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.

I don't think its going to help. A lot of people can't buy because they don't have a deposit. If you need a 10% deposit, even if a 200K house becomes a 150K house, people still can't magic up a 15K deposit. Especially not in a cost of living crisis with bills the way they are etc. People on benefits can't save that much money and keep their benefits coming in so will never reach that level of deposit.

Only people with the money to buy up the reduced housing stock are the land lords that have no mortgages on their existing properties. Rental market gets even more competitive, even fewer houses up for sale.

To be frank the current interest rates are not high yet, they are still below historical averages and it takes quite some time for rate rises to take effect - which is why they should have raised them sooner and by bigger jumps each meeting.

When the prices do dip, which I believe they will, sadly most of the drop in prices will be nominal and not in real-terms. The pay rises everyone has been getting will ensure that what would have been a 30% drop in £ will only be a 15% drop in £. This will be by the end of 2025 imho.

Quite simply we are returning to a standard of living more like the 1980s where everyone had to put the mortgage first, didn’t drive cars (they got a bus and walked to work) and many young people starting out could only afford to eat baked beans for tea and had second-hand furniture donated by family.

Not everyone is getting pay rises though. At least certainly not in line with inflation. In fact probably people are losing their jobs more and more, when businesses close up which they will more and more

@rosetintedmemories2023

Yes of course if you consistently overpay every month, then the mortgage term doesn't make much difference. However, most people who take out these long mortgages don't have a spare £1250 to overpay every month. Also there is often a limit to how much you can overpay.

Those who don't overpay consistently will end up paying tens of thousands more for their mortgage.

Also, the monthly saving is usually very small, compared to the massive amount of extra interest that the bank will charge.

In my area (South East) the market is already flooded and prices are being cut. We've been on the market since March reduced from £475k to £450k, there are 80 other 3 -bed semis within 3 miles of my house all a similar price - 18 months ago my house would have gone on the market at £500k and sold within a couple of weeks. Still, you know what they say about hindsight ...

But presumably, your three bed semi in Acton is still easy and convenient for travel into Central London. Your commute isn't getting worse. There are still gardens and parks. It is almost certainly true that your next move to a four bed house in Wimbledon may have to be postponed a few years. It's a hiccough, not a life sentence.

I always assumed that people nowadays get a 35 year mortgage. In a way it makes sense, most people won't retire till they are 70 which is ten years than a lot of older people. And I think that's also how affordability at high interest will be paid, by stretching the term for as long as possible.

'What's the difference between having a 25 year term and a ,40 year term but you faithfully overpay £1250 per month (more than your mortgage term). At least if you lose your job, it's a lot easier to pay the smaller amount. Or if you need to pay expensive childcare in the short term'

That would be fine but that's not what most people are doing. That's the problem; they are increasing the term because they can't afford the repayments on a 25 year term. You do know that most people don't have an extra £15,000 of net income free every year right?

Where’s the data for ‘most people’?

everyone I know who has a longer term has done so as an additional safety net and make overpayments as if they were on a shorter term (where it’s appropriate, depending on interest rates).

I'm sure you can google if you want data.
I said most people are not doing what the pp says she is doing because it's pretty obvious that most people don't have 15,000 post tax income free annually. It's also pretty obvious that 30/40 year terms were introduced because 25 year terms have become unaffordable. There have been an awful lot of financial shenanigans to keep the debt pile going.

No idea whether this house is an owner or a lender sale, the online pics show family life, so probably an owner sorting out their lives before someone else takes control. It sold for 12% over asking price ( from doc00.pdf ) about 6/7 years ago, and is up for auction next week with a reserve that is 30% lower than its 2016 price Of course it may spark a bidding war however the point is the owner is prepared to accept a 30% drop from what they had to pay in 2016.

A quick scan of auction houses show that their lots are not entirely made up of dilapidated or thrashed or ex cannabis-farm houses, but look like many landlords and owners calling it a day before their lender makes the call for them. Interest rates will reduce prices provided those who need to sell will price rationally. There will never be demand for houses priced for sellers' circumstances because buyers tend not to throw money to solve a stranger's problems while adding to their own,

Nice that you picked such a typical house 😂

For avoidance of doubt, that house is entirely unrelated to my preferences or circumstances! It stuck out in an auction list because it was both in good condition (which a lot of lots are recently) and also a clear cut example no ifs or buts of the market which auctioneers have an excellent feel for and don't pander to sellers' wishful fantasies. Could well be it will go for lots more, but fact is seller has been advised or chosen to put a reserve that is 30%+ less than what they paid in 2016.

It just isn't very relatable so not sure it really hammers your point home in the way you wanted it to. I don't think one example is that meaningful anyway but that particular house is hardly typical of the sort of house most of us will be buying or selling.

The min impact is that the market stagnates. Most people don't have to sell and will sit tight until things improve. Lack of supply stops prices dropping too far. High rental yields means when granny dies its easy to rent her house rather than sell "cheaply". The majority of home owners do not have a mortgage so rates do not matter that much to them. FTB's dont feel they are missing out as prices are not rising so they also wait

Ah, no hammering intended there, merely an obvious example. We all know that people see what they want to, otherwise why the madness of the last 15 years that needs correcting now? Taking out the zero at the end of those prices may make it more relatable to anyone struggling to sell. Likewise buyers can also remove that zero at the end to avoid being burdened with strangers' problems. There's evidence aplenty in commercial property and all other asset classes. Valuers have been nervous for at least a couple of years, and are at last more confident in their downward pricing.

or maybe you could post some more normal examples if your scan of auction houses suggests that many landlords and owners are calling it a day before their lender makes the call for them?

Google is your friend there, too many to post and then probably unrelatable due to different micromarkets

@anniegun you're right, owners who can will sit tight. Those who can't may find auctions clean and fast, including buying replacement homes after selling theirs. Auction houses tend to be more realistic and less pandering in their valuations.

Somehow I knew you wouldn't want to actually post a more realistic example, maybe because you can't find any despite claiming that there are "many" of them

This is nice example of a realistic seller. A 2-Bed semi in Emsworth, Hampshire for £230K+ (Modern Method of Auction) cash, that the seller paid £280K for in 2021. Great for commuters 😂

https://www.rightmove.co.uk/properties/136912535#/?channel=RES_BUY

You can think what you want. Simply wait a year or so, and see for yourself. Maybe you are one of those who think the narrow class of residential asset prices are impervious to markets. Somehow I knew you wouldn't want to actually Google auction house lots maybe because you will find that would crash your world view.

In my experience auctioneers price lots low to drum up interest. It doesn’t mean they will accept a bid that low.

Reserve prices at auctions are within 10% of guide so that's 30% below the last traded price in 2016