Govt and mortgages

[Madeyemoodysmum]

I know this will be unpopular but it's driving me mad

Ok, the recent mistakes by truss have been monumental and they have lost
My Vote which was teetering Anyway

But interest rates
We're NEVER EVER going to stay this low forever

The govt can't protect you and bail
You put on everything

If you are over stretched then you need to Be honest with yourself.

Rant over. And feel
Free to pile On.

The housing situation in the UK is absolutely dire. Even with low interest rates, house prices have been ridiculously hugh compared to wages. There is zero point in pointing out that interest rates were much higher in the past when the cost of housing was proportionally far lower compared to wages. The only way to compare is by looking at what proportion of household income had to be spent paying the mortgage in 1987 compared to 2022.

We need serious investment in housebuilding in the UK, similar to the 1930s, with proper infrastructure alongside. There needs to be a new supply of council housing to free up property for private rental and better protection for renters so they have more stability.

Not to derail but have been wondering from a few similar threads. I haven't lived in the UK since I was 19 so don't have much knowledge on standard "adult stuff" over there. In the US you simply get a fixed mortgage and your rate is locked for the whole 30 years (it's a little higher than flexible rates but for instance 2.8% vs 2.5% when we bought, and the flexible is generally seen as a bad deal as it will inevitably go up).

Are fixed rates not a thing in the UK? Seems genuinely terrifying to not know what's going to happen to your rate.

err yeah people tell pensioners why they didn’t save better.

How the hell can people save for the future? It is shit after shit and misery.

@sideplates anyone aged 30 or over is old enough to remember the 2008 crash.

The average age of a first time buyer is over 33 (it was over 30 in 2007 when interest rates were last at the higher level of about 5%).

It is therefore NOT ageist to suggest people should have known that interest rates are capable of rising, have historically typically been higher.

If these people don't recall the 2008 crash, well that's their own fault.

A mortgage is a PERSONAL debt and you take on the risk privately.

I do feel desperately sorry for people who decided to make a leap recently onto the housing ladder as it is the recent first-time buyers who have the worst of the bad luck here. But it is luck, and shit happens. Some people win big, some people lose big. That is the personal financial risk you accept when you take on a mortgage debt. It is never a guarantee you'll get rich.

@HappyStripper yeah people only fix about 5 to 10 years out here. Short fixes of 3 years or less are also popular but carry known risks (cos when you come to refix, the market can easily have swung away from you).

Interest rates have been rock bottom for so long, borrowers haven't really had difficult decisions to make. A lot of us just dropped onto variable rate, poised to fix when we caught a bad smell in the economy. Many people already refixed ahead of this crisis - we certainly did. Took a 5 year fix end of last year that felt expensive then, but now looks really good.

It really isn't news that interest rates were going to rise. Am I surprised at the sudden sharp increase? Yes for sure. But I believe the market will settle and rates will stabilise. I could be very, very wrong of course but within 4 years I'll have time to study what's happening and make appropriate adjustments in my personal finances.

And that is the PERSONAL risk I accepted when I took a mortgage. It is my responsibility to deal with it.

People whose fixed term products are ending in the next year or so months are in a tough spot which is bad luck.

Financial markets involve luck. This is not headline news, to be honest we all know this.

why are posters assuming people thought interest rates would stay low forever? Because they bought a house? So the last 15 yrs or so people should have rented instead? 🤔

anyone aged 30 or over is old enough to remember the 2008 crash.

The crash where the gov stepped in to prevent housing completely crashing by switching to emergency interest rates?

@chaiz it isnt an identical scenario - the point is, market conditions can change rapidly. Don't be seduced into think individuals didnt suffer loss despite the government's actions back then.

I was a first time buyer in 2007 hitting that average age of 33. I slaved at work to saved a deposit and agonized with my DH when we should jump off the safety of rental (expensive but reliably priced) into the risky land of home ownership. At the time, we weren't married, and I remember saying, "this is the biggest risk we will ever take in our lives." I am not an idiot. I'm just old enough to remember friends whose parents lost their homes and suffered from being forced to move in serious negative equity in the '80s.

