Editor's Blog1 min ago
Interest Rate Rise (Again).
Further to my Q last week following the latest interest rate rise, I understand there is possibly going to be a further rise in February.
Now I am in the fortunate position that my monthly mortgage payment is about a sixth of my monthly salary, so a 0.25% rate increase, whilst annoying, doesn't mean my family will be on the bread line.
However, me and my wife have been discussing the possibility of selling up, banking the equity in a high interest account and renting in the hope that we will see a property crash the like of which we saw in the early 90s.
We will then swoop in on a property and hopefully snap it up with the equity we have banked and then live mortgage free.
So, three questions.
1 - Is this a feasible idea? (we haven't taken any advice yet).
2 - Is the Bank of England likely to continue increasing the interest rate to stem the borrowing.
3 - Will the government allow a property crash (can they stop a property crash?).
Now I am in the fortunate position that my monthly mortgage payment is about a sixth of my monthly salary, so a 0.25% rate increase, whilst annoying, doesn't mean my family will be on the bread line.
However, me and my wife have been discussing the possibility of selling up, banking the equity in a high interest account and renting in the hope that we will see a property crash the like of which we saw in the early 90s.
We will then swoop in on a property and hopefully snap it up with the equity we have banked and then live mortgage free.
So, three questions.
1 - Is this a feasible idea? (we haven't taken any advice yet).
2 - Is the Bank of England likely to continue increasing the interest rate to stem the borrowing.
3 - Will the government allow a property crash (can they stop a property crash?).
Answers
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Firstly, I had the same idea 5 years ago, when I thought the same thing (and thought a crash was imminent - thank God I didn't).
Secondly, I went to a conference a while back and speaker was a head economist who said a couple of things that I will always remember:
1) There will always be a period of boom
2) During that period of boom, everyone will say that we have learnt from last time and there will not be a bust
3) There will be a bust.
Personally, yes i think there will be a bust - the question from me is simply 'when'?
Secondly, I went to a conference a while back and speaker was a head economist who said a couple of things that I will always remember:
1) There will always be a period of boom
2) During that period of boom, everyone will say that we have learnt from last time and there will not be a bust
3) There will be a bust.
Personally, yes i think there will be a bust - the question from me is simply 'when'?
I don't think a property crash is likely.
I know that the Mail has been forecasting one for at least 5 years now and if you'd taken their advice then and done the same you'd have lost an awful lot of money.
Similarly www.housepricecrash.co..uk has been up and running since October 2003 predicting imminant collapse.
I guess if you predict a crash long enough you'll be right one day
There is a lot of demand for housing especially in the South East- hence the massive house building projects there.
Whilst interest rates go up slowly there'll probably be a dampening off of prices but that's not going to precipitate a crash - you'd need to see a dramatic change somewhere for that and I can't see that on the horizon.
Unless you have a really good reason to believe that a crash is imminant ( and history shows incredulity is never a good reason) you might as well put the house on "red " down at the casino.
I know that the Mail has been forecasting one for at least 5 years now and if you'd taken their advice then and done the same you'd have lost an awful lot of money.
Similarly www.housepricecrash.co..uk has been up and running since October 2003 predicting imminant collapse.
I guess if you predict a crash long enough you'll be right one day
There is a lot of demand for housing especially in the South East- hence the massive house building projects there.
Whilst interest rates go up slowly there'll probably be a dampening off of prices but that's not going to precipitate a crash - you'd need to see a dramatic change somewhere for that and I can't see that on the horizon.
Unless you have a really good reason to believe that a crash is imminant ( and history shows incredulity is never a good reason) you might as well put the house on "red " down at the casino.
flip- flop.
1. Is it feasible? Yes, with one or two caveats. If your mortgage is currently only 1/6th your salary, it is likely that renting a property of similar size, location etc is likely to cost you more than you are currently paying on your mortgage, since most private property rentals in the UK are done via private landlords covering their mortgage plus at least 10% for a property management/rental company. Secondly, no one has any clear idea about just how long it will be before there is a property market crash. If you live in the South and particularly South East of England in particular, the crash may be a very very long way away, simply because of need far outstripping supply.
2. Interest rates to increase to stem borrowing? Yes, I think there will be a couple more rate rises yet..... but since we are starting from a historically low base, I do not think it is likely to have such a large impact on people as those back in the 80's
3. I don't know any mechanism by which a government could hypothetically stave off a property crash as things currently stand, except by the rather crude mechanism of significantly lowering interest rates.
1. Is it feasible? Yes, with one or two caveats. If your mortgage is currently only 1/6th your salary, it is likely that renting a property of similar size, location etc is likely to cost you more than you are currently paying on your mortgage, since most private property rentals in the UK are done via private landlords covering their mortgage plus at least 10% for a property management/rental company. Secondly, no one has any clear idea about just how long it will be before there is a property market crash. If you live in the South and particularly South East of England in particular, the crash may be a very very long way away, simply because of need far outstripping supply.
