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?

Exactly this. You know exactly what you're talking about. It explains why it's still possible to get mortgage fixed rates that are lower than the equivalent maturity Gilt yield... but they won't be around for long.

Yes, he's completely over-reacting. Because average low to middle income households can easily cope with huge increases in food, fuel and housing costs while receiving little or nothing in terms of pay rises because, inflation.

Even with government intervention, utilities have more than doubled in a year.
Mortgage rates are going up massively, food is probably up 30% on average at least.

Millions of people are having to find hundreds of pounds extra a month just to cover the basics, even when they didn't have that much spare money in the first place. The 'alarmist doom' is very very real for a lot of people and we have people like Martin Lewis to thank for lobbying a government that's been willfully ignoring the scale of the problem.

I work for a lender and we're not allowing customers in a fixed rate to move onto another fixed rate until their current one ends, even if they pay early redemption charges. My own 2 year fix is due up in April and I'm also worried, but I've tried to tell myself that I can't know where we'll be in 6 months time so there's little point stressing about it.

It's the chains breaking that will be the biggest fall out. All that money wasted on surveys and fees that wont' be available for the next mortgage.

The BoE buying bonds doesn't dampen inflation - it makes it worse. In any case, the reason they were buying bonds wasn't linked to the inflation situation - it was a bailout of the pension funds who have leveraged bond investments and we're getting margin calls they were in danger of not being able to meet. The writing is on the wall, I'm afraid - rates are going up. We are in an inflationary recession, which is a horrible place to be. The BoE needs to bear down on inflation but the only medicine for that is interest rate rises, which push us into recession. However recession is preferable to inflation getting out of control. The tax cuts announced by the government stoke further inflation, meaning the BoE will need to raise interest rates more aggressively to keep it under control, worsening the recession. The government thinks the tax cuts will spur growth to help counter the recession, but it's questionable whether that growth will happen. Anyway, interest rates are going up. I'm sorry for anyone with a fixed rate mortgage expiring in the next 12 months. I'm hoping you make it through. Things will right themselves in the end, but it may take a while.

Great buy. It was a no brainer to fix for 10 years at that rate.

The BoEs interventions was probably the worst thing that could happen. They've effectively told the world that they will underwrite sterling at any cost. Which is basically an invitation to short the pound for gain. Not dissimilar to what happened when the markets realised the significance of the ERM 30 years ago (almost to the day).

That's not correct. The BoE intervened to buy long dated government bonds. This is inflationary i.e., it devalues the currency (so the opposite of defending Sterling). The only way the BoE can support Sterling is raise interest rates or go out and buy it using our foreign currency reserves. I don't think it will do either of these things because 1) raising rates to support the currency will kill our economy and 2) we don't have large foreign currency reserves. That is not to say it won't continue to raise rates to combat inflation, which will help Sterling a little, but is not the same as defending it.

Seriously do you understand what's happening? The BoE's actions yesterday drove inflation higher it was not a move they wanted to make but were forced into doing so by this idiotic government.

DP is the mortgage holder in our house - I pay half of the mortgage (yes I have no claim on the house but quite honestly I’d be paying more to rent if I didn’t live with him, we are planning to retire together etc etc) but im absolutely terrified of asking him what’s going on with the mortgage. I know he isn’t great with financial planning and I have a horrible feeling he will just bury his head and we will end up in trouble. Planning on tackling him about it all this week!

Im usually really good at coming up with a Plan B but because literally everything is fu**ed, what on earth is a Plan B anymore?!!!!!

Exactly!

Most governments are engineering a recession to kill off inflation. The economic institutions were supporting that. The recession was never going to be a soft landing, but it was going to be managed. Truss and Kwarteng have completely risked this process. The UK is going to suffer over the next 5 years.

Remember that over a 5 year timeframe with inflation the way it is, wages may also rise.

This can essentially inflate away the value of the debt you borrowed relative to your earnings, making a higher interest rate more manageable.

