How can people afford to remortgage

[Tead]

I have a £200k mortgage. When aI remortgage I will end up paying around £500 a month more. I can just about manage I think although there will be nothing left at the end of the month and we might need to go into our savings.
how would people who are just about coping deal with an increase in monthly payments

Those of us who bought before 2007 have benefitted from rock bottom interest rates since then.

We started on an interest only product, then moved to repayment for the same monthly amount, and have recently been overpaying. So, we will manage higher rates when our current fix expires, but will have to stop the overpayments.

I worry for those who have only known low interest rates, and have likely paid inflated prices for their homes. I image they may extend the term of their mortgages, move to interest only, or have to get rid of car payments to be able to afford their homes.

Can you make a portion of it interest only? We have had to do that. We owe £300k abs have 25% interest only to make it affordable when we remortgaged. It's not ideal but it means we can afford it for next 5 years at least and keep roof over our heads

I worry for people whose budgets are stretched and who can see this time bomb coming their way

Same.

I think the saving grace nationally is that it's only likely to be a minority of mortgage holders, who themselves are a minority of homeowners. Lots of people aren't that exposed to mortgage rate increases at all, because of having lots of years left on their fix and/or not owing that much and/or being able to easily afford it. But it seems all but certain that there'll be a cohort of people who really struggle, and this is whilst only considering owners not renters. We already know that there are millions of people who won't have the slack.

Our mortgage is around £250k
Our fixed ends in may we are paying to get out of it early, our offer is at 3.49% and will still cost an extra £400 a month.
If we leave it Our broker says it could be £700 a month
With £400 extra will pay off car loans with savings and that'll free up what we need ill probably have to increase hours at work too to cover other increases

It's going to be harder for lots of other people

Yeah I think some people will do that as well. People whose fix ends late enough that they couldn't get in early to secure a deal before things spiralled, but soon enough that they have to assume things will still be in flux when they remortgage.

I think the saving grace nationally is that it's only likely to be a minority of mortgage holders, who themselves are a minority of homeowners.

unfairly it's going to hit younger people hardest.

I think that more expensive mortgage borrowing + high energy cost + food rises = repossessions.

And the Tories have all but killed off social housing which means some children will spend years living in temporary accommodation.

The Tories have managed to safe guard their own wealth and privilege while forcing many families who did well under labour into poverty.

They also boast about low unemployment but the truth is that since Brexit, there is a lack of employees which is also causing prices to rise.

I think I'm well read and educated but disagree with you. Luckily I am able to do this without being rude or resorting to insults.

They also boast about low unemployment but the truth is that since Brexit, there is a lack of employees which is also causing prices to rise

Unemployment is low.
Employment levels as a percentage have not yet returned to pre pandemic levels.

www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/october2022

The UK employment rate for June to August 2022 was 75.5%, 0.3 percentage points lower than the previous quarter (March to May 2022), which had a notably higher employment rate than other periods. The number of employees decreased on the quarter, while self-employed workers increased. The employment rate is 1.0 percentage points lower than before the pandemic.

The unemployment rate for June to August 2022 decreased by 0.3 percentage points on the quarter to 3.5%, the lowest rate since December to February 1974.

The economic inactivity rate increased by 0.6 percentage points to 21.7% in June to August 2022, compared with the previous quarter (March to May 2022), which had a notably lower economic inactivity rate than other periods. This increase in the latest quarter was largely driven by those aged 50 to 64 years and those aged 16 to 24 years. Looking at economic inactivity by reason, the quarterly increase was driven by people inactive because they are long-term sick or because they are students. Numbers of those economically inactive because they are long-term sick increased to a record high.

Same - I bought my first home on a 105% mortgage at interest only...and paid interest only on the next few properties as well. It kind of seemed the norm back then in the noughties. Last few properties have been repayment at low rates with overpayments in top. We will manage but I'd be lying if I said I wasn't worried. We have another 12 months on our fix and no idea what will happen between now and then.

Here we have a textbook example of the flaw of democracy.

The idea that the BOE sets rates is a bit of a fallacy. It does, but it doesn't set the cost of money, which is what sets how much money (mortgages) cost.

