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

We have been toying with the idea of moving but not now. We can cope where are but if we had extended the mortgage I'd be very worried. As a kid we lost our home in the recession and I would rather a smaller house than put my kids through that.

I work in construction so if that tanks I have to worry about job security.

Our mortgage is 1500 at the minute, fixed until august.

Do all fixed rates expire in the UK? I live in Spain and you can have a variable, mixed (so fixed at the beginning and then variable) or fixed forever. I have 18 years left on my mortgage (out of a 25-year term) and changed to fixed this summer. So my mortgage is now fixed forever, until it pays off. It was worth it because I was able to fix at 2.8% which is only 1.8% in practice with the bonus from taking the bank´s life insurance. But even at 2.8% I´d have taken it.

@OrangeBlossomsinthesun yes they do unfortunately. I would love to fix now for the term! How does that work for the banks though?

The interest rate is is why the dollar has managed to stay stable compared to the other currency’s

My ERC is about £9k too but it goes down quite dramatically in a few months to more like £2.5k.

Two years away feels like just enough time for things to have stabilised a bit, so not sure I'd fix now when everything does seem very volatile. I think if I had 18 months left or a year I'd be tempted, though. Maybe when the ERC goes down I should do some sums and work out if fixing early would mean we paid less overall.

The other factor is that both DH and I expect our salaries to increase after I go back to work and by the time our current fix ends, especially DH who's studying for a qualification which will definitely improve his prospects. This of course assumes that the entire economy is not about to tank and our jobs remain secure (DH's previous employer did make some redudancies during Covid so we're a bit wary although thankfully his job was OK). I guess if that happened we'd have bigger fish to fry than worrying about when to remortgage.

Mortgage paid off but when I bought my first property in 90s interest rates were 15% could only afford a very small flat at that time. I think people need to realise that they need to live within their means but that means allowing for high interest rates and price rises.

I think people need to realise that they need to live within their means

🙄

I don't know. Usually the fixed rates are higher to compensate for the bank losing out if rates go up a lot but at a base rate of 2.8% forever I thought it was worth it. In practice I'm not even paying that, it's 1.8% but they make me have products like life insurance house insurance and so on. But I had some of them anyway with the bank and would have them with someone, regardless. As one of my products I took solar panels because they are really worth it here in southern Spain. I suppose they reckon they're making money on the financial products.

Fixed until next year . Feeling very glad I choose a smaller more affordable house instead of using what I could’ve borrowed.

Will be a struggle after my fix is up. I didn’t appreciate how much everything would go up.

Interest rates were 15% for a few hours, so firstly let’s not over emphasis that. Furthermore, loans were generally 3 x income, or 2.5 x joint.

Compare that to what you salary would buy you now.

3% on an £150,000 mortgage is still more than 10% on a £40,000 mortgage. The maths doesn’t change for this. The problem comes when rates rise for those holding 150k of debt due to irresponsible lending and a drive towards ever increasing house prices.

And let's be honest if interest rates were 15% now people wouldn't be saying "oh I can only afford something small". They wouldn't be buying anything!

We stressed test to 7/8% before taking mortgage so yes. Parents made me as they experienced 80s inflation.

Love your comment.
I really hate some (older) people who only know how hard they have been, but ignore nowadays people facing even harder situations. and judge the younger wasn't doing good.

Yes we could just about scrape it, as long as we both kept our jobs. We recently fixed for 10 years however so not something we have to think about at the moment.

I'm more concerned that loads of people will lose jobs and that will affect people's ability to pay, more than a hike in rates would.

Yes. I fixed earlier this year for 2.39% for 3 years. Am kinda thinking I should have fixed for 5 years at that rate.

However, when that ends I can withstand rate rises of up to around 15% so long as my job remains stable etc. Maybe even as high as 20%, though it really starts to get ugly then and would require some pretty harsh cuts in other areas.

Like others, I'd hate to have to spend all that money on interest but that's just feelings.

Mass job losses would be the thing that really screws everyone over.

It's when it goes beyond 7% I'm worried about.

And the housing market in general. If people can't get a mortgage at 7% that they would have been able to get at the old rate (or possibly already had agreed until this week) they can't buy, so houses won't sell, so won't the housing market collapse?

While Im not condoning the stop buying avocado people, the reality is many people lost their jobs and homes or were in negative equity for years in the late 80s crash.
It was very very bleak.

Mortgages are so much higher now than they were in the 1990s. I didn't know anyone with a 500k mortgage as a child, but now that's a very ordinary family home in the South.

I expect mortgage rates to go to 7.5% when the base rate goes to 6% as it is expected to. That's going to make quite a difference to people's payments.

We bought last March and "stress tested" ourselves to 10% interest rates. As a result of the somewhat terrifying numbers we borrowed only 60% of what we could have, and bought a much smaller house with no off-street parking and a patio instead of a garden. It's a squeeze but I'm so relieved we didn't overextend ourselves, it's taken a (tiny) bit of the potential for sleepless nights out of the current scenario.

Watch us now lose our jobs...

Average increase on council tax £10 per month
on utilities £100
mortgages £100 on £200k loan
petrol £40

food shopping £75

so a decent rise of £325 average raise in the cost of living

without pay rises

I feel absurdly fortunate because I fixed for 5 years at 1.49% which goes through to 2026. I'll only owe about £25k still then so I won't be very sensitive to changes in the rate.
However, I'm risk averse and have always fixed for 5 year chunks - I was on 3.99% for 5 years from 2006 which obviously then was for most of the term well over the SVR. I fixed again after that for a bit less, but I think now is the first time in 15 years that my rate is below the SVR. I don't regret paying what I did though. I really value the peace of mind that comes with having a fixed payment that you can budget around.

I'm the same, fixed for another 5 years this time last year, mortgage now has 5 years left. Over that time have always fixed for at least 5 years and, as a result paid more than I might have - but have valued certainty above all. I think I was haunted by those years growing up when people were scared week by wee that the mortgage rate was rising. We've also been in the same 3 bed semi all that time bought in my 20s on a 25 year term.

I know what you mean about being "haunted". I think that's exactly why I've always fixed. I remember when I first bought in 1993, almost everything I looked at was a reposession, and people had torn out kitchens, boilers and anything worth a bit of money to try and salvage something from the disaster. It's really hard to describe that sense you get in those properties of the previous owners' distress. And I remember my shock when I saw the Land Registry details of the prices they'd paid compared to what the properties were being sold for, those people were probably still as much in debt to the bank as I was - but I had the flat and they had nothing. It leaves that fear with you.

My mum's friend and her kids spent a lot of time with us after they were repossessed in the 90s because the place they were sent to live in once homeless was so shit.

Still, the word "repossession" sends shivers up my spine.

Jumping from about 1.4% to 7% is going to be rough, but we'll have to manage. I can't even imagine 15%. I daren't even put that into the calculator to see how many thousands a month it would be.