House prices and recession

[Mumof22020]

Whats everyones thoughts on house prices are they likely to come down in price if theres a recession? The prices are crazy at the moment and with the cost of living going through the roof we're surely going to hit a recession.

After 5 years there is also a chance you might be in a better loan to value % which means you can usually get better interest rates. Alot of lenders have mortgage calculators where you can play about with different figures.

about to exchange on our first home - SERIOUSLY hoping prices don't drop too much...
We're buying well within our income thankfully, but house needs a lot of work (£15k of which is needed this year).
Thankfully we can stay there 10 years if the market drops - but would prefer to be there 5, and then buy in a nicer area.

There's only 10 more houses that are within budget / requirements on the market since we had offer accepted.

It's not a great time to be buying - but it beats renting, where the rent is about 25% higher than our mortage.

Even if interest rates go up to 2% by the start of 2023, it's historically exceptionally low. Google interest rates over the last 40 years - look at a graph. Rates were waaaaay above this until about a decade ago

@65honeybee

Even if interest rates go up to 2% by the start of 2023, it's historically exceptionally low. Google interest rates over the last 40 years - look at a graph. Rates were waaaaay above this until about a decade ago

The capital was a lot lower though.

Many buyers have really over stretched themselves in recent years

^I'm not sure that this is true. The 2008 crash happened because of irresponsible lending. Since then, lending criteria have been tightened significantly in order to prevent a repeat of the 2008 crash. Banks simply do not allow people to 'over stretch' themselves these days. I remember when I took my mortgage out, the mortgage advisor told me what my payments would be if interest rates reached 10%. It wouldn't be fun, but I would still be able to pay the mortgage.^

^The last thing that banks want is to repossess houses, as they lose in a falling market.^

Back in December there was an article back in the Times re; my point about people over stretching themselves and taking on mammoth mortgages. We know many people that have done this in order to climb the property ladder.

www.thetimes.co.uk/article/welcome-to-the-age-of-the-mammoth-mortgage-3cswkk9zb

Surely most people taking out a huge mortgage within the last year would have got a fixed deal. Certainly everyone I know who's started a mortgage or remortgaged has got a fixed deal because it was common knowledge that rates would rise; they've been at a historic low for so long, it's only going to go in one direction! Sadly there will inevitably be some people who have overstretched (though this is far more exceptional than in the past because as pp have pointed out, there are much greater controls on lending now.

The govt will do everything within its power to avoid a crash; it would be disastrous economically. I'm hoping we see a slow down in the rise in house prices and maybe a levelling off but that's in no way the same as a drop. prices have risen so dramatically over recent years, particularly in desirable areas and with the general move towards remote and more flexible working. Also there's such a housing shortage, no doubt it would take quite a while for it to get back to being a buyers market

Isn't there the problem though of what the rates look like once the fix ends?

I know lots of people who stretched themselves to move up the ladder.

@65honeybee - yes you’re right, most people probably did take out a fixed deal (maybe around 1-2%) with those large mortgages. But the problems will arise when these fixed deals come to an end and they start looking to remortgage with interest rates at 4-5% and upwards.

@lightscribe
@BambinaJAS
@LizDoingTheCanCan
@ Ozanj

Please could you help me understand how the cost-push inflation we are experiencing is quelled by raising interest rates? How will it lower the price of raw materials and energy without causing recession? As far as I can see wage inflation is way below actual RPI and people are pulling in their belts, in fear of further energy and food inflation. How does raising interest rates help?
And would you fix your mortgage for 10 or 15 years, if you were intending to stay in your home for a long time?

[quote Henlie]@65honeybee - yes you’re right, most people probably did take out a fixed deal (maybe around 1-2%) with those large mortgages. But the problems will arise when these fixed deals come to an end and they start looking to remortgage with interest rates at 4-5% and upwards.[/quote]
If the are FTB and have taken 5 year fixed deals then they have likely calculated in 5 years that:

1. their LTV will be better, and,
2. they would have progressed in their jobs/careers so be earning more.

Well yes, obviously if the base rate goes up to 2 or 3 % over the next 18 months/ 2 years or so, then people who have only fixed for a couple of years will get stung.

But the thread is talking about house prices falling and to be honest that would take a long while to come through, and I would predict a slow down and levelling off, not a crash which the govt will do everything to avoid because of the disastrous consequences economically.

