To wonder how we managed our mortgage when interest rates were 13.6%

[BlueBloodedBlue]

We bought our flat in 1990 with a mortgage rate of 13.6%

I know house prices were much lower but so were wages.

I'm obviously not minimising the current nightmare situation so many people are facing, I just don't really understand the economics so would be grateful if anyone is able to explain in simple terms please?

The LL mortgage would have had higher interest rates than mine, unless interest only, but the price of rentals is a supply issue, the government removed social housing with protected rents and replaced it with private housing with unprotected rents. That has driven house prices up.

No, rising prices fuelled the BTL boom, it was because you could get so much money (rent) for the product (house) that made it an attractive investment.

This is the impact of removing social housing from the supply and replacing it with private rentals.

Good explanations on here.

I also wonder if there was a difference in how many hours a week the household worked or needed to work back then? We have both parents working FT to pay the bills in recent years and also have to pay childcare, which is the second most expensive here than anywhere else in the developed world. There is very little room for manoeuvre when both parents work FT. I am very worried if I am being honest. Especially with job losses when small businesses go under. I rent, but I'm under no illusions how shit this situation is for everyone.

shrinking social housing is definitely an issue but low interest rates which disincentivised saving & made borrowing cheaper definitely influenced the BTL market imo.

Great, a thread derailed by people competing over who had it most shit. Tiresome debate as its all shit, just different sorts. All the while we are all being utterly fleeced of our wealth (if we were lucky enough to build any) and are fighting over the scraps while the people who have landed this shitshow on our doorstep dine on lobster and champagne.

People have vastly over paid for property over the past decade as a result of zero interest rates, just in the past 2 years near me people paying an extra £100k / 35% increase for a 3 bed semi! And taken on huge mortgages as a result! That is nobody else's fault apart from their own, there would of been other people who would have walked away as they knew when interest rates go up they wouldn't be able to afford the mortgage, then there are those that have been reckless and are now about to suffer as a result, it's not fair on the sensible people out there to bail these people out.

Quite @Notlosinganyweight

Sorry, I got dragged into the derailment. It's utterly shit

Our first mortgage was at 15%, I'm talking 1980s here. It was a tiny box of a place, we didn't even have the money for fees, which I had to borrow, it came to £900!! We got a 100% mortgage because we didn't have any savings, we were fresh out of university, been working about 2 years and were renting, no family money or help behind us. It was a risk, but it paid off.

House prices were rising fast even then, we sold that flat within a year (put it on the market after about 9 months and completed 3 months later) and by then had managed to gain £7000 equity which was our 'deposit' for a little house on a housing estate; we weren't in that long before we traded up to a 3-bed as we'd started a family. By then building societies were lending on 4 x joint salaries.

We weren't in high paying jobs and did it from nothing. But other costs weren't as expensive, by the time we were in the 3-bed, the mortgage was at least 50% of our income. Things were tight but we still ate, clothed the kids (toddlers) and I stayed at home, so no childcare costs.
There were no mobiles, no internet charges, fuel bills weren't excessive, we didn't worry about petrol costs.

It was a different world though, our first flat seemed excessively expensive (as we lived down south at the time) at £23,500. When we finally sold our 3-bed and moved to a different part of the country we thought we'd won the jackpot, as it sold for £150,000!!

in 1992 we borrowed £32,000 on a combined wage of around £10,000 to buy our first house. The interest rate was 7%

I don’t know how you managed to get 7% when the base rate was 9%. My mortgage was more like 12% in 1992.

^ this.

We stress-tested when we bought. Life changes.

DH has had pay rises but everything has gone up. The baby we planned and budgeted for has finally arrived after a couple of years and several miscarriages, & I'm honestly not sure how we'll pay for childcare now if the mortgage goes up to 6%. When he was conceived that same budget looked comfortable.

If I look at working opposite hours to DH to save on childcare when I go back to work, I'd be taking a paycut but also hobbling my career progression in the longterm. It's a tough choice.

And taken on huge mortgages as a result! That is nobody else's fault apart from their own, there would of been other people who would have walked away as they knew when interest rates go up they wouldn't be able to afford the mortgage, then there are those that have been reckless and are now about to suffer as a result, it's not fair on the sensible people out there to bail these people out.

Why blame people? Was I more sensible because I didn't max myself or because I had a lower LTV?

my parents however maxed themselves on an interest only mortgage for their 2nd home & then in later years borrowed against that debt. Were they sensible?

By 1995 the interest rate on my mortgage was 16%!!

