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.

1. house prices are many more multiple of earnings than then due to asset price inflation
2. a major driver for asset price inflation was quantitative easing which benefited asset holders without any effort or skill on their part. QE over COVID is likely to be a major factor in the current inflation rates which is leaving people with the worse of all worlds - high interest rates but high prices due to the equity built up by existing homeowners, again due to QE.

This comment really doesn't help stretched households! Houses were much cheaper back in them days as well.

Feel free to check my maths, but 15% of fuck all, is um, fuck all.

Yeah, it's the kind of unhelpful shit that plays well on aibu for sport.

Oh behave, you are the one who started being dismissive of the current generations valid concerns about the rising rates. I never said you had it easy, i said the situation is different now so comparing is pointless and belittling to those who are genuinely fearing for their future.

Having lived through similar fears one would have thought compassion would be the default response, but alas, as seen so many times the response seems to be a get over it we had it worse.

Just to give some real figures, back in the day when mortgage rates were 15%, our mortgage on a house which we bought for £55k was over £700 per month. My take home pay (I was a teacher back then) was about £850 a month. Dh (working in a public sector role) earned less than me. We also had childcare bills. So, although it seems like a dream come true to buy a house for £55k, it really was bloody grim.

I think people aren't quite getting that basically any homeowner under 40 is likely to have a hefty mortgage, which they could afford when rates were low. This has hugely inflated house prices. But if rates go up a lot, people literally won't be able to pay. And it will be a lot of people. But taking out a big mortgage was the only way most people could afford to buy a house because they are literally ten times an average salary at minimum. That wasn't the case in the early nineties. My mum and dad bought their four bed cottage in the peak district in 1996 for 90k. That was twice my dad's salary. It's now worth about 600k. We bought our much inferior house for 650k and borrowed 500k. That was four times our JOINT salary. So almost eight times a single salary. Totally different.

It was grim, I agree. But I think easier to get a mortgage? We paid over £1000 a month for a £67k flat.

I appreciate that, but for additional context, it is also relevant to know what deposit you placed down and how many years you had to save to buy, assuming no parental support.

going to need a stewards enquiry on this one

100% mortgage? 20 year term? 15%?

£725. So you bought a house without a deposit, and immediately got hit with 15% interest?

💯 going to need to see the maths on that

We decided that a far better financial position to be in would be to have the house deposit and move fees, a 10k household fixing/life stuff slush fund plus six months of take-home pay in the bank in case of redundancy, etc.

The mortgage was going to be hellishly expensive already, and having that six month safety net would have been exceptionally hard to save for.

Basically, the worse things get, the more scared we get, and the more prudent it makes us want to be.

OH told me yesterday there have been 50,000 redundancies in his industry since January!!!

Yah, if you had told me that sooner, maybe I was never gonna buy a house this year 👀

We live to be humbled.

My parents bought their standard semi detached house in the 1980s on one fairly modest public sector wage. My mum was a SAHM at the time and then worked pt.
Houses in the same road are 600-700 now.

@KievLoverTwo

Fair. It’s a tough choice. We’re in the same boat - except we just don’t know where to live. Finding well paid jobs, we don’t hate in affordable, yet nice, parts of this country, is hard.

Logically it seems like waiting another year shouldn’t hurt too much. But the U.K. housing market and logic aren’t intertwined it would seem.

It annoys me so much when people say this. Houses cost much less in the years of 15% mortgages so it's not even remotely comparable.

@ThankmelaterOkay from what I recall, mortgage rates were about 9.5% when we bought. So the monthly cost was nearer to £500 a month. Still a lot when your take home pay is £850 a month! And mortgage rates were high for years!
Yes, this was on a house that cost 55k

I'm stressing over it and am on a 5 year fixed rate. On a adverse credit mortgage so my interest rate is 5.2% anyway, and they're offering around 7.5% at the min
Really hoping it drops again over the next couple of years
That's not me being smug I'm on a fixed rate, I earn min wage and live alone so it's just me to pay everything and it's tight

This does sound tough. But as a comparison, your mortgage payment on 15% was less than you income as a teacher. Our mortgage payment on 15% would be £6800 a month. About three times a teacher's salary? On a four bed semi. Which needs a lot of work.

And this is exactly what se people fail to appreciate!

You sound so smug. Yes rates used to be high but utilities, fuel and food have never been this high. Also in the past Child Benefit was universal, now it isn't.

Not an expert on your life, no, but we all lived through those times and know that this is not comparable. And I can use an apostrophe.

I’m sure it was crap. Other stuff cost loads more back then, ie food, electronics.

But, £850 plus your husbands salary. Let’s say £450? £1300, mortgage £500? So, 38% of take home.

Some people pay close to that now on their ultra low fixes that are running out of cliff. When you hit 50/60% of take home, and one person loses their job…

Interest rates were always going to normalise again at some point after the "emergency " low rates were introduced post 2008 credit crunch. It has amazed me that it has taken nearly a decade and a half to get back to a historic average. The problem is an entire generation of buyers have never experienced an average cost of borrowing. Its going to be a painful adjustment - and I totally sympathise with those that really had little choice other than to jump on the wagon. My personal opinion is that rates will only go up in the short term, and may not come down again significantly for maybe half a generation. The knock on effect for house prices could be comparable to what happened in the early nineties. Sadly we may well start to see the return of "jingle mail" by mid 2024 :(

@2kids2catsnolife yes, but there's no sign interest rates will hit anywhere like 15% again.

Interest rates don't need to hit anything like 15% to cause a massive problem in the current situation. As many pp have rightly pointed - homes have become far more inflated relative to earnings than they ever were in the late 80's. That's the result of a decade of emergency low rates and this has been compounded by massive amounts of money printing (QE). It really is different this time around, and not in a good way.