House prices to crash

[beardosh]

I was chuffed with my Barclays mortgage of 3.99 for 3 years in October. Pretty much had to give my left nut to them to get it mind you but worth it when most other banks wanted to nab 5-6%. They have a stupid affordability rating that decides for you if you can pay their mortgage which will be best part of £300 a month less than what I was already comfortably paying! Hopefully we can pay as much off in the next 3 years as possible as I suspect the next remortgage will be some what higher than 3.99%.

 

[Uncle Spielberg]

A decent rate beardosh. Well done.

 

[Uncle Spielberg]

I'd be f***ing delighted with that!! I got a interest only mortgage at around 3.2% last year fixed for 2 years last summer, and I was over the moon with it. In fact I'd probably be delighted with 5-6% if I could fixed it long enough.

Don't agree with rater going up in March though. I think it'll be in the last quarter of 2011 if we see any moment, and thats a big if in my humble opinion.

Thats a decent rate. Interest rates at 0.5% are BAD for the UK. Not only are they bad for savers and pensioners which outweight mortgage borrowers they send a bad message to the World that the economy is f***ed up. Inflation is running at nearly 5% of the RPI and the bank base rate under normal circumstances should be around 5-6% now which is still historically low as they have averaged nearly 9% over the last 20 years. What I worry about now is that mortgage borrowers have been spolit for 2 years on variable and tracker rates and they now expect and almost demand it continues. The Bank of England are screwing this up big style. They kept rates far too high in 2007 for far too long and have now kept them far too low for far too long. Basically they have no credibility anymore which Andrew Sentance has been arguing for the last 6 months.

 

[Uncle C]

Australia? House prices are still rising here

Sorry, my mistake, didn't mean to cause a crash in Australia. It must have been the cricket team that was sinking.

I knew Australia had come up in something I read and it was this article

http://www.businessinsider.com/australia-housing-shortage-bubble-2011-1#ixzz1As8nT2dt

 

[jezzer]

This is completely fictitious - its like holding shares and saying they cant drop in price if I don't sell them. It may only apply if nobody sells.

Some houses will have to sell because of divorces, death, job moves, redundancies, immigration etc etc.

It takes just one house in a street to set the level for that street and just a few houses in a district to set the level for that district. Neither the Government nor the individual will have any control over it.

As for lack of mortgages, when house prices are restored to historical levels (rather than a bubble) then mortgages will once again be achievable. The banks have a pretty good idea that the market is going down, thats why many want as much as 40% deposit and why their risk is reflected in mortgage rates many multiples of the base rate. Think that sends out a pretty clear message.

Its not fictitious that the lower and middle classes have stopped moving up the ladder because of the reasons stated, they have and will continue to do so for the forseeable future and there is one sullible fact in business - if demand outstrips supply, prices do not fall, theres hardly a for sale board in my estate when a few years ago you couldnt help falling over them.

Im not saying prices arent going to reduce at all, just that they wont crash, like US says 5% or so maybe, thats not a crash, which is the whole point of your initial post is it not?

House prices will not be restored to historical levels because the financial situation now is unprecedented in recent decades, because of the level and percentage of debt v purchase price. Even in a crash you still need the finance, the "Oil", as US put it, which isnt there, the market is stuck solid. Those that can afford to buy, as US states, are laughing if theyre BTL, cos the rentals are sky high, a bog standard 3 bed detached on my estate in Stone Cross in Pevensey is going for £1100pm rental, an incredible price, all the time thats the case, prices will not crash.

And if you think the market crash will be kicked off by enforced sales, because someone`s died or relocating, youre gonna have a long wait, mate.

 

[Uncle C]

Thats a decent rate. Interest rates at 0.5% are BAD for the UK. Not only are they bad for savers and pensioners which outweight mortgage borrowers they send a bad message to the World that the economy is f***ed up. Inflation is running at nearly 5% of the RPI and the bank base rate under normal circumstances should be around 5-6% now which is still historically low as they have averaged nearly 9% over the last 20 years. What I worry about now is that mortgage borrowers have been spolit for 2 years on variable and tracker rates and they now expect and almost demand it continues. The Bank of England are screwing this up big style. They kept rates far too high in 2007 for far too long and have now kept them far too low for far too long. Basically they have no credibility anymore which Andrew Sentance has been arguing for the last 6 months.

I agree with this. The only comfort for most borrowers who found themselves on low rates is that they will have been using the 'extra' money to pay off much more of their mortgages.

 

[Uncle Spielberg]

Again that is not the case. 90% have spent the extra money on their lifestyles which is the point I was making. Very few have paid it off their mortgage.

