Property prices thread

[Josquius]

So tempted to buy that rental property right now 🤔

I think you would be buying the top.

In areas that have seen price rises this past decade yes.
Elsewhere....

Not going to its most likely. Too busy. But I ponder.

[Sheilbh]

I don't get the logic of having variable interest rate mortgages.  With fixed rate, you can always ratchet down your rate and refinance if for some idiotically absurd reasons fixed rate goes down to 1%.  With fixed, you know the monthly expenditure you're committing to, and that commitment will only stay the same in worst case.

With variable rate mortgages, you can be thrown out of your house when your payments balloon, and usually at the worst time for you to be thrown out.

Very few people are on a variable mortgage though. I imagine the benefit of re-fixing every 2-10 years is that you'll have lower costs because the bank know there'll be a shift at the end of a fixed period.

My understanding is that generally the UK has some of the lowest mortgage rates in the world and I imagine not having a thirty year fixed rate is part of that (and in an earlier life I worked on litigation from around interest rate hedging and the thirty plus year fixed can very much go against you too). The other part is very strong legal rights for lenders though in practice repossessions tend to be pretty low, in part because a big chunk of the market will re-fix regularly so when there's a crash and interest rates are cut homeowners get a bit more of the variance - as I say it goes both ways.

I mean I'm applying for a not very credit-worthy mortgage at the minute and rates are about 2.5%, which is high here.

[DGuller]

I mean I'm applying for a not very credit-worthy mortgage at the minute and rates are about 2.5%, which is high here.

This seems nuts to me, but maybe I'm missing something.  Wouldn't inflation on its own wipe out the value of the loaned money?  Or do the lenders expect the inflation rate to reset to zero tomorrow without the interest rates rising?

[Admiral Yi]

The American 6% is still below current inflation, so presumably a negative real rate as well.  Obviously there are expectations of a drop in inflation cooked into the rates.

[DGuller]

I mean I'm applying for a not very credit-worthy mortgage at the minute and rates are about 2.5%, which is high here.

This seems nuts to me, but maybe I'm missing something.  Wouldn't inflation on its own wipe out the value of the loaned money?  Or do the lenders expect the inflation rate to reset to zero tomorrow without the interest rates rising?

Not when real wages are falling...

https://www.bloomberg.com/news/articles/2022-06-14/uk-cost-of-living-squeeze-intensifies-as-wage-growth-slows

How does it relate to mortgage rates, though?  If the bank loses more to inflation by lending out than it gains from interest rate (even assuming zero default risk), then what's in it for bank?  You don't have to loan out money at any cost, I would think.  If people can't afford to finance mortgages at rates that make sense for you, then you just don't lend it out, you don't give away your assets because negative prices is the best customers can offer.

[DGuller]

The American 6% is still below current inflation, so presumably a negative real rate as well.  Obviously there are expectations of a drop in inflation cooked into the rates.

That makes a lot more sense, though.  It's not current inflation that matters, it's compounded inflation over the duration of the mortgage (probably more complicated than that, though, since you have to account for many sources of uncertainty of the mortgage duration, but that's beyond the scope).  It's probably reasonable to expect that average inflation over the next 15 years won't be 6%.  However, you don't need to compound 9% inflation for that many years for the 15-year inflation to average to more than 2.5%.

[Sheilbh]

This seems nuts to me, but maybe I'm missing something.  Wouldn't inflation on its own wipe out the value of the loaned money?  Or do the lenders expect the inflation rate to reset to zero tomorrow without the interest rates rising?

It's only fixed for a few years so they expect to be able to reset the rate then which will reflect base rate and interest at that point(obviously that's a risk for me). And I assume they don't think inflation is going to last - in Europe it does seem to be in fewer areas of the economy and there's lower wage rises so the economy in general looks less inflationary than the US which may be a difference too.

Also they made their offer a couple of months ago so...

[Zanza]

I mean I'm applying for a not very credit-worthy mortgage at the minute and rates are about 2.5%, which is high here.

This seems nuts to me, but maybe I'm missing something.  Wouldn't inflation on its own wipe out the value of the loaned money?  Or do the lenders expect the inflation rate to reset to zero tomorrow without the interest rates rising?

