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?

[caringcarer]

I feel gutted for my youngest son. He has saved for almost 5 years for deposit. Got hit by Covid and had to be furloughed so could not save as much then. Will have enough for deposit by March but now won't be able to afford a mortgage.

[WimbyAce]

We are just going through the process at the moment. Much higher than we could have done when our fix ended but we were hanging on as meant to be moving and had that in place ready but it all fell through 😣Just hope this goes through OK now.

[altmember]

@MysteriesOfTheOrganism

I remember the early 1980s when our mortgage rate went up to over 16%. It was a truly dreadful time. I really feel for everyone who is getting seriously worried right now.

Yes, but house prices to earnings ratios were much lower then so it was 16% interest being added to a much smaller loan, relative to earnings. I read somewhere that rates today of 4% are about the same monthly repayments as 15% in the 1980's, in relation to incomes. If they got up to 16% today house prices would have to nose dive to compensate.

[AuntSalli]

@altmember

Yes, but house prices to earnings ratios were much lower then so it was 16% interest being added to a much smaller loan, relative to earnings. I read somewhere that rates today of 4% are about the same monthly repayments as 15% in the 1980's, in relation to incomes. If they got up to 16% today house prices would have to nose dive to compensate.

@MysteriesOfTheOrganism you also had MIRA’s to assist you with that scenario

[WorrieaboutFIL]

news.sky.com/story/interest-rates-are-high-enough-to-dampen-demand-and-cause-real-financial-pain-for-millions-of-households-12703187?authId=198eubh_aQkZQY2ZWaFBmTlpWa2FnclhRNDd6ekNoaEVSTUNrQ2E5SGRFQkFRRFF1RnhPN3UyYUZJNGVncUpwcE9JcWw4OA..

This article explains how 2.25% is equivalent to 11% in 1979.

We are being sht on from a huge height.

[WorrieaboutFIL]

*2.25 today

[Butterflyfluff]

It really would be helpful if people only posted things that were actually correct - it’s very damaging to post things on threads like this that are factually incorrect

• Over £40k earners did not get a 5% tax reduction in the mini budget

Other examples

• Not all lenders allow you to arrange a product switch more than 3 months before your current deal expires
• The early repayment charge is not always tapered

[Trez1510]

@lannistunut

The situation is much worse for many people now, so those who lived through the old days need to not compare directly.

People are much more exposed financially due to how high house prices are in the first place.

I tend to disagree. I think those who lived through the interest rates of late 80s/90s are on the whole pretty clear they are not making direct comparisons.

So far as I'm concerned, the impacting factors between the 80s/90s and now, somewhat balance each other out.

On one hand, other costs were not spiralling as they are now in the 80s/90s.

On the other hand, people were equally, if not more, financially exposed due to there being, pretty much, a 'write your own mortgage' culture.

In addition, redundancies were coming at people thick and fast in a time when mortgage protection insurance was not even a 'thing'.

So whilst we are not attempting to directly compare apples with apples, nor are those who experienced the 80s/90s attempting to compare apples with elephants.

The stress, the fear, the worry were still the same for the majority of people not 'just' those who had chosen to over-extend themselves.

The important things to focus on are a) there is breathing space provided by lenders that simply wasn't there in, particularly, the 80s, and b) the vast majority of people got through those times by hook or by crook.

[DonnaBanana]

"I lived through 15% mortgage interest rates in the 1990s, paying the mortgage on my own, yes it was scary."

There's plenty of evidence that much lower interest rates now "feel" just as bad as the highest rates of the past due to increased salary:value ratios, lower disposable income, etc. 15% interest on a £80k mortgage is equivalent to 3% on a £400k one.

[Chevyimpala67]

@Trez1510

I tend to disagree. I think those who lived through the interest rates of late 80s/90s are on the whole pretty clear they are not making direct comparisons.

So far as I'm concerned, the impacting factors between the 80s/90s and now, somewhat balance each other out.

On one hand, other costs were not spiralling as they are now in the 80s/90s.