 

[Uncle C]

Its not fictitious that the lower and middle classes have stopped moving up the ladder because of the reasons stated, they have and will continue to do so for the forseeable future and there is one sullible fact in business - if demand outstrips supply, prices do not fall, theres hardly a for sale board in my estate when a few years ago you couldnt help falling over them.

Im not saying prices arent going to reduce at all, just that they wont crash, like US says 5% or so maybe, thats not a crash, which is the whole point of your initial post is it not?

House prices will not be restored to historical levels because the financial situation now is unprecedented in recent decades, because of the level and percentage of debt v purchase price. Even in a crash you still need the finance, the "Oil", as US put it, which isnt there, the market is stuck solid. Those that can afford to buy, as US states, are laughing if theyre BTL, cos the rentals are sky high, a bog standard 3 bed detached on my estate in Stone Cross in Pevensey is going for £1100pm rental, an incredible price, all the time thats the case, prices will not crash.

And if you think the market crash will be kicked off by enforced sales, because someone`s died or relocating, youre gonna have a long wait, mate.

I think we need to define exactly what 'demand' is. Its not the fact that everyone would like to own their own house, thats 'desire'.

Demand is both the desire and ability to buy a house. By ability I mean cash, or a mortgage offer. ie Demand = desire x ability to pay.

The rapid price falls in 2008 resulted from the initial fall out after the World Banking crisis. Both desire and ability were low

In 2009 desire and ability came together to contrive an upward blip in house prices. So where did the ability come from?

1. Peoples realisation that at 0.5% bank rate, loans would be a good thing.
2. Bank of mum and dad helping out their offspring
3. Mature savers deciding property was a better use of their money than leaving it to fester in a Building Society
4. Foreigh investors making use of the low pound (more sophisticated parts of UK)

These factors are now wearing thin. Ability to buy a house has dissolved, and the downward trend has resumed. It will only end when house prices become affordable and with minimal salary increases, more unemployment and a possible increase in base rate over the next year, its going to be a difficult journey.

 

[Uncle C]

Again that is not the case. 90% have spent the extra money on their lifestyles which is the point I was making. Very few have paid it off their mortgage.

It was said very much tongue in cheek. Many households have been leading the good life for a couple of years. They will be the same people that are bleating when rates go up.

 

[Uncle C]

Talking of 'ability to pay'

"2.7 million borrowers with tracker or variable rate mortgages would struggle to meet their mortgage repayments if they were to increase by more than £100 a month, the equivalent of just a 1 per cent interest rate rise on a £120,000 mortgage."

http://www.telegraph.co.uk/finance/personalfinance/8254886/Interest-rate-misery-for-home-owners.html

 

[beorhthelm]

Not sure but net lending in 2010 was about £ 6 billion and could go into negative net lending in 2011, ie more being repaid on mortgages than new lending being lent, for the first time ever.

Again that is not the case. 90% have spent the extra money on their lifestyles which is the point I was making. Very few have paid it off their mortgage.

so net lending is going down, but people havent been making overpayments on the mortgage?

In 2009 desire and ability came together to contrive an upward blip in house prices. So where did the ability come from?

1. Peoples realisation that at 0.5% bank rate, loans would be a good thing.
2. Bank of mum and dad helping out their offspring
3. Mature savers deciding property was a better use of their money than leaving it to fester in a Building Society
4. Foreigh investors making use of the low pound (more sophisticated parts of UK)

These factors are now wearing thin.

so which of these factors have changed since 2009?

 

[The Antikythera Mechanism]

And if you think the market crash will be kicked off by enforced sales, because someone`s died or relocating, youre gonna have a long wait, mate.

Most properties currently on the market are there as a result of the 3 "D's" - Death, Divorce and Debt

 

[Uncle Spielberg]

so net lending is going down, but people havent been making overpayments on the mortgage?



so which of these factors have changed since 2009?

Some people have but at most 10%, also with a repayment mortgage the debt level reduces as well.

 

[Uncle Spielberg]

Interest rates held at 0.5% for the 23rd month in a row.

 

[Uncle C]

In 2009 desire and ability came together to contrive an upward blip in house prices. So where did the ability come from?

1. Peoples realisation that at 0.5% bank rate, loans would be a good thing.
2. Bank of mum and dad helping out their offspring
3. Mature savers deciding property was a better use of their money than leaving it to fester in a Building Society
4. Foreign investors making use of the low pound (more sophisticated parts of UK)

These factors are now wearing thin.

So which of these factors have changed since 2009?

