Hey guys, it's Sasha House prices in the UK are crashing for the first time since the financial crash. According to the latest data from the Office of National Statistics, house prices fell 2.1% year on-year in November 2023 and you can see from the direction of the curve that it's looking pretty bad for house prices. It's not surprising that UK house prices have started to collapse. In fact, it's surprising that it took this long for it to happen.

Interest rates in the UK went up at the fastest rate in history and now sit at 5.25% Interest rates started going up just over 2 years ago. In December 2021, the Bank of England base rate was just 0.1% as the Bank of England rate went up. So did the mortgage interest rates. The very best mortgage rates available today are around 4% with a hefty fee.

If you don't get the very best, you're going to be paying a bit more. And also if you don't want to fix 5 years, you will also have to pay a bit more. Two or three years ago, you could get a mortgage for about 1% just a little bit over if you bought a 250 50,000 House 3 years ago at a 1.2% interest rate. By the way, that's the interest rate that I had on my mortgage three years ago.

So if you bought a 250,000 house over 25 years, you would pay 965 a month. Right now, mortgage rates have fallen because Banks expect the Bank of England rate to start falling back down this year. Some people are expecting this to happen next month or the month after. It's unusual for mortgage interest rates to be significantly lower than the Bank of England base rate, which is what's happening right now.

But if you wanted to buy that same 250,000 house today on a 4.5% interest mortgage, your monthly payment would be 1,389 44% more per month. Depending on the data that you use, People in the UK spend around 40% of their take-home pay on their mortgage. According to the Office of National Statistics, the average wage in the UK has increased by 177% in the last 3 years years. So that means if you used to pay 40% of your take-home pay for your mortgage 3 years ago, your pay has increased 177% but the mortgage has gone up 44% The same mortgage today will take 50% of your takehome pay.

So to keep living in the same house now costs you 10% more of the total money you make. And finding that much money for most people from thin air is very hard. Remember that 3 years ago, to buy a$ 250,00 000 home, it would cost you 965 a month on a 25-year mortgage. Well, if you wanted to pay the same amount today, you would only be able to afford a house worth 74,000 So the same monthly payment can only buy you a house worth 30% less.

So it's somewhat surprising perhaps that house prices have only just started falling and have only Fallen 2% in the last year. Now, The thing that makes it even more surprising is the fact that we have have gone through a period of high inflation. The official rate of inflation at the moment is 4.2% but this rate does not properly calculate Energy prices and it completely ignores mortgage costs, which just happen to be the biggest monthly payment for most people. and that payment is going up 40 to 50% whenever your fixed term runs out.

So not only are people struggling to afford house prices, people are also struggling to afford well, everything else. and that makes saving for a deposit a whole lot harder. It will take you longer, some people don't have any extra Surplus money at all, and the less money you make, the harder it is because inflation hits those on low incomes the hardest. The two items that have gone up the most out of everything in the last two years are food and energy, and those two things take a much bigger proportion of your take- home pay if you don't earn a lot because we all have to pay for food and your electricity bill.

But here is something really interesting: in November 2019 before Co happened, there were 110,000 homes sold in the UK, but in November 2023, the latest available data only 87,000 something got sold. That's a drop of over 20% Now to understand this a bit better: I Picked a random location in the middle of the UK and accidentally chose Coventry Looking at house prices under 200,000 you can see that many are slashing the asking price right now. This one was listed at 220,000 Just 4 weeks ago and is now down to2 200,000 Scrolling down, this one has had 10,000 knocked off on Boxing Day. the next one is 30,000 cheaper them when it was first listed and you can put some of this data together to understand why.

house prices have only just started falling and only fell a little bit when times get tough. Like what we've been going through recently, the poorest get hit disproportionately. So they definitely can't go and afford to buy a house. So the total number of house sales drops by 20% but that 20% is going to be very heavily skewed towards the cheapest houses.

If you're rich, you have loads of assets you have Investments Whatever. The fact that pasta now cost twice as much probably doesn't affect your ability to buy a house. So what happens is that the cheaper end of houses are not selling. so when you look at the total Spectrum it is the cheapest ones that are not selling.

And that means that the average of the houses that do sell kind of goes up or at least counters the drops in house prices. The reality is that house price are down a whole lot more than 2% if you normalize for the distribution of the average house price. but nobody publishes the data, so there's no way for me to really prove this. But I can show you some other data that looks, well, a lot worse.

Here is the latest FCA Mortgage Lending statistics and check out these two bullet points here. the value of gross mortgage advances increased by 18.6% from the previous quarter, blah blah blah not important, but remained 27 . 6% lower than a year earlier. So new mortgages have dropped by 27.6% In This latest data.