But it soon lowered to roughly 7/8%

Lots and lots of people had their homes repossessed.
No such thing as a fixed rate back then.
Or even repayment. All interest only and you had to take out a separate endowment or pension linked plan to pay it off. Lots of people were caught out by that too!

House prices have gone up because for decades we haven't built enough houses for demand. It's a simple as that.

People have had to take on huge mortgages because house price increases have massively outstripped wage increases. In the vast majority of cases it's got nothing to do with being reckless; people simply have had no choice.

Bought our first house in 2009. 5% interest. It was painful not seeing the amount owed coming down much. Rates fell so quickly it was worth paying £2k early repayment charge to get out early. Current mortgage 1.54% for another 3+ years. Finally some luck in the timing.
But back then paying £1k/month for a house half the value of current one was painful.

It isn’t as simple as that. If interest rates had been raised sensibly in the last ten years the cost of borrowing would have kept the rise at sensible levels.

People have always had a choice. Nobody had a gun held to their head to make them pay inflated house prices. Look at the housing market just a few months ago - bidding wars, houses going for £50k above asking, it was lunacy. We’ve had a decade of personal spending like drunken sailors on shore leave and it had to end some time.

We bought recently at £25k over asking. We have a 35 year mortgage. Lunacy, yes. But the alternative was to keep renting at £700 per month more than our current mortgage repayments. It's not really a choice is it?

So what's the choice? Rent at equally inflated prices along with all the insecurity that brings? Not have somewhere to live at all?

If there are 10 people trying to buy 1 house of course house prices are going to get overinflated. If successive governments had actually built enough houses to meet demand then we absolutely not would have this problem.

The issue here is the size of people's mortgages due to the ridiculously high property prices far more than interest rates, which is not the same as 30 years ago.

The fact is that anyone, like OP, who bought in the early 90s when interest rates were high would have factored that in when deciding what they could afford to borrow. Just like nowadays, the huge rise in interest rates was not predicted a few years before so there were plenty of people who bought a few years earlier who ended up struggling to afford to pay their mortgages. I knew several people who bought new build properties in the mid/late 80s who found that they were struggling to pay their mortgage but had negative equity (due to the combination of inflated new build prices and drop in demand) so selling up and moving somewhere cheaper was not a viable option.

However, as well as the fact that house prices now are a much higher multiple of average income, I think some of the key differences between then and now are:

• We've had really high house prices for decades now, so even people mid-way through their mortgage are likely to be finding the interest rate hike a problem. Whereas in the 90s, people 10 years through their mortgage would have had very low borrowings.
• Rents now are insanely high. In the 90s there was more social housing available and rents were generally much more affordable. So the choice people have now is risk taking on a mortgage that might become less affordable or pay rent that's already unaffordable.
• Due to high house prices, many families nowadays are already stretching their finances- both parents working, taking on as many hours as possible, limiting outgoings. In the early 90s I knew lots of people who took on a second part time job/stopped going out etc to fund their mortgage payments but (despite what Truss and co say) many of the people who will be impacted worst by this are already doing that.

People didn't spend their money on as much stuff back then. They rarely went out for meals, buying takeaway coffee barely existed. A few people had sky but otherwise everyone just paid the licence fee. Only well off people had computers. There weren't nearly as many fashion shops, or the range of beauty products. Nowadays no internet or mobile phone is unthinkable, but those simply didn't exist the last time this happened.

The issue here is the size of people's mortgages due to the ridiculously high property prices far more than interest rates

There wouldn’t have been ridiculously high property prices if interest rates hadn’t been kept artificially low for over a decade. Now look what’s happening - interest rates are predicted to go up to 6% by the spring and house prices will go down by 10 to 15%. The supply will be the same.

Obviously the difference in the value of your house is immaterial until you sell it. But people who have bought recently will likely be in negative equity, how will it feel to see your hard earned deposit wiped out? Because that’s what’s going to happen.

People have always had a choice. Nobody had a gun held to their head to make them pay inflated house prices. Look at the housing market just a few months ago - bidding wars, houses going for £50k above asking, it was lunacy

what real choice though? We moved recently and payed 20k over asking, still far cheaper than the equivalent rental.

There wouldn’t have been ridiculously high property prices if interest rates hadn’t been kept artificially low for over a decade.

I agree but why were they kept so low & for so long?

Yes there would. House prices were on the way up before the interest rates hit the lows we've seen over the last few years.

Not enough housing has been built = not enough supply = increased prices.

I'm sorry, but of course people did.

Different stuff, but shops and consumerism were in fact a thing in the 90s.