Interestrateswere5%inmid-2008and0。

5%attheendof2009。

Thatsimportantbecause,inthemain,itisnottheactualpriceofahousethatdeterminesitsaffordabilitytotheaveragebuyerbutthepriceofthecreditthathecangethishandsontopayforitwith。

So,allotherthingsbeingequal(which,ofcourse,theyneverare),ifrateshalve,weshouldntbesurprisedifhousepricesdouble–particularlyinacountrywheremostpeoplestillthinkyoucantlosewithbricksandmortar。

Yetinthepast18months,rateshaverathermorethanhalved–theyvefallen90%–whilehousepriceshavebarelybudged。

Why?

TheanswerwasneatlyexemplifiedthisweekbySkiptonBuildingSocietyasitsmanagementrippeduptheguaranteeonitsstandardvariableratemortgage。

Untilthisweek,borrowersthoughttheyhadapromisethattheywouldneverpaymorethan3%overthebaseratefortheirloans。

Itturnsouttheydidnt:fromnowon,theyhavetopaywhateverSkiptonwantsthemtopay(4。

95%atthemoment)。

Thatmeansthatsomeonewithaninterest-onlydealon£200,000willseetheirmonthlypaymentsgofrom£583to£825–ariseofmorethan40%。

Skiptonhasntbeenaloneinitsreluctancetochargeratesanywherenearthebaserate。

Indeed,asJamesFergusonofPaliInternationallikestopointout,formanypeoplethecostofmortgagedebthasnotfallenmuchatall。

Hepointstooneofthefew90%loan-to-valueproductsonthemarket:Nationwidestwo-yearfix。

Itisntcheap。

Itcomesin,includingfees,saysFerguson,atabout6。

5%,almostaten-yearhigh。

Itis,ofcourse,perfectlypossibletogetabetterdealifyouhavealotofequity,butthefirst-timebuyerswhoaresupposedtobethelifebloodofthemarket,bydefinition,donothavealotofequity。

SpecialFREEreportfromMoneyWeekmagazine:Whenwillhousepricesbottomoutandhowwillyouknow?

WhyUKpropertypricesaregoingtofall50%

Whenitwillbetimetogetbackinandbuyuphalfpriceproperty

Andthingsarentthatmuchbetterelsewhere。

Thelastyearhasbeencharacterisedbyagooddealofgloatingfrommortgageholderswhoarestillontrackerstakenouttwoyearsago。

Butthosedealswillsoonexpire。

Andwhentheydo,would-berefinancersaregoingtogetashock。

Theyllfindthatiftheyhaveequityof25%ormore,theycanshiftontoastandardvariablerateataround4%(or4。

95%atSkipton,ofcourse)–ortheycangetanewtwo-yearfixatroughlythesameprice。

ThatsOK,inthatwhentheytookouttheirmortgagestheyprobablyexpectedtobepaying5%bynow。

Butitisstillthreetofourtimeswhatlotsofthempayontheirolddeals。

Iftheyhavelessequity,thingswillbeworse:itllbetheSVRor6%。

Soundsnasty,doesntit?

Itmightbeabouttogetawholelotworse。

Theinflationnumbersthisweekcreatedyetanothersurprise–theconsumerpricesindex(CPI)hit2。

9%。

ItisunlikelythattheMonetaryPolicyCommitteewouldgosofarastoraiseinterestratesbeforetheelection–itwouldntmakesenseforthemtodosobeforetheyseethenewgovernmentsfiscalplan。

ButiftheCPInumbersstayhigh,itispossiblethatrateswillriselaterthisyear。

Andwhilemortgagerateshaventcomedownwithinterestrates,youcanbetyourkitchenextensionthattheyllrisewiththem。

Thenwhatwillhappentohouseprices?

Icantbelievetheywillcontinuetorise,particularlygiventhestateofthelabourmarket。

Theunemploymentnumbersoutlastweek,whilespunaswildlyencouraging,wereactuallyawful。

Theyshowedalossof113,000full-timejobs,anastyriseinthenumberofinvoluntarypart-timeworkersandyetanotherfallinrealwages。

Theheadlinenumbershowedtheweeklyaveragewageup1。

1%,lessthanhalftherateofinflation。

Worse,thenumberwasonlypositiveatallbecauseofa3。

8%riseinpublic-sectorwages。

Knockthatoutandtheaverageprivate-sectorworkerendedlastyearaboutwherehestartedit,eveninnominalterms?

Thisisimportantsimplybecause,ifweknowanything,weknowthatthecurrentlevelofpublicsectorspendingcantgoon。

Whenthenewgovernmentcomesin,taxeswillriseandsalariesandjobswillbecut。

ThatmaybringonanewfallinGDP(notethattherecessioncausedbytheremovalofstimulusmeasuresinJapanin1997causedanewoneworsethanthatwhichthemeasuresweretryingtocure)。

Butevenifitdoesnt,everyonewillstillhavelessdisposableincometochuckaroundthehousingmarket。

Bubblesneedmomentum。

Thehousingmarketlostitsmomentumin2008。

Itclawedalittleofitbackin2009。

Butitishardtoseewhereitisgoingtogetanymorefromin2010。



ThisarticlewasfirstpublishedintheFinancialTimes

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