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?

Very good advice, they really don't want to repossess.

This happened to us too. Naivety on our part and I couldn't be more annoyed with the broker as they will have known for sure interest rates were the lowest they had ever been. I think personally they just want you back in 2 years so they get more commission.

Why won't they let you change product, the rest i can understand.

Predictions are suggesting up to 6% interest rates by next year. 6% is going to cripple a lot of people. However it is still within the upper limit of what the OP thinks they can pay, so I would say to try and stop worrying too much.

I think because rates have been so low, the market couldn't easily cope with rates significantly higher than this.

As others have said there are steps that mortgage lenders have to take for anyone who can not afford the interest rate rises. The most obvious step would be to switch to an interest only mortgage. Its far from ideal, however it does provide more security than having to go into the rental market.

I think anyone looking at remortgaging soon would be wise to look at fixed rate mortgages. Its a gamble but it looks like the next few years are likely to be unstable financially and its hard to see rates going down in the medium term. Thats the exact thing thats spooking the lenders into dropping current mortgage deals.

I would also suggest that anyone who is in a position to overpay their mortgage now (not all mortgages allow it) would be wise to do so, to try and soften the blow later on. If you can increase your LTV you get better terms and interest rates when it comes to remortgaging, so if you can take yourself over an LTV threshold (every 5% of the value of your house makes a difference), not only are you reducing the amount you pay in compound interest at your current rate, you are also more likely to get a sligyhtly more favourable rate going forward. It might not seem a lot but even a 0.1% on compound interest over 5 years will add up.

We are fixed until next year, and I have to say that although we can afford it, its still concerning. My parents nearly lost their house in 1989 when interest rates went sky high and my Dad lost his job at the same time. Despite this, they did survive it and did eventually get back on track and didn't lose the house.

The biggest thing to remember: its not in the interests of lenders to repossess. If there are a lot of repossessions going on, banks stand to lose money and thats ultimately not in their interests.

The people who this will hit hardest isn't those who currently have mortgages on their own homes; its those people looking to get a new mortgage in the next few years. It will also chuff people trying to get mortgages on second homes/buy to lets and existing renters who get stuffed with their landlords passing on the cost. Thats where it gets particularly messy, due to there being less protection available.

@RedToothBrush

Excellent, measured, informative post.

Seriously, well done!

How old do you need to be to be a boomer ?

Ah just googled it. No I’m not a boomer I’m way to young for that 🙂

I'm intrigued so, why are you asking?

Are you having boomerish feelings?

Concerned your mindset is melding with the boomeratti?
Eager to establish you are not, in fact, a boomer?

Is there a calculator anywhere to work out how much mortgages are predicting to rise please? Or how do we get an estimate? We arent able to look at any new ones on our mortgage website as it has to be within 3 months

It will be entirely down to affordability

Indeed. Before our purchase, our house last sold in 1996 for £150k. I know I'm out by a decade so prices were much cheaper in the 1980s, but let's imagine that interest rate was 15% in 1996. If I had a mortgage then, of about £140k, my interest payment was £21k annually. If I bought my house last year, I'd be looking at an absolutely massive mortgage. Even with a 20% deposit, it would be at least £700k. At only 5% interest, I'd be looking at an interest payment of £35k. I know anyone who passes the affordability checks for a £700k mortgage is likely to be doing quite well income wise, but that example just illustrates why interest rates alone are misleading when it comes to affordability. I remember 1996, stuff wasn't even that cheap then, inflation hasn't been running at very high rates, approx 2% annually, and earnings haven't increased that significantly. House prices have gone mental however, this is at least as bad for those with a mortgage as the high interest rates of the 1980s.

Born between 46 and 64 I believe

@Decafflatteplease you can use something like moneysavingexpert to see what your monthly payment would be at particular rates.

I would then suggest you look at repayments at 6%, 8% and 9%.

Please, please stop voting Tory, people!

How much damage do they need to cause before people see they don't give a flying fuck about us?

And on top of this financial shit show, and the energy crisis, and Brexit - Liz Truss wants to rip up our human rights and employment rights. It's all so fucking bleak.

