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.

I've just been mulling over what can be done.

In the 2000 interest only mortgages were all the rage. I know a friend of mine has just going part interest only to stop her payment going up too much. I wonder if that is a temp solution?

Yes except look what the BOE decided to do last August:
https://www.bankofengland.co.uk/news/2022/june/financial-policy-committee-confirms-withdrawal-of-mortgage-market-affordability-test

I wonder why they did that! Lack of regulation has been and still is a massive problem (not just for mortgages).

They did it because they are Tories.

Half the bloody country is financed by the housing and rental market. They are obsessed with it constantly moving.

Probably the main reason they're not starting to prop it back up right now is because they know Labour will get in in 2025 and they want to watch them crash and burn.

“Propping up the market” at the moment just adds to Government debt and may be seen as inflationary. Any help would need to be considered carefully, as this could well lead to higher interest rates and thus negating the incentive.
I think we are just going to have to take the medicine for a while, although the 1989-92 and 2008-10 downturns suggest by 2025 it will, in retrospect, to have been a very good time to buy.

Could you expand on that last paragraph for me, please?

(Also, they have no money left in the pot to prop anything up!)

Looking at previous drops in house prices, it takes two to three years to get rid of all the price froth. So it may be that 2025 will be a good time to buy, but may not feel like it. Only in the subsequent years will it this become clear.
Theres always money in the pot, it just depends if you want to take the risk of more spending.

We were the same 1990, 2 bed bungalow, interest only mortgage as we couldn't afford a repayment mortgage (and nobody asked) also large deposit and x3.5 joint income. Repayments were around 60% of our joint income. Scary times. Unregulated lending was common. I don't think using 60% of take home income to pay the interest on a mortgage would pass the test these days.

Ive just checked my remortgage paperwork from last year and our mortgage was stress tested up to 9.24%. However as mentioned above, our gas/electricity has tripled since then, childcare has increased significantly, etc etc.

I know, the BOE's decision smacks of desperation again (check also 'temporary' QE/ ZIRP).
I would be a really unpopular move for The Tories to start big prop ups of the housing market. The older 'shire' Tories with no more mortgages would not approve and the many renters would also, understandably, be very unhappy.
Honestly, I think lots of things will have 'crashed' by the time we have a GE ? late next year. Labour will (likely) be left with a terrible situation. They may be marginally better but I haven't seen much to suggest that they will be significantly better.

We will have to wait and see but I don't think it is likely that we will see large, rapid rises in property prices again unless we have a period of hyperinflation. We are likely to be in a significant recession by 2025.

I completely agree, their voter base would not approve.

It'll take a decade for Labour to get our economy out of a state, by which time I anticipate Conservatives running such a dirty tricks campaign that they'll get back in and freshly screw it all up again by year 12 (or 8 if we are exceptionally unlucky).

It really gets my goat the the Government gets to dictate 'don't give people payrises, don't let people borrow' - all because we live in a capitalist economy?

Yeah, we got a 2.5% payrise this year, so thanks a bunch for that.

How do I look up lighthouses for sale in the arse end of nowhere, again?

I'm not sure what you mean by this:
'It really gets my goat the the Government gets to dictate 'don't give people payrises, don't let people borrow' - all because we live in a capitalist economy?' @KievLoverTwo

I wonder who has apparently got pay rises in excess of 10% because most people have had much, much less.

HSBC are pulling their mortgages and repricing them tonight.
And one thing we can be sure of, they are not reducing their rates.
This basically confirms their analysts have said the base rate will go up next week.

Well I started this thread on 25 May, so it’s fair to say that since then there has been a lot more coverage of the rate rises. So far only one poster said they hurried up and locked in a cheaper rate but even one makes it worthwhile.
I don’t think we’re at the top yet either.

Any drop means they can clean up. Buy whole chunks of property at reduced rates to rent out. Suddenly their property portfolio is booming. As they know property will recover and they will make a killing

If you actually work out what rental profits you can get now that the government have brought in so much legislation to stop small to medium size landlords that were doing things correctly and to push out the slum landlords it really isn’t worth doing

All it has done is push out those landlords who were doing things correctly and they have either sold, increased their rents or turned their property into an Airbnb
The slum landlords weren’t taking any notice of what was or wasn’t allowed so for them it is business as usual
And the poor renters who they were supposed to be helping are left with very little choice and demand outstripping supply so rents skyrocketing.
Stood outside a property I am renovating atm a guy driving down the road stopped and asked if the place was going up for rent. I noticed that there isn’t anything to rent for a family in our local rental agencies . We are moving out of rented and know that the landlord won’t be renting our current place again as it is too expensive to bring it up to the type of property that the government wants someone to rent,

He has offered it us but I want it a lot cheaper than he is offering

So glad you said this, no one is interested in the same point being made relentlessly, nor will many ppl find the vague anecdotal stories to be of interest or relevance

Whilst the government have legislated a lot of 1/2 property landlords out. There’s still plenty of cash rich who will take advantage of the drop, there’s still those conferences being held of “how to make money in renting”.
there are plenty of cash rich waiting for a drop with 5+ properties who are less bothered by the legislations being an issue. more so when returns are huge as rentals are ridiculous at the moment.

or there’s those that will renovate one or two cheaper properties and flip them and hold it until the year or two for prices to stabilise.

