and all hell breaks loose B) (That's one for the cricketers amongst us)

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Don't listen to analysts? :huh: But the views of a shower of random members of an economic doomsday cult are copper-bottomed?

Ha! i absolutely agree, its fun but always has been this way on this site. Either you're a believer or you're not.

What gets me is that some think that in an economic or property crash, they'd be the winners. Surely buying when prices are crashing and interest rates are sky high only makes sense to a barnpot.

People are saying prices are falling, even when all the evidence points to prices rising, and have been doing for the last however long. prices in london are not such bad value and have been pretty steady eddy for 3 or more years. when i bought in 2005 , my flat had only appreciated by 2.25% per annum since early 2001, hardly a runaway unsustainable boom.

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It certainly makes a difference to me as a STRer upon my decision on when to return to the market.During theSummer my gross earnings on savings have crept over £15000 helped by the recent increase and Northern Rock@ 5.3% and the Post Office @ 5.0% responding with rises.You look at that and think,Should I buy?Nah.

Gross earnings after rent and tax?

But you're right if interest rates rise enough you should win both ways. Prices down, earnings up.

I didn't have the bottle to continue my STR.

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How many analysts were surprised/shocked by the IR rise? How many of us on HPC were shocked?

Says it all! B)

Fair point - but an awful lot of people here have been predicting IR increases since the rate dropped to 4.5pc (stopped clock right twice a day, etc)

Also, there was a thread here entitled something like "If interest rates go up, I'l eat my hat" - not everyone saw this coming.

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How many analysts were surprised/shocked by the IR rise? How many of us on HPC were shocked?

Says it all! B)

The rate rise was touted widely at the beginning of the year, despite what the evening standard says about "rate rise shock" to it punters, anyone with half a brain thought there was going to be a cut from the start of 06. The last time people widely thought there might be a cut was in about July / Aug 05. I know as i was looking to buy at the time.

The truth is the economy is a lot more stable and strong than it was in the 70's crash or even the 80's one. The country has had ingrained stable economic growth for many years and contrary to what people say on here, it shows little sign of ending in dramatic fashion that will allow HPC' ers to snap up bargains with their (presumably hyper inflation-proof savings) as the rest of the country attends soup kitchens and sells truck loads of family silver for a cabbage.

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People are saying prices are falling, even when all the evidence points to prices rising, and have been doing for the last however long. prices in london are not such bad value and have been pretty steady eddy for 3 or more years. when i bought in 2005 , my flat had only appreciated by 2.25% per annum since early 2001, hardly a runaway unsustainable boom.

It's misleading to think that wages need to rise by the same percentage as house prices to keep them affordable. If the average house price in London is say £300,000 then even if an 'average' income is £100,000 then a rise in house prices of 2.5% means an actual increase of £7,500 but an increase in wages of 2.5% means an actual increase of £2,500. It's this disparity that means even apparently modest percentage increases in house prices make them ever more unaffordable for the majority of people

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At least you're honest about it! Fair dos!

No point deluding yourself.

No one learns by deluding themselves.

One reason why everyone on here should be constantly re-evaluating their position.

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Started a thread with this but was ignored, I still think its very relevant to our situation and this thread;

It seems to be widely accepted that prices are falling in some parts of Aus especially Sydney now that their base rate has moved to 6.0%.

Aus - Bsre rate low Dec 01 - 4.25% today 6.0% thats a 43.75% increase and they are at crash speed

UK - Base rate low 3.5% today 4.75% a 35.71% increase, although its a bit early to draw any conclusion as the rate only just went up.

Another rise to 5.0% is an increase of 42.85% which is almost spot on with Aus.

Conclusion - one more rise should do the job biggrin.gif

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It's misleading to think that wages need to rise by the same percentage as house prices to keep them affordable. If the average house price in London is say £300,000 then even if an 'average' income is £100,000 then a rise in house prices of 2.5% means an actual increase of £7,500 but an increase in wages of 2.5% means an actual increase of £2,500. It's this disparity that means even apparently modest percentage increases in house prices make them ever more unaffordable for the majority of people

So you only need to borrow 3x wages to keep up... :ph34r:

Edited by IamSpartacus

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It certainly makes a difference to me as a STRer upon my decision on when to return to the market.During theSummer my gross earnings on savings have crept over £15000 helped by the recent increase and Northern Rock@ 5.3% and the Post Office @ 5.0% responding with rises.You look at that and think,Should I buy?Nah.

You have £300K in cash sat in the bank??? Hardly a typical house buyer then!

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I Told You So

you are of course correct. Its not how high rates go or not (relative to past cycles i.e. there won't be a crash this time as rates arn't 15% yet!) as the case may be. Its how high and for how long they go up relative to the bottom of the I/R cycle and how many people were tempted to 'over borrow'. The artificialy low I/R folowing 9/11 has allowed many individuals to borrow far more than their personal earning capacity can sustain. Now rates are going up in the UK its useful to look at it in the context of the USA and Australia, who are ahead of usin the cycle.

Pablo Silver or Lead?

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  • 301 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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