The cost of money is really determined by the lowest risk free rate. To understand what this means think about the following.

The US treasury issues bonds that will give you 4% interest for 20 years. If that is the case, why would anyone bother to lend Mrs Miggins of Accacia road any money for 20 years at 1% when they can buy a US bond that will give them 4% that is less risky (the US is less likely to default on its debt than Mrs Miggins) ?

So in effect the US sets the price of money, and everyone else has to follow. So the US is currently raising rates and the amount of interest it pays on bonds. That means everyone else has to raise rates if they want to borrow money. You'll note that the US, Canada, the UK, the EZ/Europe are all raising rates together. They will all continue to raise rates together, pretty much until the US stops raising rates.

It is of course a lot more complicated than the above - there are some other factors like what happened with the mini budget, but the above really captures the issue. The BOE is just following the US and it has no choice but to really. So if you want to blame someone for why rates are rising you can blame the Fed rather than the BOE.

Why the Fed is raising rates ? Well one things for sure, they aren't doing it because they care one jot about UK mortgage holders, they are doing it because they want to stop US inflation.

“how would people who are just about coping deal with an increase in monthly payments”

Well what do you think @Tead ?
Did you really have no ideas of your own before dropping and running on the thread?

I am reading the comments and it’s been an eye opener for me.
@Testina am I not allowed to post questions here or can I only post questions that you think are suitable?

I'd do this! We were fortunate that our fixed rate ended august last year so have 4 years left on our low interest mortgage, but I'd have gone for interest only and pay what I could off capital if we hadn't
Good luck

I'm just remortgaging now, taken more to it to pay off a loan, extended the term by 5 years and fixed for 10 years. Had the offer but holding on for a few months before completion incase anything changes. Might come back to bite me on the arse but it means its affordable as a newly single parent.

I’ve returned to full time work earlier than we’d planned. It’s crap, but we’re lucky to have that option really.

Your broker or mortgage lender should have assessed your affordability based on a stressed interest rate. So this exact scenario

But it isn't this exact scenario at all, because the stress test assumed that other spending remained stable. Not that basics such as food, petrol and utilities were also significantly higher

I’m just whacking mine up to 35 years for a while 🙈 repayments are staying the same pretty much can change it in a few years

There's also another future impact. Many people will prioritise their mortgage and cut back elsewhere so some people will stop paying into pensions/reduce contributions. You then end up in 20+ years time with a bunch of poorer than expected pensioners that will need help

I really hope this will be solved by encouraging borrowers to switch to interest only repayments if full mortgage payments become unaffordable - maybe by forcing lenders to at least offer it as an option.
However I fear that a lot of people won’t be proactive, will default and then will ask for help when they are about to loose their home.
Help in the form of govt payments to homeowners will just push the problem forward, there is no point and will only add to the huge bill taxpayers already have to pay back.

Another post on here where the answer is simple

’not everyone is struggling or poor’

MN is a bit of an echo chamber at times with those struggling financially, but this isn’t the norm. There are more people who are perfectly fine financially than not

not everyone is struggling or poor

Do you think it will stay like that? With cost of living rises, mortgage rate increase. Wages not rising. Know that won’t effect everyone but it will effect a lot of people, and then knock on effects. We cancelled our window cleaner, can’t afford it, don’t think we will be the only one, what will happen to his earnings? Same with lots of industries are people make cut backs. It may not be immediate, think lots and lots of people will start struggling more over the next year or so. I work in the public sector, as do lots of people I know, maybe that influences my thinking.

There's also another future impact. Many people will prioritise their mortgage and cut back elsewhere so some people will stop paying into pensions/reduce contributions. You then end up in 20+ years time with a bunch of poorer than expected pensioners that will need help

Yes, and this is why deliberate inflation of housing costs for multiple generations is such a bad idea for society as a whole. People who are struggling will extend terms and they'll reduce pension contributions, both of which make it more likely that they'll look to the state to fund more of their retirement. We all end up paying. Whereas if housing had stayed at the ratio of earnings it was 25 years ago, people could have more time spent without a mortgage and more income available to do more societally useful things like save for retirement and spend on things that keep others in a job.