Blank, on the 2000 interest only mortgages our 1990 one which was 4x my salary and it was also "interest only " and (even more risky) was a "deferred interest" mortgage. The idea was (as rates were so high in 1990 when we bought it, that you could only pay some of the mortgage interest and the rest of the interest was rolled up and added to the capital sum you owed when you sold. Very risky business. I had another interest only loan after my divorce too in about 2004 of which supposedly the capital would reduce as it was traded in various foreign currencies but in fact the trading was bad and the loan grew by £150k. Also when we bought a "buy to lose" / let flat in the 80s at one point we fixed at 10% interest for 10 y ears and then rates tumbled. We also bought before buy to let loans existed so had to visit the bank to obtain a "business development loan" when we bought the second flat to let out. (We bought the first by remortgaging our then existing home).

So I am certainly not the world's best expert in successful mortgage deals. I suppose all is shows is the constant risky taking since the 1980s. Whether that makes me a fool who did indeed make big income and capital property losses or wise because I got my current home and helped the children buy a property remains to be seen but I am okay with it all and at 61 glad as of April 2023 I have no mortgage now forever hopefully and I stop supporting the last of the children next year although I am certainly not throwing them out of home and will bear the extra council tax of two of them being here (they are adult so I lost my 25% council tax single person discount when they stopped being students last year.

why do you help your children to buy their own homes. Surely you are helping them enough by giving 3 or 4 of them training contracts which would enable them to get a job as lawyers. As per both our experiences, it is entirely possible for two graduate professionals to buy a 2 bed flat or house for £425k in London (whether in Ealing or Pinner) and it could be very fast if they lived at home for 3 years (which would only cost you the extra council tax which is maybe £1k per year).

The impact of normalising interest rates is not anywhere near obvious yet. More than 90% of borrowers are either on very low fixed rates or hold enough equity or small enough loans to pay the rates at the moment.

Our choices will always be driven by affordability. If that's going to be problem, better to sell and relocate somewhere affordable because all asset prices are normalising after 15 years of artificially suppressed interest rates. There's no point pretending that the "average" borrower or the "average" lender has benefitted from the artificial rate suppression we've had for 15 years. Neither has, nor was it ever possible to sustain. The worst off are probably people near or at retirement in 2008 who did not have the time to recover financially.

People make choices based on personal preferences. Just because you won't help your children to buy doesn't mean someone else can't. And vice versa. Almost everyone will make their choices privately, because most people can see that the last 15 years was an anomalous time when you were paid to borrow (and still are, for now). But even when inflation eventually reduces, when the war subsides, when we can reverse the over-population or over-extraction of resources beyond the carrying capacity of this planet, interest rates cannot go back to much under 4% over inflation without either credit restriction or central bank suppression (and we can see how well that turned out). Normalising asset prices is the best thing for affordability, not suppressed interest rates.

@maryso if something has been happening for 15 years, one like say that is normal. Not what was happening for the 15 years prior to that. This is the trouble with the UK right now, we need to clear out of all deadwood.

@3BSHKATS are you saying that negative interest rates are normal?

Not sure what you mean by "the trouble with the UK" that's related to your preference for artificially supressing interest rates, you'll have to explain that one.

I’m saying, if something has been the case for 15 years, it is the new normal. How long exactly does something have to be consistent for it to be considered a normal event ?

It’s no good look into the past for an indication of future performance because the future is going to look nothing like the past, that has been demonstrated repeatedly over the last five years. But actually we could look further back than that and say that our lives from 2000 onwards are absolutely unrecognisable. And therefore what I’m saying is the trouble with the UK as we keep looking back instead of forward.

Thanks for explaining your thinking, @3BSHKATS

So why stick to 0% and not 12-15% as the new norm, which is what markets are doing. UK market makers look forward and always have done. Not sure who you think looks backward? The Government likes to spin a story, but don't look back even if the story they tell you is historical. One thing is certain, even in the last 15 years, negative rates were never the norm, always an anomaly that caused immense distortions and was never sustainable.

Well, if it hits 12 to 15% for 15 years in a row, that that’s the new norm, but it hasn’t hasn’t ?

Interestingly, I was just having a little Google and when I bought my first house in 2001 interest rates were 4% percent. That House has more now tripled in value. And actually people in my industry with a similar level of experience, are only earning about eight grand a year more. It looks like the plan of action is to extend the debt to 35 year mortgages doesn’t it? Because even a 30% drop wouldn’t make the numbers work, you literally have to go back 22 years. Which is the bleeding problem with the UK right now you keep looking back and it’s not gonna happen. You’ve solutions are being found to affordability constantly, one of which is pushing out the retirement age, already implemented that happens mortgages will naturally be extended. That helps the government in 2 ways, keeps people in the workforce for longer and prevents any sort of housing crash.