Friday, June 20, 2014

2 percent Interest Rate will bring repayment-to-income ratio to crash levels

Homeowners face £1,000 rise in mortgage bill by next year

New data from property agents Savills... found that should interest rates increase to 2pc it will take the repayment-to-income ratio to levels reminiscent of the third quarter of 2007, just weeks before the housing market crash. At 2pc an average repayments mortgage will rise by £1,790 a year.

Posted by mountain goat @ 01:38 PM (6696 views)
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11 thoughts on “2 percent Interest Rate will bring repayment-to-income ratio to crash levels

  • It’s another conspiracy theory like the one about Putin bribing Uruguay to beat England.

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  • bidin'matime says:

    ‘Housing market crash’?? Didn’t hear that phrase mentioned at the time…

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  • Given that I would lose at least £6k a year renting by not contributing to repayments, excluding potential price rises, rates will have to rise more than £1,000 to have an impact, particularly given that if rates rise, this time it will be because wages in London are going up 4% per annum, all of which can be leveraged 5x into property.

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  • libertas – now that you’ve bought a house you seem to have become extremely bullish ! if you had bought when S2R1 did you would be a millionaire by now (lol)

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  • rates are where Carney wants them to be. why would they ever raise? it is not a natural phenomenon, it is a human choice.

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  • Jack C. I am in a process of buying a house. Probably at a peak, but we want to stay in the place for at least 5 years and job circumstances have led to it rather than any particular view on the economy. I was not bullish, fully, until I saw the ECB cut deposit rates to negative. Anybody in the Eurozone can take out Euro loans and purchase British property. There will be a carry trade. If UK rates rise, along with Sterling, there will be a rush for Europeans to buy UK property. This is what I believe now.

    I did think there would be a crash because I thought inflation would rise, but I think that technology is expanding beyond the central bank’s ability to cause prices to rise, and they will fight deflation tooth and nail.

    During deflation, some things can rise in price, those things that are fixed in supply, since prices are deflating from supply side issues related to new technology and more flexible labour markets rather than money supply. The present deflation IS NOT a monetary phenomenon in my opinion, so we can still see inflation where supply is fixed, and we see that with housing, particularly in London.

    London estate agents are telling me that this is the peak, that it will calm down and rates will rise. Maybe, but I am buying so as to take a job, and in London, renting is far more expensive than buying in a number of isolated spots, whereas we have found renting cheaper than buying in Hertfordshire. Properties of the same value for sale rent out for £300 to £500 a month more in London!!

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  • Jack C. I am in a process of buying a house. Probably at a peak, but we want to stay in the place for at least 5 years and job circumstances have led to it rather than any particular view on the economy. I was not bullish, fully, until I saw the ECB cut deposit rates to negative. Anybody in the Eurozone can take out Euro loans and purchase British property. There will be a carry trade. If UK rates rise, along with Sterling, there will be a rush for Europeans to buy UK property. This is what I believe now.

    There could be a danger in jumping to conclusions here. Rates won’t rise, because the economy won’t be able to stand it. BoE are hoping that the ‘talk’ alone will do the job. After the next election, the real weakness in the economy will become apparent. UK government are already talking job cuts i.e. A million state sector jobs may go in new wave of Tory cuts.

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  • Yes indeed, but raising UK rates by just 1% could create a carry trade from a Eurozone that has negative rates. Nobody has propertly analysed the impact of having free trade and free movement of people with a huge trading block next door, that has negative interest rates when your country is having pressure to raise theirs!

    Now, back in the day, with all European countries having their own currency, there would be others to choose from. At the time Britain raised rates in the past, often France and Germany would be on the same course, but we are on our own now.

    Do I hear CAPITAL CONTROLS ahead? If so, would our membership of the EU be tenable under such circumstances? Certainly, could we sustain such leaky borders if UK rates were at 3% and ECB cut to MINUS 1 percent?

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  • Either that, or we are on a secret course to join the Euro. Has anybody noticed that many firms now use a pound symbol that looks curiously like the Euro symbol? Is his predictive programming?

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  • In terms of rent vs buying. London has much higher rents to sale value. We live in a home worth £320k here in Hertfordshire presently. We rent it at £950 a month. We are moving to London, where in the cheaper parts we are looking at, rent would be £1400 a month, yet the property is worth about £290k, yet wages are higher here, and values have more of an uplift.

    Whether you buy or rent does depend in a way on where you live.

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