Hey guys, it's Sasha A new data published by: Rightmove UK Homes suffered the sharpest drop in price since 2018, and if you look at the report from Rightmove, everyone is focusing on this 1.9 drop in August compared to July because well, it's a big drop in just one month and you can see that the year on year number is now also negative. So according to this report, house prices are lower today than a year ago. If you read beyond the headlines and check the data, you can see that this index does tend to go up and down a fair bit. it was actually even lower back in December and you can see that the average asking price on right move is almost 365 000 pounds.

But at the same time, the official data from the land Registry says that the average price of which houses sell was about 288 000 in June about 23 percent lower and there are a few reasons for that: Rightmove data doesn't include every sale Private Sales and home sales of Specialist or very low value properties do not make it onto Rightmove and there's the fact that people's asking price is not necessary rarely what they end up selling for. It's probably easier to see the data if you look at the annual rate of change instead of the overall graph. You can see that when the pandemic hit, the annual house prices absolutely exploded and they were going up at about 10 percent per year in 2021 and in 2022. But in 2023, this rate of growth fell every single month so far and now sits at 1.7 in June which is the latest data point.

The big elephant in the room with this data is that the vast majority of people are still sitting on fixed home mortgages that were taken out when interest rates were close to zero and now we have something like 200 000 people a month coming off those fixed home mortgages and seeing their mortgage payments double regardless of whether you fix, roll into the standard rate. Do whatever you want. Nobody is really talking about it in the media, but we are going to see an entire generation of people not be able to afford to pay their mortgages. This is Extreme These serious data from UK Finance shows that the number of mortgages has been consistently falling over the last two years since interest rates started going up.

But look at the areas data. In the last year, we have already seen a nine percent increase in homeowners falling behind on mortgage payments and a 59 increase in buy to let landlords doing the same. But if you look deeper, it's a lot worse because in the detailed data, the number of homeowners who are only just starting to fall into arrears is 30 940 and it was 25 250. A year ago, that's a 23 percent year-on-year increase for buy to let landlords that number is 126.

I Have been warning on this for a very long time on the channel and I wasn't the only one back on the 18th of November Last year I made a video called the UK Economy is Completely and I said that very line in those very words within the first couple of seconds in the video, which got me demonetized but one day earlier, the Daily Upside Road dead markets in the UK looks set to send the housing market into a death spiral with inflation outpacing wage increases, unemployment rate creeping upwards, and shorter mortgage durations than the US Banks including Goldman Sachs are predicting a greater risk of mortgage delinquency in the UK than elsewhere. A stiff upper lip might not cut at this time, and boy were they right. But you would already have seen this coming if you read the Daily Upside who are the sponsors of today's video. The Daily Upside is a daily newsletter read by over 1 million subscribers, getting you up to speed on the most important business news once a day in five minutes.

I Am a long-term subscriber personally and highly recommended, not just because you can read the whole thing over a morning cup of espresso, but also because it's completely free and comes with an amount of sarcasm that I really very much approve of. Signing up is super easy. All you have to do is enter your email address, use my link in the description, or the pin comment. it'll just take five seconds.

and if for whatever reason you don't love it like I do, you can always unsubscribe. make sure you go and sign up. Now People are beginning to miss their mortgage payments and this number is unfortunately going to snowball because of the high mortgage payments. Rent is now cheaper than a mortgage for the first time since the financial crash according to the government's data, owner occupies, housing costs have gone up four point five percent in the last year, and then UK Roughly one-third of people have a mortgage and another one-third rent.

so that one-third with a mortgage are about to get completely wiped out, annihilated when their fixed term is up and the one third that is paying rent is now beginning to see their rent payments starting to Skyrocket While their landlords fall behind on their buy to let mortgage remember that original data. So it's no surprise that UK rents are now rising at a record Pace Because rents have to catch up to house prices. You can see the chart in the financial times showing how rent in the UK been going up in the last few months. And here's the thing.

Remember how compared to last year, 23 percent more homeowners and 126 percent more brighter than landlords have just started falling behind on their mortgage payments. Well, almost all of that increase came in just the last one quarter, and the Bank of England has absolutely no choice but to continue increasing interest rates in September The people who are already in financial trouble are now snowballing into being even further behind and has zero chance of ever coming out of it in a good way. If you can't afford one monthly payment today, you're probably not going to be able to afford two monthly payments next month. And because these customers only just went into arrears, they are only one or two payments behind.

In the banking industry, these things are called delinquency buckets. You progress through them from the early stages to the mid to the late stages. Then there's all kinds of charger proceedings, repossession of property, blah stuff you don't really ever want to get anywhere remotely near. And I can tell you that a huge jump in the early delinquency buckets jump this size is extremely rare and a very bad thing, especially if the reason for that jump is something that is likely to then exacerbate in the following months and make the problem worse.