I do remember all the repossessions in 1989/1990. I was a young trainee nurse buying with my ex who was training to be an electrician. Our rate went up to 14%. The market was horribly overheated very much like it was last year. At one point our flat went up in value by about 25%, colleague at works husband was an estate agent so just commented. The one thing of note was I was only 21 and he was 20, I don’t think many adults buy at that age at all now.

I got some old paperwork when we bought this house. The guy who had it built in 1979 had a mortgage of £50k and the repayments were just under £300 a month, not sure what the interest rate was then but I’m guessing 300 a month was a lot of money in 1979 ?

@AuntSalli are you a broker?

@AuntSalli or work for a lender?

It's unlikely they will be offering that next week !

Yes I fixed 2yrs on first mortgage. Then dud 5yr but at that time in 2000 thry had capped rate

they don’t do anymore

they were fab

hsd it capped at x % so would never go over a certain but if rates dropped so did yours

I've had rubbish advice from my broker over and over as well. When I first took the mortgage he pushed me towards a 2 year fix (with £1000 fee), while I was expressing interest (no pun intended) on a 5 year fix. If I'd taken the 5 yr fix, it would have been coming to an end about a year ago, when there were deals about at 0.85% for 5 more years.

Instead, I've had the initial 2yr fix at a low rate, and then went for a 5 yr fix, which was significantly more (but still cheap by todays standards). And now when the 5yr term expires end of next year, sounds like it will be the worst possible time.

I also asked the same broker about refixing earlier this year (paying 2% ERC in the process). I'd ran the numbers and figured out it would still work out about the same overall cost, but 4 more years of security (in the face of rising rates). His advice was that he didn't expect rates to go any higher (as, in his own words, it'll screw a lot of people up financially), so again I followed his advice and am far worse off for it.

Even now, I'll still be better off refixing at the current rates, if they do go up to 5% next year. Up to 6% and fixing now gives a saving of over 4k over the next 5 years!

Fuck me, I'm kicking myself again for taking the supposed professionals advice over my own prudence.

Most mortgage offers a valid for six months. Your lender may also let you book a ‘new rate’ six months in advance.

speak to a broker in December/January and get something sorted.

or as we’re starting to see,l have a chat now and a decent broker can work out if paying your ERC makes worth switching products earlier.

I no longer have a mortgage, although I did in past years when mortgage rates rose to 14%, so I understand what people are going through.

They are a bunch of towering incompetents, and they are making people take money out of their houses, in effect , to pay for the energy companies' profits.

They'll be after lots of public sector stuff next, including the NHS.

I came out of our fix 9 months early a few weeks ago.
Paid 1% fee to break the deal early.
Refixed for 5 years.
Checked this morning and the same deal is now 0.5% higher interest.
I will already make the money back from paying the 1% fee because of the difference in payments every month over 5 years. And I have peace of mind.
I'm so glad I didn't wait a few more months until I was in the 6 months window just to save paying the fee. People thought I was silly at the time as they didn't think rates would increase that much.

I feel so badly for people just starting out, with no knowledge or experience of anything other than cheap money and a stable economy (realistically, anyone under around 45yo). I feel for people who have to choose between a roof over their heads and childcare - impossible choice, especially when you already have two working parents already run ragged (let alone single parents, or parents of children one or more of whom have extra needs, or non-parents with other dependents). I feel for people trying to estimate how much their gas and electric will go up, food and fuel too, then just not bothering calculating how much their mortgage repayments will increase because they'd already be under water.

We have lived through an unprecedented time of cheap money, choice in everything, relatively low unemployment, easy access to expensive and often useless higher education, excessive pressure from all quarters to consume consume consume. It's unbelievable now to think that things like a coffee and pastry on the way to work and a sandwich meal deal, instagram-influenced purchases for ourselves or our homes, weekend city breaks and two week summer holidays abroad, deliveroo meals, expensive hobbies, upgraded cars, multiple tv channels...these were all accessible to most with relatively little pain. All at a cost to our mental health, the environment, our social cohesion and often making indelible inroads into our identities and what we think life is all about.

It's all coming to an end. People are going to have to go right back to basics and in many cases this is going to mean some deep thinking into who and what we really are.