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 was government intervention. I know they are saying they won’t do that again (Tory & Labour) but who knows what they will do over the years? Or even next year as they’re all such liars.

that's true

I can see tax raids from both 😭

So can I

It’s pointless trying to compare now with then. So many things are different; house prices are very different for a start. The average house price then was around £55k (equivalent to around £120k now when adjusted for inflation).

It was awful for some people then, as it is now. It’s worth remembering as well that the 90s interest rates often quoted on here are before the benefit of MIRAS. MIRAS gave tax relief on interest, which reduced the effective amount of interest paid.

It was obviously very hard for many people in the early 90s but you had cheap house prices and Miras so the same effect will be felt now at much lower rates. It's obvious that people will need to cut down, many are already. I'm not sure if you understand the major effect that this will have on the UK economy which is built on discretionary industries.

Even if there are a couple of BTL landlords on here in good positions, there are many that are over leveraged and have been/ will be selling. Once the cost of debt isn't nearly zero, their business models just don't work anymore.
The pain of the interest rate rises will definitely be felt unequally and at different times. Initially by those who have borrowed cheaply recently and need to remortgage but other secondary and tertiary effects will filter through to others as time goes on. This isn't an overnight thing but a process.

Landlords selling will either be replaced by other landlords so no loss of housing or will be replaced by a homeowner so an increase in home ownership. No negative to landlords being "forced" to sell.

I see JP Morgan now think our base rate could hit 7% !! That's insane, surely not possible.

https://www.bnnbloomberg.ca/jpmorgan-sees-risks-of-7-interest-rate-and-hard-landing-in-uk-1.1941726

Bringing inflation down without a hard landing requires a skilled pilot. I wouldn’t describe the BOE in those terms.
We need interest rates above the inflation rate to bring inflation under control. That’s the harsh reality.

I think things will collapse before we hit 7%. I suspect the BOE would be under a great deal of political pressure in the run up to an election too despite being 'independent'.

I see JP Morgan now think our base rate could hit 7% !! That's insane, surely not possible.

History shows otherwise.

Just because they say there is a risk doesn't always mean they think on the balance of probability it will get there, just a chance it may. You have to read the small print to find out what "risk" means. 10% chance is obviously a lot less likely than a 50% chance.

That article seems to imply the expectation is quite a bit lower than that.

I don’t see that 7% is impossible, historically speaking, and we’ll likely get there before the run up to the election.

Yes! Until inflation is about 4 percent below base rate, rates must rise. That's how markets work, and although the thread is all about mortgage rates, residential property is still not the only sector of the economy that needs to borrow. It's far more sheltered than any other sector due largely to the borrowers being lulled into a false expectations by bad government financial policy.

What makes you think of the Bank of England will be under pressure? They should’ve been under pressure last year and weren’t.

I'm sure that both they and the government didn't want interest rates to rise because they are aware of the potential carnage.
Now that this 'transitory', cross your fingers narrative has been proven utterly incorrect, they are being forced to raise rates. However, this is politically bad timing for The Tory party with an election within 18 months, just when things will be looking terrible with many people suffering. I would therefore expect political pressure to reduce rates although it won't make any difference by that point anyway.

For anyone saying home owners need to just suck it up and stop buying Starbucks because mortgage rates were worse in the 70s and 80s, please listen to Radio 4’s More or Less from the 21st June. They have an excellent explanation of why 6% now is pretty much on a par with how bad things were at 13% then.

Very much depends on whether you actually want to win the election or not doesn’t it some might say it’s impeccable timing

To be honest, anybody with a mortgage should be cutting back whether you need to or not.

At the weekend I would’ve normally eat and out four times this week I made a point of only do it once. We need this to be over and done with as fast as possible and everyone of us plays a part

I have wondered whether they are deliberately screwing things up in order to hand Labour a pile of dung! Long term, I think The Tories have shot themselves in the foot which they fully deserve. What we really need are new parties and better politicians.

@3BSHKATS i agree, I was just pointing out that comparing raw %s isn’t particularly helpful and, for those less economically minded (like myself!) it really is a great explanation on the podcast I mentioned.

True but that's a separate point (assuming you mean that people should reduce spending to lower inflation). In any case, this is already happening and will lead to lots of business failures as I have been saying for a long time.

Daily Starbucks is 4-5£ nowadays. Then you add lunch and travel, you’re looking at £25 a day just to survive day in the office. On average it 120-150£ a month, just for a coffee! I don’t have a mortgage, but I stopped buying anyway. I’d love them to lower their prices a bit, because it’s insane at the moment.

There is not much point in comparing with the past. We are where we are now except that now I think as people are getting older more have repaid a mortgage than have one so the ability to affect the market via the tool of interest rates is a bit less effective

"65.1% of the UK are homeowners with or without outstanding mortgages or loans. 37.5% of the UK population are homeowners with mortgages or loans. 27.6% of the UK population are homeowners without outstanding mortgages or loans"