People sometimes lose out in life. The government isn't supposed to be there to remove all risk from your life.

@chaiz it isnt an identical scenario - the point is, market conditions can change rapidly. Don't be seduced into think individuals didnt suffer loss despite the government's actions back then.

I was a first time buyer in 2007 hitting that average age of 33. I slaved at work to saved a deposit and agonized with my DH when we should jump off the safety of rental (expensive but reliably priced) into the risky land of home ownership. At the time, we weren't married, and I remember saying, "this is the biggest risk we will ever take in our lives." I am not an idiot. I'm just old enough to remember friends whose parents lost their homes and suffered from being forced to move in serious negative equity in the '80s.

People sometimes lose out in life. The government isn't supposed to be there to remove all risk from your life.

@GoneBeserk where have I said it's an identical scenario? The point is you can't talk about 08 without acknowledging the gov intervention & the impact that had.

People sometimes lose out in life. The government isn't supposed to be there to remove all risk from your life.

Where have I said that. The point is the the gov had stepped in & propped up the housing market which is one reason we have huge inter generational equality. I'm not even young but I'm saying the gov should be intervening more to give young people & families a break.

It has been. Stress testing has been part of the affordability assessment for years.

Given the disproportionate rise on house prices is it any surprise that people were desparate to get on the propery ladder?

MN is always vocal about inevitably rising house prices. So why wouldn't people price that in?

I was a first time buyer in 2007 hitting that average age of 33. I slaved at work to saved a deposit and agonized with my DH when we should jump off the safety of rental (expensive but reliably priced) into the risky land of home ownership.

well when I was a FTB in the 00s I just had to work, no slaving required. The job I did then pays similar now. And it was a no brainer as my mortgage was the same as rent. I also made 200k in 2 yrs. So definitely not identical scenario!

MN is always vocal about inevitably rising house prices. So why wouldn't people price that in?

Exactly!

I have actually said over the last few years that FTBs should skip the flat stage if possible & whatever they do future proof because definitely in parts of London I know affordability was struggling & Brexit did have an impact. Then covid happened and I know a few people who picked up bargains but then the stamp duty prop caused prices to escalate.

The govt can't protect you and bail
You put on everything

Why? They bail out failing business models like banks and energy companies

"Even with low interest rates, house prices have been ridiculously hugh compared to wages."

You've kind of missed the point. Low interest rates mean people can borrow more. Which forces up house prices because you have more money chasing the same thing.

People falling over themselves to borrow more money, bidding prices against each other, while the banks rub their hands.

Now people who didn't subscribe to this sort of madness are in a good position, people who did are crying "it's not fair".

The government doesn't control monetary policy (interest rate), the BOE does. And the BOE is supposed to be independent of policy. But it's policy is largely influenced by the worlds other large economies. In particular, the US interest rate set by the Fed. If you look around the world interest rates are rising everywhere. Europe. Australia. US. They all follow in together. They have to otherwise all the money will flow to the country who sets the highest rate (return on money). There are some other mitigating factors (for example risk of return) but generally this is what drives interest rate policy outside the US.

What people can blame the government for is not applying specific policy to housing to cool the market down. Examples of this might be placing minimum loan to values, lower maximum earnings multiples and higher stamp duty.

Instead the government have done exactly the opposite, pumping the market year on year to try to get popular support. This has been done since at least 1997, so encompasses both Tory and Labour governments. I think even recently some bank stress testing for mortgage holders has been relaxed. Absolute madness when what we need is higher levels of stress testing.

At some point the music stops. We've now hit a double squeeze, mortgage rates rising at the same time the cost of living is rocketing (these are to some degree related, but not completely).

The fall out is going to be epic, unless the Fed decides to roll back on interest rate rises. There are some rumblings that this may happen, and they are starting to come under some external pressure.

We'll see what happens.

You've kind of missed the point. Low interest rates mean people can borrow more. Which forces up house prices because you have more money chasing the same thing.

why didn't the BOE increases rates then?

People falling over themselves to borrow more money, bidding prices against each other, while the banks rub their hands.

Plenty of sellers rubbing their hands too....

