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Why Rate Cuts Won't Save The Housing Market.

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http://thecrownblogspot.blogspot.com/2008/...ing-market.html

Reducing interest rates will help home owners afford their mortgages and may help the UK avoid a major recession, but the housing market is still suspended way above the amount that lenders are willing to lend.

It is possible at the moment for a first time buyer to get an affordable mortgage with a 10% deposit on a repayment basis. The problem is that the mortgage allowed is around 30% lower than the property they want to buy.

If you think interest rates being reduced is going to stop the housing market falls, think of it like being on the Titanic after it hits the iceberg and somebody saying - "It's OK I have found another 10 buckets - let's start bailing. If only we had another 10 buckets we could stop it sinking"

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The media will never get it though - high interest rates = house price crash.

They have been unable to see that loose credit = rising house prices and tight credit = falling house prices regardless of interest rates.

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http://thecrownblogspot.blogspot.com/2008/...ing-market.html

Reducing interest rates will help home owners afford their mortgages and may help the UK avoid a major recession, but the housing market is still suspended way above the amount that lenders are willing to lend.

It is possible at the moment for a first time buyer to get an affordable mortgage with a 10% deposit on a repayment basis. The problem is that the mortgage allowed is around 30% lower than the property they want to buy.

If you think interest rates being reduced is going to stop the housing market falls, think of it like being on the Titanic after it hits the iceberg and somebody saying - "It's OK I have found another 10 buckets - let's start bailing. If only we had another 10 buckets we could stop it sinking"

I just want to clarify. Are banks now refusing to lend at >3 x times salary (or whatever the low multiple is)?

Edited by Oxfordite

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Yes they are between x4 and x5 but they are paying a lot more attention to what other monthly commitments people have and are reducing the offers. They are now basically doing the due dilligence that they should have done over the past 5 years.

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Yes they are between x4 and x5 but they are paying a lot more attention to what other monthly commitments people have and are reducing the offers. They are now basically doing the due dilligence that they should have done over the past 5 years.

Interesting RM. There is so much anecdotal talk about these things at this time. Is this the experience of people you know or yourself? Perhaps this explains why the mortgages that have been agreed in principle are falling through...

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Greed caused the crash along with economic stupidity. Too much money has been lent out to anyone with an ounce of common sense could see what was going to happen as soon as interest rates went up, unfortunately the only academic acceptable way to the economy is with interest rates. So even though it meant ramming the ship into a iceberg our dutiful central bankers followed the book to the letter and rammed the ship.

As Mystic Merv says interest rates are a flexible tool.

Flexible at doing what I don't know but they are a tool and they are flexible. This crisis needs thinking outside the box, however central bankers are unable to do that unless of course it involves interest rates.

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personal experience, when I remortgaged in March I had to pay of all debts (I had the money) because they really hit the ammount I could borrow. It was the case that "Your car loan is 300 auid so will reduce the mortgage by 100 grand". Basically the mortgage companies are trying to ensure to the maximum that they get paid. They almost insisted that I take out mortgage payment protection as well, but I had that already. Also I do not have a 6x salary mortgage 2.5 times more like.

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personal experience, when I remortgaged in March I had to pay of all debts (I had the money) because they really hit the ammount I could borrow. It was the case that "Your car loan is 300 auid so will reduce the mortgage by 100 grand". Basically the mortgage companies are trying to ensure to the maximum that they get paid. They almost insisted that I take out mortgage payment protection as well, but I had that already. Also I do not have a 6x salary mortgage 2.5 times more like.

Thanks...Looks like even a mobile phone contract could knock quite a few quid of the loan amount...

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Thanks...Looks like even a mobile phone contract could knock quite a few quid of the loan amount...

If you have missed one payment on the phone you will not get a mortgage!

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Yes they are between x4 and x5 but they are paying a lot more attention to what other monthly commitments people have and are reducing the offers. They are now basically doing the due dilligence that they should have done over the past 5 years.

if it's still between 4 and 5 times earnings, I wouldn't exactly call it due diligence.

5 times income is still crash levels, it the level that crashes USUALLY happen at, this last one was just crazier.

at least they are getting better though.

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If you have missed one payment on the phone you will not get a mortgage!

