6% mortgage rates

[spring33]

Old thread https://www.mumsnet.com/talk/property/4813815-5-mortgage-rates?page=1

New thread, let's hope the next one won't be 7% interest rates or higher.

If prices reduced by 20%, then many people's mortgages would reduce by more than 20% though.

Say you have £50K deposit. A house for sale for £200K means your mortgage is £150K.

A drop of 20% in house prices means that the house is now for sale for £160K. Your mortgage is now £110K, a drop of nearly 27%.

This is of most advantage to first time buyers as they have a fixed deposit amount. It would be no bad thing if something happened in the market to help them! (And I say this as someone who owns a house, but I think current first time buyers have a raw deal.)

Oh I don't disagree that high house prices are a massive problem for society. I say that as home owner but also the mother of two grown up children. Sadly for them it seems that despite us giving them the best education we could afford and them working as hard as they can, a combination of high rents and higher house prices (SE England) mean that they'll still be reliant on inherited wealth to be able to buy a home.

While I hear what you're saying about reduced size of borrowing and acknowledge that that would be a good thing, at the moment, to them, it wouldn't make much difference because even with a big drop in price the monthly mortgage costs would be fairly similar and therefore unaffordable. It feels like we're just swapping one set of unaffordable for another. Surprise, the banks win but wasn't it ever thus!

IMHO the only real way out of this is a massive investment in social housing to provide a real alternative to insecure private rentals or ownership but that doesn't seem to be a policy I'm hearing on anyone's manifesto at the moment.

Thanks NW and Twiglets, yes I agree a tracker might be better in the short term whilst things become more settled. Difficult to know isn't it!

When I said no strings, I meant I've got something booked for now whilst I look around that I can opt out of before this deal ends. I can also stay on the SVR for a bit if I want as the deal is held for six months.

The direction of traffic interest rates wise over the next few months is the thing that is going to make all the difference. Not sure what to do!

It's so difficult to know, I don't envy anyone having to make the choice at the moment. I see what you mean about no strings and it's good that you have a bit of time to look around.

I think the direction of travel is downwards as evidenced by the large number of lenders currently reducing their rates. Nationwide, for example, have announced a new deal effective from today to remortgage at 4.99% fixed for 5 years with a £999 fee, for borrowers with 40% equity in their property (60% loan to value). Two year fixed rates are higher than 5 years though.

I think I would delay making a definite decision before the next Bank of England meeting re base rate on November 2nd. But given the assumed direction of travel, I would personally be looking for flexibility in whatever deal I signed up for. If the BoE base rate stayed at 5.25% in November & lenders were continuing to announce reductions, I think I would move to a Tracker rate personally. Tough decision though! Depends partly on your attitude to risk.

https://www.forbes.com/uk/advisor/mortgages/2023/10/02/mortgage-updates/

Look at what is going on in bond markets and do not get a tracker, if re-mortgaging just fix and concentrate on ways to get the debt cleared (overtime/extra job etc.) If thinking of buying wait until the interest rate rises do their job of bringing down prices and then start with less debt (this helps limit interest rate risk in the future) I think people need to get out of the mentality that they somehow must have their mortgage debt at a super cheap price and that they will try to predict where interest rates are going to go using short fixes/trackers etc. Places like MSE property boards were telling people to take two year fixes over the last couple of years, just think what a financial mess some of those people (if they listened to the advice) will be in now? Just because rates went up (to historical normal levels) doesnt mean they must go down, and doesnt mean they cant go higher, PTB are now clearly focussed only on inflation, they dont "have mortgage holders backs" any more.

Lenders just react to market conditions, they source money on the global markets at different times and different rates, QT is a game changer and you need to watch what the "Ten Year Yield" is doing rather than the latest ad from a mortgage bank, they are just trying desperately to encourage people to borrow as mortgage applications are down 40%.

I'm not watching an ad from a bank Crashy, I'm noting that mortgage rates are gradually coming down. Nationwide is just an example as a big lender, loads of other lenders have also been reducing their fixed term rates for quite a few weeks now.

At one time people on this thread were asking questions like Do we need a 7% thread & Will average rates reach 8%?

No and No. The direction of travel is going the other way now.

As I said, you are looking at the wrong indicators

https://www.bloomberg.com/news/articles/2023-10-02/boe-s-mann-says-uk-interest-rates-may-remain-permanently-higher?leadSource=uverify%20wall

You have to look at the wider picture

https://www.ft.com/content/637eb94f-b7a9-409d-8230-8b3ff512e5b0

The approach you are taking at the moment is like trying to call global food inflation from seeing a sale at your local bakery, it doesn`t work like that, the money these banks are offering at the "lower" rates (still treble what they were a few months ago) was probably sourced some time ago at much lower rates, they will jack rates up in a heartbeat as soon as the bond markets demands this.

And a couple of months before that financial "Experts" were on TV saying they wouldn`t go above 3%.

Not to be contrarian, but 2/5/10 years swaps are back up since the 22.09 by 0.15%, 0.25% and 0.40% so market expections are not as affirmative as you on direction of travel. For clarity, nobody knows what is going to happen, the number above are market consensus which, at this point, is the best guess scenario. The reason why banks are compressing margin to offer better rates is most likely driven by falling volumes as per BOE latest numbers rather than them outsmarting the larger market. They still
need to refinance on the latter, there are not front runners

expect high interest rates as the norm now, people. this is the new normal.

Got a link, Crashy, to financial experts or "experts" from recent months saying that rates wouldn't go above 3%? I'm guessing that's another No.

