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?

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

How does that work when there will still be the same amount of houses next year and the housing market will deflate by 10 to 15%? If prices go down builders will stop building because their costs will go up because we have rising inflation and their profits will go down.

I don't currently have a mortgage as we are renting. I am wondering though why when someone applies for a mortgage when rates are low - as they have been for a long time now - surely both they and the mortgage broker account for the possibility of rises, and lend/borrow according to that future prospect? I realise we could not have foreseen what is happening now but it was obvious that interest rates would have to rise sometime.

You are stress tested or at least were however I don't think many predicted the current energy bills

I realise we could not have foreseen what is happening now but it was obvious that interest rates would have to rise sometime.

The trouble is they have been so low for so long thstvwhen they would indeed rise & by how much wasn't obvious at all.

Bought my first flat in 1990 with a boyfriend. New build one bedroom and it was £39k. We both earned £10k a year back then. No idea how we were allowed to borrow so much! We took out a 95% mortgage and used our savings to carpet and furnish it and buy kitchen white goods.

We were young and foolish ( age 20) It was horrendous. I've never been so poor in my life. Had to stop meeting friends for lunch and even a takeaway coffee was out of the question. Couldn't buy new clothes or shoes for a year. We could afford to eat and pay the essential bills and mortgage payment but had zero left. Couldn't afford to run a car. It was a miserable existence.

The best thing that ever happen to me was my boyfriend cheated on me and was so desperate to move his new girlfriend in that he allowed me to remove myself from the mortgage which was by then in negative equity. Luckily by the time we sorted the legal stuff out he had got a new and much better paid job and could service the mortgage with the help of the new girlfriend.

I was so happy to walk away from that situation.

So many people at that time had rushed to buy property and ended up handing the keys back.

When I married my husband in 1996 we were so cautious about buying our first house together - we could have stretched much more than we did but my experience in 1990 had put me off.

Interest rates had reduced to around 8% by then and property prices had reduced so much that we were able to buy a nice three bed semi for £59k - it was so much easier then.

Just had a look at repossession stats for the last 60 years. On average, there were 59160 repossessions a year between 1990 and 1994. Doesn't come down much until 1998. For comparison it was 6734 on average for the five years up to 2019. So it looks like many didn't cope.

it may have been early 1993 actually. It was a new rate from our local building society and was the lowest on the market by far. It would have been fixed too. I remember the excitement of seeing it advertised and us thinking we could finally buy a house!

Even those that were repossessed, surely the amounts of money they lost would be comparatively smaller than if the same were to happen today?

It was pre 2008, not sure but I think it was 2005? (my daughter is 39)
Yes it was Northern Rock. It was for a two bedroomed flat, they still have it but rent it out.
Our other daughter took out a mortgage with her then partner of 110% with N.R.

You didnt have to have an endowment back then. Lots of poeple were sold them but capital and repayment were available as were fixed rates.

Our first mortgage was capital and repayment on a fixed rate. This was despite may financial advisers pushing for us to take an endowment.

these sorts of comments make me laugh. There was plenty to spend your money on in the 80's and 90s.

And lots of people had computers!

The war in Ukraine has certainly lead to interest rates going up faster than was predicted at the start of the year. It's very easy to sit here saying "oh, you should have expected rates to rise" but the fact is that people need places to live so what's the choice?

I was very disappointed that DD didn’t take my advice to do a 5 year fix last year instead of a 2 year one, it meant an extra £50 a month so they didn’t think it was worth it 😨
It will now be £150 a month more, that’s if rates don’t go up again in the next 4 weeks.
She is lucky that she now has free nursery for DGS so has £400 more a month, which will no doubt be wiped out by higher living costs. She’s at the top of her pay scale ( Teacher - head of dept) so no more hefty pay rises either.

I remember mortgages going to silly levels too. We had small children and paid childcare, and it was scary. And the cost of living wasn't quite as high, I think.

@mintywinter

To be clear, it wasn’t a luxury in the 80s to be a SAHM. It was very much the exception for a mother of school aged children to be working FT. Child support payments were enough through the child turning 16 that you had enough to stay home to raise your family. There was no aftercare at school. You used a childminder who was a mother normally struggling to make ends meet.

As for domestic help, very few households had domestic help. People would look at you funny if you had a cleaner. It was very fancy. We had a cleaner and my mother was very clear that we were not to tell anyone about this. People judged her because she was a SAHM to 3 children and my father was on the road working for weeks at a time.

