john banks

"April 1999

The Bank of England today announced that it is reducing the base rate by 0.25%. From midnight tonight all customers will benefit from this fall in rates. That is a total cut of 2.50% since last October."

Presumably it can go up as fast as that again...

XRS

Oh yes. Took out my first mortgage at 9.5% and soon it was 15%. No fun having to decide what to cut back on every month.

There would be major problems if rates even approached 10% these days.

john banks

The ingredients are starting to arrive in the kitchen?

Huge amount of consumer borrowing/spending off the back of very high house prices, energy prices still rising at the consumer level, is the real rate of inflation only 2.5%? Worldwide interest rates are all under pressure. Combined with the house price settling in the US already, it could be a tough ride ahead.

With the spending on debt repayments being historically high but in the context of historically low interest rates, we could be in for one almighty bursting asset bubble?

My reading is a little bearish at present

Meanwhile, FTSE is still off its all time high, and further still when corrected for inflation. It is already doing very nicely recently, but the stuffing could be kicked out of that if Gordon really does have it all wrong about no more boom-bust.

Nick100

That must have been 1987/8 - I took my first mortgage out at exactly the same time.

The up side was, after a couple of years of 10% pay rises, the real terms value of the mortgage had reduced significantly. Nowadays if you take out a big mortgage, 25 years later, you've still got a big mortgage.

Floyd

iTrader: (9)

Roll on big interest rate rises

I want prices to drop so I can move up a house size cheaply!

BTW I know someone who sold up and went into rented due to fears of a price drop. He thought he'd take the risk and sit pretty. Trouble is he's still in rented as he can't afford to get the size of house he was in now.

F

lozgti

Been looking to move house.

Quarter of a million would buy us something in what I consider 'scutty' areas.Sod that

Something has got to give.I refuse to believe everyone earns £75,000 a year.

Interest is rising and I can't see why it shouldn't all go pear shaped with everyone very overstretched financially

Suresh

I remember 15% mortgage rates. Tory mismanagement of the economy was to blame.


5 year fixed interest rates :volatile, but not rising.

lozgti

Any idea what house price to earnings ratio was then?

Just wondering if we have an even bigger problem in waiting

As for fixed,I thought they were just that?

(Genuine questions BTW)

PeteBrant

See, the thing is, it make no difference whatsover. Interest rates haven't risen significantly under Labour, but house prices have - In fact the average house price has more the doubled.

End result? There is no difference between paying a £70,000 mortgage @ 10% interest, and a £150,000 one @ 5%

It's all smoke an mirrors - you are no better off.

PeteBrant

The average house price in 1997 was £72,000
THe average house price now is £181,000


The average earnings in 1997 was around £18,631
Is now around £22,411

The gap is far, far bigger than it has ever been.

davegtt

How does that work then? The fact that if the house prices drop then so does yours, so you'll lose lots of equity in your own home and still need to take out just as large mortgage to buy the bigger place :confuse: added to the fact that you'll be paying more for the mortgage since the interest rates will no doubtly rise.

john banks

If you are stepping up the "ladder" it makes a huge difference, because the cost to change becomes less.

davegtt

Not by much though. Lets say your current house is 100k and you want to buy a 200k house. You wait until say the property drops 20% Your house is only worth 80k and the house you want is now 160k your still only saving 20k OK yeah 20k is alot of money but in reality when your talking 160k there isnt much in it IMO especially when you consider your new mortgage is now alot higher in interest rate. I dont think you'd be saving too much money.

Lets say for arguments sake your 200k mortgage that you get now at 5.5% your paying £1240ish

So we wait until the 'crash' and take out a 160k mortgage at 9.5% like whats being quoted above (Im not thinking its going to reach these heights anyway) your paying £1400ish.

Even at a rate of 8% your mortgage payments are the same as what they would be now with your 200k mortgage.

Apart from the long run hoping that interest rates will fall back to a lower level in say 5years time when your new fixed rate runs out theres no difference IMO....

Is it because its early and Im missing something?

Jay m A

iTrader: (2)

Thats all very true, but I think a fairer measure is mortgage repayments as a % of takehome, this will account for interest rate changes.

I don't have recent figures, but in the last crash FTB's were paying 66% of takehome, wheras 5 years ago that had reduced to 44%. You also have to consider the amount of equity propping up the FTB's, be it parents of your 'typical' FTB's, or the new divorcee 'FTBs' with large deposits from splitting a home.

john banks

davegtt, I think the real situation for many second/subsequent buyers is different.

