Wednesday, Aug 12, 2015

Frankly, a rate cut is more likely than a rate rise

Telegraph: Interest rates might rise, but here are five reasons why you DON'T need to fix your mortgage

"Rates are on the up - or so we're told - but there are several excellent reasons why homeowners shouldn't rush just yet to fix their mortgage rates"

Posted by libertas @ 01:13 PM (5603 views)
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14 Comments

1. wdbeast said...

You may not need to fix your mortgage, but record numbers of people are, the power of the press!!

Once the first interest rate rise has been announced, this bull run on house prices will be well and truly over.

Wednesday, August 12, 2015 02:07PM Report Comment
 

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3. libertas said...

wdbeast, rates will only rise once demand justifies it. Historically, rates rise into economic strength and often co-incides with house prices rising, noting that house prices were this high in 2008 with 5% rates!!!!!

Conversely, EVERYBODY forgets that house prices FELL whilst interest rates COLLAPSED in 2008. Yes, house prices fell in 1992 with high rates, but again, the high rates co-incided with the PEAK of the housing market, yet they had been rising into the peak. Again, house prices languished when rates went down, taking until after 1996 to stabalise.

I pay about 950 a month for my mortgage, but the market rent here is a whopping 1500 a month. I can afford 50% over-payments and so am well buffeted to rises and could easily afford 7% rates, as are most other purchasers with 20% plus deposits.

Frankly, most people here do not understand economics, dealing with cliches and false perceptions about non-existence lock-step linear relationships between house prices and rates that do not reflect any historical analysis.

The reality is, that prices will likely rise as rates go up, because rates go up in RESPONSE to strong economics. The peak in house prices should coincide with the peak in rates, with rates then collapsing in the next crash in maybe 2026, in RESPONSE to falling demand. Interest rates follow and do not lead economic activity because central bankers react to and co not control global capital flows and economic activity.

Wednesday, August 12, 2015 04:52PM Report Comment
 

4. libertas said...

What could happen, is that if we are seeing economic demand collapse, rates could fall alongside house prices falling, whilst affordability soars. By my reckoning, the bottom of rates coincides with the bottom in the market, and should coincide with prices going up.

Wednesday, August 12, 2015 04:56PM Report Comment
 

5. mister ed said...

"What could happen, is that if we are seeing economic demand collapse, rates could fall alongside house prices falling, whilst affordability soars. By my reckoning, the bottom of rates coincides with the bottom in the market, and should coincide with prices going up."

I'm adding that to my personal collection of "Libbyballs".

It's almost as good as an earlier Libbyball: "For a bull market to be maintained, there has to be a constant slew of bad news or the market does not correct and gets ahead of itself."

Classic.

Wednesday, August 12, 2015 05:22PM Report Comment
 

6. wdbeast said...

Libertas - If you do not understand that once interest rates go up, even by 0.5 percent or so, that house prices will come down, then I am very surprised. Good luck to you anyway, you are very funny!

Wednesday, August 12, 2015 07:20PM Report Comment
 

7. reticent said...

Your repayments once leapt from 217 to 300-odd in a single thread and now they're 950.

You claim mortgage costs are falling but yours seem to be rising at an alarming rate.

I do worry about you Libby.

Wednesday, August 12, 2015 09:07PM Report Comment
 

8. Jmzr said...

I've not looked here for months, but it amazes me how people keep churning out the same nonsense that house prices will collapse if rates rates. The fact is that they won't, because people won't sell for a loss, and the government will assist those that do need help, as they did in 2008-9.
With China's currency devaluation and falling prices and the current grocery price war, interest rates aren't going anywhere for some time, and even when they do, rises will be slow.
Clinging on to the dream that you will snap up someone's house for a bargain price is just keeping you further and further away from ever becoming a home owner.
If I'd listened to the advice on this site, I wouldn't have bought when I did (in 2011). As it happens, I did buy and I got a superb mortgage rate, which was cheaper than renting a comparable house, and in the last 4 years I'd had pay rises that I've used to overpay the mortgage quite significantly.
On top of that, my house has increased by 40% in value. I know this because the identical house next door has just exchanged contracts for exactly 40% more than I bought for.
Keep dreaming HPC'ers.....but your dream of every buying home is fast becoming a nightmare, and your stubbornness to conform and your belief that there will be a huge house price crash is costing you dear;y.

Thursday, August 13, 2015 10:54AM Report Comment
 

9. Mark P said...

'Frankly, most people here do not understand economics, dealing with cliches and false perceptions about non-existence lock-step linear relationships between house prices and rates that do not reflect any historical analysis.'

Libertas, I have read your posts for some time now and and some of the stuff you say makes me cringe. Unfortunately your economics knowledge is not quite as good as you think it is. When rates go up do you really think they will just wiggle up a little each quarter until they settle around your affordability envelope? When rates do go up it will be like a severely over stretched elastic band stretching snapping way back beyond the mean before settling. By then you will be wiped out and we won't have to listen to you any more because you will be bust and won't be able to afford the internet.

Whatever it is that makes it snap, whether it be a crashing bond 30 year bond bull or a full blown currency crisis, we can be certain that the vast number of over indebted mortgage holders will have a thorough shake out and then with lower house prices we can finally have a healthy market again.

