Base rate just hit 5%

[LisaP1215]

Is there no end to these rises??!!

If they wait and save for a couple of years I bet they'll see prices 30% down. Will be a good opportunity for them.

I agree that the average wage now makes it impossible to buy the average house for many people. This is a trend that has been going on for decades and has now reached crisis point. There are plenty of people in my village 20 years older than me who have much bigger, more expensive houses than me simply because they bought them when there was a smaller gap between incomes and house prices. I was lucky to be able to afford to buy a house but it’s much smaller than if I was older. Younger people have now been priced out completely in some areas.

However, I was one of those young people paying 15% interest on their mortgage in the 1990s. If I use your figures and assume a 10% deposit, a person buying an average house on an average income was paying 38% of their PRE-TAX income on their mortgage back then before paying any of the capital back. Someone paying 6% today on average house, 90% mortgage and average income will be paying 34.6%. So yes, it’s comparable.

The difference is that the average income no longer makes the average house affordable. Therefore the person buying in the 1990s may have been lucky enough to afford a 2 bed house but be paying 38% of their pre tax income on just the interest. I was one of them. It was brutal. Today, the same person might be living in a 2 bed flat. They therefore will not be paying a mortgage on an average house price. If someone on average income took out a mortgage of just under 4 times their income to buy the flat then that’s a mortgage of about 145,000 (plus deposit). 6% mortgage interest only is £8,700 year, or 23.4% of their pre tax income. Still more affordable than the 1990s 38% of pre tax income by a long way.

People will be stretched, but hopefully we won’t see the mass repossessions of the 1990s. The fact that they can only afford a flat rather than a house is a different issue.

There probably is a big division between those who took out their mortgages prior to 2008.

I took a tracker in 2007 when the base rate was 5.75% . I still have it (and a fixed as moved since so have two running) . I have always looked at it as a bonus it was so low and continued to make the same payment as when it had been over 6%.

It's a lot to come at once but rises have always been inevitable. I think it depends where you want to 'win'. A bit like gambling you'll never always benefit.

I took a 10 year fix at 2.5% five years ago. I could have had lower rates on shorter terms but felt over a decade it would be a good deal. The chase to always be on the lowest rate comes at the expense of security, as many are finding out.

My tracker is now comparatively expensive but the amount left is low and I like the flexibility of the product. I can't complain because I've been fortunate to pay off the majority at a much lower rate than I ever envisioned when taking it out.

My fixed rate is also ending in July 2024. Would you pay the exit charge (£8k) in my case. Up from 2.05% (fixed in 2019). if mortgage rates are 6%, my payment would be £1500. If they are 7%, my mortgage payment would be nearly £1700. That is a £500-700 increase from £1000.

I am aiming to overpay £1250 per month for the next year to get my mortgage down to that balance.

I went through 15% when young and had to get a second job to pay it . It was a lot but not comparable to these days because although the rate was high it was on a lot less borrowing than is needed today .

The idea that wfh costs more is whats ridiculous!

"Boiling a kettle" costs the average household about 3p a day
Having 1 energy saving light bulb on in one room is about 1p for 24 hours!
Charging laptops/power for monitors etc is equally negligible.

The only major cost is heating -excepting that wfh costs less than 20p a day. Even then, even during the depths of winter last year it cost me max a fiver a day to just heat the one room I was in for the 8 working hours.

as a comparison my commute 5 days a week would cost bare minimum about £40 with my tiny car, at least £60 with the bigger one.

That's not a ridiculous commute it's half an hour each way so very average.

Plus all the other costs for going out to work -wear and tear on said car, increased childmind costs for the extra hour or two a day of travelling time, need for more work clothes, etc.

Literally why do you think so many people want to do it if it was so expensive? Unless they live within walking distsnce of work Wfh saves the vast majority of people a fortune.

cost of an extra room for long term WFH is expensive esp if you like your area and want to stay in it. Which I am sure is a lot of people!

I don't think we will see mass repossessions either. I think the banks will just extend terms to 40 years or take it out of pensions.

They offered my 41 yo OH a 33 yr mortgage. They have given friends of ours a mortgage until he is 95. They're just gonna take it out of their pension.

