Interest rates

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Re: Interest rates

Postby mumbles87 on Thu Oct 12, 2017 10:36 am

EastBrisHammer wrote:This whole 15% interest rate in the late 80s and "they don't know they are born these days" does my head in. My parents are no high fliers but still managed to afford a 3-bed detached house in Bushey when in their early 30s. There is no way I could afford to live in that area now even if our household income tripled and I'm heading towards my 50s. They got the biggest mortgage they could and when the interest rates hit 15% it did cripple them for a bit but they made it through. If they had been a bit more modest in their outgoings then they would have sailed through that period. Most of their friends that had negative equity just sat it out and soon made a killing on their property once the market recovered.

Seeing what the young lads (late 20s) that work for me can afford makes me feel really sorry for them. They earn pretty good money but still have to start off in a crap area and then hope to make it out to somewhere better later. Even in the crap areas they can only afford flats and 2 bed terraces. The previous generations had far more choice in the areas that they could live, bigger properties and quite often done off one salary. My parents and their friends had nice cars, mod cons and foreign holidays. They had it good and I think many are beginning to realise that.


And all these people benefited from it massively

My parents had interest only mortgage and had endowment in place to play off

5 bed semi in hornchurch paid 120k

Worth today 600-700k depending
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Re: Interest rates

Postby RichieRiv on Thu Oct 12, 2017 11:35 am

Most endowments failed to cover the principles and 1000's were left scraping around trying to cover the gap which in many cases ran into 10's of 1000's. In fact Endowment Mortgages were really the first retail finance scandal.

Making comparisons with 80's is very difficult as they were very different time from a personal finance perspective. Monthly outgoings were; Mortgage / Rent, Utilities, Car Payment, Credit Card etc.

That's now been augmented by:

Mobile Phone Contracts
Sky / Cable
Broadband
Amazon Prime
NetFlix
Gym membership
Spotify / Apple Music / Google
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Re: Interest rates

Postby bubbles1966 on Fri Oct 13, 2017 9:28 am

EastBrisHammer wrote:This whole 15% interest rate in the late 80s and "they don't know they are born these days" does my head in. My parents are no high fliers but still managed to afford a 3-bed detached house in Bushey when in their early 30s.


Think it through, mate.

The asking price your parents paid (and consequently the deposit and the income multiple they needed) was probably very low compared to today's. Why? High interest rates.

Higher rates=lower prices.
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Re: Interest rates

Postby bubbles1966 on Fri Oct 13, 2017 9:30 am

mumbles87 wrote:5 bed semi in hornchurch paid 120k

Worth today 600-700k depending


A few points on the rate and that value/price will halve.
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 9:40 am

bubbles1966 wrote:
A few points on the rate and that value/price will halve.


doesnt affect him unless he decides to move which he wont. Mortgage free , 60 years old. Retiring at 65 (mum retiring in 2 years at 60) that will be their forever house

only time the house will be sold will be to pay for his care home if he goes into one he says

or when he passes away and it becomes mine.. I wont be worried about how much I sell it for I will just want it gone so I dont have to go there and miss them all the time im there
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Re: Interest rates

Postby bubbles1966 on Fri Oct 13, 2017 10:00 am

mumbles87 wrote:doesnt affect him


Not the point that's being made.

The point is that the sky high prices and values are a product of 0% interest rates (which also make cash at the bank fairly worthless).

The much lower, more affordable prices back in ye olden days were the product of much higher interest rates. Saving and having cash in the bank was also a much more worthwhile endeavour back then.

The rates need to go back to a sensible medium.
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 10:04 am

bubbles1966 wrote:
The rates need to go back to a sensible medium.


only if you want the economy to completely tank and have a massive recession

how many people would loose their homes? too many

how many jobs would fail to exist anymore due to peoples spending habits going .. all the fancy coffee shops could close over night!

we have set up our economy to live off these rates

whilst I agree with you they NEED to go back to say 5% but I dont think they will go much over 2% again as the economy would just seize up
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Re: Interest rates

Postby EastBrisHammer on Fri Oct 13, 2017 10:31 am

Property prices have also been pushed up by foreign investment and buy to let. If you stop companies buying up properties for rental then the prices will slowly come down.

I agree with mumbles on this. If interest rates hit more than say 6% we will see a major recession. Most people under 40 would struggle to pay their mortgages because of the size of the money they had to borrow in the first place. 15% on a 300k mortgage is going to hurt very badly, especially considering how wages have fallen so far behind house price growth. I think 4% would help stabilize the economy but we will definitely see a slow down on spending.
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Re: Interest rates

Postby sendô on Fri Oct 13, 2017 10:59 am

They don't need to be at any arbitrary number. They need to be at the number that best suits the current conditions in the economy.

As stated before, whilst inflation was non-existent and no banks were lending due to lack of liquidity, it made sense having very low rates to encourage cheap credit and thus encourage spending which would drive the economy.

Now that inflation is recovering to more normal levels (almost 3%) it makes sense to think about edging rates up by a percent or two to moderate that inflation rate. Keeping the interest rate as it is would likely see inflation continue to rise, if other factors remain constant.

The 15% interest rates of the late 80s early 90s came off of the back of very high inflation at ~10%, which needed to be brought back into check.

It's a fine balancing act, therefore there will be no sudden jump to 5%, which would not only put half of the country into negative equity or default, but kill lending and probably cause another recession.
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 11:12 am

sendô wrote:They don't need to be at any arbitrary number. They need to be at the number that best suits the current conditions in the economy.

As stated before, whilst inflation was non-existent and no banks were lending due to lack of liquidity, it made sense having very low rates to encourage cheap credit and thus encourage spending which would drive the economy.