Forums are full of "experts" who want to paint narratives that are not reality, there is a well known forum (not this one) that will have cost people dearly with their interest rate and buying "advice"over the last few years (really just a group of recently mortgaged and BTL people telling other people to Buy Buy Buy)

In the real world the US 30 Year Yield went through the 5% level last night, that is really really big news, especially if you are heavily in debt on a mortgage.

https://www.zeebiz.com/economy-infra/world-economy/news-bond-rout-keeps-stocks-pinned-down-257514

Story on Bloomberg today about the proliferation of mobile banking apps; people can now transfer from their savings account into higher paying money market funds etc. at the touch of a screen, and this means some banks are losing deposits fast, meaning they are under more pressure to raise interest rates as QT is also well under way and they need to rely more on deposits. It is a US story but happening in the UK as well.

For anyone not quite so convinced about the legitimacy of 'zeebiz' as a news source...
https://www.theguardian.com/business/2023/oct/04/what-are-bond-yields-and-why-are-they-at-25-year-high-in-uk

To be fair to Crashy "experts" were predicting maximum rates of 3.5% early 2022ish (not a few months ago, though). I remember it well since we were remortgaging at the time.

As much as I would like to believe that we're at peak interest rates I would worry that some bad inflation news could trigger another round of rises. So I would only risk a tracker if I could handle 8-9% interest. Not saying it's likely to happen, but I wouldn't be willing to bet my home it won't.

That’s fair @Callisto as I said before it would be a hard decision to choose between Tracker & Fixed rate right now and while I probably would opt for a Tracker if rates stay at 5.25% at the next BoE meeting, that’s just my personal opinion and it depends on an individual’s attitude to risk.

As for Crashy, he makes some good points but often exaggerates which doesn’t help his argument. Early 22 is not the same as a few months ago.

Thanks for the replies about which direction to go in the short term. I'm not sure am much wiser but...I think I'll hold another lower fixed deal and see what the BoE nov meeting brings with a view to a tracker (with no tie in) if things look favorable again to buy myself a bit more time into 2024 to decide about fixed rates.

Good points, even if they cut rates tomorrow, at the first sign of inflation they are going to jack them right up again (they wont cut rates though because all credibility would evaporate at that point with global bond markets, and we know where that would lead) People now know this and that is a massive drag on sentiment, you wont get buyers so keen to jump into mortgage debt now as they were when it was basically free money.

I dont think basing a decision on one BOE meeting is wise, they just react to the bond market and follow the U.S they dont control the situation, you should follow what bond yields are doing on Bloomberg or similar ("10 Year Yield" is basically dictating your mortgage rate longer term) and be aware that monetary policy moves in countries like Japan can have an (upwards) effect on your mortgage here (not as much as it would have 30 years ago though) As QT is firmly in place now (especially U.S) I honestly don`t see rates heading down any time soon.

@CrashyTime can I just get your quick view if possible? We’re ok on main mortgage debt as have fixed at 1.29% until May 2027 (this was a rate we secured late 2021). We’ve got an agreement to borrow another 100k at 5.44% 5 year fix which we have to draw down on by end Dec if we want it - it’s basically a contingency for building works which have recently started in case there are any “nasties” found (old part of house is very old, back part is 90’s and in good Nick) but we’re now thinking of drawing down on some of it anyway so we can just get everything done now to avoid further disruption. I’m not in uk so we don’t get uk rates. Do you think they’ll drop mych before Dec?

Firstly we're never going to see low bank rates or mortgage rates again within this decade perhaps a generation that we have seen this last decade.

I’ve been warning of this for years on here now, the financial landscape has changed. We’ve left a 40 year disinflation cycle and are now in an inflationary one.

https://www.cnbc.com/amp/2023/10/03/something-is-breaking-in-financial-markets-heres-whats-behind-the-sell-off.html

30 year UK yields are now higher than 1998.

https://uk.finance.yahoo.com/news/uk-government-bond-treasury-yields-highest-1998-101103820.html

Now we haven’t even begun to see the wider effects of this (pension funds etc). But here we’re talking about property.

Now there’s two scenarios we have from here:

1. We have a deflationary bust into a recession (looks the most likely) that crashes assets (stock markets, assets, property etc) which will bring yields down as money shores up into guaranteed ‘safe’ returns of government debt.

https://www.bloomberg.com/news/articles/2023-10-05/only-a-stocks-crash-can-rescue-bonds-for-barclays-as-fed-won-t?leadSource=uverify%20wall

Rates can temporarily be cut (as inflation and yields have dropped) in order to ‘grow’ out of the recession. This would most likely be accompanied by more QE (money printing) to stimulate the economy. (This will cause future inflationary waves however and rates will have to rise again even higher)
Good time to fix debt however, but difficult as credit is restricted.

2. soft landing, yields don’t crash. Rates stay higher for years as bonds continue to go up to continued higher inflation expectations. 15 years of low rates suddenly being shocked into this ‘new normal’. No more QE as inflation inflates away government debt, but liquidity is tightened from the economy which will cause widespread disruption, business closures, job losses, wage/price spirals etc.

Either scenario is a return to ‘mean’ in affordability to take into account the ‘new normal’ financial environment. This could take up to 1-2 years for the realisation to fully set in.

@Lightscribe I don't think anyone on this thread has suggested that we will see a return to the ultra low interest rates mortgage holders have enjoyed in recent years, rates of about 1%. Not for the foreseeable future, anyway.

They are forecast to fall back down to about 4% however, perhaps by the end of 2024 or perhaps in 2025.

Yes, those are the current forecasts. Maybe they will be right, maybe not. If rates fall to 4%, it is still highly unlikely to cause the housing market to rise again in short order, which is what you appear to think will happen.
The overall economic picture as a whole which is both complicated and concerning.