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.

We were with Citibank who even when the mortgage rate went down they put it up.

No word of a lie they mistook the + and - sign then told me that was the amount we had to pay
But then when o got Dh to call them 5 minutes later they were all over him and trying to put right their mistake.
Dh had to take a day off work because I was sure they took no notice if you were female.

They lost all our paperwork and if I had known then what I know now I would have refused to pay it and as I had the deeds to my house. (they lost track of those) and they didn’t have our original mortgage agreement they decided that we were something like 8% above base and there was no arguing with them.

Not sure any of it makes sense.

Maybe she meant the property value was £150,000, but then what, their mortgage was £100k?

£100k at 22% is about 4.5 year term for £3000 a month.

£36000/year mortgage payments. She’s having a laugh.

Kennykenkencat god, that is awful. Criminal behaviour from Citibank.

Blame the BOE. To curb inflation you need interest rates to be very near if not higher than the % rise in inflation. BOE acted too slow and allowed inflation to continue soaring. Although Truss and Kwarteng can take some blame too.

Covid left a lot of money in some very deep pockets when people saved on commuting costs etc. The BOE had no idea how much and as usual it's those with basically no pockets that suffer the worst.

It seems to be widely accepted now that the base rate is likley to be 5.5% by end of year so many mortgage deals will be in the 6% plus range :(
If your deal is coming to an end in the next twelve months it's going to be an uncomfortable adjustment. Core inflation jumped by over half a percent last month. That means they haven't done nearly enough on rates yet.

Raising interest rates was never going to be a completely effective tool when overall inflation was being driven by specifically by rapid cost increases in non-discretionary spending (energy, food) during a period of economic self-harm (Brexit) with a land war in Europe (Ukraine) in the tail of a worldwide pandemic (Covid).

Agree that we still have some way to go on interest rate rises. The BoE itself admitted its inflation models are not fit for purpose.

Exactly. they will keep going and mortgages will be >6% ,and for longer. Rates wont be comnig down in the next few years x

I spotted another article about it today.

Glad it’s generating headlines really!
https://www.theguardian.com/money/2023/may/29/is-it-worth-playing-the-waiting-game-in-the-hope-of-a-better-mortgage-deal

I’ve explained several times over the years of why we were always going to end up at this point at this time (look back across my posts).

The media gaslight <shock horror> into certain narratives… Brexit, Covid, mini budgets, Ukraine war. All the above were just catalysts speeding up what was already happening.

The yield curves and repo signaled in 2019 that a recession was coming and the central banks around the world printed a lot of money (1/5th the global supply) and the governments embedded it into the system through stimulus, bounce back loans, cost of living payments and furlough.

It wouldn’t be happening around the world if it was due to Brexit, Germany wouldn’t already be in recession and the EU wouldn’t have just as much inflation as we have.

https://www.telegraph.co.uk/business/2023/05/25/germany-sinks-recession-olaf-scholz-avoided/

Imagine a pipe. The stimulus went in and what were the first signs of inflation? Second hand cars (no CGT), building materials/labour (lumber shortages), worker and logistics shortages (shipping container prices went up x10).

Thats the first bubble of inflation embedded that then eventually spirals costs up at supply end which takes several months to years to start registering at the consumer end. It’s repeat of the 1970s (which is why the 2 year gilt rate is rising once again now).

Inflation comes in waves. We’ll have another coming, that’s why the BoE do not want salaries going up by 10-20% otherwise it causes a wage/price spiral. You may get a 20% rise over a couple of years but don’t complain when an oil change costs £500.

It wouldn’t be happening around the world if it was due to Brexit, Germany wouldn’t already be in recession and the EU wouldn’t have just as much inflation as we have.
The global economic effects are global, but Brexit is locally hampering the UK's ability to respond and putting it in a worse place relative to near neighbours. Germany may be facing the same economic pressure and entering a technical recession that the UK very narrowly avoided, but it does it from a starting point of higher GDP, higher business investment. and as part of a larger trading block with free access to the Single Market. Germany is also facing the same skills and labour shortages the UK has, but with a larger pool of available labour to call on from within the EU and a new government with some radical (to Germany) new ideas on immigration and settlement. Things look quite interesting for Germany for the next decade. Most Brits won't appreciate the scale of the changes underway in their domestic and foreign polices.

How is the BoE raising interest rates going to reverse almost a decade of UK business underinvestment? - even if they have to because interest rates are the one-size-fits-none standard tool to apply against inflation.

I don't know Moneyfacts, but 800 sounds like alot.

https://www.theguardian.com/money/2023/may/30/uk-mortgages-deals-pulled-interest-rate-fixed-term-loans-moneyfacts

Comparisons with the past never are too useful for people in today's conditions except for those of us who had these issues before younger people who think life was really easy in the past (not all young people of course think that) sometimes need to be reminded it was not all easy going. we had interest only and deferred interest mortgage the day rates went up 5% in a day and the UK left the european monetary system as a result - Black Wednesday I think it was called. I will always remember my husbands call to me at work as we had borrowed 4x my salary and used every last penny including savings in 1990 to buy that house.

On Labour party plans apparently they want to pay very little for some land - a kind of typical confiscatory big state socialist thing so be afraid, be very afraid. Vote Conservative.
https://on.ft.com/3OO42f6

No thanks @Xenia I will not be voting Conservative.
You should stop that fantasy that they are electable give the state of the country

‘…typical confiscatory big state socialist thing…’ is misleading.