Now that inflation is recovering to more normal levels (almost 3%) it makes sense to think about edging rates up by a percent or two to moderate that inflation rate. Keeping the interest rate as it is would likely see inflation continue to rise, if other factors remain constant.

The 15% interest rates of the late 80s early 90s came off of the back of very high inflation at ~10%, which needed to be brought back into check.

It's a fine balancing act, therefore there will be no sudden jump to 5%, which would not only put half of the country into negative equity or default, but kill lending and probably cause another recession.


exactly sendo

I dont think we will ever see the rates of the 80s ever again. there would be uproar if they raised the rates high enough to put people into neg equality / having to default on their mortgages. then all the say footballers (or just rich people in general) just get richer and richer with rates which rewards them to keep their money in the bank

so they wont raise the rates.. no-one in their right mind would risk the way the economy just about works.

i reckon by time my mortgage deal ends next december rates will be 0.75 at most and then after brexit might push to above 1.5%
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 11:28 am

what makes me laugh is the papers saying jump on fixed rate deals now whilst they can..

for example there are some good 2 year deals still available

however 2 year deal? surely when the deal ends bamn your right in the middle of when the rates will be going up more!

historically when rates rise banks put out deals to get people in so I wouldnt be surprised if the rates for fixed arent too much more than they are now with banks taking some of what they make off to try and win customers

this time next year ill fix for 5 years min on the cheapest deal I can to have a proper look at the market

2 years is far too short with brexit on the verge
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Re: Interest rates

Postby bubbles1966 on Fri Oct 13, 2017 11:36 am

mumbles87 wrote:only if you want the economy to completely tank and have a massive recession


The alternative is for lots of young people to carry on grumbling that they can't afford houses and have to wait for their parents to snuff it.

If you build a lot more homes - prices will plummet.
If you create a lot more social housing - prices will plummet.

There really is no short or medium term alternative to this housing conundrum that doesn't involve creating lots of negative equity for people who have over-paid for property in the last two/three years.

That needs to be understood by the 18-35 generation.
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 11:41 am

People just like to moan!

I'm sure many of here made cut backs to afford a house

People want to be able to buy a house but also holiday every year.. drive the latest car

Got to make sacrifices
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Re: Interest rates

Postby somerset-hammer on Fri Oct 13, 2017 12:04 pm

mumbles87 wrote:People just like to moan!

I'm sure many of here made cut backs to afford a house

People want to be able to buy a house but also holiday every year.. drive the latest car

Got to make sacrifices


Since buying a house, I became better off.

Probably to do with getting my finances under control, and sorting out my credit score etc.

I haven't really cut much out though, still do most if not all of things I want to do, Meals out, nice holidays etc.
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 12:07 pm

That's what I found too summer set

Since getting my house I've paid for my honeymoon , been away a few times

Played a lot of golf

And got a 4 month old baby

Mrs is taking a year off and next year we going on a 3 day cruise with little one

Sending her to a spa and I'm off on a golf holiday

When I lived at home I never were able to do all this!
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Re: Interest rates

Postby EastBrisHammer on Fri Oct 13, 2017 12:10 pm

I think the main difference I see is that when I bought a house I bought alone and I had a fair choice of properties. The youngsters I know have to buy as a couple and have such a small selection of properties to choose from. One has just bought a flat above a shop on a main road. His mum was less than positive about it, telling him to get a two bed on a residential street and make sure its freehold. He is at the maximum of what he can borrow mortgage wise and there is no way he can get the extra 50k to do what she suggests. He and his Mrs are sick of renting as the rentals are extortionate and the landlords terrible. Prices do need to freeze and not go up for a good number of years. I really doubt they will go down here, as Bristol is more popular than ever and they cannot build the houses quick enough. I think things would help if we changed how the rental market worked (not so short term with everything loaded in favour of the landlord).
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 12:29 pm

EastBrisHammer wrote:I think the main difference I see is that when I bought a house I bought alone and I had a fair choice of properties. The youngsters I know have to buy as a couple and have such a small selection of properties to choose from. One has just bought a flat above a shop on a main road. His mum was less than positive about it, telling him to get a two bed on a residential street and make sure its freehold. He is at the maximum of what he can borrow mortgage wise and there is no way he can get the extra 50k to do what she suggests. He and his Mrs are sick of renting as the rentals are extortionate and the landlords terrible. Prices do need to freeze and not go up for a good number of years. I really doubt they will go down here, as Bristol is more popular than ever and they cannot build the houses quick enough. I think things would help if we changed how the rental market worked (not so short term with everything loaded in favour of the landlord).


freezin would be a happy medium

I bought my house in 2014 for 300k. 3 bed in good condition

my sister is looking to buy with her fiance same area 350k budget lucky to get a 3 bed.. and if so not in great condition

he has a 2 bed flat.. worth 180k.. plus what my sister can chip in and increased mortgage they can just push it to 350k

I said its bad that they are paying 50k more than us and getting a far lot less
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Re: Interest rates

Postby RichieRiv on Fri Oct 13, 2017 12:36 pm

By all means keep rates low, but how are you going to control inflation? Raise tax?
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Re: Interest rates

Postby mumbles87 on Fri Oct 13, 2017 12:47 pm

RichieRiv wrote:By all means keep rates low, but how are you going to control inflation? Raise tax?


If labour get in then I see tax rises to pay for everything they promising
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Re: Interest rates

Postby RichieRiv on Fri Oct 13, 2017 12:52 pm

Lots of if's and but's.

Although I agree it would be suicidal for Carney and MPC for rates to climb past 5%, they have to control inflation somehow and tax rises tends to lose the ruling party power.
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