Because those early stage delinquencies are going to roll through into later stages. When you owe two payments, when you owe three payments, when you owe four payments, when you've got penalty charges, a whole bunch of other stuff that you can't afford, Those early stage delinquencies are just going to get worse. In the coming two quarters. Suddenly, you're receiving nasty letters with big red writing telling you that you owe the bank a small fortune of money and your entire dignity.

Now, the Chancellor did put in place a sort of moratorium in the mortgage. Charter You can call your bank to extend the term of your mortgage or begin paying interest only. and if you fall behind, they're going to be nice to you. You know they're not going to take your house straight away, but in the real world, none of these options actually work.

Here is a simple example: Take a typical mortgage of 250 000 pounds that was taken two years ago and the interest rate was one percent above the Bank of England base rate. so it was a 1.25 Fast forward to when this mortgage expires in, let's say three or four months time, which is a situation for many people watching. and your new interest rate is also one percent above the Bank of England base rate, which by then is probably sitting at six percent. Your old mortgage payment was 971 pounds a month, your new mortgage payment is now 1 767 pounds a month.

pretty much double if you're an average family in the UK your old payment was about a third of your take-home pay. If you're an average family in London your mortgage is maybe more like 50 of your pay. So obviously there is no way at all that you can afford to pay this new amount. But you can go for the interest only option Because the government made it possible.

the interest-only option is just 1459 pounds a month. A bit more than 50 percent on top of your old pay moment. So even if you go for that option which by the way, means that you might spend years longer repaying your mortgage, pay many thousands of pounds in extra interest, You probably still can't afford it. That's the whole point.

Oh, but you can extend the term right? You can make the mortgage longer and therefore your monthly payments will reduce. Well, extending the 10 from 25 to 30 years makes your monthly payment 1663 pounds. Extending it to 35 years 10 years longer makes it 1597 pounds, Still almost double. Makes almost no difference.

If you pick any of these options that the government says are solutions there to help you, you are still completely And the problem is that even falling house prices don't really do very much. If your home drops from 250 000 pounds to 200 000 pounds or twenty percent drop, then technically if you were getting a mortgage on the lower value, that would be 1 414 pounds a month, still 50 up. But the issue is that your original mortgage does not care how far your mortgage has dropped and you are still going to be paying the original amount you took out on the original house price, but you might be able to make it work. You know, if you go for the interest only option at 1 1167 pounds a month, that's only 200 pounds a month more? I say only because it's a lot less than the other options I just discussed and I do understand I Am aware that an extra 200 pounds a month is very much not trivial for most people, but what happens six months later? Because remember, this interest only option is only available to you for six months, It is extremely unlikely.

It's impossible. It's extremely unlikely that inflation will be defeated. Interest rates will come down again in six months time. So the reality is that you're paying that 200 pounds a month.

In the best possible scenario, most people probably won't be able to get to that kind of amount. Yours is probably going to be more just to Kick the Can down the road. You don't actually solve anything. You haven't improved your situation.

You've made it a whole lot worse. You're just sitting there worrying for six months knowing that you're gonna get punched in the face by the mortgage payment when it eventually does go up after that interest only six month period is up. And the worst thing is that this six-month delay is actually costing you many thousands of pounds in extra interest that you will have to pay over the life of the mortgage because you only paid interest for that six month period. So what do you do? Well, if you sell your house, you may well be selling into a market where the house prices are continuing to collapse and then you'll either have to buy something that is a lot smaller or a lot further away from where you need to be or you have to rent.

And remember, rent prices are now starting to go up very sharply too, because remember, those landlords that are renting you the house are already starting to default on their mortgages at four times the rate of homeowners? This is nuts. But a lot of people are going to have no option. They will have to look at selling because they just can't afford the monthly payment. What we are seeing are the first extremely worrying signs of an economy that is buckling under the interest rate pressure.

The financial crash in 2008 was bad, but the equation was a lot less severe for regular people and regular people's budgets. The value of your house fell, but the mortgage payment was the same it was for the banks. It wasn't quite a for you, and if you manage to keep your job, you were kind of fine. You could continue making your payments today.

It doesn't matter if you keep your job, it doesn't even matter if your house price is falling Because the problem is that whenever that mortgage fixed turn up that you have is up. you're going to have to make some extremely difficult decisions. And the problem is that the people making the important calls, the decisions that have caused this don't understand this point. The rich who got us into this mess don't have to decide between paying for heating or paying for their mortgage.

They don't know what a food Food Bank actually looks like. When they came up with their solutions, they didn't seem to actually ask anyone who can do numbers to check if those solutions would actually work. And the problem is now so severe that you can't just go and apply some standard. Solutions Giving people a six-month respite or something like that, It just doesn't work.

It's too late for that. You have to come up with something that hasn't been done before because this situation is something that we've never seen before. This is only the second time in modern history that the UK The world has had a big inflation Spike and coming up with something that hasn't ever been done before requires brains. So it's perhaps not all too surprising that the UK government hasn't quite figured it out.