Wow, that is crazy. It just shows how the fractional reserve banking system can suck huge amounts of credit from the system...As much as it can lead to huge credit creation, the inverse is also true. This must be the biggest credit contraction in history...wjich makes sense as it was the largest credit bubble in history. It has a beautiful poetic symmetry about it...

Edited by VedantaTrader

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Guest DissipatedYouthIsValuable
Greed caused the crash along with economic stupidity. Too much money has been lent out to anyone with an ounce of common sense could see what was going to happen as soon as interest rates went up, unfortunately the only academic acceptable way to the economy is with interest rates. So even though it meant ramming the ship into a iceberg our dutiful central bankers followed the book to the letter and rammed the ship.

As Mystic Merv says interest rates are a flexible tool.

Flexible at doing what I don't know but they are a tool and they are flexible. This crisis needs thinking outside the box, however central bankers are unable to do that unless of course it involves interest rates.

Sounds like a right doss this Central Bank lark.

A bit like me deciding once a month whether I should change the dose of one person's blood pressure medication.

Judging by that productivity scale, I reckon I should be asking for about a trillion quid a week.

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If you have missed one payment on the phone you will not get a mortgage!

yes you will, might not be prime, but they're out there for the odd missed payment...I do however reckon we're in the zone where certain clients will not get mortgages at all, that hasn't happened for a while. I reckon IVA/Bankruptcy forget it, couple of ccjs/defaults likewise <_<

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http://thecrownblogspot.blogspot.com/2008/...ing-market.html

Reducing interest rates will help home owners afford their mortgages and may help the UK avoid a major recession, but the housing market is still suspended way above the amount that lenders are willing to lend.

It is possible at the moment for a first time buyer to get an affordable mortgage with a 10% deposit on a repayment basis. The problem is that the mortgage allowed is around 30% lower than the property they want to buy.

If you think interest rates being reduced is going to stop the housing market falls, think of it like being on the Titanic after it hits the iceberg and somebody saying - "It's OK I have found another 10 buckets - let's start bailing. If only we had another 10 buckets we could stop it sinking"

One only needs to look at the US to see that a 3.25% cut in interest rates, in 8 months, has failed to turn the tide in the housing sector there. Mortgage holders are still paying the high rates they were paying last August, primarily because of the credit crunch and the retail banks refusal to pass lower borrowing rates onto their clients. Interest rate cuts are playing a secondary role to credit woes in determining mortgage rates. But one thing is for sure, there is absolutely no way the housing sector would have a chance if the Fed had not cut rates, even if a pick-up in the sector takes another 12 months. This underscores the argument that interest rate policy today will shape the market and the economy not today, but in a future 18 to 24 months.

What this does highlight is that the Bank of England's reluctance to cut UK interest rates because of an unsustainable spike in commodity prices is very short-sighted and shows a Central Bank lacking in vision, i.e. reacting to inflation data today, as opposed to where the economy may be (or not be) in 2 years time. The UK economy is going down the tubes through nearly every sector at present - housing, services, manufacturing, financial services and Governor King really needs to take his finger out if the economy is not to fall over a cliff. The Bank of England has zero control over rising oil costs, which is an imported phenomenon and outside of commodity prices there is no inflation worth talking about in the UK. There is however a dramatically slowing economy, which should be the mainstay of the Bank of England's focus and policy right now.

Sebastian

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There is however a dramatically slowingrebalancing economy, which should be the mainstay of the Bank of England's focus and policy right now.

Indeed. Like a gardener pulling weeds, it ought to raise rates now, so as to ensure that the economy two years out is viable.

Edited by ParticleMan

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Indeed. Like a gardener pulling weeds, it ought to raise rates now, so as to ensure that the economy two years out is viable.

Once you move into economic contraction across all sectors, it is a level of rebalancing you essentially do not want. You want to raise interest rates when the economy is over-heating and cut them when it is at the point of under-performing the long-running growth average. When the economy is sick, a kick in the proverbials (rate hike) is not going to cure it.

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http://thecrownblogspot.blogspot.com/2008/...ing-market.html

Reducing interest rates will help home owners afford their mortgages and may help the UK avoid a major recession, but the housing market is still suspended way above the amount that lenders are willing to lend.