GasPanic · 27/09/2022 14:50
What is the LTV ?
Loan to value. (means how much you need to borrow against value of your home, lenders are concerned which is why they have tightened up on lending that home buyers do not end up in negative equity)

Historically mortgage rates are very low. Interest rates went up to 17% in 1979 and 15% in the 1980s. Most mortgage payers struggled badly. Some had to sell their homes; many went into negative equity. Others, with a spare room, took in lodgers for years. Most people looked for any possible extra work. Those are the choices. There is a serious shortage of rental properties, so selling and renting probably isn’t a sensible choice. If you have a spare room, rent it, provide someone with a home for awhile and make some tax free income. It’s not ideal but a temporary fix. In a period of high inflation your incomes will rise and the mortgage should become affordable.

same and I was about to say this, this will be one of the reasons why a lot of deals have been pulled, it will be the banks commitment to responsible lending.

If you work in the private sector and can switch employers to somebody who pays a decent wage, fine. For people who work in the public sector, that is much less likely to happen - we have very little bargaining power (monopoly employer), and when people unsurprisingly leave or strike, the government attacks us.

Look at how nurses’ salaries have (not) but kept pace with inflation over the past 20 years - would you literally bet your house on wages going up if you were a nurse?

It's not directly comparable. What was your house value to earnings ratio back then?

That's disgraceful. Which lender is that?

My brother's fixed rate was due to expire next summer, yesterday he phoned his lender and agreed a new 5 year fix at 3.59%, paying the ERC.

I think we're looking at a mortgage rate of 7.5% soon, and if we keep this lunatic government the sky's the limit.

Banks and other lenders have a lot to answer for. Their “helpful” stance of allowing people to borrow more than 3 x joint salary has contributed to the increase in house prices, and allowed them to lend recklessly large amounts of money so that many would not be able to afford repayments, if interest rates rise.
Back in the 1980’s, rates were above 13% (I think at their height 16.75%), so mortgage loans were based on a fairly strict low multiple of joint salary, so to blithely assume that this situation would never happen again was, at best, disingenuous, and at worst, a cynical bid to enrich themselves when the inevitable interest rate hikes cause inability to pay and repossessions (and repossessed properties are normally repossessed for 75% or less than their actual value).
In todays landscape, where costs of living (especially utilities) are also being hiked by a ratio of greater than ever before, the sensible thing for the banks to have done post-Brexit (when they should have seen this coming) would have been to impose a cap on lending of 3 x main, plus 1 x secondary salary, with the knock-on effect of driving down house prices.
But they were never going to do that, were they?
I wonder if we will be asked to bail out the banks again?

I don’t have a mortgage so I have no axe to grind however I am extremely sympathetic to current mortgage holders. I paid mine off with high rates, in the last two decades; high rates of my choosing largely as I locked in. I am old enough for higher rates to be real not history and based my behaviour on that. I am also old enough to have equity from previous property to build on. I’m not sure what people in a rising market are meant to have done especially if you live in the south. Yes, some people will over stretch themselves. yes, they may have erroneously believed the low rates experienced for a long time were normal. Some people are unrealistic and unwise but at some point you do need somewhere to live and somewhere that is suitable for your stage of life. It’s not profligate to want a spare room for a child if you are knocking on 30’s. It’s not possible to rise above the market and ‘do-er uppers’ are either un-mortgageable or unavailable. The days of no fitted kitchen, no heating, single glazed windows are largely
gone. I remember early noughties there was a website called ‘housepricecrash’ where people who believed the market was inflated then ridiculed the stupidity of people buying. What are these people doing now? Rubbing their hands together and saying ‘I told you so’ 22 years on 22 years when you have paid rent, missed out on quality of life, missed out on children…

Our broker stress tested and glad she did as it made us buy a slightly cheaper house and I'm now not worried if the rate goes up. Obviously I would prefer low rates but here we are.

This is a very fair minded post. With prices as they are for buying or renting, a lot of people have just done what they've had to do.
I've had my house for almost ten years. Six months after we bought it we couldn't have afforded it, as the rate prices increased was miles ahead of any increase in earnings.

@WhenDanMetHelen - he sold out ages ago.