Interest rates and mortgages.....

[Keith 66]

Back when interest rates were 17.5% my parents retired & sold up their house in Essex for 180k & moved to Lancashire, they bought their new place for 80k with half an acre of land. Within two years their old place in Essex had been sold on for 440k & demolished for development. With high interest rates they were quids in with no mortgage & money in the bank.
Anyone in that boat today will do alright if interest rates go up, but its going to hit a lot of people very hard. We have had cheap credit for so long people have forgotten what its like to have to pay through the nose for it.

 

[Spectric]

That was a very shrewd move, obviously realised that a better quality of life could be had and having escaped Essex myself it is a great feeling although you need to accept it is a one way journey because after a few years you often will not be able to return due to the difference in house prices but people live up north whilst many are only surviving down south due to ridiculous mortgage repayments on over valued property.

 

[Keith 66]

It was the only way they could get enough dough to retire comfortably & circumstances arose at just the right time for them.
30 years of happy retirement, Dad passed away 9 years ago & Mum 2 1/2 years ago, the sale of their house & land has allowed my wife & i to retire as well, so the gift that has kept on giving!
As for overvalued property, in their old road houses are now pushing 800k plus.
I cant see the bubble not popping soon.

 

[Terry - Somerset]

The dynamics of the housing market have changed over recent decades due to low long term interest rates and inflation.

Supply and demand determines the price. Lower interest rates inevitably lead to higher property prices as puchases are based (in part) on monthly affordability.

Fixed rate mortgages did not generally exist when I bought my first property in 1973. Any change in interest rates immediately impacted monthly costs with predictable results for many.

Fixing interest rates for several years insulates mortgagees from interest rate fluctuations. They may typically cost more than variable rate as they effectively shift the financial risk on interest rate fluctuations.

The challenge for aspirant property owners is now accumulating sufficient deposit, less meeting monthly repayments which are often limilar to rental they may already be paying.

Personally I err on the side of caution - I want to be confident that I can afford the mortgage into the future, not wake up each morning wondering what the financial news will bring.

 

[Sporky McGuffin]

My wife works for a bank (minimum mortage they give - £250,000, £500,000 in up Country branches) - she said their valuers are putting in values several tens of thousands under estate agents prices.

Prices have become ridiculous in the last 6-12 months; I don't think there'll be a crash, but I'd be surprised if there isn't a correction. We were very lucky; bought our new house in May of 2019, when prices were fairly sane, refurbished, moved in in January 2021, sold the old house in June this year pretty much hitting the peak of the market.

 

[doctor Bob]

The thing I forgot about is stamp duty. I bought a derelict house and built new about 6 years ago so the stamp duty I paid was on about 2/5th the value of the house we ended up with. I recently looked to move again, realised we could do it but would require a massive interest only mortgage, thought I'd better check stamp duty, upon doing so both me and my Mrs just laughed uncontrollably. I'd rather stay here and buy my son a house.

 

[Terry - Somerset]

Moving house is expensive - I have tried to do it as infrequently as possible. For a (say) £600k property:

• stamp duty £20k
• legal fees £2k
• estate agents fees (say 1.5%) £9k
• removal costs £2k
• survey costs £1k
• total (all a bit of a guess) £30-40k

On top of this are costs often inescapable with a move. New curtains, flooring, kitchens, bathrooms, gardens, etc etc. Even if moving to something entirely habitable, albeit somewhat "lived in" a spend of £20-50k is entirely plausible (eg: basic bathroom £8k, kitchen £15k, flooring £5k, curtains £2k, decorating £8k etc etc).

No wonder it is better to stay where you are and help the kids to buy their own!

 

[rwillett]

I brought my first flat in 1987 at the height of that boom. I sold it in 95 at the bottom of the market but brought a house at the bottom so worked out well. Sold the house for 4x what I paid for it in 2012, brought a house in Greenwich and sold that for double what we paid. I now live mortgage free in North Yorkshire. We also have a flat we rent out in London.