No one had holidays like we have now. Two weeks holiday and going somewhere for the whole two weeks was unheard of. You went camping for a week, tops. Cars, people might have one car but many households just cycled.

Cars, people might have one car but many households just cycled.

really, most people cycled?
I'm an 80s child & virtually every neighbour & school friend in my bog standard part of London had a car.

No one had holidays like we have now. Two weeks holiday and going somewhere for the whole two weeks was unheard of.

I don't really think this is the norm now though?

This is from 2017

"One of the biggest changes we’ve seen over the last 20 years is the marked decline in the popularity of 2-week holidays and the rise of short breaks."

"Growth in car ownership has largely been through the increase in the number of households with two or more cars as the proportion of one car households has remained remarkably constant at 44% since the mid 1960’s"

I don't remember being cold at home as a child but it's flipping nippy in my house right now.

Bit of insider info. Just had notification of rate hike from an Equity Release provider. Now these are fixed rate for life so they take a very long term view. Yes ER rates are higher anyway but this is a BIG rise:

Standard rate 6 to 7%

I managed to get a 3.25 x mortgage to buy my studio flat in the late 1980s.

I didn't drive, smoke or go to the cinema. I rarely drank and possibly went out for a meal twice a year, nor did I have takeaways. I had no gym or streaming subscription. I also knew that, no matter how bad my job got, I had to stay in it for security.

It wasn't easy, but I knew if I didn't do it then, I'd never manage it.

I think you're missing a crucial point. Back in the day (I've just recently realised I'm a Boomer given the apparent reclassification of such) there were not so many service outlets, nor was there the diversity of such outlets. We'd hang about in local BlockBusters hoping someone would return a copy of the most recent 'must see' while we browsed! lol

Anyway, I digress. My local high street is now almost nothing but service outlets e.g. food takeaways, sunbed salons, beauty salons, hairdressers, cafes etc. etc.

The point I'm attempting to make is these outlets are supported by (allegedly) 'disposable income'. They would not exist without demand, yes?

It's certainly not the Boomers, in my circle anyway, who are demanding more of this type of outlet, so the nature of the demand has changed along with the volume of outlets for (allegedly) 'disposable income'. Btw, us Boomers (generally) would much prefer to see specialist shops - butcher, fruiterer, independent bakery etc. than yet another fucking nail salon.

No doubt, if anyone actually reads this, I'll get pillioried but I don't genuinely believe the 'disposable income' that has created/supported these outlets actually exists for the vast majority of people.

When I was still a member of the workforce, a few years ago, I was astounded at what younger colleagues were putting on credit cards (manicures, fast-food takeaways for their kids, hen weeks/weekends etc.) with no means of paying for them beyond making minimum monthly payments - not out of necessity, rather than to avoid losing face amongst their (to me) equally deluded friends. They were happy to admit to us Boomers they were struggling/worried but not, apparently, to their 'friends'.

Treadmill consumerism, imo, and a pretty poor friend group where, apparently, none of them could say "I can't afford it so, sorry, I can't fuck off to a villa in Benidorm for an entire week to eat 'chocolate willies' and drink cheap sangria ..."

There you have it: a Boomer rant.

We'd hang about in local BlockBusters hoping someone would return a copy of the most recent 'must see' while we browsed! lol

I did similar & a rental was about £4, I pay that for Netflix for the month (share).

My local high street is now almost nothing but service outlets e.g. food takeaways, sunbed salons, beauty salons, hairdressers, cafes etc. etc.

I remember my high streets from younger days & they had beauty & tanning salons - mum loved a toning table!, hairdressers, more clothing shops & pubs then now.

Part of the reason High Streets are so depleted is the high cost of council tax & business rates. Plus Councils have had budgets slashed from central funding grants. (Hence high parking charges).

Business rates are calculated by multiplying a property’s rental value by the multiplier (the number of pence-per-pound of rateable value you need to pay in tax).
Bills have risen steeply in recent years partly because the 2015 revaluation of property values was delayed until 2017. The multiplier has also risen from 34.8p in the pound in 1990 to more than 50p for stores paying more than £51,000 in rent. The letter proposes that the multiplier is reduced to its original level.

amp.theguardian.com/business/2021/feb/08/reform-business-rates-or-risk-a-high-street-collapse-say-firms

www.instituteforgovernment.org.uk/explainers/local-government-funding-england

Obviously the internet has played its part!