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 don’t know a single person who has ‘over borrowed to keep up with appearances

It might not be keeping up with appearances in that sense but it does seem these days that people want to go straight into big four bed houses rather than climing the property ladder after building up equity.

I know a lot of people who cut their margin for error very thin and are now feeling the pinch.

I can understand why they do this because it limits the stress of moving house and reduces the costs associated with moving but financially it can be very difficult if the rates climb sharply.

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

Anybody who trusts what a government says is foolish. A simple look at the historic base rate graph would have told anybody with an iota of common sense that rates would never stay as they were.

It might not be keeping up with appearances in that sense but it does seem these days that people want to go straight into big four bed houses rather than climing the property ladder after building up equity.

For many it makes sense to skip stages due to ages & the fact the housing ladder doesn't realise exist now.

For many it makes sense to skip stages due to ages & the fact the housing ladder doesn't realise exist now

Not really sure what you mean there.

The idea of climbing the ladder doesn't really exist nowadays for a number of reasons. FTBs are older then in the past so it's not rocket science that they have different needs.

When people take a mortgage, it’s an investment, and like any investment there are potential risks as well as rewards. Rates have been historically low for a long time so it’s obvious that rates would rise at some point. Mortgage holders should not get a penny of additional tax payer funded help.

And rent controls should be imposed to protect renters, with a scheme that allows housing associations to compulsory purchase a property with tenant in situ if a private landlord can’t keep up with the mortgage payments on their buy to let property.

The Bank of England are on a hiding to nothing trying to control inflation with interest rate rises. It may achieve its aim eventually, but at the costs of peoples lives and the economy. Some housing is owned outright so interest rates do not directly affect, and a lot of the steepest price rises are for purchases such as food and fuel that people cannot easily stop consuming. And Brexit is largely behind the Labour shortage that is driving up wages.

8K exit charge is huge! Are you potentially facing big increase in mortgage payment to make it worthwhile? For instance, we would be only paying £70 more a month on the new rate if we didn’t overpay over the years. As we did (a bit), it’s actually slightly better when our theoretical new monthly payment but we will try and overpay again to bring it as down as possible before the new 5 year fix expires.
I, personally, don’t think the BoE will go above 6% even if that and tend to think the rates will settle at around 4.5 in 2-3 years time. And my guess may well be as good as any other produced by experts and so called experts since nobody has any clue 😂
My DH thinks there will be no help for mortgage holders and he thought there would be help with energy bills even before the U turn last year

If it's 7%, it would be £600 more. But the thing is that we have been overpaying at least £1k per month for the past two years or so, it's not like we can't theoretically afford the new rate. It would be a no brainer if we can't afford 7% mortgage rate but can afford 5% mortgage rate.

My deal ends next July, it's not 100% it would be 7%

thanks - pretty impressive demolition there :)
yes I did see/note the "no10" pic but had the idea it might not even be the actual one, ie another number 10.

@pendleflyer I think it is. He seems like that kind of guy!

It's true that FTBs are typically older than in the past. But I have been rather surprised on Mumsnet to see some FTBs with a sense of entitlement to buy a 3 bed semi as their first property.

This was not the case when I was buying my first 2 properties. Despite the fact that I had a baby by my second property, I felt lucky to be able to buy a 2 bed terraced house. I do feel that some FTBs (not all by any means) have felt they were somehow entitled to buy a 3 bed straight away, or stay in an expensive area just because they have family there. By trying to buy the perfect property as their first property, they will have put themselves in a more precarious situation now interest rates are rising.

The property ladder has not disappeared, though fewer FTBs want to start on the bottom rung. And it is harder to move up it while prices are stagnating or falling as at the present time. Though I believe these things are cyclical as we have seen rises, falls and stagnation in the property market since buying our first property in the late 80s.

'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’. '

Exactly what @Lightscribe said about housing market with service economy attached. Thatcher shut down the UK's manufacturing and sold off housing for a quick buck for one generation. Large corporations imported it and made huge profits off the back of British workers.
The grand plan to run the UK economy has been to keep rates at negative levels, pump in credit (QE for 14 years) and make the population feel wealthier by constantly encouraging assets to boom. As well as encouraging people to spend more because of the 'wealth effect', it also encourages more borrowing against inflated asset values which again increases GDP. GDP is a very poor representation of real growth because if just records transactions, a lot of which are based on credit that may not be repaid in the future.
They have created a divided society with unaffordable homes for younger generations as the mainly older generations acquired wealth from the asset boom, less job opportunities and stagnant pay because of imported labour (some here, some based abroad). The average person has been poorer in real terms since 2005 but many (obviously not all) have felt better off because of the rising house prices.
This has reversed in every way. Interest rates are having to rise which will create a recession and increased unemployment. As I've said before, I think we will see a lot of collapses, probably a domino effect within the financial system. All of this will lead to house prices falling and the UK economy, which is built on sand, being revealed as having little real basis.

