What do you think interest rates will do?

[Moonbun]

Just bought a house that’s fixed for 5 years but everything about interest rates is scaring me. If rates went to 15% like they did in the 90s my mortgage would jump from £700 to over £2000 per month. How would people be able to afford that? It’s terrifying.

Central banks have printed 25 Trillions dollars worldwide since 2008, it will take some time flushing all this liquidity out. We are in uncharted territory, no one knows whether we re looking at 7-8% in 2024 or if the central banks are coming back to printing to oblivion.

No chance will we see 10-15%. I think 4 or 5% more likely.

*What would a 10% rise actually mean? I'm not sure on the maths.

Is it 10% of your outstanding balance every year? So if you had a £240,000 mortgage you'd pay an extra £2000 per month??! Or is it 10% of the outstanding balance divided up over the whole term?

A 240k mortgage doesn't seem particularly high but £2k extra a month seems incredible?!*

Sorry to quote my own post, but is this what a 10% rise would mean? £2k a month more on a £240k mortgage?

@AndSoFinally - try this calculator. It varies depending on your term.

www.landc.co.uk/calculators/mortgage-interest-rate-calculator/

It's really worrying how quick they are currently rising. Was quoted 2.74% a week ago, now nothing under 3.20% available for a 5 year fix. Just waiting for mortgage broker to call me back so I can get a deal locked in before they hit 3.50+ !!

However I hope they will stabilise around the 5% mark and not much more.

@4intheCorner our 5 year fix was up next spring but we’ve paid early repayment charges to get out of it now and got a new 5 year fix. Even factoring in the ERCs and even assuming interest rates don’t go any higher than they are now (which they will), we are £10k better off based on the rate we got when we fixed 2 months ago vs the one we’d get now.

6% in 18 months

If you mean the interest rate will increase to 10% more than they are now (1.25%), then yes, it’s 2k a month on 240k.

No it's not an EXTRA £2k

Monthly repayments on a £240k balance at 1.25% over a 25 year term are £932

Monthly repayments on a £240k balance at 10% over a 25 year term are £2,181

An (eye watering) increase of £1,249.

At 17% (the high in 1979) you'd be paying £3,451 a month. At that point everyone is in negative equity and even the banks can't recoup their losses by selling houses.

You could go interest-only at that level but it would only save you £50 a month.

Fun times ahead

They won't do anything like that. It will kill the economy (and the UK government will be the first to go bankrupt given the national debt).

I am so bloody thankful I have been overpaying for about 12 years and have less than 2 years left on my mortgage. My plan then is to help out my kids a bit with their mortgages. I am so grateful mortgage rates have been really low for last 15 years.

Prior to the Bank of England’s first base rate increase, the best 3-year fixed rate was available in October of last year at 1.12% at a 75% loan to value.
Based on the average house price at the time (£264,307), this would mean those buying a property would secure an average monthly repayment of £757.89 for the following three years.
The latest data shows that this average mortgage rate has since increased to 2.26% (Apr 22), meaning those to have bought a property in the current market would be facing a monthly repayment cost of £920.72.
That’s a 21.5% increase meaning homebuyers in today’s market are paying £162.83 per month more versus those that locked in when rates were at their lowest point last year

www.propertyreporter.co.uk/finance/mortgage-costs-up-215-in-a-year.html

⬆️

It depends on so many factors there is no pattern you can use from the past. I don't think current monetary policy thinking or political considerations would allow 15% interest rates like in the 80s; if governments now and in the future can prevent that, I think they will use every monetary tool they have to do so. But I do think interest rates will be going up. By how much, it's really impossible to do more than guess. With the economy tanking as it is at present and high inflation, there will be a lot of pressure to push rates up. But for the same reasons, problems in other parts of the economy will be arguing for rates to be kept low. I just wish I had any confidence in the current government when it comes to economics- in the last decade they simply have not got to grips with how it all works. Regardless of party, we need a chancellor who understands at least a little bit about economics and, above all, listens to treasury economists instead of imposing some half-baked political ideology on the Treasury.

Of course if you assume a repayment schedule, the average amount of interest will flatten, but in your scenario of 10% more, so says 11.25% in the OP example, interest only would cost 2.25k alone, doubt banks would offer less with a fix. In this scenario, many people would be stuck in negative equity anyway and unable to secure a deal, instead they would default to a SVR and forced into interest only.

Today's news that GDP actually increased in May makes it seem certain the next rate rise will be at least 0.5%. But maybe they'll copy the US and do 0.75%. Or Canada who did 1%

A 10 year fix I was looking at on Saturday at 2.74% is now 3.58%. I didn't think they'd increase rates before the next BofE meeting 😭

That is a really big increase in a day. Quite a few banks have been raising in anticipation of the base rate rises. I think a 0.5% rise is anticipated this time.

I rang them today to see if this is correct and they said they have exclusive rates for existing customers that aren't published online so the 2.74% is still available but could be pulled at any time. I did a money supermarket whole market check today and there are no 10 year fixed below 3.31% now. Buckle in guys 😬

my first mortgage was at 14%...building society suggested i fix for 10 years at 16%...i didnt....i cut back and made sure i could manage any extra increases just in case....they came down a lot soon after so i fixed at 8%....as said, too much cheap or even free money for years....people need to be prepared for increases.

For those asking about remortgaging, some lenders let you remortgage 3 months before the end of your deal, some 6 months. If your current lender wont do it until 3 months prior you can still lock in a deal with a different lender if they allow you remortgage at the 6 month mark.

It might also be worth taking the hit and paying the early repayment charge for some people. You can use online mortgage repayment calculators to try to get a feel for whether or not it is worth it. I would also factor in at what level you definitely couldn't service your mortgage. If you think paying a 5% mortgage is impossible for you it makes that ERC to secure 3% seem less of a big deal.

Historically I think the average mortgage interest rate is about 6%. I can see it rising to around that level. We have become used to such low rates that 6% seems huge, but it really isn't. As PP pointed out, they are rising all over the world.

There have been a few threads like this over the last few months. Someone mentioned that a third of people rent (unsure if that's renting a mortgaged house or not), a third have mortgages and a third own outright. So not everyone will be directly impacted. If people start to struggle to pay their mortgages they will likely lengthen the term of their mortgage or convert to an interest only mortgage. People will get in lodgers, work more hours if they can and make cut backs in other areas of spending where possible. It will be uncomfortable, but it won't have such a devastating impact that the government and BOE wont allow it.

We got a 10 year deal a few months sho and are planning to throw whatever we can at overpayments over the course of those 10 years.

Don’t forget that fixed rate deals normally limit the amount you can overpay. In our case it’s 10% of the outstanding amount per annum. Any more than that is penalised.

Are you sure about that?

it's more common for it to be 10% of the original mortgage amount.

but yes, it's important to remember & not exceed the limit or that can cost £££ in ERC.

We're FTB and were told two weeks ago that 2.64% was our best bet; we found a place and have just applied and locked in at 3.25%. They are going up so quickly! My parents are in New Zealand and rates there have jumped to over 5% in the past few months. I think rates may settle somewhere around 5-7%.

I expect the BoE base rate to go up by a minimum of 0.5 percentage points at the next MPC meeting. Andrew Bailey’s most recent speech was to prime markets to expect continued rate increases. He’s no Paul Volker though, so I think it will be slow and steady and useless