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.

@GatesOfBabylon

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.

This is my take on it all too. For the past 40 years, we, as a country, have been living beyond our means, all financed by low cost debt - that's at all levels, i.e. country and individual. We've simply borrowed to spend and it's given us an illusion of being wealthy.

The 2008 banking crisis was the end of that era, but instead of tackling the fundamental issues, we just borrowed money in a different way (quantitative easing) to kick the can down the road.

Now, chickens are coming home to roost, and we, collectively, are going to have to tighten our belts and be more realistic about the actual "value" we contribute to the country in terms of our productive work, and be more realistic about what rewards we can earn, i.e. in terms of benefits, public services, pensions, NHS, the lot really.

Back in 2008, I remember top economists saying we'd have a decade of "stagnation" where it would be around 2018 before we'd start moving forward again in terms of growth in GDP, wealth, etc. In the event, Brexit and Covid have scuppered that, and we've probably now got another decade of stagnation on the way.

But that's not what is actually happening. So far, the market has clearly fallen and is falling more now, supply is significantly up and rising and rental yields are generally very low so some BTL landlords are selling up and putting the money in a high interest account.
Yes, of course, some people will just choose not to move (until when?!) but many will be rushing to the exit door in another 6 months.

Agreed!
Chickens have come home to roost and we need to tighten our belts.

I personally don't think there will be a fall big enough to offset the mortgage pain. this is a time period that the children of the baby boomers leave their family homes or their shared rooms in hmos to purchase or rent their own places.

I'm 32 and people my age have been buying homes since 2016, some even bought with friends just to get their foot on the ladder. even the ones who don't think they'll be getting on the ladder anytime soon have fed up with shared accommodations at this stage of their lives, they have started renting proper long-term homes, which is eating up stocks for ftb.

also there are way more single person dwellings these days than decades ago, I have many friends that are sitting in 2/3 bed starter family homes by themselves, some of them later on got partners and merged homes, but there are still quite a few living on their own and are not in a hurry to merge homes with anyone.

on top of that, people are living longer, and healthily as well, so they are not giving up their homes for the younger generations to move into anytime soon, and fewer people these days feel comfortable to live in their family homes after they are financially independant, used to be sort of a norm decades ago to live with your parents until you get married.

so yeah, the social dynamics is much different now, which means the housing market probably won't act as how they did decades ago.

we, collectively, are going to have to tighten our belts and be more realistic about the actual "value" we contribute to the country in terms of our productive work, and be more realistic about what rewards we can earn, i.e. in terms of benefits, public services, pensions, NHS, the lot really.

Can you expand on this a bit please @Badbadbunny . I thought that as workers we contributed tax and services were provided as part of a civilized society. I didn't realise we had to weigh up our contribution with 'rewards'. Your suggestion seems to ignore the social contract and brings everything down to a commercial exchange. Am I missing something?

What have tax paying individuals done to deserve this belt tightening on a national level?

I'm in West Midlands and I haven't noticed any price drop yet. I think it might be more likely in London but more likely other areas will just stagnate or a small dip in price. I don't think we'll get huge drops in prices like 20 percent or anywhere near to it.

I think with mortgage rates going up so much higher than wages FTB will find it hard to afford a mortgage even with a hefty deposit.

If you have good equity & secure jobs moving up can be much easier in a falling market.

However we aren't really seeing the impact of interest rates yet as many people are on a fox.

fix!

It's also quite difficult to get your head around serving so much more debt because of higher interest rates. One of my cousins is a FTB with a good salary, deposit but she has reduced her budget as she just doesn't want to service so much debt.

this is consumerism started from anerica, which benefited one generation as baby boomers see their networth rocketing in the past decades, but as a result their children are now left with the mess. millennials who's parents didn't hold assets are hindered compared to the ones with land rich parents.

also people's perspective for life have changed too, through little fault of their own, again this is what consumerism have gradually done to the society. people are now not ok with living with their parents until they can afford their own homes anymore because it's viewed as a 'loser thing' rather than a social norm back in the days. the day to day upkeep is also much higher now, mobile phones, subscribtions, dining out, holidays etc. are also now a social norm, people are subconsciously being pressured into doing all these just to be able to keep a social life. I'm a millennial who doesn't have any music subscriptions, listen for free on yt, but I in general keep this quiet from my friends because I don't wanna be seen as the odd one out. having a social life is basic human needs, the threshold for having one is significantly higher now than before thanks to consumerism.