I guess they figured, come hell or high water, they can find ways to make even more money out of us as long as they're prepared to take the risk of folks not croaking it and still owing at 65.

It's work/life balance as much as savings. Plus you need the space to WFH, especially with small kids at home. Can't exactly set up on the dining table. Coupled with the fact that hybrid tends to be expectation ime, so you still need to live close to work, so no moving further away to a cheaper area.

Agree, I bought my first flat in London (studio) for £38k and was earning around £21k, 100% mortgage, no chance of that now for my daughters age buying who will when she graduates start out on a salary not much higher with the addition of circa £60k debt. I never understood why people compare the 80s/90s to now.

No kids, quite a lot more IT equipment than just a laptop, commute less than £4 per day, in the kind of job where "office clothes" get ruined during my on-site days so I don't own any "office clothes", it's jeans or combat trousers all the way.

I'm one of those who had a mortgage in 2008 when the base rate was the same as now. But that first house I bought was £190k and I checked there was one just like mine sold for £350k last year. I can't believe anyone saying what we have now is comparable to 15 years ago. The mortgage is much larger now. And 6% of 170k is much smaller than 6% of 315k. (Assuming a 10% deposit for my first home).

WFH is so divided to those who have the space to do it and those who don't. We are lucky to have extended at the start of the pandemic and now have the space for both DH and me to WFH. (I used to WFH and DH in the office). I save a lot by not commuting. Bigger monitors, keyboards, electricity, water cannot be more expensive than a 35 miles one way commute.

Multiple computers, some of which run 24/7 as experimental small servers.

And decently fast internet. TalkTalk ADSL doesn't really cut it.

Yes it is terrible but people are warned over and over that they should budget for increased rates. I too have a mortgage that ended it's below 2% rate this year - it would have jumped to 7.5% if I hadn't done another five year fix at 4.4%. But I always figured in an increase (and yep I also had a mortgage in the 1980s at 14%, maybe that's why this time round I didn't expect the low rates to last).
It is always tempting to borrow the max to get that much more square footage or preferred location, but loss of job, illness, increased rates (and in my case unexpected death of spouse) and it can all fall down like a house of cards.

This is just a natural consequence of people borrowing way too much, consuming and not saving enough and stretching themselves to the very hilt when they should be giving themselves some leeway in finances.

Even then £4 a day is more than 10x the cost of wfh for the average person.

I have a 3 screen set up - still costs pennies in electric per day.
Same with super fast Internet- a) most households already have fairly fast Internet as standard b) im currently on Virgins fastest fibre optic, its £21 a month for the first 2 years - again, pennies per day (and I would need Internet anyway)

unless you are running a server farm the electricity to wfh is honestly minimal.
In which case if you are the exception both ways with a) work equipment far in excess of the average and b) a much lower commute.

I've seen it said that actually today's rate rises will, in practice, be more painful than 1989 precisely because of the percentage of income people are having to invest into buying a property. It means they have less room for being able to pay.

AND its the increase in the amount people will have to pay, which will make it painful, because this amount is in practice bigger than the jump people had in 1989 because of the amount they've borrow.

It means that people now have much less disposable income available to be able to bring the gap between what they were paying and what they will be paying after the jump. That means the change means the national economy is much more vulnerable too, because the risk of mortgage default is higher than you'd actually expect and in comparison to 1989 even though interest rates are much much lower.

There is also the fact that people have got used to very low rates and made life decisions based on interest rates of 1 and 2%. And yet:
From 1995 until 2022, the average mortgage interest rate in the UK averaged 5.62%.
AND
In the last 25 years, the average mortgage interest rate peaked at 8.87 percent in September of 1998.
This did suggest that the rates over the last few years have been unusually low and this was unlikely to stay the same in the long term; in other words there was an inevitability that rates would rise but few people have planned for it, and when it has hit, its also hit at a period where other financial pressures make it even more difficult to cope with for households.