But hey, Rishi Sunak Jeremy Hunt The rest of you people sitting there, if you actually want to do something that might stop you from sleep, walking into a catastrophe, and being despised for the rest of your life by everyone, maybe you want to consider one of these few options I Suggest you get out of pen and paper so that you can take these down. Maybe go and read them again. Maybe they'll get stuck in your head. Maybe they'll prompt some actual thought.

Number One introduce a National Mortgage Insurance Scheme yesterday. Anyone who has a current mortgage and is not too close to retirement up to the age of 55 or whatever it needs to be, You decide allow people to apply for the government to pay their mortgage above a certain threshold that the household can afford without going bankrupt, make it broadly available, and then claim it back through a progressive tax system. A bit like how the student loan system works I Know people are going to be shining. Oh my goodness, you're getting people into debt.

Make it a progressive tax system so that people don't have to pay unless they're earning sufficient amount of money so that people can still afford to pay their basic bills and make ends meet. Do not make the scheme available on any mortgages or new property That way it is not inflationary in nature and people can then repay it through taxation. Down the line: the scheme can charge interest, but because it's not part of your overall mortgage, it doesn't compound in the same way. It's a separate thing and you're going to pay back a lot less in interest than going interest only on your mortgage or extending your mortgage term.

Make it clear: one-off policy that only applies right now because of the mess that we're are in right now and take it off the table after either the rates drop back down or a sufficient amount of time passes where the relative increases in mortgage payments are not doubling on renewal and people can actually afford to pay them. Option number two: Pass new legislation to enforce property loans, mortgages to be long term and ban the practice of short-term teasers. things like a two to five year fix If you're taking out a property loan for 30 years, the term of your payment and the terms of your payment should reflect the utility of the asset against which the loan is being secured. If you're buying a house, you probably want to live in it for longer than two years.

It makes no sense at all that almost all mortgages in the UK are fixed for two to five years, Because exactly the problem we're seeing today can happen where if interest rates suddenly go up, everyone is completely and utterly screwed. The reverse problem is also a problem. it's just not as visible. It actually happened 10 years ago.

interest rates were historically a lot higher, typically sitting above five percent. but then the government dropped them to solve the financial crash and forgot to then put them back up when the economy recovered and so suddenly everyone could afford a whole lot more house for their money. Which is precisely what they went on to do because the entire industry was set up to have a short-term mindset. So when the interest rates were low, mortgages were cheap because you know it's just short term, people began stretching their payments.

House prices went Bonkers for an entire decade. That is also not a good thing for a stable, long-term economy. House prices exploding just because interest rates are at near zero percent is bad and the reason is bad. Well, the reason is the situation that we find ourselves in now when interest rates eventually do have to go back up and the music stops playing.

Make lenders offer long-term fixed mortgages through new legislation, make lenders work out what the rate has to be to account for the fluctuations and interest rates for the risk of them going up and going down because Banks should be a bit better equipped at doing that than regular everyday people which is what you're forcing them to. You're making every normal person have to mitigate their own risk and make their own financial decisions which they are not equipped to do. And if the banks then get it wrong. That is kind of their problem.

It doesn't kick people out of their homes, it doesn't force people to sell because their back is against the wall. It doesn't create this giant off cost of living problem that we have. And a bonus option number three, Start to urgently pass measures to apply fiscal downward pressure to inflation. So far in this inflation cycle, the bank of England began very slowly increasing interest rates, but the government has done absolutely nothing to help.

There is no fiscal drag on inflation at all, and price controls are not the answer. That's not what I'm advocating. It's an economic disaster waiting to happen and it failed really badly when they tried to do it in the 70s. But there are plenty of other levers that the government does have access to now.

Many of these will not be popular for sure, but sometimes you as the government have to pick the lesser of two evils rather than just burying your head in the sand. The sooner this inflation spiral stops, the sooner this period can be over. And now that wages have started going up ahead of inflation as of the most recent data, it will not be a popular move. But wage increases in the public sector have to be moderated.

and the reason that they have to be moderate is because that's the only set of wages that the government realistically can moderate without some very Draconian policies. And I know it's hard because people don't earn very much money and the cost of Living crisis I get it? But giving six percent or eight percent pay increases only makes this entire problem worse. for everyone, including the people who are getting the increases, they just don't see it directly. They see it indirectly when despite the increases, they're still financially.

Consumer protection laws need urgent updating to prevent price gouging. The practice of having your monthly subscriptions go up in price by a ridiculous amount because the company's profiteering in the back of inflation is wrong and needs to be. Stamped Out The practice of contracts where you're paying a monthly thing over a fixed period and then rolling off that and having to pay double for no reason whatsoever for exactly the same service should not really be a thing that we have in today's society. and these are just just a few random initial thoughts from you know, a random guy on YouTube I am guessing though that absolutely nothing is going to happen because that's what's happened so far.

Absolutely nobody in the UK government will actually do anything about this huge problem because nobody actually has a backbone and when this whole thing spectacularly blows up, destroys people's lives, makes for impossible levels of real inflation which includes property. We will hear a whole load of stories saying how absolutely nobody could have seen it coming.