Reading past the first sentence in the article, it says it’s about how land is valued.

The UK hasn’t avoided recession, it will most certainly be going into recession as will most the western world.

The reason why Germany went into recession first is that they have a greater manufacturing economy than we do, as we rely on a service/financial sectors. Germany decided to go 100% reliant on Russian gas in 2017 despite the Ukraine war being ongoing since 2014.

The suffered a greater spike first (PPI inflation) to energy costs, so they have gone into recession first.

All of the EU has labour shortages. We are particularly susceptible at the senior skilled end due to our sector pensions sector assets spiking with the QE in 2021. This caused a lot of early retirements (in which the government is now trying reverse with lifetime limit extensions). Public sector pensions also got an inflationary uplift and the frozen tax thresholds are not doing much to entice people back to work.

Down the bottom end if you have children, you are worse off financially working full time on lower wages than part time with working tax credit benefits. There’s no incentive.

Look at our GDP per capita, it’s flatlined since 2005 despite the population growing by 17%. We’ve been treading water since 2008 by outsourcing cheaper manufacturing abroad and importing cheaper labour to fill the gaps that are no longer filled by the UK population.

Raising interest rates essentially creates demand destruction and reduces inflation (but is less effective when so many are getting inflationary uplifts). Inflation 101 is that the base rate has to be raised above the CPI rate to kill off inflation.

2008 QE went into the assets, it never entered the general economy. The supply/energy shocks etc, are just further catalysts to what was already happening through the cause of directly injecting trillions of QE into the economic system.

@Xenia ”Vote Conservative”.

Usually reasonable advice, but not this time.
This government is corrupt, and has run up the debt, and the country into the ground.
Whether labour will be any better remains to be seen. However the conservatives have had their chance.

On the plus side, anyone on a fixed rate is currently beating the banks. If you borrowed 200K in 2020, then the value of the debt has fallen by almost 40K according to BoE calculator.

This is true, but unfortunately they are pretty good at making back short term loss. It just means higher mortgage and borrowing rates for longer I'm afraid.

I agree there is a good chance Labour will get in next time as they have not won since 2005. However I doubt they will be better on tax and spending that these high spending Tories currently in power.

I agree recent rates have been low. My interest only home mortgage I paid off last month was at 1.34% fixed for 5 years - the lowest rate I have ever paid (and I started paying a mortgage in 1984 so have had a very long haul of paying all kinds of different mortgages). However the amounts young people have to borrow now even allowing for ordinary inflation are much higher _ - I would say in part because of state intervention in the free market.

If professional couple Z working full time can afford Y house price on their above average salaries in 2023 at 1.34% and couple X in the 1980s could afford house price £much less than Z at 12% interest rates the market ie house prices tends to have to go with those ratios between net wages after tax at least to some extent.
(Although in our case our London lawyer and head of dept teacher both working full time in the 1980s could still afford our same house as the lawyer wage AFTER alloing for inflation went up double perhaps in response to market forces - higher house prices, 9% student loan tax and higher London rents).

Soon the only people able to afford a house will be those on benefits. Tories have messed up the economy so badly, taxed out the arse, huge cost of living, huge mortgate interest rates after mindlessly pumping the housing market. Total disaster

I worked in Mortgage Debt Recovery for 2 major banks, for decades. At one time, I was the Executive Assistant to the guy at the very top. Every single eviction had to get his signature, and he would read the file well. It was never an easy decision.

Before any eviction the Bank would try repeatedly to restructure the mortgage, so that the customer could keep their home. So, for example, we would phone them and offer to extend their term by (say) 10 years (age allowing), which would bring their monthly payments down. Thousands of customers would not engage in our attempts to save them, when the situation was indeed salvageable. A real head in the sand mentality. It left us with no option but to evict. In many cases, we had been trying to engage for over 2 years with the customer, and for all that time they had been living in the property, without making any mortgage payments. This was partly the Banks fault though, because the staff making the calls to the customers, were judged solely on how many calls they could make in a day, regardless of whether the file was moved along the track to the next step in the process.

Many people had taken out Endowment Mortgages, with the full expectation that their Endowment Policy would repay the capital, at the end of the term, but due to the endowment not performing as predicted, there was nowhere near enough to repay the capital - a lot of these people were 65+, so we could not offer them any other mortgage, and they were evicted. Very sad, as they had presumed that the endowment would pay off their mortgage and give them a tidy lump sum to retire with. But instead, in their dotage, they were turfed out of the home they had lived in since they were in their 20's.

One thing that I didn't agree with, was how the properties were sold after an eviction. As long as the Bank got back enough to repay the debt, they were happy, and consequently always went for quick cheap sales, below the properties real value. I know business is business, but that felt heartless to me. We could have sold at market value, and handed the excess back to the evictee, but no one seemed to ever think about that.

Sorry, I meant to say, always, always engage with your lender. They do not want to evict you!

Anyway, thanks to @SaturdayGiraffe for starting the thread as it made me get off my bum to get a lower rate on the second part of our mortgage, which had gone up to 7.99% after coming off a fixed rate. Now 4.74%, no fee payable, we can still overpay 25% and the repayment is £100 less a month.