The gov has propped up the market for so long & I'm sure they will do something again. I said on a thread a few months ago they will tinker with stamp duty again & was told never.

I think interest rates should be at historic rates, housing should not be investment, etc but that's not what the gov want.

The BOE actually has a very narrow mandate on interest rate setting. It is to keep inflation at 2% I believe, but I also think there is a kind of over arching statement of having them set appropriately for the good of the economy which people often miss. In fact I think the governer of the BOE has to write a letter to the government each month explaining if the inflation rate is over 2%. They must be getting pretty fed up of it by now.

So a better question might be, why if inflation is a 8%+ (i forget the exact figure) are interest rates not a lot higher ? The answer is that the BOE is raising them at the lowest rate they possibly can relative to the Fed/world interest rates because they know if they went at any higher rate they would trash the entire economy (not just housing, but business as well). The BOEs policy is to manage the interest rate for the entire economy, not just housing. The government then needs to apply specific fiscal policy in different areas if those areas are overheating due to an inappropriate BOE interest rate setting. But as you I think pointed out, the government doesn't do this because it perceives ever increasing house prices as something the electorate wants and that gain it popularity.

I think you are correct in the respect that the government will do quite a lot to try and stop house prices falling. But at some point the bubble gets pumped so high that nothing can stop it bursting, not even the government. I think if the bubble does burst this time, then it will be different to all previous bursts, for example I do not think there will be large scale repossesions as there have been in the past. But how it will play out exactly no one really knows.

I agree with you, there needs to a be a step change in the way people think about housing. You can even see it now in the media that people are trying to subtley change the narrative - that ever rising prices are bad and they (the government) need to keep them under control. This narrative is being engineered because the government fears that it has no chance of preventing the burst of the bubble due to interest rate rises. It can and has managed to stop the burst previously, but it's pretty much got to the state where there is no longer anything it can do, especially in the face of rising world interest rates.

@chaiz

Lol.

In 3, 2, 1 ...

news.sky.com/story/lenders-push-kwarteng-to-extend-mortgage-guarantee-scheme-12713430

As someone trying to borrow 1/3of the price of my mortgage free home so my children can remain In Their home and I can get a divorce I really don't care what the interest rates are but I can't find a mortgage company who will lend to me despite affordability and credit rating not being an issue and having over £140k equity

The problem is that the BoE seem dumb enough to believe that them increasing interest rates will have any effect on inflation. The things that have caused it are gas and oil prices (a global market that UK interest rates don't really affect). Yes, everything else is also getting more expensive, but that's mainly because of the knock on effect of higher energy (manufacture) and oil (transportation) costs filtering through.

They could put interest rates up to 10% tomorrow, but it won't stop inflation (which has hopefully already peaked anyway). All they're doing is killing the housing market (which arguably needs a downward correction), and stifling economic recovery.

I didn’t think interest rates would stay this low forever. I had to stretch myself to get on to the property ladder, because property prices are so high. I stress tested my mortgage (well, my lender did), but we/they didn’t account for the rises in gas/electricity, diesel, food, childcare etc at the same time.

I agree that a lot of the inflation increase will not be crushed by rate rises. If it would have been rates would even higher than they are now 🙂

Rates at the moment are not being set primarily to reduce inflation. They are being set because the return on money in other places in the world is higher than it is here.

Example. You have £100k. You have two choices. You can lend it to someone in the UK to buy a house at 0.5% interest rate return and all the risk that entails. Or you can convert it into dollars and buy a US treasury bond at 3% interest rate return at a much lower risk. What do you do ? Answer, you buy the US treasury bond. So the market really sets the interest rate, not the BOE. And the market price is largely set by the Fed (the US equivalent of the BOE).

Most people think the BOE sets the rate. It doesn't, it just plays catchup with what the market demands. UK mortgages have to give a return consistent (given their risk) with other options available to investors.

The BOE are like a sailing boat caught in a hurricane atm. Probably desperately trying to minimise the UK rate rises while hoping the US stop theirs. Good luck with that.

fixed rates will soon be a thing of the past

Quite stunning to see how interest rates went so low after the year 2008.

Cabt say I know why or what that means, apart from it was the Lehman Brothers crash year?