On the other hand, people were equally, if not more, financially exposed due to there being, pretty much, a 'write your own mortgage' culture.

In addition, redundancies were coming at people thick and fast in a time when mortgage protection insurance was not even a 'thing'.

So whilst we are not attempting to directly compare apples with apples, nor are those who experienced the 80s/90s attempting to compare apples with elephants.

The stress, the fear, the worry were still the same for the majority of people not 'just' those who had chosen to over-extend themselves.

The important things to focus on are a) there is breathing space provided by lenders that simply wasn't there in, particularly, the 80s, and b) the vast majority of people got through those times by hook or by crook.

I disagree.

I worked with a woman who was working full time just to pay the extra interest on the family mortgage in 1990. She was, as you can imagine, pretty unhappy and very, very stressed.

I also lived over the road from a family whose house was repossessed. Police in attendance, I will never forget the baby's crib on side of the road.

My cousin bought a tiny bedsit type flat in 1989 for £30k. They sold it 2 years later for £12k. The negative equity/poor credit rating from that first purchase has followed them their whole lives (they are mid 50s now...)

I think many, many, people and families suffered but kept very quiet about it.

[Stickstickstickstickstick]

We had an appointment for remortgaging booked for today already… deals were being withdrawn even as the broker was halfway through the application. Christ knows what we’ll end up with when they put products back on the market. We went for five years to swerve the effects of Brexit 🙃

[Roselilly36]

@DoodlePug

What are you actually worried about?

Is it that you will have to cut back to pay the mortgage, will struggle to pay it, won't be able to pay it?

Or are you worried about being chucked out on the streets?

The latter is highly unlikely, if you've a good chance of being able to pay in future your bank would rather you made reduced or interest only payments, extended the term, etc.

Really try not to panic, ensure you know where you can cut back on spending and do what you can to get more savings built up. Plan for a variety of future scenarios then try to accept you've done what you can and don't give it any more head room until you have new information.

See what the earliest point you can agree a new fix is. It's not uncommon for buying a house to take months so you may be able to agree a mortgage in principal now which starts when the old one finishes.

You must be a lot younger than me, I have seen the crash of early ‘90’s and 2008. I hope things don’t come to that, I can remember friend in negative equity, the bank’s & building societies were not understanding in the least, they are businesses at the end of the day. Interest rates were very, very high, many just handed their keys back and still owed money. Really awful times. I can completely understand why so many people are worried.

[Chevyimpala67]

I mean, it's pretty simple isn't it?

In 1989/90/91 the amount you could borrow was 2 x salary? Interest rates were at a level of about 4-5% (which is normal historically).

In the past 15 years interest rates have been historically and - this is the important bit - kept artificially low by successive governments.

Far more incentive to buy than save when rates are so low.

Add to this people borrowing 4/5 times their salaries.

Add to that the need for a level of basic tech that people need now to work/learn/live that was unimaginable in the late 80s/ early 90s.

There is no "give" now. I just don't think it's comparable at all.

[Kennykenkencat]

@altmember

Yes, but house prices to earnings ratios were much lower then so it was 16% interest being added to a much smaller loan, relative to earnings. I read somewhere that rates today of 4% are about the same monthly repayments as 15% in the 1980's, in relation to incomes. If they got up to 16% today house prices would have to nose dive to compensate.

Silly me thinking that my £2700 per month mortgage when I only earned £350 per month for my full time job and Dh had been made redundant was peanuts
Even at 4% my mortgage on my last house which was nearly triple the amount of my £2700 per month mortgage from the 90s would be manageable. It would be less than twice what I could earn as opposed to nearly 8 times my earnings

[Youaremysunshine14]

Just saw on news that Nationwide's cheapest 2-year fix is now 5.59%. 😱

[Hillary17]

I’m worried about it a lot. We fixed for two years at a really good rate. Thankfully borrowed a lot less than we were offered so will struggle but survive. Took ten years to save to join the market too!

