What actually happens next? Housing and base rates?

[Lalalalawhitenoise]

renters and people who’ve bought their houses in the past 10 or so years, more so last 5 years, borrowed within affordability etc, all these rises, it will see people who’ve been in a position to save £1000 a month living pay cheque to pay cheque. Downsizing not really an option for most as stamp duty and then the general rise of house prices would mean what you paid for a 3 bed you’d need to spend for a 2 bed. Rental market has always been above mortgages in terms of what you get for your money… so those rises will hit private renters even harder.

what seriously Comes next? Mass defaults on mortgages? Surely that can be good for the banks? We don’t have enough social housing as is… seriously what happens next?

Yes. Which is why house prices falling is a good idea in the long run.

All this is just made up money. Swilling around. It needs to stop.

We have htb equity loan, it will be paying 50% of that along with some inheritance. I’ve also had a mat leave in the mix there so it wasn’t 1k per month consistently for 5 years, a year of that we didn’t save as much and dipped into savings here and there

Thanks for the responses.
Ok I understand BoE want people to spend less however - say we all stopped spending... then what? Local businesses first loose their business - first wave of repo's.

Then this spirals outwards to medium businesses..
But Its so rubbish for the majority of working people. It's terrible 😞

They won't be able to buy that new kitchen or bathroom that Mumsnetters tell them that they simply have to have or go on that all inclusive holiday, they will have to cut their cloth accordingly.

@Lalalalawhitenoise this is what I mean by HTB being terrible. If you had purchased in a normal way that money would be paying down the capital on your mortgage so you would be able to weather this interest rate rise a lot better.

HtB people are more exposed as a lot of their money has been paying off the equity loan not the mortgage.

Yes this will likely be me

However, the percentage of household take home pay used to service the loan has remained fairly constant. Over the last 15 years, as interest rated went down, prices, and hence the size of the loan required went up to match. Now as interest rates go up the reverse will happen. This is a correction. In the long term, once this all unwinds, the same people will be able to afford the same house using the same percentage of their income, these are the fixed parts, everything else is a variable

Yes HTB was never a good idea unless you had a way to save the full loan amount by the end of the initial 5 year period. Paying off 50% isn’t enough.

Essentially, what h2b has done, and does, is enable or encourage people to borrow more than they can actually afford. It isn't a good thing. And most people don't pay the loan off in 5 years.

What comes next is a massive recession, with the people worst affected by the reduction in public spending being the same poor sods whose businesses were ravaged by the Covid lockdowns.

DH and I can afford the increase, but it makes me sick to pay it, so we're cutting back across the board to throw money at reducing our mortgage. So that's less spending in shops, bars, restaurants and cafes.

Government will not help mortgages, that would fuel inflation.

Rates are rising specifically so we have less money to spend and so that those that have money save it in case they need it for future rises.

Enough of us have to not have the money to spend, or to be worried about spending it in order for demand to lower and to encourage businesses to reduce price increases.

The housing market will also drop because as has been pointed out here, high prices with interest rates at 6% or higher is pushing what is affordable for many people.

it’s likely that rates will go higher before they come down - it depends if enough demand is removed from the economy.

Maybe, but circumstances change. My DH and I took out our fixed rate term in 2017 for 10 years. For us circumstances haven't changed, but there will be plenty due to come to the end of a fixed term who didn't have children before the term started and now they do, for example. Or someone that is now unable to work as much due to health concerns.

Those with changes in circumstances are, I would imagine, the highest likely to default.

DH has a rental property (his old home pre me) and the increase in interest rates will increase the interest element of his mortgage by about 150%. Thankfully he has enough equity in the property that the mortgage is low, but there will be plenty of landlords whose interest payments are now going to exceed the rental income. Given interest isn't a fully tax deductible expense, these landlords aren't going to hold on to properties that are no longer paying their way when they're in a cash deficit, yet still have to pay tax.

In theory, therefore, there may be an influx of properties on to the market which should, in turn, reduce the price of them. With Skipton now offering 100% mortgages, it might give some people the opportunity to buy their own homes for the first time.