2. Interest rates to increase to stem borrowing? Yes, I think there will be a couple more rate rises yet..... but since we are starting from a historically low base, I do not think it is likely to have such a large impact on people as those back in the 80's
3. I don't know any mechanism by which a government could hypothetically stave off a property crash as things currently stand, except by the rather crude mechanism of significantly lowering interest rates.
I did exactly what you are suggesting in late 2004. Despite what they report in the papers i.e. 10% growth per year in prices for the last two years similar houses on the same road as I sold on have gone up less than 5% in the two years since I sold. (I sold for �165,000 two similar houses sold late last year for �169,000)
My wife and I did it for a number of reasons, clearing of debt (which wasn't that high anyway) moving closer to Work. Our quality of life has increased as a result and we have never enjoyed life more. People tend to shun renting but the freedom it gives us is fantastic and personally I prefer it to owning a home at the moment and for us it's cheaper than paying a mortgage on the same property.
So in answer to your questions....
1. Yes totally feasible.
2. I think so yes, everybody says the decision last week was a shock, not to me it wasn't nor many others (it was expected in Feburary but the trend is up). We have been more shocked it has been allowed to go on for so long.
3. As you say what can they do to stop it. They have in fact engineered a situation to bring it about with slack lending controls and poor control of interest rates*. Look at the historic success of governements in similar situations.
If you need any more info let me know.
* before anybody pulls me up on the fact the BOE is independant, true the decision is independant but the controls and environment they have to work under is easily manipulated by the government, for example moving from RPI to CPI for inflation measuring purposes.
My wife and I did it for a number of reasons, clearing of debt (which wasn't that high anyway) moving closer to Work. Our quality of life has increased as a result and we have never enjoyed life more. People tend to shun renting but the freedom it gives us is fantastic and personally I prefer it to owning a home at the moment and for us it's cheaper than paying a mortgage on the same property.
So in answer to your questions....
1. Yes totally feasible.
2. I think so yes, everybody says the decision last week was a shock, not to me it wasn't nor many others (it was expected in Feburary but the trend is up). We have been more shocked it has been allowed to go on for so long.
3. As you say what can they do to stop it. They have in fact engineered a situation to bring it about with slack lending controls and poor control of interest rates*. Look at the historic success of governements in similar situations.
If you need any more info let me know.
* before anybody pulls me up on the fact the BOE is independant, true the decision is independant but the controls and environment they have to work under is easily manipulated by the government, for example moving from RPI to CPI for inflation measuring purposes.
"I do not think it is likely to have such a large impact on people as those back in the 80's "
Why?
It's precisely the fact that IR's have been so low that it will be even more of a problem, all low IR's have done is allowed people to take on even bigger debt any benefit of lower rates has been negated by bigger loans, leading to people being even more susceptible to problems with quarter point increases.
Why?
It's precisely the fact that IR's have been so low that it will be even more of a problem, all low IR's have done is allowed people to take on even bigger debt any benefit of lower rates has been negated by bigger loans, leading to people being even more susceptible to problems with quarter point increases.
There are 3 key factors you need to take into account when talking about immigration from the EU.
1. These people (by their own admission) are here for the short term 1-2 years to make some money and then return to their country
2. When the new EU member states joined the UK was the only country to wave the right to keep borders closed for 3 years. Give it a few years and many of these people will move closer to member stats closer to home.
3. These people do not buy homes here and tend to live in large multiple occupancy homes.
The idea the UK is cramped because it is a small island is also wrong, there is plenty of room here. The problem is long, drawn out and restictive planning laws.
1. These people (by their own admission) are here for the short term 1-2 years to make some money and then return to their country
2. When the new EU member states joined the UK was the only country to wave the right to keep borders closed for 3 years. Give it a few years and many of these people will move closer to member stats closer to home.
3. These people do not buy homes here and tend to live in large multiple occupancy homes.
The idea the UK is cramped because it is a small island is also wrong, there is plenty of room here. The problem is long, drawn out and restictive planning laws.
Well, I'm glad we just took out a 10yr mortgage rate of 5.19
.I don't think you should sell and bank the cash, you could always buy another property though abroad and rent that out....
The BOE offer the banks the set rates and then those banks etc sell them to us.... I was watching before I took the 5.19 fixed....
The property crash of the 80s? I don't know how my parents survived it!!! but they did... 16%-18% was the then mortgage rate....
Could you afford it if that was to happen again?
.I don't think you should sell and bank the cash, you could always buy another property though abroad and rent that out....
The BOE offer the banks the set rates and then those banks etc sell them to us.... I was watching before I took the 5.19 fixed....
The property crash of the 80s? I don't know how my parents survived it!!! but they did... 16%-18% was the then mortgage rate....
Could you afford it if that was to happen again?
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