1. The only talk now is "when will bank rates increase". This will worry people
2. Most that were going to do it, have done so. Discussion around the topic has shown that if house prices drop it is the parents money (often life long savings) that takes the first hit. This has happened to two people I know and they are pig sick that they didn't see it coming.
3. With drops in house prices over the last Quarter, suddenly they don't seem so attractive. Buy to Let investors are being left with more rent defaulters as austerity bites and the Government cuts back on State hand outs.
4. Still seeing many foreigners buying in London. Unfortunately they are not interested in 3 bed semis in the suburbs.

 

[Uncle C]

The markets are preparing themselves for a rise in interest rates.

http://uk.finance.yahoo.com/news/Halifax-latest-withdraw-best-tele-3577508625.html?x=0

 

[beorhthelm]

general concensus from the financial journalists i read on the day of the inflation figures was that there's little chance of a rate rise. although the inflation is above target, the pressure is external, so raising rates wouldnt change anything. also, dont really understand why, but widely expected to drop off sharply in the springtime.

interesting how differently the business pages view inflation compared to the front page headlines.

also, i note nothing here about the data last week that showed London prices rise 8.1%, with London, South East and South West 5%.

 

[Uncle C]

also, i note nothing here about the data last week that showed London prices rise 8.1%, with London, South East and South West 5%.

I'd like to read that data. Were the rises in December?

 

[Uncle Spielberg]

Total UK mortgage lending fell to its lowest level for nine years in 2010, new figures show.

The value of mortgages advanced stood at £136.3bn, which was down 5% from £143.3bn in 2009 and the third year in a row that the figure has fallen.

Lending was just over a third of level seen in 2007, revealing the extent to which the UK property bubble has burst.

The Council of Mortgages Lenders (CML) also said it expected interest rates to rise sooner rather than later.

Arrears

The monthly data shows that mortgage lending dropped in December.

The £11bn advanced during the month was 6% down on the previous month. It was also 18% lower than the same month a year earlier, when some buyers were beating the end of the stamp duty holiday.

The CML added that some home loans had been increasing in cost recently, threatening to continue the dampened demand from buyers at the end of 2010.

The CML has previously predicted that the number of homes repossessed, and the number of borrowers getting into arrears on their mortgage payments, would both increase slightly in 2011 compared with last year.

Continue reading the main story
“
Start Quote
December is always a quiet month but this was a quieter December than usual”
End Quote
Paul Sabbato

First 4 Bridging
The group accepted that the latest inflation figures - which showed a jump in the cost of living in December - could prompt the Bank of England to raise interest rates "earlier than expected".

However, CML economist Peter Charles said that the lenders' group did not expect the Bank rate to rise above 1%. It currently stands at a record low of 0.5%.

Although this had already caused prices of fixed-rate deals to start to rise, there would not be a sudden surge of arrears problems, he said.

"Money market rates have recently moved higher in anticipation of a rise in base rate and some lenders have recently reflected these increases in their product pricing. Against this backdrop, consumer demand may be weaker than we would otherwise have expected," he said.

"Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders.

"Consequently we believe there will be little change in the level of arrears this year."

Quiet

The subdued state of the property market in 2010 was underlined by the latest figures from HM Revenue and Customs (HMRC).

Mortgage demand dipped at the end of 2010 Sales of residential properties in the UK for the whole of the year totalled 885,000, which was 27,000 more than the previous year, but still just over half of the peak in sales recorded in 2006 and 2007.

Sales in December of 2010 fell by 2,000 compared with the previous month, to 75,000.

The final month of the year is generally quiet for the housing market in the UK, as people concentrate on Christmas.

"December is always a quiet month but this was a quieter December than usual," said Paul Sabbato, a director of broker First 4 Bridging.

"There is no doubt that many people who may have been considering buying a couple of months ago have shelved their plans until there is more clarity on when, and by how much, rates will rise.

"Higher inflation looks like it is going to force the Bank's hand and if that's the case then borrowing will come under further pressure."

He added that people's worries about jobs and rising living costs were putting them off buying a home.

Squeeze

First-time buyers have been among the hardest hit by constrained mortgage lending.

A report by the Chartered Institute of Housing estimated that 100,000 potential first-time buyers who had no financial help from their parents had failed to get on the property ladder last year.

It argued that the pendulum had swung too far towards the requirement for a large deposit.

Meanwhile, the amount charged in rent has risen for much of the year, according to various surveys.

 

[Uncle C]

However, CML economist Peter Charles said that the lenders' group did not expect the Bank rate to rise above 1%. It currently stands at a record low of 0.5%.

So its likely to double.