Can you cope with 6/7% interest rates when your mortgage expires?

[onthefencesitter]

www.bankofamerica.com/mortgage/mortgage-rates/

American interest rates are at that level now and given the level of tax cuts that are going to be implemented, I think we would be at 6/7% at least by next year, perhaps even 8%

Vote YABU for no.
Vote YANBU for yes

Huge drops like that will decimate the economy, look at the state it's in now.

6/7%+ wouldn't be impossible for us, but it would be very uncomfortable, and we factored that in to our thinking when we chose a 10 year fix. I suppose if you feel higher rates are more affordable for you the balance of risk might be different.

I think we're heading into an era of higher inflation & interest rates than the past 12-13 years. That said, the best indicator of future interest rates is the bond market which is pricing in the Bank of England (and other central banks) essentially breaking their economy's in order to bring down inflation resulting in them having to quickly reverse the rate rises we're currently seeing from around spring/summer next year. So if you need to remortgage next year it might be worth holding out on the variable for a few months and monitoring the trajectory of the rates before fixing again.

^Pineapple* please explain further- thank you for this. Any clues as to how long this period of rises could last are helpful for us to factor in. What exactly should we be looking out for?

I agree, for most people that's the better option. I have friends who went for interest only in the expectation of career advancement, inheritance etc. In most cases, those expectations weren't met for various reasons and their retirement plans have been scuppered by the need to downsize to repay capital.

I recently took a five year fixed rate to ensure I can afford my mortgage.

There are suggestions you should do this, even if it means an early repayment charge.

@Pineappledpizza I would also like to know more. Do you have any links explaining further?

Yes. It won't be fun and would mean serious cutting back, but we'd manage.

The BoE's main measures will be year-on-year & month-on-month core inflation (Ex energy) readings and employment readings. At the moment the labour market it very tight so they're comfortable hiking. If this starts reversing together with the M-o-M inflation figures coming down this would be a good clue that the BoE may start cutting.

Thank you Pineapple. Do you think we should assume that the BoE would like the recent years’ very low interest rates to be the norm and will try to get back to that norm?
Or, will they rather to aim for slightly higher but steady interest rates, which historically have been higher, with the idea of discouraging people from taking on the absolutely huge household debt for housing costs, that we are seeing over the past decade?

Our fix was due to end in December but we refixed early in August with only a marginal increase. Hope to have it all paid off in the next 3 years..by which time we will be in our 60s and stuck in an upstairs flat as we age..

The BoE's mandate for many years has been to achieve 2% inflation and that is really all it's intersted in (though rarely has it acheived this!). It will be interesting to see if this gets revised up in this new environment. I believe there are a number of macro economic and political factors that will prevent us from getting inflation back to the very low levels we've had recently, which means the new norm will likely see higher interest rates than we've had in recent years. Though as I said in my earlier post, in the short term the bond market expects central banks to break their economies in the fight against inflation which will likely result in a rapid reversal of rates at some point next year.

In the USA, mortgage interest is deductable against tax, hence not comparing apples with apples.

I have a tracker mortgage so mine goes up immediately. I can cope, but I am lucky.

Also the rules are different - in the USA if you end up unable to pay your mortgage, you can just give up and hand the keys back to the lender with nothing more to pay. In the UK the lender can come after you for the costs of them selling your house and any negative equity, so the consequences of unaffordable rates are greater here.

Things looking even worse this morning with the £ at an all time low - but I have just been offered 3.8% fixed for 2 years during which time we hope to sell. The APRC is 4.8% - we are currently on Halifax SVR at 5.24 and expected to rise in the next month - so this seems like a bit of a lifeline? Will make our payments £518 a month fixed instead of currently over £600 and rising. It’s not ideal but I’m thinking it’s a reasonable deal.

I'd say that's reasonable too. We have just secured a 5 year fix at 3.8%.

The Tories are totally butt fucking us - what on earth are they thinking?!

Of themselves. It’s a smash and grab because they know their days are numbered.

We’ve just bought our first home, went for something well below what we could actually afford to make sure we can weather the coming storms. Mortgage will be £450 p/m at 4%, fixed for 2 years. Given that we’ve been used to paying £1350 in rent plus full time nursery fees, knowing we can afford higher rates in future still feels much more stable than staying in private rentals, even with the risk of ending up in negative equity. Our rental house has just gone back on rightmove for £200 more than we’re currently paying so it does feel like a lucky escape.

Sort of now wishing we’d stayed in our old house where we would have been completely mortgage free. Sigh.

Where do you find such percentages? The average cost of a mortgage loan in the United States is, depending on various conditions, 3.5-7% per annum. If a resident of another country decides to issue a loan, for example, Russia, then the rate may be increased by 1-2% due to the risk that has appeared. It is worth noting that there are two rates in this country: floating (can change every few years) and fixed (set for the entire period of payments). I managed to find a mortgage with an interest rate of 3.3 percent with the help of Equity Release Harrogate.

That's either a small mortgage or a very long term.

I'm in the SE and mortgage payments are definitely not less than half the rental prices!

We can afford it but it won't be especially fun. We're on a 5 year fix at 2.19% for the next two years. Assuming we only make the minimum payments over the next 2 years, we'd have about £250k left on our mortgage and if our rate went up to 7% we would need to pay £500 a month more than we are now.

DS1 starts school the month our current fix is due to end, so our childcare bill will go down then, although DS2 won't get the 30 free hours for another year so we'll still be paying out a fair bit for childcare. It would be nice if we could try to overpay the mortgage until our fix is up but I'm on mat leave now and when I go back to work we will have two DC in childcare, so we don't have much headroom for the next 2 years.

I think the 250k is likely to be just over 70% of our house value so maybe if we overpaid just enough to get it under that would mean we could access better rates if we fixed again? Not sure, and who knows what house prices will be doing by then.

are you thinking of fixing early? My ERC is hefty, nearly £9k. I am in a similar position to you, mortgage deal expiring in 2024 and mortgage balance would probably be £250k due to overpayments/savings.I can afford 7 % or 8%, as I have been overpaying £1000 per month. I am unsure of whether to fix now as the government may pull out some schemes to help mortgagors. I would not write that off.

No DC though and i am 30 so may wait a little for things to stabilize before TTC.