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.

After inflation the current rates are as negative as they have been for the last 15 years (ie borrowers still being paid to borrow). Current rates are as cheap as they've been since 2008 and at least twice as much cheaper than before then. The difference is that other asset classes have got much cheaper, so if rates don't rise why would anyone bother saving or lending at these negative rates? There are already plenty of other assets providing returns over inflation, especially as many are being liquidated by those who borrowed to invest. Commercial property has dropped in value by 20-30% already and this would also be obvious for residential if put to auction.

Obviously those who see themselves as disadvantaged by the notional 6% rate will complain, however there's no reason for any state support (ie from other people's taxes). The solution is always to live within one's means which will include paying off negative equity or relocating to a cheaper option, which are preferable to breaking contracts and being forced to adjust by your lenders. The sooner residential borrowers help themselves, the better placed they'll be for the rises to come.

Exactly this. There’s an implication that we’ve all bought huge fancy houses, taking advantage of the low interest rates. For most, that’s not the case. We bought a small starter home after saving for years and years for a deposit while paying extortionate rents. We’d had 4 section 21 evictions in 3 years, because the landlords were either selling up or wanted to move back into the house. We moved 150 miles north to buy our house, as we couldn’t afford anything where we were living. We weren’t irresponsible to stretch ourselves, it was our only real option.

No more Boom and bust!
Biggest Boom I’ve ever seen, maybe will be the biggest bust?

There is often a view that government bail outs are moral issues but they're not, they are simply financial decisons, based on which is cheapest for the country: the bail out or the impact of not bailing out. (With a heavy dose of "what will win the next election thrown in".)

The decision on mortgages, if it ever comes to it, will be the same as ever: is it cheaper to bail or to just handle the fallout of not bailing.

No, the implication is that people have taken out debt to acquire low quality homes but at huge fancy house prices.

The crucial factor in an inflationary and high interest environment is to keep your job and have near inflation pay rises. Keep paying the mortgage.
Keep serving the mortgage at 10 pc inflation over three years and your effective debt is reduced by a third.
Govts worldwide are stoking inflation to reduce their debt.
You should do the same.

Interesting take there.
Not trying to put words in your mouth but do you therefore maybe think that current rate rises aren't such a big deal as long as folk can meet the payments and that prices therefore won't big time slump/crash?
The last time I remember a really big crash, early 90s, many folks of course feared for their jobs.

On radio 4 today I heard part of an item on this. One expert on suggested two things that could be done to help the less well off - I think he said oly 20,000 home owners with loans who were on universal credit were getting help and that number might be increased and his other change I have now forgotten. he did make the point that as people are living longer there are fewer people who own a home WITGH a mortgage and plenty of people have been paying one back fomr 30 years and now own the house out right so the traditional methods of helping the economy by squeezing finances of people by increasing interest rates does not work as well now because more people own a property without a mortgage.

Also as it was the BBC so has a left wing agenda and makes few attempts to be impartial they kept saying much worse for renters etc so it made the item hard to listen to.

yes, the big crash I remember most of all was about 1996/97 or a bit earlier when we sold 3 properties at a loss and extremely big losses (although then bought this house for less than advertised).

That is really obvious but doing it will be far harder. Lots of people lose their jobs in recessions so more people will struggle to pay their mortgage.
I'm not sure the UK government is doing so well out of stoking inflation as their interest payments have risen so much.

I agree. I've seen this narrative a lot, nearly always from older people who were fortunate enough to be able to buy when houses cost 3-4 times income. They don't seem to understand how terrible the alternative in the rental sector can be for many tenants and how generally unaffordable everything is compared to previously.

I agree that it isn't a moral decision for the government (those lot have no morals anyway). Hard to calculate which is cheaper with any accuracy. The gilt markets were pretty relieved today to hear that JH wasn't going to bail out mortgage holders. Their decisions will end up being political skin saving. The other issue is that it is certainly a moral issue for many of their voters and bailing out mortgage holders is likely to be hugely unpopular with Tory voters.

In this mornings news the inflation figures are grim. Core inflation, which is the one that really counts, is still rising and is now at a whopping 7.1%.
Two things I guess will come out from that. Firstly any chance of helping mortgage borrowers is now zero. Secondly we might see a double rise (0.5% instead of 0.25%) in tomorrow's Bank of England rate decision.

This is very bad news. It’s almost as if the BOE want higher inflation. Surely they know what the figures are going to show weeks before the public.
We’re going to need a new thread - 7% mortgage rates.

