To be terrified about mortgage

[melodypondisasuperhero]

We finally managed to get our first mortgage last year and now this is happening. Our rate is 3.09% which runs out in August, currently the follow-on rate is 5% but I imagine this will go up several times before the end of the fix. We could manage 6%, probably just about 8%, but any higher than that and I really don’t know.

AIBU to be terrified? Or am I missing something?

I'm not talking the 80's We bought our house in 2001 and still have a mortgage with 6 years left. Our interest rate for most of the time was above 3.5%. The house needed tons of work. People seem to forget there were loads of people in negative equity post 2008 and many stuck on a 5% +rate for years after. Short memories. And yes my mortgage rate has just increased but still low.

Barclays are offering 3.49% but apologies actually for 7 year fix now. I think they previously had a 5 year fix at the same which I can't now see. I have 60% LTV.

Or I can see Halifax at 3.79% for 5 years.

when we took out our new mortgage it was 2 year fixed rate. Did the same when it ran out and now in 5 year so it’s common enough.

@Per1w1nkke There’s a difference between applying for a new interest only mortgage and asking your current lender to change you to interest only because you can’t afford the payments due to massive interest rate increases. I agree that the former generally requires a high household income. The latter is going to be the only option for many people in the next few years.

That's NatWest criteria, other lenders will differ.

I fixed for two years. Now on five year fixed rate.

It’s going to be a huge struggle with our deal ends next October, we are currently on a 1.7% rate. FUCK!

Why was he told it’s been industry standard for a while?

What was the Crash of 2018 in the context of the UK housing market? I do not recall that.

Also, 1989 as a crash seems anomalous given the AST Act just a year before? I recall frightened rabbits running around the office, but that settled down quickly. It was 1992 that the exuberance exploded. In 1995 the housing market troughed - it took that long.

What do you mean by 'Short fix rates and variable rates may play out better'
Are you saying 'short fixed rates' are similar to variable rates?

The lack of affordability has been driven by 25 years of cheap money pushing up asset prices. This is about to change. The powder that needs to be kept dry is those looking to access property for the first time, or go up to a bigger property. My message to those is wait 3-5 years. Hold the line and in the meantime retrain. This is your time.

Another option is part repayment, part interest only. It doesn’t have to be one or the other.

Thanks, I've found them.

It just happened, did it? No, the Tories knowingly made it happen

The Tories do not want a house price crash! But Truss and the Kwarteng have set one in motion by putting Fiscal policy in stark contrast to the BofE monetary policy and resulted in the pound losing all credibility. Interest rates will need to be raised to compensate and the house price crash gathers pace. In short this has happened because they are inept.

I bet they wished they had picked Rishi now!

I didn't know this. Is it available across the board?

That only works if your circumstances don't really change. Since we took our very affordable mortgage, well within our affordability, we've had a baby and my husband has changed his job to allow him to retrain as a teacher, taking a 70% pay cut to do it.

My stepson has moved in full time and his mother doesn't pay any CMS for him, but he has additional needs that comes with a lot of extra costs. My husband's shorter hours means that he is also there to support him.

Our very affordable mortgage will be giving us many sleepless nights if mortgage rates go up
to 10% now.

And our LTV is already below 60% so we don't benefit from any house price increases that way. Nor can we cash in and buy something cheaper because who would buy our house if mortgages are unaffordable?

@ScotsLassie322 I don’t know but our lender (Virgin) offers it.

Our first mortgage was in 1999.
We went for a 3 year capped fixed rate at 3.9%
It pretty much went down month on month after 2000.
You don't see capped rates anymore do you?
We've always gone for fixed rates.
our last one was 5 years fixed @ 1.29% which was a good rate in 2017.
It's certainly cost us money over the past 10 years BUT we remortgaged in february to a 5 year fix @ 1.2%.
We hope to be able to pay the mortgage off after that (5 years left...)
Just hoping we can weather the food/fuel/energy price rises.

I've been trying to call our lender (TSB) for the past 2 days but it just keeps ringing out

This is why they need to make finance compulsory in schools.

True. Although I would say I'm generally quite clued up and was in a role which was fairly high up in investment banking. Just hadn't heard of mixing interest and repayment.

yanbu to be anxious (I feel sick about it all) but nobody knows what will happen next year. it might not be as bad as anticipated. Not all economists are predicting huge increases - some are saying it will level off.

I don’t think for a minute they'll raise interest rates to anywhere near as high as 10% because they just can’t. It’s not the 1980s or 90s anymore and we’re all leveraged to the max with crazy house prices - not to mention the cost of living rises.

Agreed. I can recall the 12% mortgage rates in the 1980s, the 20% house price falls in the later crash, and the ridiculous house price increases of the recent past. I don't think any of those times were as bad as I fear it's going to be shortly. When there were high interest rates it didn't last for a long time and people hadn't been allowed to borrow as high a proportion of their income as they do now, when we had rocketing house prices, there was also wage inflation, which meant it was painful but only in the early days of a mortgage. And the crash tended to mostly affect people who were both in negative equity and had to move house for some reason- those who could stay put could mostly cling on, though of course I'm not underestimating the impact on the victims of any of the above, who suffered terribly. But presently we have ridiculously high house prices and rents, wages have fallen far behind house price inflation and rents, lenders have been lending higher multiples of incomes, energy costs have gone mad, we have 10% general inflation and a recession, and people have got used to historically low interest rates. We need a firm hand on the economic tiller to sort this out, and what we seem to have got for a government is one composed of and led by reckless idiots who, when it comes to economics, couldn't find their own collective backside even with a flashlight and a map, and furthermore, refuse point blank to listen to anyone who knows where it is.

That said, I can still get a 5 year fix at 3.5% at the moment. If banks genuinely thought interest rates would average over 7% for the next 5 years they wouldn't be offering this product. Of course they may be wrong and interest rates could well be over that for a period but I'm slightly reassured by this

I really do need to correct this, it’s important. This is not how banks price fixed rate mortgages, it’s not based on their predictions at all. Banks hedge their risk using interest rate swaps (this is what I do for a living). They will book a big swap for say £100m for a 5y term, then use that to hedge a tranche of mortgages. Once that tranche is ‘used up’ by being sold to customers, they book another swap, at wherever rate is available in the market. A week ago, banks could have secured a tranche at c.3.50% which is why these rates are still available- they’ve not fully sold that tranche. At London close tonight, the new rate, for a new swap, would be c.5.50%. Banks don’t offer fixed rates depending on what they think is going to happen - it would be far too risky, we don’t know any better than anyone else!

I'd have said the same about energy costs a year ago....that no way would any government allow them to double, even triple, and yet, here we are. I hope to the gods that you're right, but I worry that this government is now completely out of its depth at this point.

Interest rates were at 15% when we bought our first home, it was a cheap doer up and it took about 5 years to improve. I was a stay at home Mum too. We didn’t have a car or holidays abroad and lived a simple but happy life.
I’ve told my sons not to go to bed worrying about their mortgages, we will help them out.

Good luck everyone.

Thanks, I suspect a lot of us didn't know that's how it works.I didn't for sure.
If ever there was a time when we all need to learn as much as we can about how money and the economy works, it's now.