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.

https://twitter.com/cameraleon/status/1671550365697822720?s=46&t=TMUOZCqGbx3Pv9MjeQqrig

But you knew exactly what you are getting yourself into. So yes they should definitely pay the cost of the loan they took upon.

As I mentioned before, those that are sensible with their spending will be fine. Like yourself. And those that aren’t can’t expect their debts entertained by the public.

the same thing successive generations have done- bear the consequences of the government's economic mismanagement. I hope we learn some valuable lessons as a country and do not forget them in the coming elections

As if mortgagees were not also renters at some point. We all pay for things that don't directly benefit us, thats life. Preventing homelessness ought to be the priority. We're not talking about vastly different people.

We haven't really been "sensible". We've been lucky and had 2 promotions in the last year. Our situation could have looked very different.
Knowing what you're getting into is irrelevant if there isn't a viable alternative. I keep asking you this, if buying is so stupid where do you propose people should be living?

There would be more options where to live for sure if people would think twice before committing to large debt. It’s not the first time when this happened, surely should’ve learned something. Your alternative personally was to continue renting and not overpaying for the house. If you bought a year ago, there were clear signs that it isn’t a good idea for the time being. But it was your personal choice to go ahead with it regardless.

And I didn’t imply it is bad to buy, you just need to accept the cost for your purchase. They did let you know it might cost you more at some point when you signed up for it. Renters have no choice either, but to pay increased rents. However, since a lot of landlords have mortgage free properties, they’re at the winning end at the moment. At some point that will change again, but not for a while.

The real issue is that our GDP per capita had flatlined since 2005 despite increasing population by 17% since then.

Successive governments (starting with no more boom and bust Brown) have used emergency low rates after 2008 (and in turn the housing market) to ‘create’ growth in our economy, whilst exporting manufacturing and importing cheaper labour to maintain that growth.

We are essentially a housing market with an ‘service’ economy attached. That is why successive governments maintained low rates and housing props at any cost (like help to buy and stamp duty holidays) and that enabled the general populace to ‘feel’ wealthier (with their assets increasing in value) which in turn raises consumption and growth. That’s known as ‘paper wealth’.

Goods (mass produced electronics and intensive farming) got cheaper, so did labour as businesses benefited from importing and taking advantage of minimum wage and tax credits (essentially subsidising from the government). It’s known as the 40 year disinflation cycle (which I’ve spoke about on here for years)

https://www.investopedia.com/terms/d/disinflation.asp

That disinflation cycle ended in 2019 and trillions across the world were printed in 2020 and injected into the economy (furlough, bounce back loans, stimulus cheques etc) This was the catalyst of the inflation we see now.

Now during that time house prices rose to 9 times earnings, (10+ in London). This now has to fall back in line with earnings (5-6) historically aligned with rates at this level.

People have to understand (as it’s been a very long time since this has been relevant) that low rates are now not coming back for this cycle. Soon many will realise that house values are linked to the supply of credit not the supply of housing.

Should we have bailouts? No we can’t, that itself is inflationary and we’ll face a collapse of sterling. Have people got the right to feel aggrieved? Most certainly, it’s not there fault the younger generation has no experience to go by.

The fault however should be laid firmly at the feet of the government who have misled the public, knowing full well where this would eventually end up.

Ok. So if we kept on renting, our landlords mortgage would inevitably increase and thus, our rent. What we do then? Would there be help to pay his mortgage? Or would be in the same position just once removed from the debt? If there would be help to pay our rent/his mortgage, what is so morally reprehensible about helping me pay my mortgage?
My personal circumstances aren't particularly relevant, but it's absurd to suggest that Individuals purchasing Individual homes have been responsible for collective price increases.

Yep same here, so many in negative equity, repossessions everywhere. It was so bad with unemployment over 5% and folk using milk tokens to buy bread. One of the many things that ended Thatcher's tenure as pm

Or maybe just their own tax money. From what I've seen, there have been calls for people to pay their mortgage before wages are taxed.

Also, renters expect 'mortgages holders taxes' to bail them out if they lose their job and can't afford their rent.

Renters are at the 'winning end'? Are you kidding? Rents are rising at the fastest rate in years, and there's a chronic shortage of rental properties, which is about to become far worse as FTB delay buying.

Some landlords own outright, but the majority have buy to let mortgages and will no doubt be passing increased costs to their tenants.

Further intervention will merely extend the pain. People just can't hold onto the fact that real interest rates are currently negative so borrowers are already being subsidised. Take away that subsidy and overextended borrowers will have to adjust faster. Perhaps being subsidised for 15 years has fostered a entitled dependent culture expects a living from other people, with little ownership of their decisions and actions. Debt contracts entered into are voluntary therefore by definition preferable to other options. Most people even in the UK live within their means and any social safety net is temporary and less desirable than almost all alternatives. Yet here we have suggestions that someone else should pay even more for borrowers who are already and remain heavily subsidised at current interest rates.

Because it’s your asset and you’ll be the owner at the end, while renters are in completely different position from you, so asking them to bail you out is very unethical. As for rents, government can put caps and extra regulations on rents, which they’re already doing, so they’re still affordable. All landlords can’t just sell off in one go as it would slash property prices to incredible lows, so they will just have to accept lower profits.

Theres also distorted reality about affordability. Many people could afford to pay higher prices in the past with low cost debt, for pretty much everything, hence why we’re in this inflation mess. And until the lot who were enabled to feel wealthy spends all their savings and stop buying stuff, this will not end. How do you make them spend less on other stuff? Make their debts more expensive.

