housing crash 'could happen'
 

mortgage lenders are warning the bank of england that interest rates will have to double from its current rate (4.25%) to offset a crash in the housing market.

the increasing debt burden the economy is trying to handle maybe too much if a 'siginificant' rate rise is not seen.

source: bbc news

http://news.bbc.co.uk/1/hi/business/3739511.stm

Re: housing crash 'could happen'
 

All bubbles burst eventually :( the key is what is going to be done to try to minimise the crash when it occurs. A significant rise in interest rates will help solve one problem but will inevitably cause a few more. We do not need another stock market slump or an economic free-fall, the bank of england and the government have a very difficult decission to make soon.

Re: housing crash 'could happen'
 

Unfortunately with house demand outstripping supply, of both new build and older properties, then a sellers market is inevatible. As happened back in the 80's I think the housing market's bubble is bound to burst sooner or later. And when it does, I'll be glad I'll not be stuck with a negative equity property.

Re: housing crash 'could happen'
 

What I'm concerned about here is the proposed 'cure'.

The repayment figures quoted for a 80k mortgage are to go from £200 odd quid / month to £700 Go knows what that's going to do to my 106k mortgage (although not for another 2.5 years due to taking out a fixed rate mortgage

I hate to be the cynical one here but what's being proposed is a hike in the money that you pay to the banks for the money that you borrowed. There is no increase in the level of serveice or ANY benefit to yourself but your paying an extra £500 each month (going on the values provided) to you mortgage provided, And who's giving this advice ?

Re: housing crash 'could happen'
 

I hope it does crash.
I feel sorry for the buyers but the estate agents and mortgage companies have been laughing all the way to the bank for far too long. :upyours:
All good things come to an end, sooner or later.

Re: housing crash 'could happen'
 

very dodgy figures there in that article...

a repayment mortgage of 80k does not cost £200 a month!

more like £491 a month at 5.5 percent over 25 years. if this increased to 9.75% then you're talking £712 a month which means the repayments have gone up by around 50%.

Re: housing crash 'could happen'
 

There is absolutely no way interest rates will rise to 8% in one or two jumps.

The result would bring the country's economy to a standstill. It's scaremongering. No economist with an ounce of common sense would ask or predict such a thing.

Expect rates to go up to 5% / 5.5%.

If rates went up to 8% it would be over years not months.

Re: housing crash 'could happen'
 

I don't think the housing market will crash - at least not in the same way it did in the late 80's / early 90's. The situation then was influenced by a change in tax legislation, which removed the 'loophole' where individuals could 'share' a mortgage, and each claim tax relief on their payments. Because there was a cut off date where this was to end, there was a huge demand for houses that sent prices soaring.

The subsequent rise in interest rates then exposed people who had over-extended themselves, coupled with a drop in prices, this left many people in the trap of 'negative equity'

A move to increase interest rates, now, to 'slow down' the market will disadvantage too many people to be practical. I believe we are very close to a natural 'barrier', where a 'normal' first time buyer cannot afford any kind of property. The scenario I see here is that prices will stabilise, or fall slightly, but not crash.

Re: housing crash 'could happen'
 

The problem is though that most first time buyers, particularly in the South East simply cannot afford to buy any house. I think there was some data a few months back saying that to buy a house in Hemel Hempsted an averaged salaraied first time buyer would have to borrow something like 10 times their salary - which is crazy.

So we're creating a situation where there will be no 'new blood' in the housing market, which will mean that the lower end will stagnate - and that is the start of a crash.

The problem is compunded right now becuase people are panic buying - they see the prices getting bigger and bigger so will leap on the house buying train now, irrespective of whether they will be able to afford the payments should the rates climb to, say 8%.

At the end of the day, no-one knows what will happen, they can only speculate - there is a real danger that we will see a crash, although unlikely to be as severe as the one in the late 80s which was spurred by other market forces too.

To be frank, and knowing that it will cause a lot of heartbreak to many people, a price crash is really the only way that many people will be able to afford a house again.

Re: housing crash 'could happen'
 

Well I thank god you ain't running the country.
I can remember interest rates got up to 15%, I was ready to take my house keys back to the bank because there was no I could afford that.
it took 13 years for house prices to recover from that in our area.
theres some interesting history here
http://www.hbosplc.com/media/pressre...0-11-02-00.asp

Re: housing crash 'could happen'
 

And if it crashes those mortgage companies will just reposses the houses of those that can't pay and just sell them off (through those estate agents) and chase the buyers for any difference.