I'm also in West Mids. I've noticed plenty of reductions in and around my search area of upto 3 miles. Just reductions galore. And many coming back on after previously being SSTC. Completely different market to last year when very little was being reduced or not selling almost immediately.

I agree. There are so many cash buyers around at the moment. These are also people who will be doing very very well from the higher interest rates.

The 2008 banking crisis was the end of that era, but instead of tackling the fundamental issues, we just borrowed money in a different way (quantitative easing) to kick the can down the road.

yeah we never recovered from that

sadly many countries have been living an inflated lifestyle for decades. and again sadly working and paying tax does not entitle you this lifestyle built on personal and national debt. no matter how hard you worked or how much tax you paid, as long as you and the government used such to borrow more money, and can then no longer sustain this debt, a crush is waiting for you in the corner. the country then have two choices, one is to continue living this lifestyle until it could no longer afford the debt payment and had to declare bankruptcy and lose total credibility, or it can tighten up and reduce the debt size to avoid a greek style crush, but this could mean lifestyle changes for many individuls, especially the less welloff

Thanks @cruisingabout
Thirteen years of the Tories, "the party of fiscal responsibility" and they've reduced us to this. Thirteen years to set us on a better course and instead they've driven us into the mire all the while ensuring they and their friends are better off.

You’re funny

I, too, find you immensely funny

@SaveMeFromMyBoobs I get your situation isn't one you like, but saving is possible if generations help each other. Of course, when people go NC doors are closed. I have been Nc or LC with my father since I was 18, but I am now 67 and have made my own way in life. With both parents still living, I'm chilled without inheritance.... I always knew it was my responsibility to cut my own path.

Again, at the end of the day, if the house offers enough space, and the commute is reasonably manageable, and the street is cleanish and safe, with a decent school, someone will buy it, no matter how ugly -- as long as the price reflects the market rate. All the home decor fantasies are pure vanity.

To be clear, that isn't my situation. My DH and I managed to support eachother and ourselves through education to the point where we aren't high earners, we're a chunk below the 40% tax bracket, but we're also a chunk above minimum wage. We also purchased our home without help. We didn't go on holidays, eloped, saved hard, bought a house 5x less than what we could have borrowed to make sure we could afford because we knew we had no fall back.

But I know that even doing all that, we wouldn't have been able to buy a house had we been on minimum wage or benefits. The people who can't afford to buy will not be able to buy even if the house costs drop because they can't save the deposit. They can't but their cloth in a way that would allow them to.

Land lords with paid off houses will benefit hugely. They will have the cash sitting in accounts to get the high interest rates, they will have the cash flow coming in to buy the new cheaper houses that people in positions that only just scrape by will have to sell and lose the deposits they put in and re-enter the rental market.

Crikey. Seen elsewhere. Spare a thought for the occupants of Winterthur Way in Basingstoke. Not getting back what they paid 17 years ago. I wonder how many others are in the same predicament?

🙄🙄🙄

It took less than one minute to search for this building and see that they are flats with cladding issues.

I know. Spare a thought for them. I also see Canary Wharf looks about to roll over. I wonder how many will tough it out paying 6% rates, and their HTB element becoming payable, and service charges for 3/4/5/6K a year, plus daft council tax. I could see a mad rush for the exit.

Of course, it could just be Chinese money invested. Probably a better return (sic) than on their own flats.

But this isn't really about interest rates, people couldn't sell flats with cladding issues during the Covid boom either.

The longer this has gone on with no commitment from the govt to help with remediation costs on low- rise buildings, the worse this will get.

As it stands, the owners of these units will be responsible for remediation and that could cost a fortune.