Even with rent increase, the same property will cost you nearly double that if you’d be to buy and take out 90% LTV mortgage, so yes they’re still at winning end. If your LTV is much lower than 90% obviously it’s fine then. Shortage panic is pretty much coming from those renting in zone 1-2 London. It can only fit that many people. Go to zone 3-6 completely different picture.

FTBs will delay buying until property will go back to pre covid prices at least.

@Wanderergirl ”FTBs will delay buying until property will go back to pre covid prices at least.”

with the emphasis on ‘at least’

I like your posts.

But I would say where we are now is due to governments, not the government or not even the Tories.

Thatcher loosened the financial regulations. After the crash in House prices around 1992, Blair and Brown did not rein in the worst effects of the deregulation, and rode a massive credit bubble to 2007, which ended in the credit crunch.

The Tories carried on the printing of money to deal with the credit crunch (or at least try to kick the consequences into the long grass), then followed up the low rates with idiot schemes like Help to Buy, and finally followed up with the inflationary covid money (which was probably very much a cross party thing rather than just the Tories - Labour would have certainly done the same if not more). Post 2007 the Tories had the opportunity to curtail prices and let the prices fall back to more sustainable levels, but they goosed the market instead.

So to me the house price boom was really made possible by Thatcher, massively encouraged by Brown and Blair, then when the Tories had the option in reining in the market post 2007 they decided to continue to try ramp it instead.

This constant ramping of prices and use of houses as speculative assets was always going to end in tears at some point. It's poison and needs to be stopped.

Yup, as I said, successive governments and the media.

Hopefully Krusty and Phil will finally leave our tv screens (like they did after 2008) and some never made it back in programs like the House (put twigs in a vase add £10k) Doctor.

How are renters bailing anyone out? I imagine that renters are net takers from the system, not net contributors. Your argument is nonsensical.

The trouble with raising interest rates is that the burden will be placed on a small minority of households. It won't work in the same way that it has done in the past because a much larger proportion of the population either own their home outright, or bought 10+ years ago and so have a very small mortgage. It is young people who bought in the past couple of years, and who will have to remortgage in the next 18 months or so, who will be hurt most by this. Also lots of people are on fixed rate mortgages, which they wasn't the case in the past. Again, this limits the impact of interest rate rises, which won't affect some people for several years.

There are other ways of taking money out of the system, which distributes the burden more evenly- such as increasing taxes. As someone on a low fixed rate, I would rather see higher interest rates than higher taxes, but I can see how the distribution of burden is unfair.

@Wanderergirl

I live nowhere near London. I'm in Yorkshire and there is a chronic shortage of rental properties where I am.

Again, you are talking about a tiny minority of people, who may have just recently bought with a 10% deposit, and who you now think deserve to bear the brunt of the governments inflation mess so that you can feel smug about renting.

Answering your q'n re RQ@pendleflyer I'm not sure how well known he is, probably fairly in property circles. He gets wheeled out as an 'expert' on various forms of media. I'm sure he has no economics or maths degree. Did you see the mug shot outside No. 10 in an effort to raise his credibility?!

I've read the article now. Absolute nonsense from beginning to end. He is either embarrassingly lacking in ability/IQ or a salesman who is prepared to lie and lie in order to try to support his business.
I agree with @Kennykenkencat 's points.
He doesn't appear to have primary school standard maths as he doesn't appear to understand that you can't make a direct comparison of interest rates now compared to the 80s/90s as house price to income ratios then were a small fraction of where they are now.
He doesn't seem to grasp that base interest rates have risen 4-500% from where they were and that mortgage rates approx 300% (for some 4-500%). It isn't just the number that counts but the percentage rise.
He doesn't seem to realise that it isn't just a question of an extra £241/ month (which is already a large amount for many people) but that the costs of all other essentials have also risen so many families will be looking at £500/600 a month. The stress tests were not carries out at a time of extremely high inflation where all other bills had also risen as now.
Real wages have fallen, he is implying that they have risen. The variable mortgages mean that the high rates take a longer time to have their effect felt not that there is no risk. People with no mortgage are irrelevant as prices are set at the margin so the value of their homes will fall (or rise) regardless or whether they sell or not.
He spends a lot of time trying to discredit others who are talking sense just because he doesn't like what they are saying. I guess that shows his insecurity.

I pay nearly 50% of my income as it is, so I think I’m set in terms of taxes lol

Just as smug as the ones who bought on cheap interest and having to pay for it now. We’ve all been smug once. But I don’t believe taxpayers should be bailing their assets out. It’s the same as I would now ask someone to cover my credit card interest, because I’ve purchased high value asset using that credit and now have to carry the burden of higher interest. This is the biggest nonsense I’ve ever heard.

@MidnightMeltdown it’s not minority that will suffer from higher interest, have you read the news lately? I think it wouldn’t be a debate if that many people owned the houses outright. You’re also forgetting that not only housing, but other borrowing is more expensive now too, so it will affect quite few.

And of course there will always be a clash between renters and those on mortgages. It goes back and forth. As long as each accepts the risks and cost of their choices I think it’s okay. I don’t for sure expect those on mortgages to chip in for my increased rent.

What will renters do when they can't afford their rent? You're delusional if you think rents soar alongisde mortgages.

Private renters will move further away, or will share properties once it’s unaffordable. Majority or renters won’t go all over sudden on housing benefits, as most are working individuals. You can’t get help if you have savings.

If you can’t afford the mortgage and have to sell and go jobless, you'll get exact same help. Difference between you and renters, you have a share of an asset, which until it’s exhausted, you won’t get help.