Sunday, Oct 01, 2006

In 1982 interest rates reached 15.2%

Firstrung: 1982 - the last time homeowners spent so much income on mortgages

Ongoing interest-rate increases are seriously eroding the sizes of mortgages being offered to first-time buyers. New borrowers will only be offered 75 per cent of the mortgages that they qualified for last December, if rates continue to rise at current levels.

Posted by converted lurker @ 07:10 PM (2360 views)
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8 Comments

1. Freewheeling Franklin said...

A bit disingenuous not to mention in the headline on HPC this is Ireland. You have to read to Par 7 of the story before it mentions Dublin. It would help if people posting links could point up what the story's about in the precis on the site

Monday, October 2, 2006 01:03AM Report Comment
 

2. sirgoogle said...

This article has to do with the Irish market andf the highly likely rate rise to 3.25% by the ECB on Thursday. The article in the Post.IE also hints heavily that the ECB will raise rates to 4% within the year.

Basically the last time FTBs were so stretched, and expended 40% of their budget on a Mortgage was in 1982 ! Note that then interest rates were 15.2 %. The amount of capital borrowed this time is enourmous !

Result is that banks are coming to their senses and therefore only offering 75% of what they offered in December. This will cool the market !

Prediction: If the ECB imposes a IR riase the MPC will also recommend a rise too either in Oct or in Nov - but most probably on the same day. The Euro and Pound Sterling seem to be pegged in recent times (same external pressures).

If it is true that the ECB is planning to go to 4% (and assuming the pegging) then this means that there could be 3x 0.25% more rises - perhaps taking GBP base rates to 5.5% next year ?? what do you think ?

Monday, October 2, 2006 04:49AM Report Comment
 

3. The Capitalist said...

well said, Sir Google.

It's all very, very simple: houses are are unaffordable for most, and now that the inflation monster is on the loose due to Brown's spending and our own MEW, interest rates will be IMHO around 5% next year. This will wipe out those who borrowed too much. And don't forget we've got higher taxes to look forward too.

Monday, October 2, 2006 08:58AM Report Comment
 

4. inbreda said...

Like your thinking.

I wonder - if current levels represent the 1982 equivalent of 15.2% interest rates, what would be the 1982 equivalent if we DID have 3x 0.25% increases? Presumably nearer 20%?

Monday, October 2, 2006 09:25AM Report Comment
 

5. Ticktock said...

I suspect that rates have a long, long, way to go up yet before inflation expectations are contained. You simply cannot print endless amounts of money for ever without the public eventualy realising that they are being cheated. This may be a very 'old economy' view of things, but inflation is what it is (and that DOES include house prices too!)

If/when growth slows, and Central Banks cut, the resulting extra inflation would force rates up faster anyway (like the last cut did). In short, Cenral Banks have run out of rope.

If it wasn't for our 'rent boy' type relationship with the US, Stirling would already have been sunk by the hedge funds.

I would personaly rather we maintained our dignity as a Nation and took the necessary pain, but sadly, too many 'decent, hard working, middle class' Brits. prefer to be 'bummed' and still receive the dollars.

Monday, October 2, 2006 10:26AM Report Comment
 

6. bidin'matime said...

Whatever the 1982 equivalent, a 0.75% rise would be over 10% increase on a typical mortgage payment, so the 40% would increase to 44% - if they can afford this, then something else (eg holidays) will have to be given up, but if there is no slack at all, it's down the slippery slope...

Monday, October 2, 2006 01:20PM Report Comment
 

7. talking rot said...

SirGoogle

Like your thinking. Is 5.5% sufficient to precipitate a crash? surely not at this [historically] low level although it will cause a lot of pain. In the past, a 3% rise in interest rates within one year has always preceeded a house price crash. (Taken from The Economist - not my own work I hasten to add so it may be baloney). Are we now saying a crash could be started when 3 lots of 0.25% increases hit the market? Even with apparently high levels of debt, I'm not sure this will work.

Bidin'

Sorry, I can not follow your logic. I understand that you are saying a 0.75% increase on IRs is 10% of the typical 7.5% mortgage rate available today but 0.75% is not a lot. Do you believe there are sufficient people on a precipice that such a small [in money terms] increase will cause wholesale forced sales and thus a crash?

Monday, October 2, 2006 01:51PM Report Comment
 

8. C'mon Correction said...

TR

If interest rates only go up to 5.5%, I think it would put off any further BTL's who are currently carrying the market. BTL is not a very good investment option currently, long term it isn't much better than a good savings account, short term it's worse. Plus, when interest rates went up 1% recently it turned HPI on it's head and then a cut of .25% set up (some way towards) another mini-boom.

House prices are tightly dialled into even tiny interest rate movements. Estate agents, banks and the MPC all know it; there are a lot of people getting in financial trouble even when 'everything is rosy in the garden' and rates are low.

Monday, October 2, 2006 06:33PM Report Comment
 

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