If for example you bought an average house in 1998 with a 90% mortgage when you got your first job - that was possible then... through mortgage overpayments as the interest rates dropped and incomes increased as is common in the first part of a career, along with house price inflation you now have equity from that original property. You're then in a position to start again with another mortgage, but the interest rates are low (and of course may rise) and your income has hit a relative plateau compared with the rises of the early years. You expose yourself to considerable risk compared with that original purchase in 1998. You now might also have more family responsibilities, possibility of losing second income if a kid came along etc. In this situation a relatively small change in house prices could halve your potential future mortgage. Upgrading now could mean a substantial mortgage with erosion of your hard won capital if the house price went down and the interest rate went up.

davegtt

John. Maybe my example wasnt as clear as I should have made it, the mortgage payments part didnt reflect on my talkings of moving from a 100k house to a 200k house. But the point is still the same. Forgetting whatever equity you have in your 100k house you will have to put it into your 200k house you still have to find the 100k extra to move house. 100k now on a low interest rate or 80k in whenever we see the drop in the housing market on a higher interest rate means no savings what so ever on your monthly payments. It looks cheaper to move but in the real world it'll hit the pocket of most people exactly the same each month.

PeteBrant

I think the problem with your example is that there is no such thing as a £100K house

davegtt

ahhh, maybe you should move to a nicer part of the UK then. Plenty if you know where to look.

Tidgy

kinda hoping it does crash, waiting till i can buy rather than rent to move away from home so when it all goes **** up shall be able to pick up a nice hose for pretty cheap

davegtt

Out of interest how much are you hoping/expecting it to crash by?

Do we really expect a crash? Or maybe a slow decline in price until property begins to sell again?

Tidgy

don't realy know, not gonna be looking for at leat a year anyway, just hoping the prics drop a bit, so either works for me lol

Suresh

If you enter into 5 year fixed rate contract at that point in time, you will be bound to pay that rate for the next 5 years - irrespective of what the market rate actually does. Interest rates are traded much like shares in the interbank market. The chart shows the (interbank) market rate for such 5 year fixed contracts over time.

Given the chart I posted earlier, the best time to enter into a 5 year fixed contact over recent years would have been around May 2003. If you had done that your rate would have been guaranteed at that low level until May 2008. If you had entered into the same 5 year fixed mortgage a year later then you would been paying almost 2% more for the pleasure until May 2009.

HTH

john banks

If the prices drop Dave, the cost to change will likely drop in similar proportion, so that will be the time for us to upgrade. And if that cost to change is partly funded by savings, then the difference is even greater. If you sell up and rent for a while the kind landlord would appear to be subsidising it for you in many cases, relying on capital growth to make up the difference and a profit. It appears to me that they'll just break even at present growth rates once they've taken into account maintenance, insurance, letting agent costs etc. I will be watching the situation.

Things are already kicking off in the US and their property bubble is arguably less inflated than ours. There are some clues there?

Floyd

iTrader: (9)

If banks are offering long term fixed rates then they are assessing the risk of a rate rise as small. They are not stupid and are not doing anyone any favours. They are there to make money out of you and I. The fixed rate will generally be more than the cheapest rate from any lender as well.

I changed a carpet on the w/e. I discovered an old property paper under it, which I wished I'd not seen. It was from the late 90's with large 5 bed and double garage properties going for £150! The same would be closer to 4-500k now. If I had the money I could have moved up for £60k but now I'm looking at £2-300k...

F
PS I don't mean John Banks offering loans although he's richer than the Queen, some say

john banks

Are the fixed rates not backed by futures and options though? So the individual banks are not at risk are they?

rfowler

why dont people get fixed rate for 2 years at least they know how much they will be paying everymonth

davegtt

they do. I just got myself in a new 5year fixed rate.

Floyd

iTrader: (9)

True but the cost is still low as the risk is low too.

F

lozgti

How come nobody spotted the last crash coming?Did people say at that time houses could never fall in price ,maybe come down a bit?

Drove through a pretty grotty area the other day.Apart from the general BMW's on driveways(which seems the normal car even for a shop assistant)saw 2 ferraris and a Bentley.

Rubbish house,lovely cars.Wonder how much equity these people have in their houses?

rfowler

I dont think the house prices will crash or even go down, they might stablise or does anyone disagree