Mark Carney Brexit house price warning

[BlueKittens]

Is now a really bad time to sell/buy a house?

We’ve recently put our house on the market to move to a larger house in the same area. Basically because I’m unexpectedly pregnant with our second child. We could hang on in our current home but we’d be a bit squashed because DH works from home. We have seen a great property nearby which we’d need to take out a slightly bigger mortgage to buy (but we have good LTV). We live in one of the fastest moving housing markets in the country (comparatively- it feels quite slow recently!). House prices are high. House has been on over a week and have had 9 viewings. No offers yet but have second viewings booked in.

Thoughts please! I don’t mind if the comments are directly related to our situation or just general chit chat around Brexit and house prices.

@10degreestostarboard I think Carney is talking about a gradual 35% fall over a few years. In any case, everything in economics works in cycles. People are naive to think economic cycles do not exist, and the housing market is a one way street that always goes up.

Thing is, the housing market is on an upward trajectory over time and always has been - prices have recovered in the NW since the crash ten years ago and are higher than they were pre-crash.

Maybe it is time to have a bit of a breather from that upward trajectory. It wouldn't be the first one, they are pretty regular.

I think it could risk future peace if we do not end up in close ties with Europe (I hope we do whatever happens). I’m talking about geopolitics and what choices we make in terms of allies (which is closely related to our need to trade). Economy and politics/ war are all interrelated. The EU was born out of the Second World War. Ever closer economic and political union has been very successful at keeping the peace in Europe. I believe the U.K. leaving could potentially start to unravel all of that progress made. It’s not so far fetched that there could be future conflicts over resources in the Western world.

I doubt it will have any effect on house prices tbh. They are still rising in most areas. Interest rates are very low. If there was a price crash it would mean less housing availability IMO as people in negative equity wouldn't move and that wouldn't leave anything for the FTB to buy.

I really wouldn't advise any FTB to hang on in the hope of a price crash!

Fairly risk averse here.

We have a relatively modest house in comparison to what we could afford with our current salaries and are saving a lot each month with a view to extending it.

We're in a lucky position that if interest rates were to rise to 5/6% we could afford to cover this from our salaries once our current fixed rate ends, but we have about 75% LTV which means a change like that could wipe out any equity we have in there and we might not be offered a new mortgage so would be stuck on a variable rate (which is probably about 4% over the BOE base, I can't remember).

Obviously we could use our savings to reduce the amount we wanted to borrow and forego any extension for a while but not everyone is in that sort of position.

PP's are correct in saying that it is a worst case scenario but if it does happen, a lot of people will be in trouble.

Re buying now, if I planned to live there for a long time (not just try to turn it around in a couple of years to make a profit) personally would do some stress tests to make sure I could afford an increase in interest rates, maybe fix for a longer period of time to ensure I knew what I would be paying for X number of years at least and if it was all good, I would still go ahead and buy.

Anytical I don’t think 35% over 3 years is gradual though. I hear what you’re saying and don’t disagree with you completely, however, that is a seismic shift not a gradual decline. The economic ramifications will be huge and widespread affecting FTBs too. The only people who will be winners are the cash rich who’ll be able to buy up properties cheaply and rent them out to families who can’t buy/ have been repossessed. Shops, restaurants, bars would close as people would stop spending. Rhe whole supply chain and jobs in the service sector would be affected too. It would be a disaster.

sassistude House prices have dropped- EAs in the last few months are reporting big discounts on asking prices of 10%+ in places like London. Lots of houses on rightmove in my area which would have sold like hot cakes in 2015 are sitting around for ages before being discounted not once but twice.

There are some areas bucking the trend (Manchester Glasgow so I’ve heard). But it’s a very price sensitive market in the South right now.

@BlueKittens I think you're taking quite a catastrophic view of things. Carney is talking about a worse case scenario, and there are always lots of reasons at any one time why the global economy could blow up in a worse case scenario.

In the current economic climate Chick an economic crisis is reasonably likely.

