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.

We would struggle to live, 200k mortgage over 25years is around £2700 a month, with another £1000 on top for all bills (maybe more) that more than our income. That’s in a medium size mortgage too, I dread to think what people would do with 400k plus mortgages

Yes. But the house cost £4.50

Right!

Back when interest rates were low, whenever I pointed out on mumsnet that it was unwise to take out such high income-to-mortgage ratios because if interest rates go back to 5% they would be screwed, and I got yelled at and told how deeply wrong and bad I was for making such warnings. House prices are only at the levels they are because people were willing to pay those prices.

Some regulations to make anything other than owner-occupying a single home be significantly more expensive could have nipped all this in the bud but people didn't want to vote for those policies

House prices are only at the levels they are because people were willing to pay those prices

Because people need somewhere to live. If we’d been ‘unwilling’ to pay the price of our house, we’d still have been stuck in a rental that cost more than our mortgage. We had to go to our financial limits to buy somewhere.

Best of luck to those of you faced with these increases, it is scary. My daughter is going to buy next year, I hope I can help her in some way. My late husband and I bought in 1985 at 14/15%, neither of us earnt very much and there wasn't much left after the mortgage/bills. I remember selling my Grandma's inheritance (an emerald ring) because I'd overspent, I didn't have enough money for the mortgage as well as the childminder. I asked my Mum if she could help but she didn't have any money to spare either :( I had to start meal planning really carefully, my husband started drinking at home instead of going down the pub, we really had to make a lot of changes.

And rental costs are so high because of uncontrolled short-term speculation in the buy-to-let market. Rental portfolios should be about long-term investments, but the lack of regulation on landlords allows the debt to be loaded onto the tenant through the rent.

You only picked on one part of the PP's post to quote and missed the important bit.

I didn’t ‘pick’ on any of it, I responded to a bit that I felt was pertinent. I have no control over the rental market. I was ‘willing’ to pay the price of my house because I needed somewhere to live.

comparing wages now and wages then doesn’t have much meaning without factoring in inflation.

Using the inflation calculator-
£125 in the 1980 is £500ish today and £288.

The point is that the "people willing to pay" included plenty of B2L landlords and overseas speculators driving prices up, and as @DogInATent pointed out the lack of regulation in the rental market also played a part. The only way to stop this spiral is to stop colluding in it and demand a change of rules to force a change in the pathway. Coping with it by borrowing more just kicks the can down the road for the first-time buyers of next year to field, and it keeps getting kicked along instead of being dealt with.

The population has willingly voted for the policies that directly support this vicious spiral in each of the last 4 elections, and voted against policies that put the needs of ordinary people first. This is what was voted for.

I bought my first place in 2000 and my rate was over 5%. It's high but it's not crazy high. I do think people have not been advised well if this sort of rate is going to completely floor them - it always should have been factored in as a very real possibility.

1. Lots of people saying that they brought a house in the 80s or 90s and struggled. The thing is that a young couple in an equivalent position simply wouldn't be able to buy that house now. They would have to live in a smaller, less well located place, if they are not stuck in the rental sector. People were privileged simply to buy those houses however hard it was

1. Perhaps people should have factored in higher interest rates but at the same time generations had gone before them maxing out their borrowing and making equity, so it is understandable that they may have thought that would be the deal for them

By the time my rate is due to renew in Nov 24, what's left on my mortgage should be roughly 82k, I just checked online and my standard variable rate at the moment is 7.5%.

If I went in the svr, is the amount I'd pay 7.5% percent of 82k or is there some other calculation? So £636?

Not by me.

And in the meantime, what were us ordinary buyers to do? Not buy a house in protest at the high prices and lack of regulation? And in the meantime we should live… where?

So after paying your mortgage for a house from a teachers salary you had £150? I also right now have roughly a teachers salary and clear slightly more than £150 after mortgage - if the rate goes to 7% I will have less than £150 after mortgage payment.

And salaries were a lot lower too and unemployment was a lot higher.

Jeremy Hunt is in the news this morning basically backing the Bank of England to raise the base rate to 5.5% !
That could mean mortgage rates of 6% plus for most and considerably higher for some in the near future. If you need to sell get it done super quick... If you want to buy then wait for the coming price falls because they look like being substantial and there will be plenty of bargains. Hold tight folks... our government can't keep the plates spinning any longer.

7.6% of £82k is £6,232
£6,232/12 = £519
So if you were on an interest-only mortgage you'd be paying £519 per month in interest alone.

Obviously your actual repayment will be more than this depending on how many years you have left of the original term agreed - if it was a 25 year term that you took out with a 5 year initial fixed rate then there's 20 years left and the new payment would be around £666. Just pop "mortgage repayment calculator" into Google and you get a simple Google tool to put basic figures into for any other duration.

FTB here.

I’d love even house prices to dip just a tiny bit, another 5%. But it won’t happen.

1. Housebuilders stop building
2. Projects they do finish all just sit empty as it costs them very little to do this.
3. Developers will just head overseas to sell “bargains” to the ME, China. As they have been for years.
4. Probate properties will sit empty whilst they wait it out.
5. Landlords continue to sell up but also have their properties sit empty rather than reduce.
6. Govt will step in with some measure to “help” FTBs
7. Another 500,000+ people will come over 2023/24 from Ukraine, Hong Kong, or the next war zone, Taiwan.

The financial crash coincided with our 5% mortgage rate in 2009 so not that long ago. People forget what normal rates are. 5% is closer to normal than the 1% that people have been enjoying.

The cost of living at the beginning of the crash was pretty bad too , considering we lost our business as did thousands of others. My point is that most people do cope, it’s just very difficult.

@ThankmelaterOkay well your assumption looks correct, however house prices do crash, builders keep building to feed their families, people sell as they cannot afford their mortgages, probates go as in a falling market money now is better than less money later.
This will unwind over the next year or two.

Sure, it’s always ‘different this time’, except, it never is.

Interest rates were so low there was only one way they could go. No doubt the government will try to fiddle, but they have no money, and cannot borrow to keep asset prices high.
Fortunately most property has no or small mortgages.
Maybe 50 year mortgages are incoming? Will modern new builds made of glued together sawdust ‘wood’ and cardboard last 50 years?

Even if you can afford it I think it's quite a change in mindset to get your head around spending thousands more just on interest.

In 1991 mortgage repossessions hit a record of 75,000. In recent years the number has been no where near this figure, including 2022.
It is not right for people to think things were easy for home owners in the past - let's just accept many people struggled then and people are struggling now.