Besides, one of the main causes is that there are simply not enough houses at the moment so a large crash is less likely.

Re: housing crash 'could happen'
 

Looking at these posts so far, I think its quite easy to guess which members own their properties and which ones rent! I'm personally one of the latter, and feel that for far too long prices have been rising at a ridiculous rate.

Over the past few years, I've gone from being a student to qualifying for my first job, to a couple of pay rises, and even after that fairly significant rise in income, a lot of houses are still creeping out of my reach.

I don't profess to know an awful lot about the subject, but is there nothing that can be done by the government to cap/slow the rise in these prices?

Re: housing crash 'could happen'
 

I have only one thing to say to people buying right now and that is fixed rate. I did that when we bought our house last year (okay I could only get 3 years fixed rate) which is why I get to take a slightly more relaxed view of the rate raises.

Also due to my new job, I can manage if the rates hit 8% (and possibly higher as well) but I'd rather not see a crash as I've only just started out so for the first few years, I'm pretty much paying the banks interest and not my capital. So if there is a crash I'm going to be stuck in negative equity for several years :Yikes:

Re: housing crash 'could happen'
 

Raising interest rates is the only realistic way to slow the market down - but if you raise them too high, then people will not be able to borrow, existing homeowners will not be able to afford their payments - and then you have a crash again.

Also, it is not in the remit of the Bank of England to raise interest rates on the grounds of housing - although it is clear that this is necessary and they are doing so.

I'm not sure if there are any more sensible options to improve the situation without hurting people. The only real option is to saturate any open space with 2/3 bed houses to meet demand, which should increase competition and lower cost - however they have been doing this for a while now, and the greed of the house builders means that the prices are actually going up.


Actually there is a far more sensible option that would mean far fewer cases of negative equity and tiny amounts of repossesions becuase people could not afford higher payments linked to big increases in the interest rates:

There's some discussion about it now - but we are one of the few countries in Europe that does not have fixed rate mortages for the whole term of the loan. If you buy a car for £20,000 you look at the interest rate and that rate is fixed for the whole term.

However most people cannot get mortgages in this country which are fixed for any longer that 3-5 years. There's a few that are 10 years - but you'll pay 7-8% on those - that's the same rate as my credit card!!!

By entering into a mortgage that is fixed for the whole 25 years - you always know how much your payments will be, and you can ensure that you can afford them. Sadly, with most lenders knowing that rates will rise, they are unwilling to enter into such an agreement.

Re: housing crash 'could happen'
 

The problem is Andy, that fixed rate mortgages are more expensive per month, & you are paying heavily for that security. I am moving currently, & have opted for a discounted mortgage over a fixed one, because for the monthly payment to match what it is on a fixed rate, my mortgate would have to go up several percent in a fairly short period of time, & I just can't see that happening.

Not at all, all lenders are offering fixed rate, just at a premium. If I want a fixed rate mortgage, it will cost me approx £80.00 more per month than the equivalent discounted mortgage, which basically means an extra £960.00 per year, & thats a hell of a lot of interest rises in one year (that's why I don't think fixed rate mortgages are of any value)

I hope that makes sense.....:erm:

Re: housing crash 'could happen'
 

I meant that most lenders will not enter into a fixed rate mortgage for the full term of the loan - i.e. 25 years - like they do in the US and a lot of Europe.

Re: housing crash 'could happen'
 

Soory-my mistake, it makes sense now I re-read it! :dunce:

Re: housing crash 'could happen'
 

You're right, most won't, but I did find one last week - Leeds & Holbeck Building Society will do you 25 years fixed at 5.99%. Anyone know what the long-term average base rate is in the UK? It's difficult to know how good a deal 5.99 is without some context.

Re: housing crash 'could happen'
 

Here's the info - not the best graph in the world but is showing the trends:

http://www.houseweb.co.uk/house/market/graph.html

And the raw data here:

http://www.houseweb.co.uk/house/market/irfig.html

I guess it is not so much that the rate is higher than current amounts (as we can see the figures were as high as 15% at one point - but even if they never went much higher than 6% there is still the peace of mind that you know how much you will be paying every month until the end of the term. Good info BTW Towny.

