Will house prices fall sufficiently to offset the increase in interest rates

[rosetintedmemories2023]

For most of my adult life (I am 30), people have told me that it would be easier to buy if interest rates were higher as this would depress housing prices. I would then find it easier to upsize and FTB would find it easier to buy property provided they had a decent deposit. The only people who would lose out were investors and downsizers (and downsizers could probably afford to wait).

This doesn't seem to be happening; yes house prices are falling or at best stagnating in many areas. I think it was much easier in 2019 for me personally when we bought a 2 bed flat as there was a slight dip in london flat prices at that time due to brexit (and interest rates were low). I don't envy FTBs today.

Older mumsnetters who have experienced the 1990s house price crash, would love to know your thoughts esp if you bought and sold in London. Thanks.

It’s been “just the start” for 30 years.

I definitely think that things are worse for FTB at the moment.

I bought a house in 2020 and fixed for 5 years. Everyone said that it was a terrible time to buy and that the market was about to crash. That was almost 3 years ago and prices have gone up over 20%.

If I'd waited, I would have paid almost 30k in rent, I'd still be sitting in a rental property waiting for the market to crash, and my rent would be about £400 a month more than my mortgage is now.

Maybe in a year or so, prices will drop enough to offset the increase in interest rates, but there will be pent up demand from a huge backlog of people who have been waiting for prices to drop. All of these people who have been delaying buying won't just disappear, they will find themselves competing for properties with the next generation of buyers.

I don't think that the current situation is comparable to the 90s. We have about 10 million more people in the country now, and I think that the wealth distribution is more unequal. Lots of people have money to buy outright, and those who require mortgages will be disadvantaged.

Don’t be stupid. We all know the housing market goes up AND down in cycles, like any market.

I think we'll see slow falls but no cliff edge unless we have a huge recession with unemployment going up a lot. Don't forget people talk about house prices in nominal terms. If prices are down 3-4 % and inflation is 10%, and wages are up 7%, that means house prices have already fallen quite a bit. My assumption is a slow flat market, where people don't move unless they have to, with small nominal falls. Banks are trying not to repossess. And lots of people don't have mortgages. Wherever interest rates end up at the peak they won't stay there. Probably won't get as cheap as they have been so we might see a more sane market overall.

i really need to come off these boards. there are several distinct camps in the property/diy board and it makes me laugh as basically all threads are the same…

camp 1) I purchased in the 80’s/90’s and rates were much higher and we lived - Read this

camp 2) the crashies who are gleefully rubbing their hands at a potential implosion of house prices. Some because they want to get onto the market and others who are just bitter for some reason or other forgetting if rates go up even if prices come down affordability checks will be so much tighter and landlords will just push up rents to cover the higher mortgages eating into savings more.

Camp 3) i fixed at 1.01% for 10 years aren't i amazing.

camp 4) its a falling market, offer xx% less than advertised basically trying to be camp 2 and force a crash

to answer the question though, i think prices will stagnate, not really ever ‘crash’. Laws have changed and banks have to work with people struggling now so mass repossessions wont be happening, people who ‘fancy a move’ wont move so less properties on the market, and not as many people are affected by the interest rates as it seems in the grand scheme of things if you look at the uk as a whole.
Yeah rates ARE shit, cost of living IS shit, people ARE struggling and people are worried. I have made changes to my lifestyle to save some money where I can and i think everyone is. How many people are still eating avocado on toast and have Netflix though so cant buy that house they want (thats a joke).

The main driver for house prices is the supply and the demand.

The UK population is growing, at around 1-1.5% Per annum, and the number of houses isn't growing at the same rate.

Interest rates, cost of living and economy will have some influence on the confidence and therefore prices, but history over the last ten years shows how robust the market is. (Brexit, Covid, war)

So to answer OPs question, No.

I don't think interest rates alone will cause a big crash, we would need higher unemployment and mortgage lenders refusing to help people in trouble.

I do think sone recent FTB (possible including me) may have to extend their mortgage term when their fixed rate ends and some people will need to pay interest only for a while.

You forgot camp 5) which you are clearly a member of. “Everything will be just fine”.

@kidcrazy but it will. If you want to sell, sell. If you want to buy, buy. Everyone has access to the same information and in the end if you cant do anything then everything will be just fine wont it.

https://www.bbc.co.uk/news/business-66133116
Relavant article on BBC this morning

Not sure if this is relevant as I'm overseas in sydney.

Rates have risen from .25 to 4.10.

