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.

Yes, it wasn’t a million miles from how the market is now. The cause is sort of irrelevant to the result which was the market was twitching, so banks shit themselves and stop lending.

Wow 😮
https://www.theguardian.com/business/live/2023/jul/04/food-inflation-fall-sainsburys-profits-ftse-pound-bank-of-england-mortgages-business-live

I’m really not sure what level of interest rates/mortgage rates are going to be needed to get inflation down to 2%, but while interest rates are below the inflation rate, I don’t see an end to mortgage rates continuing to rise.

From what I can tell the markets are signalling that they are not happy with the interest rate level and its ability to bring down inflation. The 0.5% rise in the base rate has had little effect on gilt pricing, which still seems to be trending towards higher yields.

I'd be surprised if the BOE does another 0.25% rise in August even if the inflation figures start coming down. I think 0.5% at least.

We're heading for a hard landing because the BOE did not raise early enough or aggressive enough in the cycle. Terrible error IMO.

Yes I think 6% base rate will be here very soon meaning mortgage rates of 7 to 8% at best. SVR's could soon approach 10%. Will that be enough to tackle this dreadful inflation?. I'm really not sure that it will.

Scary times ahead!... Looks like it will plunge us into a recession at this rate.

Yes I think that's the only way to get inflation under control now. The BOE and government know they have to force a recession - but obviously cant actually say it.

Totally agree we're now facing into a recession - and mortgage rates of at least 7% by the year end.

The question now has to be: how long for?

Our SVR is now over 10%. We are in the process ( as of Thursday when it's being valued ) of selling our home.

That's horrifying!

This has been inevitable for a long time.

Sorry to hear that 😞

Better you sell now if you really have to. The longer you wait the less you may get back as the prices reduce...

The big problem with raising BoE interest rates to address inflation is that there’s a lag until it actually impacts people due to fixed rates. So a rate of 4% might be enough to reduce spending for most people when they eventually have to remortgage.

Increasing every month to 5,6% etc doesn’t have much impact until that remortgage date. But the difference will be instead of people reducing spending and managing, their finances will just completely collapse instead. Ideally people would stop spending now and prepare for later but that doesn’t really happen in a lot of cases.

You must be with a subprime lender and you must’ve missed payments, because there’s absolutely no way this could happen to 99% of people. B

Yes, it's been reported that 2.4 million households are due to remortgage between now and the end of 2024. That's a relatively small number - less than 10%.

Also, a good proportion of these will have small mortgages and so will easily absorb the extra costs.

It's really a small number of unlucky people who are going to be hit hard.

@3BSHKATS never missed a payment but with Kent reliance on a shared ownership property. We can afford to pay it as fortunately both DH and I have had several pay rises / career progression over the three years we've lived here. DH has a limited company which he founded in Jan so we cannot get a new mortgage. As have to either fix with Kent ( and the products they have on offer are crazy rates for 5 year fixes ) pay the SVR or sell. We have decided to sell and rent a friends annex until we have enough years on the books and hope and pray for rates to come down / a drop in house prices.

This happened to some people when the Government took over one of the banks in 2008 and people got stuck with the mortgages so not subprime or missed payments, I can't remember which one but it has been in the news recently because of people being stuck on very high mortgage rates

https://www.politico.eu/article/uk-chancellor-jeremy-hunt-risk-recession-inflation-sustainable-growth/

Northern Rock

@CPHB2021 sounds sensible.

I wish you luck - I think longer term you will be fine. Lots of BTL are going to go underwater - the price reset across the market may be quite significant. Hopefully if you can save for two or three years you will actually be able to buy a better house than you have now. By then (after a recession) rates should be better and the prices considerably lower. Hope it works out for you.

Kent Reliance is subprime

It's really a small number of unlucky people who are going to be hit hard.

I read that too. A small number of people who bearing the brunt of the anti-inflation measures. Potentially making interest rate rises much less effective than in the 1970s where the vast majority were on traditional variable rate mortgages, so felt the effects of rate increases almost immediately and reduced their spending to compensate.

I’m not sure I agree entirely with that. I think anyone who has a stake in a property will suffer as prices slide. It might not be an immediate cash flow problem, but losing a six figure sum on a house value will have a wealth effect no doubt.

It's really a small number of unlucky people who are going to be hit hard.

I agree with this. It's going to be a lot of pain, shared across a few people. rather than a bit of pain, shared across many.

I disagree that losing value on a home is automatically losing wealth for everyone who owns property. Home ownership is mainly just gambling. The money is not yours until you leave the table and cash in your chips.

I've been in this house for 5 years. In that time it has grown in value by about £100k. If it loses £100k in value, I will not have lost wealth. I will be in exactly the same position I was when I sat down to play cards.