Tbh I think a lot of the the “experts” ignore the signs because they have too much to lose. I think there is an element of sticking fingers in the ears and if they say “no no no” the signs will go away

I was at a property/money forum last October and was talking to some of the “experts”
I was asking them about interest rates rising as I thought it could be 7% at the very least by the end of next year.

I was told by everyone I spoke to that 7% was not going to happen. 3-4% at most then the government would step in.

No one seemed to believe that the government wouldn’t step in.

I left the venue having learned a few things and also feeling like I was some sort of Cassandra warming people with what I knew would happen then being laughed at for being overly dramatic.

'Tbh I think a lot of the the “experts” ignore the signs because they have too much to lose. I think there is an element of sticking fingers in the ears and if they say “no no no” the signs will go away'

Totally. They are all up to their neck in it so are suffering from severe cognitive bias!

Personally I was thinking rates would rise to 5-5.5% but the recent figures are so bad that it could be even more. With an economy built on debt, this would be totally unmanageable.

user1471439240
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

It was Dh losing his job that saved us from the 22% interest rates of the early 90s because for a year the interest on our mortgage (which was more than he was earning) was being paid by the mortgage insurance we had taken out.
Plus we got help with being on income support. Although claiming that led to 7 months without an income as the guy at the DSS office chose to say no at every appeal stating that the company that Dh worked at hadn’t gone bankrupt, Dh was lying. We pointed out that it was actually on the tv news. His reply was that we had bribed the news readers to say this.
We took it to tribunal and won the case without us having to say anything much as they allowed the DSS guy to speak first.

latest government figures on house prices here - march to april and also preceeding year.
somewhat surprising figures for London, though (I'm no statistician) maybe skewed by some mega priced properties that are on a different planet to the rest of us.

https://www.gov.uk/government/news/uk-house-price-index-for-april-2023?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=fbbc29b8-1655-457d-a7c3-2a1e955f06c7&utm_content=daily

The majority of transactions in London are for flats. in z1/z2, there has been a 24% fall in real terms in the past 5 years. My flat basically hasn't grown in value since 2015 (bought in 2019) and its a 1930s build. In the past when mortgage rates and inflation were low, people didn't think twice about moving to the Home Counties even if this meant commuter costs (commuting twice or thrice a week incurs a similar amount to the season ticket) and a fairly sizeable mortgage. They must have very little slack in their budget.

But if you buy a flat in london and the service charges are decent/no cladding & leasehold issues, its cheaper overall on a month to month basis particularly since a house in the home counties isn't much cheaper than a flat in London. You could also give up the car and that is an extra £200 or so in your budget (assuming your car isn't on finance).

The idea of climbing the ladder doesn't really exist nowadays for a number of reasons. FTBs are older then in the past so it's not rocket science that they have different needs

That is exactly what I am saying. People no longer climb the ladder because they want to buy their 'forever home on the first or second purchase.

The principle of building up equity and furthing your income before purchasing your dream house remains sound.

People are scared of being in the small home and having kids. I would rather be that than be unable to afford my mortgage though.

It's more that by the time we have a deposit saved/earning the multiples to buy anything we're at a stage in life where a 1 bed isn't really appropriate. The cost of stamp duty also makes it very expensive to hop from house to house.
The ladder only works if the rungs are accessible at the right times.

They want to & some seem rather upset that they aren’t able to, which is where I feel there is a sense of entitlement as they question why they should have to move away from the area they grew up in or why they shouldn’t be able to buy a bigger home straight away.

But the reality is that most people remain unable to do that, especially in more expensive areas. Thus they will be forced to climb the property ladder the old fashioned way, over 20/30 years just as we did.

Some of course overstretch themselves to buy in areas they can’t really afford or buy a 3 bed even before they have children. I don’t feel too much sympathy for people like that now struggling to pay the mortgage tbh.

So would I. And if you can only afford a small house you can only afford a small family. Or live in overcrowded conditions, or move to a cheaper area, their choice.

This is an interesting read. A possible explanation as to why hiking interest rates is having less of an effect on curbing inflation than in the past.

So long, and thanks for all the fixed-rate mortgages?

I didn’t need to register to read.

if you can't sell, moving to cheaper area may not be an option. But my flat is a 2 bed flat and many londoners have 2 kids in them including some people in my development. My mother in law had 3 kids in a 1 bed flat for 7 years before moving to a 3 bed house when she could, she is now sitting pretty in her 3 bed london house mortgage free. I would say that she has done well out of her property journey, despite facing many obstacles including job loss of her husband, divorce and 4 kids on little money. Its not all smooth but at least her children have always had a roof over their heads and not been evicted.