Bank of England Base rate & other news

[JustKeepSwimming]

thinking must be hard today.

I am saying lack of housing supply is why prices are so high.... DESPITE wages increasing only a small amount over the same period.

Two income households.

House building numbers.

Low interest rates.

All play big roles, but interest rates have had the biggest impact.

If interest rates remained at this level you would expect average house prices to fall from 280k to 180k. 180k being in the region of 3.5x average household income. Both with same % deposit would have roughly the same monthly repayment.

[JustKeepSwimming]

Sure but if they suddenly ALL get a VAT increase, guess what happens...same goes for services, tax increases normally end up being pushed to the customer, sooner or later. It might not be a sudden jump of 2-5% or whatever the tax increase is, but it happens anyway.

It would happen after excessive profit margins have been squeezed. Raising VAT now will take money out of the economy and into Government coffers, which is deflationary.

You can then lower VAT when inflation subsides.

[Lance]

Two income households.

House building numbers.

Low interest rates.

All play big roles, but interest rates have had the biggest impact.

If interest rates remained at this level you would expect average house prices to fall from 280k to 180k. 180k being in the region of 3.5x average household income.

if that was true Gricer, then house prices would have risen more after 2008, Than before. Which isn't what happened. There was a surge during Covid, primarily due to the stamp duty holiday designed to save the market (not that it needed saving - buy hey ho).

[Lance]

another source

How UK Interest Rates Affect House Prices (Graph & Data) (propertyinvestmentproject.co.uk)

So I say again. House prices went up before the crash despite high interest rates. More than trebled between 1990 and 2008 (330%)
And after the interest rate drop they went up by 65% to reach the peak in 2022.

So during high interest we saw 330% over 18 years = 18% per year averaged...
And during low inflation we saw 65% over 14 years = just under 5% per year averaged....

[JustKeepSwimming]

if that was true Gricer, then house prices would have risen more after 2008, Than before. Which isn't what happened. There was a surge during Covid, primarily due to the stamp duty holiday designed to save the market (not that it needed saving - buy hey ho).

I do not know who or what Gricer is.

Interests rates went from 15% in 1990 to 4ish pre 2008. Add in the next to no stress testing, 110% self certified mortgages? You would expect to see sharp increase in prices.

Equally you would expect to see prices growth in % slow as it reaches the limits of actual affordability.

more houses were being built up to 2008 than after. So by your logic if that is the key element why was post 2008 price rises lower than pre 2008? Add in net immigration went off the charts post 2008 compared to pre.

[willendure]

> Equally you would expect to see prices growth in % slow as it reaches the limits of actual affordability.

With the rise from 0.75% to 5% happening so quickly that means the the limit of actual affordability has made a big move. You also have to wonder, why are house prices not counted when determining inflation? They are almost the definition of inflation!

I find it amusing that lots of poeple think this is a temporary thing and is going to get fixed relatively soon. When in fact its the last 14 years that were the temporary anomaly, and now we are reverting to the longer term average for interest rates.

But why? Because with the retirement of the baby booomers capital flow was substantially reversed from a flood of money chasing diminishing returns, to being drawn down into their pensions and turning off the tap. Interest rates ain't going down again for at least 20 years, and demographics says even longer than that in Europe.

So the limit of affordability is now also, can you last the next 20 years at todays interest rates?

[dsc]

Today the average house costs 8x the average wage (£250k house £30k wage).

I know we are talking average, but bloody hell houses must be cheap somewhere as everything in our local area is like double those figures easily. Yes wages might be higher, but not necessarily double...

[BlueSharp]

I do not know who or what Gricer is.

Interests rates went from 15% in 1990 to 4ish pre 2008. Add in the next to no stress testing, 110% self certified mortgages? You would expect to see sharp increase in prices.

Equally you would expect to see prices growth in % slow as it reaches the limits of actual affordability.

more houses were being built up to 2008 than after. So by your logic if that is the key element why was post 2008 price rises lower than pre 2008? Add in net immigration went off the charts post 2008 compared to pre.

Don't forget September 1996 was when BTL mortgages were introduced, which is when prices started booming as houses were no longer homes but tax savvy investments.

[jamesbrown]

I do not know who or what Gricer is.

Sure thing, Gricer

[vetran]

So why don't Tesco just charge £2 a pint of milk? Because if they did Sainsburys would undercut them. Competition is what puts downward pressure on prices and profits.

So company has a choice, cut their profit margins or lose market share. They don't get their cake and to eat it too.

unless of course you have a cartel.

Milk is sold per pint and most retailers organise the bottling.

Milk is about £1 a pint in the shops yet £1.65 for 4 pints.

remember its 1.75 pints per litre so 39.43/1.75=22.53p per pint so 500% profit margin on a pint. only 100% profit on 4 pints.

https://ahdb.org.uk/dairy/uk-farmgate-milk-prices

• The UK average milk price for April 2023 was announced by Defra as being 39.43ppl, down 4.15ppl (9.5%) on the previous month.

retailers have a lot of bottle!