First time buyers won't be the winners out of interest rate rises

[Winterday1991]

I'm seeing a lot of smug comments from would be first time buyers about how they will steal a bargain once all the repossessions start rolling in.

How likely in reality is this? In a downward market banks will start restricting lending, some ftb with big deposits might get lucky and get something for a good price but aibu to think most first time buyers might end up being disappointed?

You're right. High rates and tougher affordability checks will mean less FTB will be able to get mortgages and those that do will be paying huge amounts of interest far out weighing the benefits of lower house prices.

It does feel a bit off to be salivating over people potentially losing their home so they ca. grab a bargain.

First time buyers won’t be winners because they will lose the most in a recession.

House price drops don’t happen in isolation. The reason for high house prices in this country is because we don’t have enough houses. The only way to truly benefit FTB is to build millions more houses. Any other way of making housing keep affordable comes with the unavoidable destruction of the economy. Cheaper houses during a recession don’t even begin to make up for the misery caused by job losses.

Be careful what you wish for.

Well it’s about the only hope we’ve got. Things are impossibly hard. We aren’t buying right now despite having our deposit because the interest rates are astronomical. We would be paying at least £600 a month more on repayments for a house the same size as the one we rent. We honestly may as well try to stay here until we can buy a home that will suit us for a longer time. Moving costs and negative equity on top of high interest rates mean it’s literally pointless stretching ourselves right now to be house poor, right before we want to start a family.

Exactly

You are hoping that people lose their homes so you can get a bargain?

Not hoping people ‘lose’ their homes but prices falling might mean people sell, move to a cheaper area.

There's never a good market for FTBs unless they're cash buyers (or have a huge deposit) in my opinion. Not in my living memory at least.

The only winners are cash buyers with nothing to sell.

Same with the 2008 credit crunch - despite not having the aggravating factor of high interest rates - house prices fell but it was harder to get a mortgage.

Move to where, and live in which houses? The ones that have been re possessed?

Unless there is a magic supply of several million newly built houses coming along at the same time, what you want can only happen alongside mass unemployment and repossessions.

We aren’t buying right now despite having our deposit because the interest rates are astronomical. However the interest rates arent astronomical, they have returned to what was always 'the norm' prior to the first crash years ago. These interest rates aren't going down anytime soon and certainly never down to what we've become accustomed to.

Interest rates are very high given the current high prices. Yes rates used to be 15% decades ago but to match house prices were a lot lower.

Agreed. It will make it harder for them to buy not easier.

but i can also sympathise with them. For so many owning a house just feels impossibly out of reach and like it gets more so each year. I don't actually take any pleasure in house values increasing, despite being a home owner, because it makes it harder and harder for future home owners.

However the interest rates arent astronomical

FFS if I read this one more time on this forum I am going to scream. Interest rates right now are astronomical for 2023 and are not sustainable for the 2023 housing market, a 6% mortgage interest rate today is comparable to a 13% interest rate in the 1980s due to the level of borrowing these days, economies are not static, times have changed. For our market to withstand these interest rates going forward the housing market is going to have to radically change, and that is not something that can happen without catastrophic consequences. Stop telling people these rates are normal, they are not normal.

Exactly!

Banks/lenders are gearing up to try to help.people retain their homes if a recession cones, with options for a period of interest only repayment mortgages etc, repossessions hurt lenders as much as the borrowers.

These bargains that vultures circle for won't come, there's too much demand and not enough supply. If in difficulty you could rent your home out to cover the mortgage.

Plus banks tighten their belts, if you couldn't afford a mortgage before a recession, you certainly couldn't during.

Cash buyers are the only people that will benefit if a drop occurs, and they will more than likely be investors looking to rent out and/or sell for large profits when prices increase.

No point in screaming about it. These interest rates arent going to miraculously return to 2% or lower.

@Ilikewinter I am exasperated by your ignorance, not angry at it, no one is screaming, and no one is saying rates should go below 2% again, that isn't great for the economy either, it's a reflection of our lack of productivity.

FFS if I read this one more time on this forum I am going to scream......as you posted further up the thread.
Im not ignorant about the current financial situation either.

If large-scale re-possessions are looming, then banks will tighten lending criteria. They’ve already tightened up the lending criteria from when we bought 6 years ago. House prices might drop but if you can’t get a mortgage it doesn’t help.

So if a house is worth £200,000 and suffers a 20% drop in price, that house becomes worth £160,000. Now, if 95% mortgages are still around that’s going to work for some FTBs. But if there has been a number of repossessions then banks will be told their lending criteria is too lenient so the 95% mortgage disappears. You now need a 90% mortgage. So when the house was worth £200,000 you could do a £10,000 deposit. The house is significantly cheaper but you now need a £16,000 deposit. This is when people have lost their homes, these people need to live somewhere, so the rental market heats up and rents go higher and higher. People now need to save an extra £6,000 with increasing rents.

Now, some people will be able to save £16,000, maybe even £20,000. So those people will go over asking price on that £160,000 house which now goes at £170,000. People are aware that houses are going for over asking so start to save a bit more so they can offer £180,000 or £190,000 and suddenly we’re back at £200,000 for the same house. Except we don’t get the re-introduction of those 95% mortgage products because banks were too lenient last time and it caused large scale repossessions. This might take a couple of years but the house is back to £200,000 but now you now a £20,000 deposit. It helps a handful of FTBs and screws everyone else over.

We need new houses. We need 2/3 bed starter homes and we need bungalows. But we need to make it attractive for people to move. I’m moving at the minute and there’s no way I want to do this again. I don’t want to deal with the anxiety of having the sale fall through for 4 months. So we need to make the process easier. The English system is shit. We need to make it easier for people to downsize. We need to build bungalows or little flats together and near amenities like the doctors and the local shop. Or if we’re building a new town, we need to add those community services at the beginning.

I think the only "winners" in the current interest rate climate are the people who own their houses outright and have savings in the bank. Which is mostly going to be gen x and older. Younger generations will be disproportionately affected.

This is true, if you’ve paid your mortgage off you are fine

@Ilikewinter ha touché, but I said if I read it ONE more time in my defence....if you understood the situation you wouldn't be bleating on about interest rates from decades ago.