5% mortgage rates

[SaturdayGiraffe]

Just read this article saying to expect 5%+ rates shortly.

https://www.theguardian.com/business/2023/may/25/uk-homeowners-and-first-time-buyers-warned-to-brace-for-5-plus-mortgage-rates

UK homeowners and first-time buyers warned to brace for 5%-plus mortgage rates

I just don’t know how people are going to cope, and it could go even higher.

It’s a good thing house prices are still at levels found in 2010 then, else there may be a problem.

My council tax is not split between multiple earners as I am the only wage earner (but I agree with you that in theory even for those living with student age children they could pay some of the £4k council tax) and even next year I will not be charging the youngest children so will be bearing it all myself.

On the fact most people have repayment mortgages I agree with the explanation above. However my basic point that if you have a repayment mortgage when interest rates go up some of what you repay is capital. I didn't mean to imply that if rates rise 1% your mortage reayments increase by only 1%. The mortgage I just paid off was 1.34% if rates increased to say 2.68% the amount of interest charged is double - a very big increase. Also repayment mortgage are better as you are paying capital off as we all know. I have had both over the years - repayment and interest only.

@Xenia ”We need a much smaller state and much lower taxes.”
I’d agree with that, except since NuLabour the state has kept growing and people seem to like them being involved in everything.
Low taxes gave gone, for good. The COVid debt needs to be managed, and services improved.
It all leads to higher taxes.
Will they be spent wisely is the question.

They certainly won't be and people will choose to work less rather than give so much to the state so it will not help productivity.

”We need a much smaller state and much lower taxes.”
Fine in theory, but it only works if income and wealth disparity is much reduced. If everyone earned the same and had the same level of wealth then there would be no need for big government and taxes would not only be lower but evenly distributed. But as long as the wealth/income divide continues to grow then it won't work.. You can only tax those with income and/or wealth.

If the desired system is one where people can aspire to high income and the accumulation of wealth, then taxes will have to cover the gap between haves and have nots. Trickle-down economics and the market as a magic leveller are illusory concepts.

Ah OK, you want house prices to stand still do you.

How does pointing out that in 2013 it was 5% of a far smaller amount mean that the poster wants house prices to stay still?
It’s a pointless comparison. The financial landscape is entirely different now to 2013.

Wouldn’t be a bad thing though, would it?
Imagine if you could buy a 4 bed detached for 180k. All that extra money you’d have to spend in the economy.
Especially if any second/further homes were punitively taxed.

With that ability to project, you should be working in a cinema.

I think that the government’s plan (assuming it has one!) is to try and inflate it’s way out of the enormous debt. Which is rather like trying to tame a man eating tiger and then complaining when it eats you.

It needs to keep demand low to tame demand side inflation but not so low that it completely crashes the economy. It needs a lukewarm economic situation where people have to tighten their belts but can still afford to stay put, whilst supply side inflation drops. They can pretend everything’s fine if nominal prices stay still, even if in real terms they are falling.

As if there’s a plan.

What would be the problem if house prices stopped increasing?

Foreign speculators wouldn’t make any money?

I'm not sure if you have struggled to comprehend @Liebig's comment.
But yes, it would have been much better if governments and central banks had let things unwind/ fail or whatever you like to call it in 2008. Instead, they have pumped up an absolutely almighty bubble which will not, inevitably, cause havoc when it bursts.

Absolutely true, BUT they weren't stress tested against the massive cost of living increases that we are seeing on top of those higher rates. The cost of living calculations were done on inflation of 2 to 3 percent. Not over 10% (and much higher on basics like food). It's going to be a massive problem for some to pay mortgage rates of between 6 and 7 %...

@DrySherry yeah that's true, although I think it's more relevant to larger families. To me, a 20% increase on an average £200 per month food shop equates to about about £40 per month, which is a negligible amount. My wage has risen enough to cover these extra costs on food and energy.

I can see how it would be much more of an issue for a large family spending say, £600 a month, on food though. In this situation the effect of inflation inflation is far worse.

You can get longer fixes. We got a ten year fix just before the hikes, although after that we will still have 10 years left which is a worry

This never helps. It really doesn't. Do you also think that young people can't buy a house because the eat too many avocados on toast?

As unpleasant as it might be for mortgage holders, don't think that the situation is any better for renters.

3 years ago I was renting a 2 bed terrace for £700 per month. I've just seen that worse houses in that street are now being advertised at over 1k per month! 😮. My mortgage is less that that for a much bigger house and garden.

It's not just shit for mortgage holders, it's shit for everyone.

Bit patronising. Imagine if house price bubble bursts. Everyone in negative equity. Lovely ideal yes?

'I can see how it would be much more of an issue for a large family spending say, £600 a month, on food though. In this situation the effect of inflation inflation is far worse.'

Exactly. The grocery bill could easily be an extra £100/month and the domestic energy another £150/month and the childcare bill an extra £150 and the travel costs another £100/month and that's before you think about the mortgage which could rise by several hundred a month.

Xenia, the small state. low tax would suit the wealthy but most people can't live on their wages before they have to add on all the costs of a smaller state (private healthcare, etc). It will not work with the massive inequality that we have in society, as @DogInATent has said.

Hardly anyone in negative equity. Only the ones who bought in the last 3 years, and mostly FTB at that.
Most property is not mortgaged or has massive equity gains over the last 15 years.

You say that like negative equity is always a bad thing. Yes, it does slow down the property market. But it only adversely affects those with a mortgage and a high LTV outstanding balances and want to move right now. Property is a long-term investment, and if you have a mortgage you always end up repaying an amount vastly greater than the 'value'. Keep paying it off to the schedule you agreed when you bought it and you'll move back to positive equity.

I don’t think you understand what those early 90s interest rates meant if you think it is worse now.

How much a loaf of bread was or the cost of your electric bill was immaterial because the mortgage cost outstripped what 2 people working full time earned and that is why people handed their keys back to the mortgage company.

Our mortgage interest went up to 22% at one point. And on a £150,000 house our mortgage was over £3000 per month.

I had been working full time on £200 per month and Dh had been coming out with around £1500. He was made redundant as the company went bankrupt

The only reason we hung onto the house was because our mortgage company let us turn our repayment mortgage into an interest only mortgage and Dh had mortgage protection for a year where the interest payments were paid for.

Dh couldn’t actually find a job but we did wonder how we would manage if he did find work on that year

We ended up selling the house a few year later when things had settled down but before the recovery and still had negative equity of £25,000

Our mortgage interest went up to 22% at one point

Whaat? Why was it so high? I had a 100% mortgage on a variable rate and the highest my interest rate ever went to was 14% or 15%.

I had been working full time on £200 per month and Dh had been coming out with around £1500. He was made redundant as the company went bankrupt

Is there a typo here, because I can't see how you only earned £200 a month working full time in the 90s, or how you got a £150k mortgage on a £1700 per month income?