To think the amount available to borrow for a home is going to be slashed?

[SwanBuster]

At a fixed rate of 1.5% for five years, a 250k mortgage offer would mean paying back £1000 per month.

Let’s say that’s what a given family might be able to afford as monthly repayments. These were readily available until recently.

It looks like fixed rates are going up fast … if they hit 5% then for the same ‘affordable’ £1000 p/m payment would mean they can borrow a maximum of £171k.

And if affordability drops further because of other expenses (let’s say they can now only afford 900 p/m because of rises in other bills), then that drops even further to about 155k.

what do you think the impact will be? AIBU to think this is going to hit the housing market quite hard?

What do you want us to do about it @MsPincher? As you just pointed out it’s pure luck, nobody chooses when they’re born It didn’t feel very lucky when we were paying 30% tax and our mortgages were 15% and lots of us were having our houses repossessed. And when we die our Gen X and millennial kids will be the lucky ones because, care homes permitting, a tsunami of money’s coming their way.

Surely they won't be able to pay what they don't own, so to speak? If part of the value of their home has gone, their ability to pay will be based only on what they still have ?

Interesting. Near me Leyton springs to mind. Walthamstow village feels more established but who knows.

To be fair, that 15% mortgage rate was an absolute gift. I remember it well. Pay rises were keeping up with it, house prices were low multiples of salary. Some could still afford to make overpayments and the principal got paid down very fast. My parents paid off a house in 7 years and my dad was the sole, and an average earner.

I would much rather pay 15% on a 50k mortgage than 3% on 300k. It’s just maths - you can pay down the entire mortgage very quickly in that situation.

According to whichever minister they sent to be interviewed by radio 4 yesterday those in a position to command better pay rises for themselves shouldn’t do so otherwise there will be an impact on those who do not have the power to negotiate. It’s their responsibility apparently to make sure the prices don’t inflate out of the hands of the poor.
So not sure the high wage economy is what they’re going for after all, does Rather sound like they haven’t got a bloody clue.

That’s Bailey (the Governor of the Bank of England) himself who has been saying that 🤦‍♀️🤷🏻‍♀️

It’s a quite incredible statement - even if you take it as face value, where is the cut off where people “shouldn’t ask” for a cost of living rise?

is it people earning above 60k? 100k? 250k? 600k, like him?

As you say, and we do agree on this - they don’t have a clue what to do.

money.yahoo.com/bank-of-england-bailey-pay-rise-inflation-090009819.html

Honestly though - I suspect that we are not going to see rampant pay rises any time soon. Plenty of companies cannot afford it because it’s a really vicious spiral that we are potentially in - people are cutting discretionary spending hard, because their entire income is being spent on essentials. And plenty of employees are services / goods that are indeed ‘non-essential’.

That is going to have a massive effect on company earnings.

that should have said ‘employers are producing goods/services that are ‘non essential’.

frankly - I think the illusory equity in UK housing disappearing is probably going to be the least of most people’s worries.

I can recall the horror when there seemed to be a significant rate rise every couple of months in the late 80s/early 90s. And the scale of repossessions was breathtaking. Friends were trapped in negative equity for years, and I knew several who had homes repossessed or were forced to sell and were left with nothing.

I think prices will fall, but I think it will be a slow slide rather than the massive crash that happened at the end of the 1980s, when the value of my first house fell by nearly 40% over 3 years. So many people are on fixed rate deals now, that not everyone will be affected at once, it will be more gradual.

ok - but the problem is we are heading into - or in - a stagflationary scenario.

There is no easy way out of this. It is either

• a monetary policy solution of whacking up rates - lots of short/medium term pain for many people , but an eventual return to normalised levels of inflation and proper growth.

• hyper inflation caused by the reverse - an inexorable spiral of wage growth and price growth as they try and stimulate the economy through money printing. Which always ends in disaster.

• a grind down in living standards for everyone to a level of subsistence living as more and more companies selling non essential goods and services slide into bankruptcy. A Great Depression.

unfortunately there is no easy way out.

I think the government’s preferred option is for some degree of inflation that will reduce the real value of the enormous debt it’s incurred as a result of Covid. If that’s the case I absolutely want to be sat on an enormous asset (ie a house) that is a hedge against inflation.