But even worse is the next point: The value of new mortgage commitments that's lending agreed to be advanced in the coming months was 41.4% lower than a year earlier. So the mortgages that have already been agreed but haven't gone through yet have not yet completed are down a whole lot more over 40% So we already know that this is coming. We already know that this will be the data in the future because we can see the data. We already know that how sales are collapsing and naturally so are the house prices In the latest Bank of England data.

Mortgage areas in Q3 last year were at 8.8 billion, which is 45% higher than a year ago. So the number of people who are struggling to pay for their mortgage is increasing very fast. Now it's still not very high in the grand scheme of things that 18.8 billion p pounds is only 1.14% of the total outstanding mortgage balances in the UK. But remember that this statistic is also going to be massively skewed by expensive houses the rich people buy because the rich guy buying a 2.5 million pound home is a lot less likely to struggle financially than the person buying a 250,000 house, They're a lot less likely to miss payments.

and that rich person not struggling is equivalent to 10 people with the cheaper 250,00 000 houses. Those people struggling in this data because his house is worth 10 times as much and because the data is run on balances, that one person is kind of equivalent to 10 people on Lower incomes. Now remember, even more importantly, it takes time to buy a house. The latest data on house prices is for November 2023 and the average time to buy a house in the UK is 4.5 months.

So the sales that happened in November. The sales that were officially registered in November are from people buying their houses in June and July. Now we're in January right now. So November data is already 2 months out of date.

But this extra lag with a 4.5 months means that the data we're seeing on house prices is really more like 6 to 7 months behind the prices being agreed by buyers and sellers right now today will only know those prices in six to 7 months time. And the reason that's really important is because the crunch of interest rate increases has only just started. So if it's only just started, we haven't seen the data for it yet. I Share this analysis A lot of my videos I went and collected a data on when people who hold mortgages in the UK today took out those mortgages and I then overlaid the impact of increasing interest rates on that data to try and see when people are going to see their monthly payments go up.

and this is the chart. I Apologize because I showed this same chart in a recent video this week, but it's really important. It's a chart that basic basically multiplies the number of people coming off their fixed term mortgages by the relative increase in interest rates since they took out their mortgage. So the higher this number is, the more people are because they suddenly can't afford to make their monthly mortgage payment.

And you can see that the latest data we have, which is Q4 2023 is right here when the fund starts and then also remember that people's mortgages are the most important payment that people have. So when the mortgage payment goes up, it's not like the very next month month people go into. AAS The process will be very drawn out and a lot more ugly people will take time to get there. Some people will have a little bit of savings that you can start dipping into and that's exactly what people will be doing right now now.

Then people will start racking up debt. They'll go and spend on a credit card and not pay that credit card back in full just so that you can then pay the mortgage. People will be sitting there biing their time. You know? maybe interest rates will come down in a few months? Maybe you'll get a bonus? Maybe you get a higher paay job and then then you can repay that credit card.

But your mortgage is going to be fine. So first people will get into debt. then people will start missing payments on that debt. But they won't start missing payments on their mortgage because the mortgage is the most important thing.

No, First people will start missing payments on their credit cards. And I Know this because I've seen it before before the financial crash I was working at Capital One and way before the crash happened before it started, the delinquency rates on credit cards started spiking. This was the same for all credit card companies. But why? Well, if you don't have enough money, if you have to choose what it is that you pay because you can't pay for everything, you will still buy food, You will still pay for your gas and electricity bill.

You will still pay for petrol. You will still pay rent or your mortgage because those things are really important. You can't live without those things. You'll also still pay your mobile phone bill because you don't want to get cut off.

It's very important right? People will still pay for all of their online subscriptions Etc But pretty much the first thing that people stop paying is the credit card. It's a bit like the canary in the coal mine. And here is some latest data from FICO Average UK Credit card spend is up 6% in the last year. Average card balance is up 10% In the last year, payments to credit card balances are down 7% Accounts with One Missed payment are up 7% Accounts with two missed payments are up 12% Three missed payments is up 19% because people are finding it hard I Know I know we'll go for a walk in a minute.

Once you miss one payment, you are a lot more likely to miss the second and then the third, and so on. And after you miss six payments, you're going to default. There's going to be courts involved, there's going to be debt collectors, and it's going to be very ugly. So the canary in the coal mine is dead.

House prices have started to collapse and the data we can see already points to what might happen in the future and that future looks pretty bad. The UK government continues doing absolutely nothing about it because Richie Sunuk and Jeremy Hunt have no idea what the it is that they are doing. Their only suggestion so far is to get people to pay interest only on the mortgage for 6 months. You know, if you're struggling, that's a great idea or to go and take out a 40-year mortgage.

Both of these suggestions or policies I guess are incredibly bad because they just kick the can down the road. They pile a huge amount of debt onto people who already can't afford the debt that they already have. It makes them pay tens of thousands of pounds extra in interest for no good reason. But then again, what do you expect from a billionaire Ex: Banker to actually give a and to care about people? Hold on to your hats.

The next few months in the UK are going to get ugly.