[Diyextension]

Our first house, we could have borrowed £80k with a big mortgage. We chose to buy a run down doer upper for £30k. Then spent the next ten years making it worth something…..it was go to work, come home , work on the house and that was it. Can’t remember how many years we didn’t go on holiday for.

by 40 we were mortgage free ( plus overpaying )

Its not a boast, its just you don’t see people doing it that way now. I’ve got friends that did the same too. Most people now just seem to borrow as much as they can to buy the biggest house they can get. With money being so cheap to borrow for the last ten years a lot of people I fear have bitten off more than they can chew🙁

paying interest on anything is the thing I’ve always tried to avoid even if it ment going without something till I could afford it.

The way it’s looking there are going to be some tough times ahead.

the only advice I’d give to anyone with a mortgage is try and overpay as much as you can. Even if it’s only a small amount every month.

[NeverDrinkingAgainUntilNextTime]

I've never been in this position before where we've had to worry about rates as over the years we've just changed it every 2 years with no hassle.
We have 5 years left on the mortgage (approx £15,000) will these new interest charges make a massive difference on this sum? (seriously not trying to be a goady question, genuinely can't figure it out)
Thank you

[Kennykenkencat]

@Chevyimpala67

I mean, it's pretty simple isn't it?

In 1989/90/91 the amount you could borrow was 2 x salary? Interest rates were at a level of about 4-5% (which is normal historically).

In the past 15 years interest rates have been historically and - this is the important bit - kept artificially low by successive governments.

Far more incentive to buy than save when rates are so low.

Add to this people borrowing 4/5 times their salaries.

Add to that the need for a level of basic tech that people need now to work/learn/live that was unimaginable in the late 80s/ early 90s.

There is no "give" now. I just don't think it's comparable at all.

Actually it was 3 times salary possibly more.

I see everyone has been Googling average salaries and telling people that it wasn’t that bad.

If the early 90s was the equivalent of paying 4% interest today then when interest rates hit 4% can we expect house prices to tumble as most cannot afford there mortgage and loads of people will be handing their keys back to the mortgage company.

[Kennykenkencat]

and my mortgage was 22% not 4/5%

[Feelinglikeachange22]

Can you refix at a new rate now? Try a 5 year fixed rate.

[Gymgo]

Over pay on the mortgage as much as you can , try and get your loan to valve down to get better rates

I started over paying instead of savings, also started to softener the blow started paying the new rate even though in a fixed till sep next year

[AuntSalli]

@Chevyimpala67

I disagree.

I worked with a woman who was working full time just to pay the extra interest on the family mortgage in 1990. She was, as you can imagine, pretty unhappy and very, very stressed.

I also lived over the road from a family whose house was repossessed. Police in attendance, I will never forget the baby's crib on side of the road.

My cousin bought a tiny bedsit type flat in 1989 for £30k. They sold it 2 years later for £12k. The negative equity/poor credit rating from that first purchase has followed them their whole lives (they are mid 50s now...)

I think many, many, people and families suffered but kept very quiet about it.

And equally back in those days if somebody was repossessed they will be moved into a nice council house that met their accommodation needs within a matter of days.
my cousin found a self in similar situation in 1998 and as a single mother found herself in a three bedroom house around the corner from her mothers house so it all worked out rather well.
can you imagine the implications of mass repossession today literally you would have families on the streets the government just cannot afford to allow that to happen.

[AuntSalli]

@Chevyimpala67 Credit files also get reset every six years no matter how bad the situation nothing could play a queue for more than six years.

[Chevyimpala67]

@AuntSalli

And equally back in those days if somebody was repossessed they will be moved into a nice council house that met their accommodation needs within a matter of days.
my cousin found a self in similar situation in 1998 and as a single mother found herself in a three bedroom house around the corner from her mothers house so it all worked out rather well.
can you imagine the implications of mass repossession today literally you would have families on the streets the government just cannot afford to allow that to happen.

My understanding is that the kid's went to live with their dad and the mum went to a b&b.

I'm staggered you think council houses were so plentiful in emergencies even back then.