@cloudtree The economy is doing fine. Unemployment is at record lows and the stock market is at record highs. The future is always unknown and unknowable.

this is just a random scare tactic, theres no way that house prices will drop this much. The demand is still there and its all about supply and demand

Yep that’s very true- this is a worst case scenario analytical

I’ve done my stress testing and we could comfortably afford our current mortgage at a 8% interest rate. But at the higher level of borrowing, an 8% interest rate would leave us with less than £1k a month. With our childcare commitments it would be tight (so no luxuries like holidays) but we wouldn’t be on the breadline.

I think what we would plan to do is overpay while interest rates are low. We haven’t been able to do that up until now due for financial reasons (ft childcare, mat leave) but we’re in a good position now as our outgoings are low and my new job has amazing mat leave pay.

Any more thoughts on our situation welcome please!

daddy2kids you really think the job market will remain stable!? There's some very optimistic people on this thread! Companies are already talking about pulling out of the U.K. and reducing investment here.

@cloudtree The economy is doing fine. Unemployment is at record lows and the stock market is at record highs. The future is always unknown and unknowable.

Ah... a leaver and a first time buyer.

You're right. Everything is perfect right now and we are all going to live happily ever after. You'll be able to buy a lovely rose covered cottage soon for less than £25k with a paddock at the back to keep your unicorn in.

If you can afford at 8% OP I think you'll be fine.

Daddy2kids it’s not just about supply and demand though- it’s also about access to finance. It’s so difficult to get a mortgage these days. If you haven’t applied for a mortgage in the last few years, you’d be surprised how strict (and stingy) lenders are these days. You have to jump through a lot of hoops. Not saying this is necessarily bad, but it does suppress demand. Also the buy to let market is collapsing due to tax changes (again not necessarily a bad thing but having a huge impact on demand).

I don't understand why 35% over 3 years is seen as catastrophic scaremongering otoh while perpetual 10% increases per year in London despite falling real wages are seen as the norm. (overinflated prices in London and the SE are so much out of kilter with everywhere else that they skew all the other figures).

Glasgow may be experiencing a modest upturn of about 5% this year but that is on the back of 10 years of zero inflation and there is evidence that it is starting to run out of steam, especially at the top end. Edinburgh is a law unto itself and is picking up the specualtive slack where London and Bristol left off.

I tend to have a sunny disposition and look for the bright side of any possible scenario. That's just me. Other people may be more focused on any potential doom and gloom side, rather than the upside. I don't think having a doom and gloom focus would be good for my health!

cloudtree at the unicorn comment 🦄I’ve also heard people say FTB are as rare as unicorn poo!! I definitely agree with this as our house is the sort that’s right for FTBs but we’ve mainly had people moving to area or downsizing look round

Thanks cloudtree I think we would be just about ok at 8% but obviously that relies on jobs ... if we never took risks we’d still be living in private rented and be much worse off, so it’s all relative

What is interesting is that the BoE has a stated trajectory of upward interest rates. There has been an assumption till now that in the face of a bad Brexit they would reverse this policy to support the economy. Carney's comments yesterday echoed my assumption, in a previous thread somewhere, that actually interest rates would have to rise even in this scenario to prevent importing an inflation spiral.

In summary, interest rates are headed up regardless.

@howabout That's true. A 35% move upwards over 3 years is considered fine by owners, but a 35% downward move is considered catastrophic. There are equal winners and losers form each scenario. Why is it owners always expect to be the winners, at the expense of non-owners?

Yes I agree howabout interest rates have to rise- it’s a basic economic reality- otherwise we risk inflation which would be worse

Bluekittens Ever closer economic and political union has been very successful at keeping the peace in Europe. I believe the U.K. leaving could potentially start to unravel all of that progress made. It’s not so far fetched that there could be future conflicts over resources in the Western world.

No it hasn't actually. What has been very successful at keeping the peace in Europe is NATO, which predates the organisation (the ECSC) from which the EU (as is) eventually emerged. NATO is heavily bankrolled and backed by the USA. FYI many NATO Nations are also EU Member States, so will remain allied to us whether we are in the EU or not.

We may be cutting ties with a supranational organisation; we are not cutting ties with Europe, given we are allied to so many European nations via NATO.