I have been saying for 30 years that property is way over priced and for 30 years the market has consistently told me I'm wrong. Nothing about the property market actually makes sense. The valuations to salaries are way out, forget Russian Oligarchs skewing the market, interest rates are low but no matter what interest rates go to and I recall Black Tuesday in the 90's, there is a slight easement for a short period of time and it then goes up again.

This seems to be auk phenomenon, the US has had significant issues. Zillow has just pulled out of their house flipping business after losing billions. I can only laugh at their arrogance of assuming IT would be their differentiator.

The Europeans have a significantly stronger rental market and the mindset there is very different.

No uk govt can afford to create a housing market depression to correct over priced stock, so they ride the tiger and pray they stay in the back.

Rib

 

[D_W]

I cant see the bubble not popping soon.

I think this continues on because banks don't hold their mortgages for the most part. They're originated and then packaged and sold as securitized debt. If nothing fraudulent is listed in the info packages, then there's no recourse, but the same hesitance doesn't happen with origination because the loan agents know they won't be considering what will happen with the loan if rates go up or defaults start and the 800k houses drop to 550k.

In the US, you can own a home and afford it but most people choose, let's say, if they have $100K of income that they should match that to a $400k house with two newer cars and two vacations a year. I don't really follow that and live in half the house with no mortgage (none since my thirties) and intentionally buy cars cash so I can feel the full pain of what it costs to buy them - it stings a lot more to see the assets go if they go at once.

But if I am thinking with the same kind of notion that I have and I originate loans, if I only need to follow rules and hold the loan for two months before wrapping it in a security offering and offloading it while keeping some margin from it, the thought process is miles different. If you operate under the principles of an old community owned farm bank, where the lenders and bank owners and debt holders, etc, are all in the same community, lots more caution is employed.

I was relatively positive about the situation until the last two years or so as nobody wanted to borrow money at the corporate level (so rates stay low) and I"ve always been astonished at peoples' tolerance to buy a new expensive house mid life and not consider how it limits their options in the future, but there wasn't such an equity threat as there is now in loans. As 5, 10 or 20% equity loans are issued and house prices have risen in some places as much as 40% in the last two years, it doesn't take much to figure out that a small change in rates and the job situation can lead to houses being under water on the loans. Once they are, some default leads to further lowering of the prices, adjustments in loan standards ( which exacerbates it even further) and we're looking at a situation like 2008 in the US.....only 13 years later, but with a slightly different cause.

At any rate, I have to think if the banks held the debt indefinitely, even if in a sister company that serviced loans (as I"m sure they could make the case that they're "too profitable to bother with servicing loans" administratively), the money would be lent so easily with such a low equity stanard.

 

[heimlaga]

Just an idea:
What would happen if you buy the piece of land now and extend the house later? Construction materials are at an all time high all while there is quite a bit of uncertainty concerning future interest rates and property values.
Land must be bought when it is for sale but in a few years from now things will have stabilized so that you either can extend the house without worries or be happy that you did not extend it.

 

[baldkev]

Just an idea:
What would happen if you buy the piece of land now and extend the house later? Construction materials are at an all time high all while there is quite a bit of uncertainty concerning future interest rates and property values.
Land must be bought when it is for sale but in a few years from now things will have stabilized so that you either can extend the house without worries or be happy that you did not extend it.

Its never straightford currently the housing association are delaying, so hopefully it'll happen.....
But as for the extension etc, we currently have a 2 bedroom house, and 2 boys, so they share a room. The house is fairly small ( the usual modern housing estate ) and they could do with their own space...... but then the complication! My mrs is pregnant with another child, so we eventually will need 4 rooms.
By the time we buy the land, get planning and actually build my mrs will be ripping her hair out. We cant move because prices have rocketed and whilst our house price has risen, the jump to a bigger house has increased significantly. Plus, if we end up with a 4 bed for an extra 100k we will have added a lot of equity.

Yep, prices are high, im a carpenter, so i see it every time i buy materials, but its still the cheapest option.