It is possible at the moment for a first time buyer to get an affordable mortgage with a 10% deposit on a repayment basis. The problem is that the mortgage allowed is around 30% lower than the property they want to buy.

If you think interest rates being reduced is going to stop the housing market falls, think of it like being on the Titanic after it hits the iceberg and somebody saying - "It's OK I have found another 10 buckets - let's start bailing. If only we had another 10 buckets we could stop it sinking"

Lower IR's = lower pound = more expensive imports = higher inflation = higher IR's.

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http://www.forbes.com/afxnewslimited/feeds...afx5166371.html

LONDON (Thomson Financial) - Growth in the UK's vital services sector picked up between April and March, driven by increased output in the transport, storage and communication sector, official figures showed Monday.

Yes, but it contracted in June at the fastest rate seen since 2001 and that followed another contraction in May. The construction and manufacturing sectors also contracted sharply in June and all 3 sectors now reveal a recessionary state, i.e. an alarming acceleration in the slowdown. In fact the UK economy looks to be slowing at a far sharper rate than the US economy over the past 2 months and the UK could hit an official recession before the US. All UK economic data over the past 2 months has been appalling, but much of it has slipped under the radar, as everyone has been focused on the US. The only piece of good news out of the UK over the last 2 months were record retails sales numbers reported for May, but they have been dismissed by most analysts as either having been incorrect or as having been a complete once-off. Much of the concern and gloomy outlook for the UK economy has come from retailers.

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Lower IR's = lower pound = more expensive imports = higher inflation = higher IR's.

Lower IR's == less saving == lower rate of accumulation of capital == less captial investment == flatter curve == longer recovery.

Lower IR's == less inward investment == ... you get the idea.

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Yes, but it contracted in June at the fastest rate seen since 2001 and that followed another contraction in May. The construction and manufacturing sectors also contracted sharply in June and all 3 sectors now reveal a recessionary state, i.e. an alarming acceleration in the slowdown. In fact the UK economy looks to be slowing at a far sharper rate than the US economy over the past 2 months and the UK could hit an official recession before the US. All UK economic data over the past 2 months has been appalling, but much of it has slipped under the radar, as everyone has been focused on the US. The only piece of good news out of the UK over the last 2 months were record retails sales numbers reported for May, but they have been dismissed by most analysts as either having been incorrect or as having been a complete once-off. Much of the concern and gloomy outlook for the UK economy has come from retailers.

The distress is coming from enterprise running on empty, powered by consumer dis-saving. Capitulating on reserve rates will simply accelerate this. The key now is to allow for a positive domestic savings rate. And trashing sterling, won't.

edit: and at the risk of going out on a limb here, you're evidently comparing apples to oranges; the data I have is ONS, the data you're discussing is CIPS PMI - do the two even correlate?

Edited by ParticleMan

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Lower IR's = lower pound = more expensive imports = higher inflation = higher IR's.

Higher interest rates in a contracting economy will mean an even lower pound, as medium to long-term investors will avoid the UK altogether.

Canada cut interest rates by 1.25% between December and April and the Canadain dollar is trading at much the same exchange rate now as it was last December. Eventually markets will reward currencies where rates are cut to stimulate growth, because the growth stimulus is a long-run incentive to invest there. If your economy is losing growth and jobs, you want to encourage investment and not discourage it with high interest rates. Higher interest rates may not even protect a currency in the short run - look at Iceland.

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The distress is coming from enterprise running on empty, powered by consumer dis-saving. Capitulating on reserve rates will simply accelerate this. The key now is to allow for a positive domestic savings rate. And trashing sterling, won't.

See above. Markets will go after currencies where the Central Bank is seen to be behind the curve. Sterling is currently benefiting from a temporary flow of funds as investors seek yield while there is continued turmoil in quity markets. This is not investment in the economy and these funds will flow out as quickly as they flowed in. If rates are not cut, companies may cease investment in the UK and that will cut-off another major flow of funds into sterling. Sterling looks certain to fall against the dollar over the next 6-12 months regardless of what the Bank of England does. But a succession of cuts back to say 4.25%, equal with the ECB, could in fact help the UK economy bounce much sooner than the euro zone economy and ultimately lead to a strengthening of the pound against the euro.

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  • 396 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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