This is what happens when you give the majority of the country that doesn’t pay tax inflationary spending uplifts. Triple lock, universal credit, heating allowances etc, whilst the tax payer with cost of living/bill increases and mortgages gets ever more squeezed.

You can’t grow your way through a recession which is why Truss mini budget went down so poorly in the financial markets. The unfortunate reality is that our rates will continue to rise until the jobs and housing market goes bust.

The monetary tool of raising interest rates, takes liquidity out the system which reduces consumption and spending. You just prolong the pain by taking with one hand and giving with the other which is why we are where we are.

Germany and Eurozone is in recession and their inflation is now dropping and is now projected to settle around 7% for the next two years.

Anyone who thinks it's still possible to do another bail out needs to read and understand this. Even if they wanted to help out mortgage borrowers it has become financially impossible.
https://uk.finance.yahoo.com/news/uk-debt-exceeds-100-gdp-063352276.html

The other issue is that it is certainly a moral issue for many of their voters and bailing out mortgage holders is likely to be hugely unpopular with Tory voters.

Absolutely - so their decision may influenced by their election strategy: to consolidate core Tory votes or to 'risk' trying to gain votes from other parties.

Personally, I'd much rather see them really focus energy and expertise on getting inflation under control. I don't hold our much hope they will do so, but slow and steady inflation is always better for everyone, I think.

Rate changes are always a big deal, the trouble is nobody thought rate suppression was a big deal. Trillions of artificially elevated values have already been lost now that the suppression is less, however there is more to come. A house price can mostly be ignored unless you have to sell/buy. All individuals can do is to ensure they can meet their contractual agreements. That's why there has been so much asset selling at deflated prices, because debt that was artificially enabled by suppressed rates is no longer sustainable. Residential property can only go where everything else has already gone and is heading. The issue was never the inevitable slump/crash but the artificially induced bubble.

It's pointless pretending that someone else has gained from this eg "older owners" or "the rich" because as far as asset values go they're probably lost more than newer owners will. If you live in your home or swap it upwards or downwards and port your mortgage including negative equity that is one of several options to owners.

The Government is not "inflating" the economy. They would be if they doled out mortgage relief, which would result in even higher interest rate action, so why add to the flames? While the BoE did too little and too late to curb inflation, it is now doing what it must. Still the real interest rate remains negative, and when inflation is under controlled it would be folly not to normalise at about 4% over inflation. 6% as a nominal rate when inflation is 2% allows capital markets to work. Otherwise money will flow elsewhere where returns are better.

thanks for reply above @maryso

would be interested in your thoughts, and others, on this.

https://propertyindustryeye.com/opinion-house-prices-if-i-was-wrong-it-aint-by-much-and-not-by-nearly-as-much-as-the-doomsters/

just hype from an interested party or something in it?

In short seems to be suggesting that other articles highlighting rate rises and crash consequences are over-egged.

I have never heard of this before, so can you advise please. Let’s say you buy a house and you are in negative equity, is it then possible to port your existing mortgage and any debt to a smaller, cheaper property?

That article made me laugh.

Someone sounds pretty desperate.

Russell Quirk is Co-founder of PropertyPR

That is all I needed to know to not bother reading the article.

@pendleflyer firstly has the author of your opinion piece made his billions from forecasting and betting correctly, so much so that you'd bet with him? More importantly I am not forecasting, just pointing out facts, which are facts however they are "read". Perhaps pay a professional to advise on how to bet if that's what you're looking for? Most people don't bet with their homes, they just try not to breach their loan contracts and make ends meet.

@KievLoverTwo living with and porting negative equity (presumably only for those who could clearly afford to do so and a good long term bet for the lender) was something people had to do in the 90s so there's precedence. Whether lenders are in that place yet is a question for them.

No honestly you should.

I had a good chuckle.

I haven't read the article but Russell Quirk has consistently being talking nonsense about the property market and getting predictions wrong. He is just desperate to talk it up because it is his business to do so and seems too stubborn to admit that he is wrong.

ah didn't know he was well known - never heard of him - just arrived in my inbox on a news alert.

Doesn't look too happy in that pic for sure but maybe it's his attempt at looking authoritative.

Would still be interested in demolition of his points.

I long since gave up reading most mainstream journo stories on house prices - virtually all in my experience are waffle. Balanced maybe. But balanced waffle.