If you think the average mortgage holder can stomach a 10% plus rise yet alone a 5% rise then you truly are an idiot. I am surrounded by people that work month to month around a big mortgage with no savings and no provision for a big rate rise.

Friday, August 14, 2015 08:09PM Report Comment
 

10. libertas said...

You are probably confused between repayments vs interest payments.

My mortgage is about 920/pcm. Only around 315 of that are interest repayments. Thus, the remaining balance I literally pay to myself because I can extract it at any time with mortgage equity withdrawal or by selling the property. So the real cost of my mortgage is 315/pcm.

Bear in mind, the standard rent for a 3 bed property like mine is about 1500/pcm. We have raised our repayments to 1200 and aim to shift them to the market rent levels soon as possible to pay off the mortgage in 15 rather than 25yrs. As you can see, we have significant capacity to absorb interest rate rises, as do most other home owners, most of whom believe 5% interest rates to be just around the corner.

Saturday, August 15, 2015 04:56AM Report Comment
 

11. reticent said...

I'm not remotely confused. I remember full well that that was just the interest portion of the loan. That was what made it so odd that you miscalculated it as figuring out the interest portion of a loan is as simple and multiplying the capital by the interest rate and dividing by 12.

When you say you're paying 950/month for your mortgage, it sounds as if you're referring just to the interest payments. Besides, the interest payment is the more financially relevant comparison with rent; the repayment portion is more comparable to saving.

But don't worry, there was no need for clarification. I assumed you were referring to the full repayment this time. It's just that I chose to crack a gag rather than gloss over your own muddied and conflicting assertions.

Incidentally, a 25 year loan on a 235k debt is 962 at 1.7% and 973 at 1.8%, so unless you've paid for a new mortgage product after less than a year (which seems an odd thing to do if you think further IR falls are imminent), your repayments are more than 950 rather than "about 920". But you've never been one to let arithmetic get in the way of a good boast.

I suspect you've gotten confused and calculated what your repayments would be using an interest rate of 1.3%, since you mentioned that your tracker is 1.3% above the base rate (which somehow adds to 1.7%). Perhaps you're already budgeting for a time when the base rate hits the zero bound and got ahead of yourself.

The reason why I said I worry about you is that you spend an awful lot of time announcing private financial information about yourself on the internet (on a website where the other users universally don't welcome your posts) that never quite tallies up. If you cared that much about what interest rate you were paying and how much your repayments are, you'd spend more time verifying them and less time making claims about them here that simply don't add up.

Saturday, August 15, 2015 01:34PM Report Comment
 

12. libertas said...

No, the 950 is the full payment on a 225k mortgage. I rounded it down for memories sake. Yes, 962 is more like it. But we are splitting hairs.

Astonishingly, properties like this rent out for 1600 a month. Yet folk here still think properties are under-priced!! And rates are about to fall soon, causing panic in the housing market.

Sunday, August 16, 2015 04:23PM Report Comment
 

13. hpwatcher said...

libertas - I'd say you've been nailed by reticent.

Yet folk here still think properties are under-priced!!

Overpriced don't you mean???

Sunday, August 16, 2015 08:42PM Report Comment
 

14. reticent said...

"No, the 950 is the full payment..."

I said I had always understood that, I was just taking the p***.

"225k mortgage"

I'm pretty sure you said 235k before, but unfortunately the blog post where you made all those claims was deleted ages ago, which is a pity because then I could link to it whenever you accused other people of not understanding economics. In the absence of that classic, where at least 3 guests felt the need to point out how much rubbish you were talking, here is the post where I first catalogued your maths fails, shortly thereafter, at which time I obviously thought you had claimed a 235k mortgage:

http://www.housepricecrash.co.uk/newsblog/2015/01/blog-what-can-i-say-66017.php
(post 18)

(iii) And here is another post in which you mentioned paying 1.3% plus base rate, but later asserted that you paid 1.7%:

http://www.housepricecrash.co.uk/newsblog/2015/01/blog-i-am-waiting-for-the-yr-fix-its-coming-68050.php
(initial blurb vs post 12)

I don't know which interest rate you are actually paying, but I'm going to hazard a guess that its actually 1.8%, simply because:

a) adding 1.3% to the base rate involves a calculation, and maths is clearly not your strong suit
b) the trend with these miscalculations is to overstate your case, talk down your costs etc.

iv) "My mortgage is about 920/pcm." [...] "I rounded it down for memories sake. Yes, 962 is more like it. But we are splitting hairs."

I can understand why you would round 962 down to 950, but why would you then claim it was actually about 920?

v) Let me save you the trouble of trying to explain where the truth lies in all this. A 225k mortgage with a 1.7% interest rate works out as 921pcm. At 1.8%, it's 932pcm.

But I don't care what the exact figures are. My point is simply that you don't know them.

So please stop:

a) (mis)reporting them here, because you obviously don't care enough about them to know what they actually are
b) telling other users they don't understand economics/finance when you clearly understand very little of either
c) expecting people to read nonsensical posts that you can't even be bothered to verify as you write them

...and show a bit more courtesy to the rest of the hpc community.

Monday, August 17, 2015 10:05AM Report Comment
 

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