As a FTB how will you be affected by interest rate hikes?

macbri said:
They all argued that house ownership was the way to go and rent is dead money-I was the only 1 with the opposite view.
1 guy even argued that it didn't matter what the mortgage was

I still can't understand their logic-I can easily make 7-10% with very little risk and pay 30% of mortgage as rent.
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Not caring what the mortgage was was indeed correct in a market where prices were increasing each week. Prices in dublin for example at the beginnig of this year were increasing like something like 1,00euros a week. But in a depressed market his analysis is incorrect.
macbri said:
As well,I don't see the security/point of having a $m house when my mortgage is paid off ie 60/70(maybe I'm missing something?)
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I think any prospective kids that you may have will disagree :)
 
I'm sure the kids would be happier with the money, if you want to leave them something. They're probably only going to sell the house anyway so as a store of wealth Swiss bonds would be infinitely safer and much easier to convert to cash when required.
 
I’m an FTB. Along with my girlfriend I bought a house 3 months ago. My interest rate is fixed at 3.84% for the next 2 years, which is turning out to be a good deal.
Throughout the various tangents which this thread has taken, I’ve noticed that the topics basically go back to one issue – whether or not we should be buying property at all.
Be you Bear or Bull, you may at some stage want to own your own home. Life usually gets in the way of sentiment. If home ownership is not for you, then fine. There is no law against renting and if you’ve allowed for the payment of rent during your retirement that that’s that. Good for you.
But for those of us that do want to won our own home, its down to affordability based on the amount you can borrow vs. the amount you comfortably pay back. This has been done to death on other threads so I won’t go into it here.

As interest rates go up, loan offer amounts come down. Any drop in prices will be correlated by decreased loan amounts so the “affordability index” will remain static.

The potential FTBS who are waiting for some kind of crash to somehow bail them out of the current bubble will be bitterly disappointed, not to mention find themselves in a situation where the economy is so fragile that banks will not look at anyone who hasn’t got a very stable income backup with savings. People seem to think that if there is a crash, then banks will be still firing money at FTBs. Nothing could be further form the truth.
 
If this thing does blow up in our face, it will be the Banks fault for their loose lending policies. This property spike never would have happened if banks required a 20% down payment on a house purchase.
 
Mouldy said:
As interest rates go up, loan offer amounts come down. Any drop in prices will be correlated by decreased loan amounts so the “affordability index” will remain
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You are correct, offer amounts will come down. Don't forget though as prices come down, your deposit will buy a bigger chunk of house. Another big factor to consider is that you would owe less money which has to be a good thing! So an FTB who waits will end up with the same house and a smaller mortgage.

If I was you however, I would enjoy my home and don't worry about the market until it's time to move.
 
Mouldy:
Also of consideration is that it would be better to be refused a mortgage at a future stage in a bad economy due to lack of stability of employment, than getting a large mortgage now, going into negative equity and then being unable to make mortgage payments due to loss of employment.
 
Mouldy said:
The potential FTBS who are waiting for some kind of crash to somehow bail them out of the current bubble will be bitterly disappointed, not to mention find themselves in a situation where the economy is so fragile that banks will not look at anyone who hasn’t got a very stable income backup with savings. People seem to think that if there is a crash, then banks will be still firing money at FTBs. Nothing could be further form the truth.
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Why would a potential FTB need to be bailed out of the current bubble? They are the ones currently saving and will be in a far more secure position should they wish to own a home in the future. It is rare that a FTB purchases the home in which they wish to live for the foreseeable future, so if anyone should be worried it is the likes of you and me, stuck with a large mortgage and the prospect of prices coming down.
 
That’s certainly an interesting way of looking at it. We have bought our home with a plan of staying there for minimum 5 years and possibly forever. We really like the area, we deliberately sought out a property that had room for extending the house (large side entrance, long back garden etc.) so you’re point of FTBs rarely purchasing homes in which they want to remain would not apply to us.

The FTBs whom I regard as wanting to be “bailed out” are the FTBs who honestly believe, and are banking on, the certainty of a house price crash. I have met and know plenty of these. While everyone one is entitled to their opinion, FTBs who are banking on this event taking place are forgetting that such a correction would not occour as an isolated economic incident, especially in a country this size. The accompanying economic downturn would affect the whole country.

Note that I am not counselling that everyone go buy a house right now, I am merely pointing out that it won’t be as easy as some FTBs seem to think to grab a bargain in a downturn. There will be plenty of monied investors also waiting to “buy when there is blood on the streets”. FTBs might not get a look in.