This type of thread often pops up and the problem is, a few posters seem to almost recommend would-be buyers should sit tight and wait for a time that it's going to be 'better' to buy. My grown up kids would jump at the chance to buy right now- it's not going to get easier and tbh with the housing shortage it seems likely to be a sellers' market for the foreseeable.

Precisely. I worked out what the interest elements of my mortgage would be and I also calculated what interest I would gain on keeping my deposit money in an ISA and actually I would be better off renting and I could probably get a nicer house by renting versus what I can afford to buy however there’s so many other emotional elements. it’s nice to see in the numbers coming down on a mortgage every month as to what you actually owe. I printed it out I’ve got it in front of me at work on my desk reminding me why I do this shit every day, one step closer to retirement and be mortgage free. And that’s why I suspect the powers that be don’t particularly want that scenario for everyone that’s why they keep the rollercoaster rolling.

This type of thread often pops up and the problem is, a few posters seem to almost recommend would-be buyers should sit tight and wait for a time that it's going to be 'better' to buy.

Those people forget if the economy crashes to reduce house prices by that much then most people won't have a job and other assets/investments will be worth a lot less, so they won't be in a position to buy.

(Not in the UK) I fixed for 20 years last year and I'm very happy with that decision.

@RedWingBoots exactly, it's odd that some people rub their hands together with glee at the thought of a crash and what that would mean for the U.K.

their LTV will be better, and,2. they would have progressed in their jobs/careers so be earning more.

See the earnings one I'm not sure about, wages are falling anyway & most people who buy are already older. Plus if having dc potentially no income growth due to reduced hours/childcare costs. Or just the impact of general living costs.

LTV would depend on value of house & deposit size & as you pay off interest initially you could potentially be in negative equity. I think it's unlikely though.

Those people forget if the economy crashes to reduce house prices by that much then most people won't have a job and other assets/investments will be worth a lot less, so they won't be in a position to buy.

Historically that was true but it's so prohibitive to buy now that most people who do buy are in strong positions eg good salaries, help from parents, big deposits etc. My sister sold her flat to parents buying it outright for their dc (600k).
I don't foresee a massive crash though.

@RedWingBoots yes the LTV is of course very significant. In the past when banks lent 100% (or higher!) for mortgages, it didn't take much for people to be up shit creek. Now that people are having to put down often quite hefty deposits of 15% or so, there's a much greater buffer and it would take a big drop for people to be in that horror of negative equity.

@CuteOrangeElephant most people I know (in the U.K.) who remortgaged or started a mortgage in the last couple of years (if they have a hefty mortgage) have gone for long term fixed rates: at least 5 or often 10 years. Everyone knew interest rates could only go one way! The only people I know who're comfortable with variable are those with only a small loan left who are in a position to take more risk.

exactly, it's odd that some people rub their hands together with glee at the thought of a crash and what that would mean for the U.K.

Many people rub their hands with glee at how much equity they have gained though & look at what's that done to the economy. I made 200k in 2 yrs on my first property, its stupid. Plus ever increasing prices make it harder to move up the ladder.

95% mortgages did come back for a bit didn't they? Crazy, I would never take one but some people likely don't have a choice if paying high rents.

I fixed for 20 years last year and I'm very happy with that decision.

Can I ask what rate you got & if there's a charge to get out early?

@beddygu

95% mortgages did come back for a bit didn't they? Crazy, I would never take one but some people likely don't have a choice if paying high rents.

95% mortgage is on a problem for your first time buyer if you’re still on 95% when you’ve moved twice then it’s an issue but don’t forget they were 110% mortgages at one point. I know people who were paying around the 6% mark of interest and so they added on a new car purchase a new furniture at the same time.

We sold last yr & haven't bought yet (with family). We are now not going to borrow anymore & go for smaller/cheaper because I'm scared of what things will look like in 5 yrs plus I don't want to eat up too much income with all the rising bills.

@beddygu

I fixed for 20 years last year and I'm very happy with that decision.

Can I ask what rate you got & if there's a charge to get out early?

I'll stress again that I'm not in the UK. I am paying 1.35% on a 102% mortgage which you just can't get in the UK. I can't get out of it early but I can move the mortgage to a new home.