D70

Because if they want to move they'll find they are in negative equity.

Less people able to move house= stagnating market and even more negative equity.

It's a vicious circle.

davegtt

I never said that... house crash or not, who cares???? no one will get their house repossesed until they cant afford the payments. if they can afford them now why cant they afford them next year when theres a crash? numptie..... IF it did crash people will be more willing to hold it out and you wont be seeing many houses for sale....

Who gives a **** anyhow. I got my house, dont care about the value, just care about paying the morgage thats on it and be morgage free come my 45th b'day.... then live in my HOME......

Alan Pastor

It's a vicious circle.

davegtt

Yeah... so if u was in negative equity a sensible person would not move

correct, less people moving less houses for sale.... then people who do sell will push the price up because they think there isnt much on the market to compete with...

I understand the vicous circle but my question is unless interest rates go up to a level where ones morgage is too expensive for them why would they LOSE there house? they wont. if they can afford the payment now they can afford it next year (presuming they still have their job and interest rates dont rise significantly) Seems to me there are alot of people hoping and praying. Honest truth is none of us know whats going to happen. when I bought my house in 2001 people was banging on about a crash is only round the corner. needless to say Im glad I didnt hang about listening to them, so why should I listen to them now...

rik1471

so what can we do?

D70

Davegtt you have a very short sighted view of the market. In your circumstances perhaps you will be OK, that's great for you isn't it?
However many people find their needs change, perhaps they have more children or a divorce. Who knows. The point is that when negative equity hits them they can't move. When they can't move it has a knock on effect in the rest of the market. All it will take is a few points of interest rate rises coupled to a loss of employment and the house of cards comes tumbling down.

You don't need to listen to people either dave the evidence of the crash is there right now for you to see yourself with your own eyes. Or isn't that good enough for you?

D70

Wait till the prices drop some more and buy some nice property in a desireable area and wait for the next boom to sell again?

PCatWork

Prices are going down and will go down further in many areas, I would suggest.

However I would be very surprised if IR went to 8% - have a look at future IR yield curve to see why (NB - I don't have any idea how this thing works; this is just what was explained to me when I asked someone who knows more about it!).

Personally, I have 3 years left on a 5 year fix, and hope to take out another 5 year fix when my deal runs out - all being well at a similar rate to the one I have now.

Petem95

On the other hand what about those who cant even afford to buy because prices are so high? Those who would like to settle down and start a family but cant? The crash is going to cause a lot of hardship for many, but will also give others a chance to get a property of their own.

D70

I don't think interest rates would have to rise to 8% to precipitate a rash of repossessions.
There are many people in the UK on less than 2K take home a month after tax. They really haven't much room for maneuver when you consider a small rise would see their mortgages rise to more than half of their take home pay. Then when you consider the money they have in car payments, mobile telephone bills, credit cards, car tax etc it can only end in tears.

Good point about first time buyers, like them, I too would profit massively from a drop in the market.

PCatWork

Comprehensive explanation of Yield Curves here:

http://en.wikipedia.org/wiki/Yield_curve

Enjoy!

TelBoy

Prices won't fall as a result of interest rate rises, as there won't be any for quite some time, in my opinion. But the perception that there might be is a factor, as well as the very real fall in retail spending. People who are holding out for last year's prices will soon have to start coming down further if they want to sell...

davegtt

no I understand there are plently of factors, but surely if someone is sat with negative equity and NEEDS to move because of a bigger family etc then they will move and get a larger morgage.. fine. Chances are they'll end up with a fixed rate for at least 2 years which is holding off this rate. so your hoping (maybe not the right word but tis a friday and Im half asleep still ) that someone gets a bigger family who is in negative equity moves to a larger house which they can barely afford and he'll lose his job thus the downturn in the market... not saying it isnt feesable but I just dont see nothing major happening for a good while yet apart from people getting excited about a stagnated market

Alan Pastor

Good point about first time buyers, I too would profit massively from a drop in the market.

D70

I'm no expert in the markets by any means but as I understand it a single % point increase is on the cards by the end of the year if not more. Isn't the oil price driving this to some extent? This will only lead to yet more repos which are currently running at their highest rate for some years
Factor in say one disastrous event, be it terrorism, political and we'll have a massive crash on our hands.

When I look at the SE I've seen a 10-15% drop in values from their peak in early 2004. If they drop by a further 10% wouldn't that count as a crash even if it isn't widely acknowledged as such?