Finally if an FTB buys a house without any intention remain in it long, then it is pretty obvious that they are doing so not to own a house, but to make an investment. And in any market, investment will rise as well as fall. My observations in this Great financial debate are based on being an FTB who has bought a property with a view to staying there long term.
 
fwiw, I'm with mouldy on this one. The market can remain irrational longer than you can tolerate (or whatever the quote is..) and all that. And this 'event' has been seen through almost messianic eyes in some people I know and always fails to happen. When it does happen, it won't be exactly as expected and will carry a host of unpredicted side-effects which will surprise all. Being an FTB won't be any protection and I sincerely doubt any of these people will 'get a bargain' at least on a net basis, i.e you might buy a property for 20% less but you'll forego that in wage growth, bonuses etc.
 
kellyiom said:
you might buy a property for 20% less but you'll forego that in wage growth, bonuses etc.
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this doesn't make sense - do you think that buying now will result in you having higher wage growth and bigger bonuses?

In a downturn, everyone will suffer but it's better to suffer with a small mortgage than a big one. With interest rates rising and the market slowing, FTB's are wise to think twice before jumping in.
 
Hi Mouldy,

Well put. I've been trying to get this point across but was unable to put it in a nutshell, as you have done. I already know some of these 'monied investors' waiting for a crash so that they can jump in at a cheap rate and buy for the long term (pension). I truly believe FTB don't stand a chance against them. They have the money, time, patience and are willing to take a punt. Granted, they won't take a punt on a house/apartment in the back of beyonds but they certainly will in the cities, particularly Dublin.
 
liteweight said:
I already know some of these 'monied investors' waiting for a crash so that they can jump in at a cheap rate and buy for the long term (pension).
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So if monied investors can take advantage of a crash, why can't FTB's?
Their deposit will go further and they will have a smaller mortgage!
 
whathome said:
So if monied investors can take advantage of a crash, why can't FTB's?
Their deposit will go further and they will have a smaller mortgage!
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Banks will be hurting from bad debts so they won't be falling over themselves to give FTBs mortgages like they are today.
 
no, I was meaning that if the crash happened, although a buyer (any buyer) would get a cheaper price on the house, it would probably mean that something bad elsewhere happens in the economy (as someone else was alluding to) so in terms of their overall net worth, they'd be flat as probably wage growth etc would be constrained. perhaps as in Japan, investors/consumers would clam up and so on. Getting a cheaper house in Japan after the crash was little consolation. And anyway how does the FTB know when it's a good deal. 10%? 20%?. How do they know that after a 20% fall, it doesn't drop another 20%? regarding monied investors, I just meant that they would have greater resources to withstand financial shocks to the system compared to FTBs.
 
Mouldy said:
The FTBs whom I regard as wanting to be “bailed out” are the FTBs who honestly believe, and are banking on, the certainty of a house price crash. I have met and know plenty of these. While everyone one is entitled to their opinion, FTBs who are banking on this event taking place are forgetting that such a correction would not occour as an isolated economic incident, especially in a country this size. The accompanying economic downturn would affect the whole country.
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I have posted on a couple of occasions here that a housing crash will not provide an opportunity to "snap up" a cheap property. Housing markets are illiquid and as such any correction will be played out over a 5-10 year timeframe rather than anything more short-term. This kind of thinking is profundly bullish I think, despite proporting to be bearish. Essentially, they want prices to drop low enough for them to buy in and after that they would like prices to return to a never-ending upward trend.

However, I fail to see why this should encourage people to buy now. If, say, a FTB holds off and buys in three years time rather than now, in what way will they have lost out? Provided they have continued to save, they should be in a better position to buy than they were three years previously, crash or no crash.

If there is a housing crash (which I firmly believe there will be) with an accompanying recession, the best possible position to be in would be to be debt-free rather than stuck with a 35 year jumbo mortgage. Someone with no debts and significant savings will have a far more comfortable recession than someone who is worried about having their house repossessed.
 
whizzbang said:
Banks will be hurting from bad debts so they won't be falling over themselves to give FTBs mortgages like they are today.
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Agreed, but that includes "investors" so everybody will be affected. Without the speculative element in the market, FTB's will have a much better chance even with lower mortgage approval and competition from 'monied investors'.
 
kellyiom said:
Getting a cheaper house in Japan after the crash was little consolation
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...but it was much better than getting an overpriced house before the crash.

Edit : To get this thread back on topic, I think FTB's who have not purchased yet should welcome rising interest rates as it will remove the speculative element from the market. It will also allow them to make more interest on their savings for a deposit. FTB's that have already purchased and have stress tested their repayments should have nothing to worry about.
 
whathome said:
Agreed, but that includes "investors" so everybody will be affected. Without the speculative element in the market, FTB's will have a much better chance even with lower mortgage approval and competition from 'monied investors'.
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True in so far that any savings they have will go further.

Essentially if there is a crash, cash will be king for years afterwards.
 
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