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.

@GasPanic they've been rewarding moral hazard for an extremely long time, even worse after the GFC. If they stop this, it will be a major change. The Fed has been talking big but let's see in another year or two.

@GasPanic

Hmmm.... I'm not convinced that lower house prices will benefit younger generations - not if they need a mortgage. They will benefit cash rich investors. Article in the guardian today says that 70% of properties bought in central London this year were bought in cash.

High interest rates benefit the already wealthy (e.g. older people with no mortgage)

Nope.

You can buy a car with cash, with a personal loan or a personal finance from a car dealer. The last two have interest on them. Lots of people were doing the personal finance deals for new cars and then handing the car back at 3-4 years and getting a new one. Some people were doing this for work e.g. they have a job with lots of driving and need a very reliable car, while others because they could.

How do higher prices of anything benefit people who want to buy them ?

If houses are being sucked up by investors, the solution is to tax the hell out of investors who buy them.

Not keep prices high.

Yes definitely there need to be losers in the situation where we help younger people, but my point is that the losers should be people that already won before I.e. wealthy older generations.

Tax wealth more, income less and there you go!

But that’s a more general point, I do t think there’s much that can be done to help individuals that are feeeling the pain from interest rate rises. I just don’t think they should be rising like they are right now. The government should use other levers to manage it.

Central London isn’t a typical property market though. Many buyers in that region are international buyers.
It’s not the case outside central London that 70% of properties are bought in cash.

If houses are being sucked up by investors, the solution is to tax the hell out of investors who buy them.

@GasPanic This is true, but unlikely to happen.

For a young people it doesn't really matter what the house price is if there is a trade off between prices and interest rates - what they aren't spending on the house, they spend on mortgage interest instead. The monthly payment is the same.

As I've argued before, it is supply, not price, which causes problems for young people. If there are 10 people and only 3 houses, then 7 people must be priced out, regardless of whether the house costs £50k or 500k.

Lower house prices only benefit the wealthy who can pay in cash, and so create more inequality in system.

@Twiglets1

Yes this is true, although about 35% of properties throughout the uk are bought by cash buyers. I expect that this will increase significantly if house prices fall.

Young people needing mortgages will be disadvantaged

That reminds me of the quote about Liverpool :

"You don't want to go a goal up against Liverpool because that's when they're at their most dangerous".

Generally, I think the problem with high interest rates is that they disadvantage the less well off who are dependent on mortgages.

Several of my uni friends from well off families had houses bought for them, in cash, by their parents. They've never had a mortgage. These people will carry on spending, while poorer members of society pay the price for inflation.

The elephant in the room is that rates affect ALL of us - because the public debt has become so high. Our debt (public/ government) is out of control after furlough and more than a decade of QE and emergency interest rates. Let's not even add brexit to the equation...
We all owe a huge amount of money - that's why there is no chance of bailing out the housing market, or much else at the moment. The government have totally lost control now that they need to roll over our debt at much much higher prices. I can see some major income/wealth tax hikes being needed in the near future.
The only thing that could save the government from our debt mountain - is inflation. Which I think is why the BOE have been so slow to get on top of this. Make no mistake we are in a very precarious position and the possibility of few tens of thousand people a year loosing their homes is no longer any sort of priority.

Cheaper house prices is far better for young people than expensive. It may not benefit current young people immediately but it may benefit those in their teens later on. We have a misallocation of housing rather than a real shortage although certainly some more properties (genuinely affordable ones!) in certain areas are needed. I think the housing market and economy is undergoing huge changes and those who make assumptions based on 'past performance' will be caught on. I can't say I will have any sympathy for 'property investors' who are caught out. My sympathy lies with the families.

On another note...sounds like the title of this thread needs updating... maybe to 7% rates? as we are well past 5% now.

Big spike in yields yesterday - I think because of US GDP data which was better than expected.

The 0.5% rise in base rate last month is now looking a bit timid. It's a long long way to the next meeting date. I guess the hopes for reduction will be on the inflation data and other UK economic data that comes out before the next rate decision.

Generally people seem to be talking about a terminal base rate of about 6.5% at the moment. How quickly that has changed from just a few months ago when they were talking 5.5%.

All yields are continuing to rise, no central banks are done yet. At the moment with these steep rises, no one knows where tail off point is yet.

https://twitter.com/tavicosta/status/1676988527693934592?s=46

People keep stating that the government should do something about it. Its out of the government’s hands, the market is pricing in continued inflation. The yields are the government debt and they will be forced to borrow at higher and higher rates.

If the market thinks that inflation was going down they would be buying short term gilts at these levels, and the inversion curve of the yield would revert. Longer terms yields would then be higher than the 2 year and at 4.65% return for 10 years would seem like a good deal. But it’s not.

Fact of the matter is that the market does not think that inflation is done hence it’s not buying at these rates sending the yields higher.

Recession sends inflation down (which is the whole point of raising rates) and we aren’t in recession neither is the US yet. Far too much money still spending in the system. Some are wealthier than they’ve ever been and had index linked rises with inflation.

Look for clues, have anyone seen a reduction in Uber Eats/Deliveroo bikes yet? The cinema chains going into administration is one sign.

New thread before this one reaches it's limit, so you can all find it.

https://www.mumsnet.com/talk/property/4844102-6-mortgage-rates

I wasn't sure whether to put 7%, let's hope it doesn't go much higher.

@SaturdayGiraffe I hope it's ok to make a new thread before the other fills up

Oh yes, why not, it certainly seems to spark some debate!
Since I started this thread the level of coverage has really ramped up, and it’s in the public consciousness more.

Central London is in a different economy to the rest of the country. £billions of investment by foreigner's who buy into prime London property for its perceived financial safety and a go-to place for the rich. All the world's billionaires and multi millionaires pay cash for London property. Another reason they are keen on London property is the extremely low holding costs vs most other countries, ie very low property taxes.

Just looking at the 6% AND 7% threads that have been started now, and thinking that at least a few people may have read this and secured a lower rate before they jumped up.