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.

Well I’m glad about that @Catspyjamas17 😅

I think most people will cope. There are a surprising number of people with no mortgage/very low mortgage. There are another cohort of people coming to the end of fixes who will have a bit of a shock, but if it’s (for example) a 5 year fix then in that time their kids may have finished childcare so they are saving on nursery fees, or they’ve gone back to work for more hours/had good pay rises. Add on people who used to commute to London 5 days a week and now only do 2 days a week and save on commute and parking, who will have to divert that cash into increased mortgage payments.

Then there’s a large cohort of people who never really had to budget until the CoL crisis and actually do have spare cash around when they have to be careful (quite a few threads from people like this on MN).

It’s a question of whether those that can’t cope because they are remortgaging whilst income/expenses have changed significantly (took out mortgage, then had kids and now have to pay ££ in childcare for next few years) or who need to move because of divorce/lack of space but can’t afford to will be a large enough group to force action from the government.

We have to re mortgage. And was having sleepless nights about the amount it would cost. Ours ended up being £200 extra which we can afford thankfully. But any more than that we would have been struggling. This one is now reserved until November when our mortgage actually does run out.

am glad to have it this way. Just on the off cancel something changes massively and it goes down and then we can choose that instead. But nice to have the certainty that we are not in for a £700 hike.

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.

This should be illegal. A bank should be duty bound to sell at the market rate, then subtract the debt and a set amount to cover the cost of administrating the sale. Any remainder should be refunded back to the evictee.

They do this with debts in voluntary arrangements as well. They get sold on in bulk to other companies for ALOT less. People should have 14 days to be able to settle for the amount they are being sold for.
instead the new agency chases the lot and the creditor receive a reduced amount.

The bank is duty-bound to recover as much money as possible. It is incredibly hard to evict people these days sorry to repossess people these days the bank will need to show that it went through every possible check-in balance available to at the time in terms of affordability. Any slight clinks in the armour and itll get kicked out.
You also have to really bury your head in the sand to even get to court. The banks will do everything in their power to avoid it. When I got divorced recently, my ex-husband hadn’t paid the mortgage for nearly 18 months in full just a few token payments. We hadn’t even reached the shitty letter stage, nevermind court when it got sold.

Why? they own the morgage? it is their liability. x

Unfortunately it is not that simple. The impact of rate rises is entirely dependent on the size of the loans in relation to income. If I have a £50k mortgage and a £50k salary I can easily cope with 15% IR. But for a £500k mortgage and a £50k salary it is a very different case.

Because of low IRs, and house price inflation, people have borrowed beyond their means. A 15% IR back in the day, is equivalent to something like an 8% IR now.

Source of pic:

That 15% mortgage rates is a false comparison. They were 15% momentarily in the scale of things.

Barclays rates have all shot up to over 5% today. Think other lenders will be following soon!

Anyone who fixed at 1% something and didn't do the maths to see if they could afford 5% was being somewhat silly.

My first mortgage back in 1997 was at 5.8%. 5% sounds normal to me.

1% always sounded ridiculous!

My mortgage now is less than I was paying in 1997, for more credit.

Mine is actually fixed at 1.2% and the only thing I'm fucked off about is that it will come off at the same time my home loan comes to an end, so instead of being £300 better off we will be the same! Somewhat irritating!

How come you haven’t paid your mortgage off?

@ThankmelaterOkay thats not the full story is it though? Lots of people could afford to pay more if the cost of living hadn't gone up massively. Indeed the affordability calculation that banks do for mortgages did check people could pay higher interest rates, what they didn't account for was 20% fuel increase costs etc.

Oops sorry should have tagged @thewillowbunnies

Don't be so condescending. People don't need to 'do the maths'. The bank does it. It's called the stress test and it was 7% when I took my mortgage out.

Well most people will have been stress tested so their maths was likely fine. But they couldn't have predicted outrageous energy rises, food hikes, etc., all happening at once. So no, they weren't being silly. Yet you had your first mortgage in 1997 and it's now 2023 and your'e still paying it? Sounds like your own maths isn't up to scratch.

We ‘did the maths’, in that the bank stress tested our mortgage. However what they didn’t take into account the fact that our energy bill has more than doubled, food bills have increased hugely, childcare bills have nearly doubled…

Looks like they don’t stress test anymore https://www.reallymoving.com/blog/september-2022/mortgage-affordability-stress-test-scrapped-why-has-this-happened

Right, so imagine now the same house is 550-600k if not more. No teacher or public sector worker can afford such mortgage, let alone save for a deposit. And mortgage on this sort of house with current interest rates is ~2.5-3k.

That’s where Londoners can make their massive income tax payments back. Through housing benefit once they retire. 😁

Housing benefit is capped capped. So if you don’t have £16,000 in savings, you’ll be entitled to claim an absolute maximum of £500 a week which will include your rent and your council tax.

To be fair, my aunt and uncles house would’ve been about 55K at that time, now it’s worth 200

Whilst ever migration into the U.K. is running between 500,000 and 1 million, house prices will not crash. Just the impact of mortgage rates will bite the economy and personal spending power ever deeper

Not too bad to be fair. 2k budget for rent and council tax a month isn’t too bad even for London. Only proves that there’s absolutely no point in manic saving and sacrificing lifetime experiences, when your neighbour who chosen to be financially unstable for years, just gets bailed out by the benefit system. Hence why younger generations, as someone pointed out, lives in fairy land, because it doesn’t make sense to save anymore, at the expense of your lifestyle. If you’re broke by the time of your retirement, you'll get help anyway. Quite generous help.

That sounds a generous amount - over 2k a month. Anyone with any sense would make sure they didn't have 16k in savings if they were in the position of needing housing benefit in retirement