Base rate and mortgage rates

[Flowersonthewall6]

Current base rate is 2.25% with another announcement early nov, and currently predicting it could go as high as 5/6% by next summer.

Am I wrong to assume the mortgage rates could hit 7-9% as they are always higher than the base rate?

How would anyone survive with mortgage rates so high if they are already saying that 6% is similar to 15% from 30 years ago?

DH wants to wait out our deal until next summer while I’m tempted to do an early repayment charge and fix now incase the rates do keep going up. I think lots of people will be in our situation.

Do the math. Work out how much the early repayment charge will cost you over the period of a year, and what the repayments would be if your mortgage rises to 6.5%. What's the difference? What can you fix for now?

In your position though I would pay the early redemption and fix now. Two reasons, the only way it's going is up, and the certainty of fixing now at an affordable level will bring you peace of mind, which sometimes means it's a good result whichever way it goes. I luckily fixed 5 days before all this kicked off, thankfully 😣

That was the rate we paid when we first got our mortgage 20 years ago. They've been unnaturally low for a long time.

How much is your early repayment charge?

I bought us out of our mortgage deal end of June as I was so worried about interest rate rises.

We were on a 3 year fix at 1.79% which ends in March 2023.

It cost £2500 for the erc, but we're now on a 10 year fix for 3.09%. Mortgage will be paid off at the end of the term.

I know there's no crystal ball to what will happen, but I was so worried about not being able to afford the mortgage that I wasn't sleeping properly so I'm really pleased we did it.

Knowing we can afford to pay the mortgage for the next 10 years is more important to me than renewing at a slightly cheaper rate more often.

Have a look at what deal you can and work out what you're most comfortable with - possibly paying more now but knowing you can manage it, or hoping everything has reduced by next summer?

I'm not sure interest rates will ever go back to what they've been over the last decade and I do feel for everyone who only can afford their payments because of it.

We were paying around 4/5% when we first bought in 2004 so had factored rate rises into our budget, but anyone who has only had a mortgage over the low interest rates since 2008 probably hasn't.

Good luck

ERC is £2k and we are still looking at a 30 year term for our new deal. We will be ok just things will get a lot tighter than they use to be. Going to sit down and do some maths but I feel like the boat may have pasted. I wanted to redox in the summer (just had a gut feeling).

Do we think the rates could hit 7/8% for mortgages, I think there’s going to be a lot of people really struggling.

@Flowersonthewall6 can you work with a broker to find a new mortgage that you can apply for 6 months in advance and then review in spring whether you go ahead with that and pay ERC or whether things are looking better with the market and interest rates?

I know of a few people where they have a spare room, or the children could share (with each other or the parents) for a few years and they are looking to get a lodger to help pay the mortgage as the alternative might mean selling up/repossession. That won't be an option for everyone though.

How much did you owe 20 years ago? It won't be comparable to today's prices.

Three-bed family homes where I live cost £400-500k, meaning high mortgages at £1500-2000 a month. These monthly prices could double or triple next year if interest rates hit 6-9%. Did you ever pay £4000-6000 a month?

@sazzt yes we have appointment next week to talk through our options (waited 2/3 weeks for it) with a bank. Currently the broker we have used is flat out and couldn’t squeeze us in. Could also do an online application tbh most rates are around the same for us currently when I’ve searched.

Lineeyes unless they are interest only mortgages they won't entirely double or treble when rates rise - there will be an element of capital repayment. Interest only mortgages (most common with BTL) will increase that dramatically. I'm not saying people won't suffer, they absolutely will, just checking the maths. It will still be grim.

@WhiteFire we bought in 1998 with 3k deposit and a mortgage 3 x DH’s wages- a situation that has absolutely no resemblance to what people are facing now .

OP as others have said look at your ERC and speak to a good broker. We fixed for 5 years on a high rate just before rates went down but there is a lot to be said for security and I don’t regret it.

This is what I've been told by others but the counter discussion is that wages haven't been rising, so people will be finding themselves in trouble quickly.

I also think banks have encouraged large amounts of borrowing, most friends I know in the south east have mortgages in excess of £400k.

Absolutely, house prices weren't where they are now either.

OP if you are worried why not look at going on an interest only deal for say 5 years?

That gives you a breather, in terms of monthly outgoings.

When we bought, many years ago, the rule of thumb was to borrow 2.5 x single salary or 3 x joint salary. Obviously it's all changed now, but is there a general guide for multiples of salary you can borrow?

I don't want to be a doom-monger botany people won't manage. In 1991 at 75,500 homes were repossessed - ultimately that's what lenders will do.

However... if next year a family is paying 80% of its mortgage repayments on a house that a lender owns 80%, and if that house that has lost 10-20% of its market value compared to a year ago, the lender may not be rushing to repossess. They won't prosper if there is a fire-sale on repo homes.

It is a real dilemma, whether to fix now or switch to interest only to give yourself some respite. You need to crunch the numbers, very thoroughly.

Wishing you good luck OP, I sympathise with your position.

There are very strict criteria for interest only rates now. Something along the lines of you have to have a household income of 100k per year and also a large amount in isas ( as a back up I think?) so depending on your financial situation, interest only remortgage may not be an option?

In your situation I would do the erc and fix for 10 years - things are only going up. We had been fixed at 1.85% for 5 years. We were due for renewal in September. We started looking in June and fixed at 3.8% for the remaining 10 years in July. We discussed a 5 year fix which would have been a cheaper monthly payment but decided for our peace of mind to go for the 10 year fix.

We went up by 160 per month so £80 each in July. I was upset at the time that I hadn't realised you could fix 6 months in advance etc as our payments would have gone up by less. However realising that had we waited till September, we would now be paying so much more, I am convinced that the best option for peace of mind, unless the erc is huge - and your's at 2K given the rate of interest rate increases is not really huge - the risk benefit is to pay the erc and fix for as long as you can