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.

And no I’m not suggesting that the government is looking backwards. It’s just Mums matters or the HPC crowd that keep lamenting about the olden days.

@3BSHKATS so much to unravel in your complex post.

The 200% increase in house value has to be adjusted for inflation and other factors relating to location, demand etc. Your industry pay standards has to be adjusted for changes in demand and nature of the industry. Global inflation is high due to many factor the most obvious being the war in Europe and over-population including water shortages and climate change.

It is unlikely that even in the medium term inflation will stay as high, and waiting 15 years to assert a norm is pointless because it ignores likely near term scenarios as they play out. The fact is a real interest rate of about 4% over inflation has always been what it takes for markets to operate. Of course this is average and generally higher for retail loans, less for public works loans. It is not about looking back, it is about an assessment of risk-taking by lenders.

Affordability is what individuals work with. Markets are what the world works with and cannot be avoided. Individual circumstances will dictate how we engage, and they obviously vary. Governments rely on voters so will try to manage the story and as far as they can the tools such as central bank rates. In the end, economics like physics cannot be denied. So we navigate our lives as best we can knowing that artificial market interventions cannot be relied on.

I don’t think anybody relies on intervention, they literally work with the information that they have in front of them at the time in terms of their individual circumstances dont they ?

Oh and Physics is manipulated pretty much a hourly/daily basis.

This is getting sill now..
https://uk.finance.yahoo.com/news/nationwide-increase-mortgage-rates-third-160044269.html

It’s almost as if there’s a very high chance of a 0.5% base rate increase next week.

On the plus side high inflation devalues debt.... not enough to notice I expect though.

That only works if your income increases. Like for example given the 20% salary increases for CEOs and managerial staff in certain sector, it may be quite common for many households in Surrey or London to have a minimum £300k household income. So if their mortgage is £300-400k on a £600-800k home, and their income is £300k, they wouldn't lose sleep on it even if the mortgage rate is 8 or 9%. Yes they are taxed heavily and they would complain but it is undeniable it is affordable for them given the loan multiples. It is basically 1980s style affordability!

It will be enough when we look back, this was always the plan, as soon as they started giving away free money it was obvious

This makes no sense.

Are you suggesting that the government want high inflation to devalue their debt? Probably but the very large rise in gilt yields might be messing things up for them!
If personal debt, it depends whether your wage rises in excess of inflation.

Lots of companies starting to fail now:
https://www.ft.com/content/7ce2dd1b-ebe4-4f9d-9172-6d4b868df5af#comments-anchor

Wall Street banks are apparently cutting jobs.
https://www.ft.com/content/e3f25dde-c594-49dd-9605-259ac3e91cfb#comments-anchor

Interest rates are filtering through and the economy is in trouble as I keep saying.

Not sure if these can be seen without a subscription so here are the headlines at least:

'Corporate insolvencies surge in England and Wales in May. Liquidations nearly double pre-pandemic levels as businesses struggle with inflation and rising borrowing costs'

'Wall St bank job cuts set to surpass 11,000 as CEOs unwind hiring binge. Executives try to reverse pandemic recruitment spree that propelled headcounts to record highs'

We took on a lot of debt as a nation to fund furlough (sadly and against my views) so the more inflation the better to make it (and large mortgages) worth less as it were - that might be the state's view although the Bank of England sets base rate not the state I believe.

As for why I helped the children buy a property each it was partly because I am happily working hopefully for another 20 years, partly becaus I would rather then had the money now whilst they are young rather than the state taking 40% when I die (my IHT free band is only £325k as I am single etc).

'Corporate insolvencies surge in England and Wales in May. Liquidations nearly double pre-pandemic levels as businesses struggle with inflation and rising borrowing costs …. So they dont have to pay back bounce back loans
Fixed it for you.

You haven't fixed anything, unfortunately. These businesses are people's livelihoods. Many will employee people. Real people who may have mortgages to pay. I expect a lot more businesses to fail as times goes on.

Or they’ll just reopen under a different name

'We took on a lot of debt as a nation to fund furlough (sadly and against my views) so the more inflation the better to make it (and large mortgages) worth less as it were - that might be the state's view although the Bank of England sets base rate not the state I believe.'

That might have been the plan but it's not going very well because the gilt yields have risen so much. Investors don't have much faith in the UK.
With regards the mortgages, large interest rate rises are causing major problems. For people on very long terms with rising real incomes it would help but there are lots and lots of people who are not in this situation and who will need to renew later this year and next year.

Fair enough… I was all in favour of the furlough scheme at first. Though I think it went on too long and once I was back at work (in a school) I couldn’t really understand why some people were afraid to return to work months later. It went on too long & people started taking the piss.

Only Dd qualified for a very small amount of furlough as she had opened her business 3 years earlier. But it was based on her first years profits which were minuscule as she only opened her business at the latter end of the tax year
The rest of us lost our jobs, businesses that we had only started within the last couple of years.

I never believed in lockdowns. All it did in my opinion was extend the agony for a few more years and cause more long term damage to people’s health, mental health and finances. We will never know how many deaths that the lockdowns caused as those deaths are still happening through suicides and health issues which weren’t dealt with at the time because of Covid or because of the now longer waiting times for tests and also because there was a ban on anyone counting which deaths were are a by product of the lockdowns.

Lots of headline about mortgage rate increases today.

Have you seen yesterday's moving home with Charlie?

He says profits off your houses and them basically being your retirement is over. I think it is worth a watch.

Is Mumsnet sponsoring Charlie or something? This is about the third reference I’ve seen to his YouTube channel where he’s talking Absolute shite.

Seems it’s anticipated that the norm will be 6.25% next year.

I haven't watched it but assume he means that the assumption of the last few decades that houses will be a golden ticket to wealth/ will rise well in excess of wages is incorrect and that times have changed. I guess he also means that those near/ in retirement who have not invested in a pension and thought they would rely on selling a second property may well have less money than they supposed. Although I think pension funds are in big trouble also which will only get worse.
I know some posters think this is all 'doom and gloom' but I would personally rather know about potential problems in advance so that I can make plans and not stick my fingers in my ears.