House prices have simply not been impacted where I live.

And the difference is that over here 70-80% of homeowners are on a variable rate meaning the increases have impacted immediately, there isn't a huge number of fixed rates waiting to end.

As someone who has been trying to buy my own home for a year and been studying the market and waiting for the fall I can tell you it's not happening.

If your mortgage rates from 1% to 6% and you’ve been stress tested at 4% you might not be fine… as for house prices they are set at the margin. If a buyers debt capacity is reduced by 30% then guess what… prices have to come down.

Have a look under the money section of mumsnet. There’s a thread there about people’s mortgages resetting. Every thing isn’t just fine…

@kidcrazy sorry I didn't mean to say everything is fine, what I'm saying is that every month for 13 months the RBA have increased interest rates, and 70-80% of homeowners have had their monthly payments increase, there's been no insulation of fixed rates here like in the uk where fixed for five years is pretty typical.

Believe me, as a single parent I've been desperately hoping for a dive in house prices, but it really hasn't materialised.

What has happened, is rents have gone up, less property for sale (as people don't want to sell in a potentially falling market, or can't afford to upsize) and it's propped up property prices.

To be fair im looking at the bottom end of the market (1.1m for a 2 bed apt) so everyone who's borrowing capacity has decreased has just moved down a bit. Maybe the middle market is different.

For most of my adult life (I am 30), people have told me that it would be easier to buy if interest rates were higher as this would depress housing prices.

Higher interest rates will DEPRESS the housing MARKET, meaning fewer houses available for sale, fewer transactions. because lenders will get far fussier about how much they lend, and who they lend it to.

Anybody who owns outright, or has almost paid off their mortgage, or is on a long fixed rate, is secure; so they are going to sit tight and wait .

So FTB's are going to suffer.

wutheringkites · Yesterday 15:24
I think it's hard to say what will happen with BTL but I don't think we'll see the mass sales that many assume. In most cases, they will just pass on the increased mortgage costs to the tenant.

Exactly.  And they'll find plenty of tenants who have some capital savings to pay the rent increase;  wannabee FTB's with a deposit saved up,

Seeing as FTBs make up the bulk of the market, this is why prices will fall

My other house is on consent to let, not buy to let. If I thought there was any danger that I was gonna lose that house, I would just lie to the bank and say it was my main residence. And then they would work with me. I realise that plan is flawed if I owned multiple properties, but like many many people, I don’t, I own one.

The measures that banks have recently agreed with the the government such as offering an increased mortgage term, temporary switch to Interest Only, etc do not apply to BTL mortgages

Older mumsnetters who have experienced the 1990s house price crash, would love to know your thoughts esp if you bought and sold in London.

No London experience but recall some of what happened in the early 90s, I think the situation was a bit different to today so not sure how comparable it it. House prices rose very rapidly in the 2nd half of the 80s (houses doubled in price where we live over 3-4 years.) So people were buying when prices were ridiculously high. Then interest rates rocketed (we bought when the interest rate was just under 9%. By the end of that year it was 13% and continued to rise over the next year or so, got up to almost 15% at one point) So people had stretched themselves massively to buy, then got hit with huge interest rate increases, and could no longer afford their mortgages - although we were in recession too so some people who might have been ok with the costs lost jobs etc. House prices started to drop, so a lot of people forced to sell were in negative equity ie they lost money on their property. It was an awful time, as i know it is for people wanting to buy now, especially FTB, but i think it's a slightly different situation? But i'm no economic expert, happy to be told that it is similar.

Ftb being unable to buy due to lack of property on the market won't cause prices to fall. Prices will start to fall if people are forced to sell ie repossessions increase 10fold, unemployment massively increasing. Last year it was stated house prices would drop by 10% by now but it hasn't happened. I just don't think we'll get the massive drops unless something else happens to cause it. Things are tough but most people will tighten their belts and fight through.

In my city houses are still being marketed for unrealistic prices and then being repeatedly reduced. There is also alot more without a chain due to probate or people splitting up. We are a university city and landlords are dumping their stock.

Eventually I think there will be a crash and interest rates will stabilise.

Yes, prices will come down eventually.

We have been looking for a new home on and off for the last 2 years. Long story short our house sale fell through 3 times with different buyers as all of them needed a mortgage and they panicked with interest rises. We don't have a mortgage and have a healthy budget for our next home but we can't see house prices falling. They have stagnated in some areas as we are looking at the lakes, Devon and Cornwall. But there's still demand and I can't see interest rates rising much more.