Re: housing crash 'could happen'
 

rubbish! :pp ;)

I can get you one for 10 years 5.69%

http://www.marsdenbs.co.uk/pages/mor...mortframe.html

Re: housing crash 'could happen'
 

There are always deals to be had - I'm talking generally.

Actually maybe I was a little off - more like 6-7% is the norm for 10 years - but what's 1% between friends ;)

Re: housing crash 'could happen'
 

At present though the first time buyers are being replaced by the "buy to let" market.

Which is why house prices have continued to rise.

To enable first time buyers to get on the market some lenders are introducing 30year mortgages.

You can expect to see 40, 50 year mortgages being offered.

In Singapore there are 100 year mortages where the debt is passed onto the children!

Re: housing crash 'could happen'
 

As Working Lunch pointed out in today's programme, the "Doomsayers" in the Sunday papers took one comment from the Council of Mortgage Lenders and (typically) blew it out of all proportion.

The CML said that (as part of a much longer statement), to stop the housing market dead in its tracks would require at least a doubling of the current interest rate. They did *not* however, at any time say that this was either desirable or intended!

The Sunday Telegraph, however, grabbed that line, took it out of context and blew it up into a massive article, then the other papers saw that and decided to run with it.

Frankly I'm not worried about a housing price crash like the '80s. The situation is completely different, we don't have the problems with staying in the ERM at a ridiculously high exchange rate and having to jack up interest rates to keep the value of Sterling up, nor do we have the millions of unemployed from that time, so it's simply not going to happen like that.

Put it this way, I'm a very "risk averse" investor, but I'm planning on re-mortgaging my flat on a "buy to let" and getting myself a 3 bed house in the not too distant future and there's *NO WAY* I'd be doing that if I thought there was a sizable risk of a housing market collapse!

Re: housing crash 'could happen'
 

Ditto-I'm doing exactly the same, & as I said earlier-rates would have to rise substantially for me to justify a fixed rate mortgage that is (currently) £80.00 per month more expensive. :erm:

Re: housing crash 'could happen'
 

But even at a tiny growth, we still have a situation where first time buyers cannot afford to get on to the ladder. One of two things financially would have to happen - either salaries increased at way beyond the rate of inflation or a decrease in the cost of housing to even the balance. If the value of houses falls, then you're on the way to a crash - even if it not of the scale of the late 80's, there will still be a lot of people left with negative equity. If the interest rates rise astronomically, then many people will not be able to afford the payments - as people are now having to borrow the absolute maximum possible, sometimes more to get a house - it's a catch 22 situation unfortunately.

[QUOTE=Graham]
Frankly I'm not worried about a housing price crash like the '80s. The situation is completely different, we don't have the problems with staying in the ERM at a ridiculously high exchange rate and having to jack up interest rates to keep the value of Sterling up, nor do we have the millions of unemployed from that time, so it's simply not going to happen like that.

No, you're right - there were a lot of external forces that contributed to situation of the 80's. There are quite a few similar external forces this time around though, such as the Euro referendum - for example what will happen if the country votes to keep the Pound - will the rest of the EU vote to have us out? Unlikely as we are one of the strongest economies in the Eurozone, but it is a consideration.

I'm not saying you're right or wrong to do this - everyone needs to be aware of risk, and there is no way that even the most competant economist (and I'm not one of them!) can predict whether there will be or not. It is always a possibility. Also you already have the equity there, the current situation affects first time buyers the most right now.

Re: housing crash 'could happen'
 

that's right Andy - the first time buyers are being priced out of the market plus the buy-to-let market is heading for saturation. People are over extending themselves in order to get on the ladder or move upwards - add to this the prospect of an interest rate rise and you have all the ingredients for a 'correction'. in the same way the stock market 'corrects' itself when it has gone too high.

the only positive is that market supply of new houses isnt matching demand.

if you intend to buy a house now just remember this... the best time to buy is at the bottom of the market not when it's at the top.

Re: housing crash 'could happen'
 

Another saying is

There is always a very slight risk of negative equity, if there was a crash. But it is a slight risk, also there has to be crash. I'm not convinced there will be one. A slow down yes. But that just means property prices wont rise as quickly. It's unlikely that prices will drop.