You can’t compare the 15% rates with today’s rates though. When rates were that high, MIRAS existed, thus reducing the effective rate of interest paid.

Mortgage payments were stress tested in line with the requirements of the rules however this did not allow for energy, fuel and food prices to have shot up as well - its a perfect storm to hit people all at once

Thing is we borrowed smack in the middle of our affordability, we could’ve borrowed more but didn’t, I imagine this would be the same with others such as myself and I’m not sure how many people could save 60k plus in 5 years

My DM was an estate agent back in time. Sadly, there was a market for re-possessions wherein you had capital to buy, you benefited greatly from someone else’s misfortune. Banks and BS we're accepting really low offers, well under market rates, to off load houses they had taken back. They weren't bothered about good money as the home owner was left with the gap between what they owed and what the sale had raised.

I remember a few years ago people complaining that 2 year fixed were scams.

And fixes on houses should be longer- but that was before the bank base rate plummeted. Then people on fixed rates were stuck on much higher rates than people who were on tracker rates- rates that were so low such as 0.5% above bank of England rate.

So now its come back full circle and people are saying fixes should be much longer than 2 years. But faced with a cheaper rate at 2 years, compared to a higher rate over 5 or 10 years- no wonder people go for the 2 year fix.

I think they need to change it so that, with a fixes rate you can remortgage without a penalty if there is more than a 1% drop in the bank of England rate- you may get a lot more people going for longer fixed rates.

Isn't that the way things work in ( parts of ) Europe ?

Agree house prices need to fall.

They've been artificially propped up for too long.

But what happens to all those who basically cannot pay their mortgage? If they can’t pay the mortgage it’s unlikely they can afford private rent? There’s no social housing as it is? Will it just be tons of family’s in b&bs? Surely that comes at a cost to the gov too? This is the part I’m not getting

You said you save £1k a month. There's your £60k in 5 years. And actually you have the capacity to save more.

I bought my first property in the early 80;s so as far as very high interest rates go this most definately isnt my first rodeo. All those people saying that houses cost too much and prices need to be cheaper, well be careful what you wish for because this right here is how it happens. There is no such thing as a victimless crash and as others upthread have said, some will weather the storm, some will sell up and downsize, go into renting or move back home and some poor souls will be in the shit. in the 80;s people walked away, locked the doors and gave back the keys with many going bankrupt. as with all situations there are some people who will be rubbing their hands that this has happened. cash rich investors, particularly from abroad will start buying up the property as it troughs. we need to get controls in place now to stop this happening so at least there can be some benefits for a few people (those trying to get onto the housing ladder)

If they cant pay the mortgage, they either sell and downsize and repay the loan or sell and borrow to pay back the shortfall. if renting it would have to be something smaller in a cheaper area. people are going to have to move away from where they prefer to something they dont. it wont be tons of families in b and bs because many will either relocate or move back in family. thats what happened last time. Still too many people deluded enough to think that they can live where they want rather than live where they can afford. but its that or family now are the only options. you have to readjust your mindset op. you cant just do what people did in covid and stand back and expect the govt to be nanny and sort it all out and pay up.

The interest rate on my mortgage rose dramatically before I'd made the first repayment, it went a lot higher than 5%. Life was shit for a year. There were no meals out, no takeaways, used a paraffin heater for warmth and stayed in bed longer, no new clothes. OH cycled 15 miles to work, I was already using public transport. Then I got a pay rise and we could live a bit better, but still frugally until rates dropped again. Other people worked 2 jobs, had lodgers or handed the keys back to the lender and went to live with parents.

You do what you have to do to survive and look for what you can do to make life easier.

As mentioned before there won’t be loads, in comparison to the total number of homeowners, who really can’t pay. There will be options to go interest only, take on second jobs and bit back on all disposable spending before not paying the mortgage. Those who really can’t will have to go into rented, which may mean renting a much smaller property than what they owned.