DH got a fixed rate a few years ago and we felt that the rates would go back up in the next few years. Ours is due to run out the end of next year. We had financially planned when we bough this house that 6% was doable when we renewed, but we were thinking that it'd peak at 4.5%. I'll be honest in saying that the way its looking, even our fairly prudent approach isn't looking so great and we might well get caught out. As a result, we've made the decision to try and overpay now until we have to look at renewing, in order to offset that and to try and take some of the pain out of things next year by making sure we have less to remortage and more equity. We'll be ok, unless it really hikes up a lot more above expectations (which is possible). A lot of other people simply won't be in a position to do what we are doing proactively - but if even we are thinking like this, its not pretty and has ramifications. I dread to think how bad it will get if it hit beyond 6% tbh.

We are prudent precisely because my parents got really caught out in 1989 by the interest rate hike. I can remember my Dad losing his job just as it happened and my parents nearly losing the house. They didn't. They did however get advice to go for an endowment mortgage, which would later prove to hit them hard financially later down the line because they were given poor advice. But this really goes against the grain of recent years where people have been encouraged to 'borrow as much as they can'.

I really feel for people who made decisions - often with the advice of mortgage advisors who said they could afford to borrow much more than they really could - and are now finding themselves up shit creek. I suspect we will see a lot of people coming out saying that they were given professional financial advice based on these really low rates, and bought accordingly, who are in a world of pain now. I KNOW friends who were told they could borrow significantly more than we would be comfortable with on their income. And like with the Northern Rock fiasco said to us that they wouldn't be allowed to borrow that much if they couldn't afford it. People have been almost lulled into this false sense of security that never existed. I wouldn't be surprised if we see another mortgage scandal emerging as a result.

Not considering the possibility of interest rate hikes over the entire duration of your mortage rather than your intial term is one of those things that is really poorly understood. People have enough trouble wrapping their heads around the concept of compound interest and mortages as it is, and this one is one step further than that.

I live in a fairly well off area. It has really high home ownership levels. Lots of high household incomes. BUT its clear from school, that a lot of people are in this bubble of being really overstretched and struggling to keep up with the financial commitments they have and thats impacting in various ways on what parents can afford. There is this hidden invisible level of struggling - its NOT poverty - its different but its important to the overall economy. It does make the risk of recession and subsequent job losses a lot more likely. This isn't going away soon and its ON TOP of the inflation cost of living woes.

Its incredibly depressing all around.

I need IPv6 (long story) so I'm paying £50/month for internet.

@UnshakenNeedsStirring I’m not a boomer, I have a mortgage, just saying as are others above than in the grand scheme of things the base rate is not yet partially high.

This whole 'wfh is cheaper' argument is so variable, idk why people are bothering.

In our last rental it was 1400 instead of 1200, now our current house is 400 pm more for that extra space. In our last house it was so bitterly cold that it would have, I absolutely kid you not, cost an extra £120 a WEEK to heat during working hours because it was ancient and had to be on all the time.

Yeah, go with £25 a month internet if you can get a signal in your bedroom. We can't. We pay BT £60 a month AND still had to pay £300 for signal boosters so he can get 50 meg in his office (which he needs for his job).

Yeah, he doesn't spend more on clothes, but that sort of thing never bothered him anyway!

People forget that WFH generally require quite bigger houses, and the prices for those, both rental and bought, have gone through the roof due to COVID.

It all depends on what you are prepared to put up with. We do the above because he earns six figures and can. But, equally, we could have stayed in a 2 bed flat and had a desk in the corner of a room and he could still do his job.

Apples and pears, innit?

I wish I was on 5%. I'm on about 8.5 now and trapped a mortgage prisoner. While everyone else was on 1/1.5 I've always been on 4.89 ish. It's shit. Mortgage was £650, now £1150. It's shit

40 year mortgages are not an option for most.

People in 2023 take out mortgages much older than they did.

In 2007 the average first time buyer was 28.

The average first time buyer now (as of 2022) was 34.

They are due to retire at age 67. That means they can only get a 33 year mortgage from a standard lender.

It highlights just how much houseprices have gone up, the effect of the 2008 crash on wages and how big (and how long you need to save for) a deposit is now.

Again, thats a fundamental change from 1989, which in effect left much more room for flexibility for buyers because they were buying much younger.

The slack in the system is much narrower.