Re: housing crash 'could happen'
 

Just found this thread - How right you were!

Watching Panorama now, and althought its not a nice thing to say some of these people (on the programme) deserve to lose their houses, one lady fell behind with her first payment and the experts say she never had a chance in keeping up!

The property decline is one thing and the banks have a responsibility but ultimately its your own responsibility to ensure you can can afford payment in the event of problems.

Re: housing crash 'could happen'
 

Been waiting for this to happen for the last couple of years. (sorry to any of those affected by this).

Currently paying less than a 3rd of the price of getting a mortgage in this village which is funding a stress free life. I'm thinking about increase my savings so that 18 months down the line I can as panorame put it 'put in a cheecky offer' on one of the many town house developments round here that are just not selling. The ones opposite me £200-400k have been up for sale for at least 18 months if not almost 3 years so the developers must be thining that they will never sell.

I looked round a 2 bed modern luxury flat the other day that is priced at £175k. i'd love to get it only i think I could only afford £80-100k Which I still think is over priced for it.

Re: housing crash 'could happen'
 

Whilst I do agree with what you're saying, there was a time where nothing else matter apart from getting that foot on the ladder, some knew the risks and ultimately do have themselves to blame. But personal circumstances can change quite easily and quickly through no ones fault.


The one that was behind on the first payment, well I think some of the blame has to fall with the lenders there at least, why or how was she accepted is another matter.

I wouldn't want anyone to lose their homes as that must be terrible. But taking a mortgage is a risk, there's always winners and losers.

Re: housing crash 'could happen'
 

Fully agree but those are not the ones im talking about

Re: housing crash 'could happen'
 

There is no doubt that there is more pain on the way.

This whole situation has been stoked up by estate agents ,house builders and property speculators for years so that they could cream off vast profits in the good times.

They have been ably assisted by mindless and repetitive tv programmes such as that produced by the rather burly Ms Alsop and her colleague,both no doubt millionaires.

You can bet your bottom dollar though that they won't be the ones who feel the pain. The housing carriage is at the top of the rollercoaster and is on its downward spiral to oblivion.

Houses should be homes and places to live first and investment vehicles second.

Of course we will now see some dodgy practices and hard lines drawn. The repossessions are starting to increase. Look at the auctions and property websites if you want evidence.

Estate agents are still trying to wring the market. A friend recently had problems with an estate agent who had signed him up to sell his house but took weeks to publicise it simply because the esate agent was holding properties off the market to try and avoid a glut.

But the Great British public have done their bit also. How many of them have inflivted by to let blight on others? How many have abetted estate agents and driven up prices? true its a free market economy and their are market forces at play.

So then,if free market economy and market forces can freely generate profits without interference,let them also generate losses without interference and WITHOUT Government and taxpayers intervention.

Re: housing crash 'could happen'
 

One result of which is the mismatch between central bank rates and bank rates for mortgages. Obviously banks like having lending rates as high as possible as this means £££. However, a competitive market means they can't jack them too high without the customers upping and leaving for the guy next door.

What's happening now is that there are quite a lot of people (me, for instance) seeking remortgages but a lot of banks are shutting the door on new loans until they figure out what's happening. This is great news for the really big operators like HSBC who still have wads of cash lying around, as they can now lend it to the best risks at high rates, thus locking in a few years decent profit.

So, don't feel too sorry for the banks, the 'free market' means they'll gain on the down as well as the up. I'm just glad we got our deal signed and sealed weeks ago - the rate's gone up 0.56% since then and the fee's nearly doubled.

Re: housing crash 'could happen'
 

Talking about houses our local Paper usually has a plethora of pages with houses for sale, today when I picked the local paper up the property section was only 6 pages, on a normal week it's double sometimes treble the amount of pages.

Re: housing crash 'could happen'
 

Probably because the Estate Agents cannot afford to pay for the advertising any more!

Re: housing crash 'could happen'
 

'could' ? more it will happen its just a question of when. Fact is which some people do not want to hear is that houses are currently grossly overvalued.

Re: housing crash 'could happen'
 

I do, I've just had it valued.

Re: housing crash 'could happen'
 

Ah well, at least some of us might soon have a chance to get on the property ladder.

Re: housing crash 'could happen'
 

Brother in Law is having trouble selling & they have done the place up nicely and improved things but been on the market of a year now. :mis: