Interest rates going up on Thursday?

[FabulousSophie]

The financial markets are 90% certain the Bank of England will finally pull the trigger on its long expected rising cycle in interest rates. If so, will this affect sentiment in an already stagnant property market?

I read an article the other day which stated that for every 1% rise in rates house prices would fall 10% due to affordability... can't seem to find it again... made sense when I read it though.
It will be 0.25% at most so presumably a 2.5% drop in values?

That's interesting Alexalee. I read yesterday that their aim is to raise interest rates by 2% over the next couple of years, which they assess would take them to a 'neutral' level.

Tbh they have been saying that for about 5 years... always find an excuse not to raise them though.
Can't see rates ever getting near the historical average of around 5%.
I think a 20% fall in house prices in the south east over the next 2 years would bring them back to fair value

There are all sorts of tiggers which affect house prices and the mortgage rate/lending rate is only one of them. Wage rises, or wage reduction, uncertainty in the economy, scarcity of land and property to buy and pent up demand, or no demand, all affect prices in different ways. Not to mention Brexit. I would have thought they would look at interest rate rises if inflation goes up. If they raise interest rates and Brexit causes higher prices and inflation, it will be the start of many problems for the economy. People will struggle to pay mortgages but the lending policy has been a lot more sensible in recent years so the majority should have some cushion to withstand higher rates. People who have lost a job or had a financial downturn will always struggle to pay in any economic situation.

I think this time the rises are actually going to get going. The financial markets, the banks and the economists are all almost certain of it, and the mood music in the press seems to be settled on it happening. I think the more important thing is how high they will go. I expect another 2% is probably right. So if anyone offers on a house, they should look to negotiate a 20% discount to take an expected 20% fall in price into account.

Good luck with that negotiation

ajandjjmum If a buyer wants to avoid negative equity, they should just avoid sellers who refuse to negotiate on that basis, or they should instead wait a couple of years for prices to come down by that 20%.

That's one way of looking at it.

The other is that you're paying rent anyway. There is no guarantee that prices will reduce by 20% - it may be a couple of percentage points, it may be an increase. In which case a delay could cost you money.

We all have to make our decisions and take the risk - there is no certainty in this, and to react as if it is fact is misleading.

You might be right - but no-one knows.

ajandjjmum That's the risk a buyer takes. If someone buys now, and prices do fall by 20% over the next year or two, they could see their deposit wiped out. But I expect some buyers probably do not mind loosing their deposit, if it means buying the house they want without delay. Another way of looking at it is that there is a good chance a buyer would be able to get a 20% better house for their money by waiting a little longer before buying.

We are looking to fix a mortgage this week. Will this affect it? Thanks

blinkineckmum I would try and fix before Thursday!

What financial markets are certain? Our advisors say probably not....

Any potential rise will already be built in to today’s mortgage rates. If they don’t rise they’ll just keep them built in for the next time

glintandglide The gilts and bond markets.

glintandglide Mortgage providers often withdraw deals when the news comes out.

Yes, there is likely to be a rate rise this week. From what I've read any further rises are likely to be deferred til after brexit. If brexit damages the economy further rate rises are likely to be delayed.

If raising interest rates causes a big drop in house prices this will disincentivise interest rate rises - the aim is for control of inflation, not house price reversals.

eallybadidea I doubt a 20% fall in house prices will worry the Bank of England. It would only take away a bit of the froth in prices of the last few years, which would be welcomed. The Bank apparently wants to get rates up to a 'normal' or 'neutral' level of 2.5%.

Big house price falls would negatively impact the whole economy. Of course it's in the B of E's remit.

reallybadidea i don't think the Bank of England would consider a 20% fall to be anything more than a normal correction, most people would be able to cope with that. After all, the Bank did not mind about the recent 20% price rises, so I doubt it would mind them falling by the same amount.

The bank is bothered about the overall economy and falling house prices would damage it. They've been propping up house prices for the last 15 years; why would they suddenly stop doing this now, especially with huge economic uncertainty around brexit?

I'd like to see house prices correct themselves in the longer term, I just don't think that a sudden crash is in anybody's interests.

House price movements are more closely correlated to employment rates than interest rates. Given the tightness of mortgage lending criteria - high deposit requirements, low salary to loan multiples - it’s unlikely that a 25bps hike will have much impact on the affordability of existing mortgages. Current owners are unlikely to be forced sellers at 25bps, 50bps or even 1% increase. The change in the tax treatment of interest for landlords which comes into effect next year will have a more profound impact.

Carney is an “unreliable boyfriend” - let’s see if rates go up.

“Guilts and bonds” markets aren’t some homogeneous voice with the same view there is plenty of disagreement as to whether rates will rise- as there has been every quarter for 10 years

Carney has said this so often, and nothing happens, so I don't believe a word he says anymore. Personally I wish the rates would go up.

reallybadidea A 20% correction over a couple of years is hardly a crash! A crash would be 30%,40%, 50%. I don't think people should get overly worried about a moderate correction that removes some of the recent froth from the market

Some of the less desirable areas of south east London have doubled in price in the past 5 years.. I can see these falling by more than 20%.