There are huge swathes of the South East, and many other areas of the country, where £1 million + houses are not unusual, and I think something like 1/3 of property purchases are to cash buyers. The gradual dying off of the baby boomers should see some significant wealth transfer to the younger generation, which means I think enough people will be okay, and it will be a (sizeable) minority, who are already struggling who will be yet again shafted.

The government and the central bank are two different entities. The government manages fiscal policy. But ‘some degree’ of inflation - that level is left to the BOE to manage. 13% embedded inflation requires tough monetary policy ….

Absolutely you could be right about the house being an inflationary hedge - it certainly has been an excellent hedge in a low interest rate, loose monetary policy environment.

The question is what course of action the Federal reserve is going to take now. Is Jerome Powell a Paul Volcker? If so, is Andrew Bailey - our BoE chair going to match, or is he not?

If he doesn’t, the £ gets wrecked and we have even higher inflation in recession environment. The feds actions and our inaction could easily cause a depression.

I don’t think it’s nearly as clear cut what asset prices are going to do as people think.

I agree but the issue is if supply is low and I think we will see housing projects stall, the bottom end won’t be moving at all. I foresee a stagnation rather than a crash.

I don't think it is going to hit the housing market quite hard. Individuals may not be able to borrow and be badly affected, some people not yet able to get on the housing ladder, but demand will still be high and for many home ownership out of reach.

House inflation last report I saw was 11% a year, it is unlikely to be negative except perhaps in some less desirable areas.

Demand can be as high as it likes. But when financing conditions change, it doesn’t matter. The limit to what the marginal buyer can borrow determines the price.

Potentially. Except as previously mentioned, the 3 Ds guarantee some degree of liquidity.

Unfortunately the generation wealth transfer isn’t as simple as that, as people live older the main beneficiaries are their children who are almost at retirement age themselves. Which doesn’t help the generation that actually need it.

Take a view of this

the generation thats work pay the tax revenue, which covers for pensions etc today, with the cost of living and everything else wealth transfer is moving away from families and into landlords and institution investor landlords. These are the people that need the support however costs are driving the younger generations out of the main cities, and the age of inheritance being so old now means that people cannot rely on that at a point in their life they need it

Not everybody needs a mortgage

Well they keep voting Tory so they must be fine with it?

Or they are quite simply too thick to comprehend they are a bunch of turkeys voting for Christmas. Far more likely in my experience.

True - but there are two types of people who don’t need a mortgage.

The non price conscious - so rich they don’t care. They will be in the market for the best of the best. That isn’t a 3 bed semi, generally .

the wealthy but very price conscious : they will recognise they are in the position of power if the market does indeed stagnate due to credit availability. I don’t think they will be rushing to pay over the odds if there is no competition on the buy side because very few others can finance the purchase.

in stagnating conditions to forced sellers, the marginal cash buyer only needs to outbid the person who can finance the highest rate. If financing is slashed, the level the cash buyer needs to pay drops too 🤷🏻‍♀️ We saw this in the nineties and in 2008.

The simple fact is despite the government and central banks fuelling this mess, we have to make a hard choice as a society. Is it their job to now shield people from the collective bad decision making, by protecting asset prices at all costs? Is that the ‘right thing to do?’

because the cost will likely be generations of disenfranchisement on an even greater scale than we’ve already seen 🤷🏻‍♀️

Well if past performance is anything to go on as a future indicator they will protect the assets at all costs. Boris has already alluded to paying the unemployeds mortgages as itll be cheaper than paying their rent indefinitely. If the Conservatives want to remain in power they need to keep the aspirational voter on side.

Good god. If you can’t see any problem with that type of fiscal behaviour then We have no hope. .

What then is the difference between an ‘aspirational voter’ and a renter family working minimum wage who needs benefits to top up their income because corporations don’t pay genuine living wages?

An asset?!

’Just give me some time to get another role suitable for my talents - I have aspirations. Take the money from those who earn minimum wage- they are draining society’

In 1998 a five year fixed was at about 7%. That would kill people today with house prices what they are. Back than you could get a house for 50k.