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?

Is this actually helpful to you? If the repayment portion of your monthly payment is a significant chunk, then the interest rate increase won't affect you as much.

If the interest portion of your monthly payment is high, then saving some of the capital repayments won't be much either.

I'm in ireland so it might be different here but we still have two years left fixed at 3.0%. We requested current rates and we have just fixed for 7 years at the same rate with no penalties. Worth contacting your lender to ask?

It was the only way in the 1960's to 1988. But in that year, due to two completely coincidental Acts of Parliament, the foundations were laid to commoditise homes in the UK.

This was nothing to do with the Chancellors of those times. They had to have sound qualifications but less power. Now, you need a GCSE in Economics it seems.

Troubled by your comment about investment banking and no knowledge of capital and repayment borrowing on home mortgages. Not sure if that is a problem for you or a problem for me.

This isn’t new in late 80s early 90s my mortgage practically doubled
the thing is mortgage rates were at a historical low there only going to go one way

what does that mean for the lenders that have suspended their deals?

Keep safe. Ahh.....bless.

Poor sons.

Things are very volatile right now and the signs are that rates are set to go up. In your position I would indeed consider paying the early exit penalty in order to lock into a fixed deal now. Speak to a good mortgage broker to get proper advice. I think a lot of people are worrying about this issue at the moment and I think the chancellor is unlikely to go back on the changes he has made so the increase in rates won’t stop anytime soon.

Ive started overpaying on my mortgage. If you can afford to do that then it’s worth doing as long as you have enough in savings for a rainy day. I’ve just upped my monthly payment amount by £500 and am topping this up month to month depending on what I have left over. I don’t think you get charged interest on any overpayments you make so anything extra you manage to pay off reduces the principal amount of the loan outstanding which will help protect you when your fixed rate term ends.

@melodypondisasuperhero - twice in the last 8 years I have paid early repayment charges to move to a new product at the right time. Most recent was last December, our existing product was going to finish in 2023. Managed to fix before the first rate increase. It's totally worth paying ERC if you can get a long term fix (5 years) at a rate you can afford. Talk to brokers and get started, get the new product offer, then compare and think whether to proceed - you'll have 6 months from offer.

Wow. Ok.

I will say it slowly. A decent broker will also do this.

I am not claiming to have knowledge of all broker and lender procedures. Spot the distinction.

They want to know what they are likely to pay if they borrow £1 billion to fund 400 average mortgages over the next 5 years. Once they know that they will add a 20% - 25% margin and then advertise the new rate. At the moment they do not have a clue because all they hear is silence.

Be aware that a lot of fixed deals have a maximum amount you can overpay before repayment penalties kick in. For mine it’s 10% of the original amount borrowed (so I’m not likely to come near it) but it may be something some people need to take into account.

Only for a day.

Mine is similar. So we owe just over £200k and limited to overpayments of approx £20k per annum. Much as I would love to be able to afford to be able to overpay by that much I can’t.

You are right @HintofVintagePink

A decent broker gets you the best deals because lenders know they can rely on their track record of finding quality borrowers. The broker has....stress tested...as well as carrying out other due diligence. In my experience, good brokers get allocated the cream of borrowing because they de-risk the lender.

@GloriousGlory You are partially right - the lender stress tests, but so too does the broker. A good quality broker will get you the best rate. But not all brokers are good. There are some absolute fools out there. I agree, go direct rather than via a jester, but not all brokers are bad. There are good ones, but a rare find. They do need to up their industry though.

Sorry, 4,000 homes. My typo. Most lenders won't borrow on the markets to fund just 400 homes.

I found and help arrange a mortgage for a friend in September 21 at 0.98% fixed for 5 years. Which is unthinkable value now.
Friend kept asking are you sure this is good.....

The lenders that have suspended will be doing the following:

Working out how much they have left on each available swap/tranche.

Recalculating the average ‘behavioural life’. I.e. if all their fixed rate mortgage customers suddenly want to terminate current fixes early, and rebook onto new terms, how much of the current swap (being used to hedge those fixes) do they need to unwind in the market.

Most of those swaps will be ‘in the money’ meaning the bank will make money in closing them out. Can they use any of that to subsidise new ‘swap rates’ I.e offer lower fixed rate mortgages to their customers than the current market swap rates.

Working out exactly how much, and for what tenor, should they book new swaps. So, £500m in 2y and £500m in 5y, or all 5y if nobody wants 2y fixes anymore.

Working out new regulatory capital requirements- banks have to hold a certain amount of capital depending on the size of their mortgage book.

Checking their lending criteria - do these need to be changed.

Etc Etc but mortgages are a huge part of most high street banks business- they will want them back on sale ASAP.

A lot of ordinary people are going to lose their homes but hey - at least the energy companies get to keep their profits and we took back control of our borders.

It was good help if you qualified it by saying you were only considering the 5 year horizon. Even then, markets were pricing in 3.5% within 10 years, with a stable timeline. In other words, I would have advised them to bank on paying 3.5 times what they were paying by September 2026, but then would have risk adjusted it to some extent to advise them to put away more into saving. If they had no spare to put away then it was very bad advice, even without hindsight.

If they are a friend, what are you saying to them today?

It is hard to fathom for sure. The Government and the BOE appear to be doing their best to undo each others strategies with the government in full on financial stimulus mode meanwhile BOE attempting to curb inflation and rate increases are now inevitable. Wth is the government playing at? I've had a mortgage since 1991 and have lived through the ups and downs but this current situation is the most nonsensical by far. I'm fortunate that we are in the final few years on a fixed rate that is actually the lowest rate we've ever had.

Before you decide to overpay, please check that your lender takes overpayments into account if you ever get into arrears and let’s you offset your overpayments to temporarily reduce your minimum monthly payments. If they don’t take overpayments into account when you get into arrears, you might be better saving what you want to overpay into a savings account to top up any shortfall in monthly payments if you start to struggle.

We did get quotes at rates at higher levels.

The mortgage is for a 18 years period.

In 5 years it will be 13 years remaining but they aim to reduce to 8 years.
However if not affordable then could stick to 13.
Let's see what the market is doing.

Please could the smug people chirping up with variants of ‘I’m so happy/lucky’ I’m on a fixed rate deal for ages just refrain for a moment! Nobody needs to know this and you’re coming over as incredibly tone deaf when people are terrified and looking for information.

www.moneyhelper.org.uk/en/homes/buying-a-home/mortgage-calculator

Mortgage calculator

@RedToothBrush -hope you don’t mind me asking - if I wanted to become more knowledgeable about the economy, where would you suggest starting to look? When I’ve glanced at the FT / economist they seem a bit over my head…or maybe I just need to persevere. I have an Economics A level - but little memory of the content.

I come from family / background where none of this is talked about. Ever. It’s quite hand to mouth, and women tend to lose out in particular, I think.

This should absolutely be taught more in schools.

sorry for derailment!