Not when real wages are falling...

https://www.bloomberg.com/news/articles/2022-06-14/uk-cost-of-living-squeeze-intensifies-as-wage-growth-slows

How does it relate to mortgage rates, though?  If the bank loses more to inflation by lending out than it gains from interest rate (even assuming zero default risk), then what's in it for bank?  You don't have to loan out money at any cost, I would think.  If people can't afford to finance mortgages at rates that make sense for you, then you just don't lend it out, you don't give away your assets because negative prices is the best customers can offer.

When I re-read your post, I realized mine is not relevant to it and deleted it.

[Legbiter]

I bought my property in the middle of the worst of the worst 2008 recession/banking collapse and I met and courted my wife in the very late 90's, before dating apps and social media. Anybody else feel like they got out of the dating market like those on the last choppers out of 'Nam, hanging by the skids?  

[Josquius]

I bought my property in the middle of the worst of the worst 2008 recession/banking collapse and I met and courted my wife in the very late 90's, before dating apps and social media. Anybody else feel like they got out of the dating market like those on the last choppers out of 'Nam, hanging by the skids?  

There's the opposite too. Kids who've only ever known tinder and always had hook ups on tap without leaving their room.... I'm jealous there.

Though I do wonder about the dynamics of tinder in a small place like Iceland.

[DGuller]

This seems nuts to me, but maybe I'm missing something.  Wouldn't inflation on its own wipe out the value of the loaned money?  Or do the lenders expect the inflation rate to reset to zero tomorrow without the interest rates rising?

It's only fixed for a few years so they expect to be able to reset the rate then which will reflect base rate and interest at that point(obviously that's a risk for me). And I assume they don't think inflation is going to last - in Europe it does seem to be in fewer areas of the economy and there's lower wage rises so the economy in general looks less inflationary than the US which may be a difference too.

Also they made their offer a couple of months ago so...

Oh, I see.  Mortgage that's fixed for a couple of years is not fixed, it's variable rate mortgage.  Fixed rate means that the interest rate is fixed for the duration of the mortgage, not for some arbitrary introductory period.

[Sheilbh]

Then I think there's not really any fixed mortgages here. But it's not a floating rate.

The usual are two, five and (some) ten fixed rates, at the end of which you either fix the rates for another two, five or ten year period. Obviously you can also re-mortgage and I think when you can do that is normally linked to when the first fixed rate period ends. It's not just an introductory rate though.

[Grey Fox]

This seems nuts to me, but maybe I'm missing something.  Wouldn't inflation on its own wipe out the value of the loaned money?  Or do the lenders expect the inflation rate to reset to zero tomorrow without the interest rates rising?

It's only fixed for a few years so they expect to be able to reset the rate then which will reflect base rate and interest at that point(obviously that's a risk for me). And I assume they don't think inflation is going to last - in Europe it does seem to be in fewer areas of the economy and there's lower wage rises so the economy in general looks less inflationary than the US which may be a difference too.

Also they made their offer a couple of months ago so...

Oh, I see.  Mortgage that's fixed for a couple of years is not fixed, it's variable rate mortgage.  Fixed rate means that the interest rate is fixed for the duration of the mortgage, not for some arbitrary introductory period.

Its not really introductory either since when the fixed term is up you can switch lenders.

[DGuller]

Its not really introductory either since when the fixed term is up you can switch lenders.

What's important is that you are at the mercy of the market rates after getting yourself into debt.  In US, if you take a 30-year fixed mortgage out at 4%, then that's the most you'll pay for the next 30 years.  If the market rate goes to 20%, you'll still pay at 4%.  If the market rate goes to 2%, you'll pay 2%, because you'll refinance.

It sounds like you guys are at the mercy of the market rates.  If you get into mortgage at 4%, but the market rate jumps to 20%, then eventually you'll be paying 20%.  It may be a couple of years later, it may be to a different lender, but that's still going to be much higher payment than what you initially planned for.  That's a huge difference.

[Admiral Yi]

There's the opposite too. Kids who've only ever known tinder and always had hook ups on tap without leaving their room.... I'm jealous there.

Are you really?  It seems pretty arid in comparison to grappling down in the mosh pit.