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hmiamid OP t1_iria0vi wrote

Reply to comment by julietOscarEch0 in [OC] House price you can afford by paying 1000/month for 30 years vs. interest rate by hmiamid

If you go and apply for a mortgage on a new house, they look at your current income. Maybe you'll be able to pay more later but it's not the point here. If rates rise from 1% to 7%, and you got the OK from the broker for a 311k mortgage a few months ago, now you can only be accepted for an 150k ish one.

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julietOscarEch0 t1_irialf7 wrote

Sure, your max remortgage loan will drop but you've also locked in a fantastic rate so you don't want to remortgage in that scenario.

So sorry what is the point here? That new buyers can't get a big enough mortgage? That's not really a new thing with high rates though.

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hmiamid OP t1_iribryz wrote

The point is how fast the curve drops from low mortgage rates to high ones. This in turn drives the house prices down because of lower purchasing power. And that's for everyone. It won't be half though because every buyer is not a new buyer. Remortgaging is in some countries (like the UK) a necessity too as they are mostly 5 yr fixed then go to SVR. Of course if you lock a 30yr low rate, you don't care about all this. But it's not the case of everyone and some countries will be more affected than others.

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julietOscarEch0 t1_irictdc wrote

But what do you think your numbers represent? US mortgage rates already went from 3 to 6/7 and we're not seeing anything like the drop you show. I contend that's because your analysis is naive with respect to inflation.

Regarding the UK market sure, but then the impact on 30 years fixed repayments is irrelevant because you can't fix for 30 years. Again, the wage/house price picture in 5 years (actually less since many people fix for 2) cannot be ignored.

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hmiamid OP t1_irihdpf wrote

  1. you don't really expect the market to crash the day after the interest rates rise. Its a slow progress.
  2. how do you think UK banks calculate people's affordability then?
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julietOscarEch0 t1_iril2ei wrote

UK bank affordability test already bake in a component of resilience to rate rises and the binding constraint for most people is an income multiple limit or raising a deposit. As such affordability has a lower dependence on rates than you might expect(and certainly nothing like your model). Probably the biggest impact so far is banks starting to withdraw 95% LTV deals.

So when do you expect the 30% drop in prices? I assume you have sold all property and found a way to short real estate since you seem to think the outcome is so certain?

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