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

Oh, but if we could!

The rough scenario is that that poster took out a mortgage on their first home (mortgage 1). At some point down the li e, they’ve borrowed money/added to their mortgage for, say, home improvements. And, for simplicity, done the same again,

Am guessing they’re still with their original mortgage supplier. Each time you borrow more, it’s always set up as a “new’ mortgage - depending on current rates etc.

Oh feck.

We live in a tiny not great house but would struggle to afford that kind of rise. We just don't have a great income. We're on a tracker which I think is ending in Feb 😭.

I really don't know what we'll do. Move to interest only? We only have about 25% of the house to pay but that's mainly due to house prices increasing so house worth increasing. We are screwed.

@ChocolateElephant we are screwed too tbh. Our current mortgage is 2.58% and we are just about keeping heads above water so no idea how we will manage when the energy deal ends in November and mortgage deal ends (should be July but NatWest you can switch 6 months before) current deals are approx at least £70 more a month and that’s without the increase between now and January

LemonSwan But we won’t be able to afford bread after this winter because of the cost of electricity needed to make it and the worldwide wheat shortage (partly due to Russian invasion of Ukraine). Hopefully with a bit of work we can become self sufficient on dust and shed dog hair as our staple food from 2023. Not sure how else we’ll be able to make it work. The Tories won’t be saving the likes of any of us if they already think bankers need financial help.

When we first got our mortgage it was £270k, we're now at £193k. Our 1.94% interest rate ends November 2023 and my salary will have reduced due to childcare PLUS we will be paying 2 days a week nursery which we weren't before.

Due to inheritance we will overpay £50k so I'm hoping that makes a dent

it's all very depressing, I'm not so much worried about the repayments but the impact of having everyone's money servicing higher housing costs & bills. Isn't that going to have a big impact on jobs?

We’re on a fix for another 6 years so who knows where we’ll be by then. Our repayments are £2k a month now and if they doubled we could do it but we’d be pretty wiped out, lifestyle adjustment required certainly.

Yes, when we remortgage in 4 years our mortgage will be about £150 so without increasing the term it would put £350ish a month on our repayments. We are early 30s so if it was really tight we'd extend our term back to the original 25 years which would keep our monthly payment the same (though obviously cost way more in the long run).

We nearly bought a new house during the last stamp duty holiday. It would have meant our mortgage went from £190k to £400k. That wasn't even the max the bank would lend but if we'd have done that we'd be in big trouble at 6% with all the other rises.

This will not affect most Americans who already have a mortgage. The reason is most mortgages, typically about 90% are fixed for full term eg 15 or 30 years. The remaining 10% will be in ARM where the rate is fixed for 5/7/10 years followed by small increases annually eg by 1% until they reach the full rate. What will be massively affected is whether people will take out a new mortgage for a new home. People can borrow less money as they don’t qualify for the same property value and house prices start to drop. In my area in Southern California prices have dropped about 10% already.

People talk about being cautious but if you look back at the 00s when people were borrowing high amounts often without any deposit the vast majority of them did extraordinary well. My colleagues are a little bit older than me & they are all property millionaires simply because they bought then. A house was for sale on my parents road just before I went to uni for 550k, I finished uni & it sold again for 1.2m & now it would be worth more. Crazy.

@KarmaComma the fact that they are currently offering 10 year fixes at 4% does not mean rates won't rise much higher than that. Earlier in the year they were offering 10 year fixes at under 2%. We took one at 1.9% in March, just 6 months ago. Mortgage rates are on a rising trajectory and deals will continue to go up. To what peak is still to be determined but it would be foolish to think it won't be much higher than 4%.

Yes we could but I am very risk averse when it comes to finances. I stress tested scenarios for us and we could manage up to 13% if needed. Beyond that it would be second job time.

However we didn't stretch out to the maximum we could have borrowed. Our house isn't a dream home, we could have got a bigger mortgage and bought somewhere much nicer, or in a better area. I am happy enough with where we ended up, plus we have been overpaying every year with whatever we could afford since we bought the place.

Yes, and the generations to follow will pay for for this period of low interest borrowing for the rest of their lives.

Our current mortgage fix expires in March next year, but we have just reserved our new mortgage rate ahead of time, before the recent rise. We have until the end of March 2023 to complete, but we should now be insulated from further interest rate rises. We’ve gone for a five year fix and the mortgage will have another five years to run after that. Our children are all teens, ds2 will be finishing Uni around the time the mortgage fix ends, all being well. It is all affordable as long as nothing happens to DH’a job. Mine wouldn’t even cover the bills.

Yes. I'm 5 years from the end of my term in a house that I bought when I was paid much less than I am now. I currently make a small monthly overpayment and it looks like the payment at 6% would be roughly what I'm paying at the moment (although I wouldn't be overpaying anymore). Worst case scenario is that I could use my emergency fund/savings to bring the mortgage down, which I may still do depending on what mortgage/savings rates look like but I'm keeping it in cash for now.

Yes, but we have less than £9k left to pay.
BoE base rare was 6.25 % I think when we took out our first mortgage in 1999 so the last years of 2% or so (or less) have been a blessing.

No which is why we ditched our existing fix for a 10 year at 2.29 in the summer. It cost us to do it but we’re very relieved we did. Wish I’d done it sooner as there was a 1.79 10 year fix on offer but it had gone by the time we’d decided to pay the ERC and do it. People will get a big shock- the rates have risen pretty rapidly in the time we secured our mortgage offer to what is now available.

We’ve just fixed at 3% for five years and bloody glad we did. I think a lot of people are going to be up shit creek at 7%. I’ve heard forecasts of 3.75 at the end of the year and 5% in the Spring.

Yes because we're old and only have 3 years to go.

We have been overpaying for years as our mortgage is 0.25% above Base rate so has been very low. The mortgage ending coincides with DD finishing University which will be a relief too, financially.

But generally this is going to be a disaster for a lot of people. I remember the 1980s negative equity, where a lot of young buyers had to 'give the keys back' on their new flats.

Also higher interest rates will affect other household debt. I worked in a bank a few years ago and remember reading about historically high household debt due to cheap borrowing. That house of cards is going to come crashing down too.

I worry that we have some awful years ahead as a nation.

Given I was around in the 1990's recession, the early 70's recession and the 80's recession, I have always made sure I could manage up to 16%....

Yes, but that is not important. Higher interest rates mean higher profits for the banks, which as everyone knows is great as it drives the amount of investment in offshore accounts so that money disappears from the UK economy.

In theory but my current mortgage is 1.3% so it’s obviously a massive jump and we would feel it.
We have jumped quite a few LTV brackets in the past 4 years but I don’t think that would help enough.

Given I was around in the 1990's recession, the early 70's recession and the 80's recession, I have always made sure I could manage up to 16%....

Would you like a medal? 🙄

As someone mentioned upthread 16% interest rates would be carnage. Todays rates are close to that in terms of impact on household income when you account for house prices.

Personally, yes. But we are lucky in that we have only just under 4 years to go so the interest element is tiny now.