I think the key word here is "perception" and the current perception is that the market is over valued. Factor in the stagnation and I can't see how a crash is going to be avoided.

davegtt

OK so if we had a massive drop (lets say 20% being generous IMO) all you people (and believe me there are loads about) hoping for this crash is ready to jump on the ladder. as soon as these cheap houses come up for sale the influx of buying is gonna do what to the market? IMO its only gonna push it straight back up... there are too many people wanting to get on the market there will be a frenzy of people splashing their cash pushing house prices straight back up.... NO????

D70

I think the problem is that unless conditions are right all these people waiting won't actually be able to afford the mortgages. Leaving the only true winners in your scenario as those with the ready cash and I don't believe there are that many who got out at the peak.
As I mentioned there has already been a 10-15% drop in the SE in the 150K-350K bracket. Another 5% and we'll be at your 20% marker of a "massive drop", even then I don't think the market will recover.

What will be interesting is finding out.

PCatWork

A single % point?

i.e. to 5.75%? That would certainly ruffle a few feathers! I thought the BoE were in the habit of making quarter of one percent increases.

However, I'm no expert. Maybe those people who are offering 5 year rate fixes aren't either?

Alan Pastor

I can't see how a crash is going to be avoided.

Petem95

No, because this isnt how it works. For a start the crash will probably coincide with a major downturn in the economy, and also just like when booms overshoot the top of the market, busts overshoot the bottom.

In the last few years people have thought prices would just keep rising and rising, so will buy even tho they know prices are probably too high.

When prices have been falling for a few years the outlook on the market has changed, and people start thinking "lucky I didnt buy last year, wouldve lost a fortune" and it starts to look like prices will never stop falling. A bottom will be reached, and the cycle will repeat itself, usually over a 10-15 year period.

D70

I meant up a single % point by the end of the year in stages. Four more rises wouldn't be out of the question if oil reached $65 barrel. Not unfeasable surely.

As I said though I know nothing when it comes to the markets really. What I do know about is profiting from the twisted propery market in the UK and I'm seeing many properties unable to sell whose prices drop bi-weekly, mostly by the £1000's. Where is it going to end is the real question.

TelBoy

Anything *could* happen, D70, but this week's UK economic data has taken the chance of a hike of 0.25% in May down to about 50%, although i'm positioned against that happening. From then on, the markets are pricing in no change for the next two years!!

PCatWork

Oil prices - maybe that deserves a thread all of its own. AFAIK the basic problem here appears to be lack of supply, and that cannot be controlled by interest rates.

D70

So does the oil price really have no relevance as far as interest rates go? I understand the BofE need to keep interest rates static driven most likely by politicial pressure with the election looming.

The current situtation seems artficial to me, as it has been in the hiatus running upto general election in the past. My feeling is that after labour get their 3rd term we are going to see some fireworks and all bets are going to be off.

TelBoy

Oil prices are significant in as much as their effect on inflation, the BoE's primary concern of course. But the link between interest rate decisions and oil prices is a tenuous one in fact, as so many other factors contibute. Of course if there was an overnight spike, rather than a gradual creep, all bets are off, and anything could happen. The problem is, it's never quite clear whether higher oil prices are inflationary or not. One one hand, the increased price does contribute to headline inflation, but on the other, it stifles economic growth, hence its limited influence on the MPC.

Petem95

Oil prices have a knock-on effects by increasing heating, and more importantly petrol prices which has a fairly significant effect on inflation. Interest rates are then forced to rise as a result.

Interest rates will probably only be 5.25 - 5.5% by the end of the year IMO, but not great news if you took out a 3.5% 3year fixed mortgage 3 years ago.

Also in the last few years a much higher than normal percentage of mortages taken out have been interest only - people expecting to somehow find the money to pay off the lump-sum in the meantime...

TelBoy

Tell me the last time the MPC were "forced" to hike interest rates as a result of increased oil prices please.

PCatWork

Tel, so what you are suggesting (and I would tend to agree with) is that high oil prices tend to reduce economic activity. Increasing interest rates in response would magnify this effect. Yes?

Petem95

The MPC will raise rates if they believe inflation is looking like it may go over the target figure in future. Rising oil prices have quite a significant effect on inflation via increased fuel costs, so oil prices have an indirect effect on interest rates.

In not suggesting the MPC raise rates as a direct result of rising oil prices, not like they go to the meeting and are like "just filled up on the way down and paid 88.9p/litre - lets raise rates 0.25%!!"

TelBoy

Indeed. In financial markets, futures generally rise if oil becomes expensive, indicating less expectation of rate hikes.