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

They had, the stress test for affordability has been scraped only recently.

@happyfishcoco tbf the millionaires who borrow 1x their salary are a rarity I don't see in real life. But there's a ribsvky generational differences.

I would have to cut right back to the bare bones of everything. No extra curricular for the kids, no spending, no saving, literally just surviving. And that's at 6%.

It’s a very different financial landscape than the 80s.

yep

My rate is up June 2023, should I change it just now?

Haven't a clue about these things!

let's say my LTV is 70%, then maybe I could have a 10-20% for 2nd mortgage?

@happyfishcoco you can only do it with the same lender, and if they were to start offering a lower rate than you’re were already on then you’d probably be best seeing if you could switch to it, unless you actually needed to borrow more money for something like I did.

When I was looking for a new house my budget went up to £100k more than I paid for the one I bought. Bloody glad I bought just about the cheapest one I could find that needed minimal work doing to it now.

But they hedge the rates at the time the product is put out for the lifetime of the product so would make the same on the product for the 10 years whether the rates go up or down. That’s why products are often pulled when the funding is used up.
Mortgage lenders love people who just sit on the SVR as this is where they make the majority of their money.

Yes, this. This is the correct explanation (only not for the lifetime of the product, but for the duration of the fix). At 3.99% rate + fees you're still a better investment for the bank than getting 3.81% yield on a ten-year fixed income gilt. All numbers not to scale, of course.

However, I think that under-4% offers won't survive long past Monday.

We could afford it but like most others, it will be taking from the money we have as disposable income at the moment.

It means big decisions are on hold indefinitely; home improvements, husband changing jobs for a better work/life balance and another child.

Nope. Luckily we did a 5 year fix earlier this year so it won't be a problem for a while, so I just hope it starts to go back down by then

I'm a bit of a hobby economist and I don't see interest rates rising that high. A really significant contributor to high inflation has been energy price rises, which are pretty inelastic and will have a dampening effect on spending all by itself. Don't think we'll need higher interest rates to curb spending in 12 months time.

The danger is not from the short-term cyclical inflation (food, energy), as you're absolutely right that these tend to dissipate. The danger is the cycle persisting for longer than expected and getting entrenched in the base inflation. Through workers demanding higher wages -> influencing costs of production of goods and services -> putting further pressure for wage increases as other parts of the consumer basket start appreciating.
The difficulty the current government is facing is that they are already at near-full employment. I can see what they are trying to do with the part-time workers and corporate taxation cuts, but not sure that's the best answer. I don't have better ones though.

Thank you everyone. Based on the poll, 42% wouldn't be able to cope. I wonder what percentage that is of the general population. And would renters be any better off? Would landlords be able to pass off any increases in mortgage to tenants?

We’ll probably be ok. We have two mortgages, one fixed on a low rate which we plan to clear the balance when the term is up in late 2023. The other is tracked at a fraction over base rate - taken out in 2007 - with no restrictions on repayments/ early repayments. We could easily handle a doubling or even trebling of that mortgage but might choose to pay off a lump sum to bring it down, we’ll have to see.

the main thing we did ‘right’ was to borrow based on one salary then add a second yet not extend our expenses based on that second income

Yes, partly because of my age and stage of life but also because I never bought into the middle class fallacies and cultural change of the 90s / 00s to value risk taking. Not that that was a particular virtue, I just could not afford it as someone from nothing. And so the financial risks we take are rather more carefully managed, whatever the sacrifices needed to do that (and there have been many).

We can afford it and could pay off a lump sum to bring payments down. We're looking into remortgaging at the moment. But if we pay in a lump sum that will reduce the amount we're putting into our pensions and overall I think we're better off utilising pension tax benefits in full rather than putting post tax income towards the mortgage.

We can afford it but it will be shit

Currently owe £112000 with 17 years left and about £130000 equity

Rate is about 2% fixed and repayments are £599 we have 20 months left in the fixed deal

We are almost certainly going to start overpaying soon probably £200 a month. This will hopefully help by reducing the capital owed by a couple more grand once the rate expires.

We spoke to our usual mortgage broker a few weeks ago about possibly remortgaging to fix for another 5 years. But she was adamant that we shouldn't. I know that would be at a higher interest rate than what we are paying plus a penalty fee but surely that's better than risking it going up to 5/6/7% by the time our rate ends.

If anyone has any advice I'd be happy to hear it xxx

I am fixed for 4 years now with 6 years left to run, I didn't take a big a mortgage as I could, always wary rates would fluctuate- I feel sorry for overstretched people, but it was obvious they can go up as well as down!

Most mortgages these days are portable, i.e. if you move house the amount you have left on your mortgage stays at your fixed rate. There is no cost to this.

Forced into it - we went interest only during the 2008 issues, then i went self employed and never earns much whilst the DCs were small. Finally went back into salaried employment 4 years ago and Halifax constantly refused to do a deal, whilst no other lender would get involved when I was self employed. We didn't earn enough to meet the affordability for our current mortgage, couldnt move to a new deal with Halifax, couldnt change lenders, so we got stuck on SVR.

I think we've made some awful mistakes and reading this thread and others similar I have to ask how do you all know so much about it? I'm really struggling to understand, to work out whats best to do and make predictions - posters here seem to be of a mind that the interest rises will go on for years, maybe 5-10?

Additionally the interest rate used to be set by the government, it has been set independently by the Bank of England since 1997. The decision to move it from the government to BofE was in part due to the mess of interest rates soaring in the early 90's. I can't see that happening in the current climate of highly leveraged properties

I am going to assume that I won't see interest rates on mortgages below 5% for the rest of my life time and work out what is affordable based on that.

This thread made me Google.
74% of people have fixed rate mortgages, and 96% of new borrowers.

Of course, that includes short fixes. But I think we’ll see a huge increase in people on 10 year fixes.

www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates

Most mortgages these days are portable, i.e. if you move house the amount you have left on your mortgage stays at your fixed rate. There is no cost to this.

I thought that if you were moving & borrowing more you are tied to that lender which may not be the best deal out there & cost you more? Or additional borrowing might have to be on a new mortgage product which can involve a fee & potentially a higher rate. And if the lenders criteria has changed you may not pass the new affordability checks?

What's quite interesting having looked at rates for myself today, the 5 year fix is cheaper than the 2 year fix. That's the first time I've seen that, I really hope it's a sign that they think this will be over within 5 years (although I need it to finish sooner than that!)