5% mortgage rates (again)

[Twiglets1]

Following on from the previous two of these threads both with 6% mortgage rates in the title, I think it's more realistic to return to 5% for this one.

According to this Rightmove article, the current average mortgage rate for a five-year fixed rate mortgage is 4.84%, up from 4.85% last week. The current average rate for a two-year fixed rate mortgage is 5.23%, which is unchanged from last week. The lowest available five-year fixed rate is 4.13%, and the lowest available two-year fixed rate is 4.46% – both unchanged from last week.

On 27th March, the average 5 year fixed rate mortgage for someone with a 60% LTV was 4.35%.
For someone with a 75% LTV it was 4.72% whereas 80% was 4.79%.

For someone with a 90% LTV it was 4.98% whereas 95% was 5.47%.

Two year fixed rate mortgages are slightly higher.

https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/

He sounds really sensible - good for him

The lending has been out of control for a long time and seems to be getting worse is anything. I guess the financial system is getting desperate!
Thank goodness your son is so sensible. Perhaps his parents have had a major influence there, many people have no good guidance at all. I think many people will get extremely badly burned in years/ decades to come.

Same with my daughter who bought in 2022. The broker asked her what she felt comfortable repaying and then found her a deal that matched the amount she said but it was over 33 years not the 25 years mortgages used to be based on.

I thought that was a strange way of doing things compared to mortgages I’ve had in the past. But Lenders are very comfortable now with mortgages up to 35 years it seems and so are many buyers. Luckily my daughter has had a few salary increases since then so can overpay to reduce the term but still… It’s not a good thing that so many FTBs are feeling it’s perfect normal to sign up for longer mortgage terms. I imagine a lot of them don’t understand the implications re the amount of interest they will end up paying.

Also by increasing the amount of the loan and term then it’s just increasing house prices! Years ago houses could be bought on just one salary and then women started going back to work after children and that increased house prices!!

True… longer mortgage terms do make properties affordable that wouldn’t otherwise be affordable.

Lots of measures to help FTBs in particular seem to have the unintended consequence of increasing house prices. At least I think it’s unintended (some people think otherwise 🤷🏼‍♀️)

Definitely not unintended consequences! They know what they are doing.

Banks seem to be risk takers and they know they'll be bailed out of sorts if it goes wrong, so they push boundaries. They only stop if rules are implemented which I know they were after Gordon Brown's interventions and the credit crunch. Since then they've probably lobbied for relaxations and learned how to flex things to push those boundaries again! I don't trust them but we need them, sadly.

Where I live there's a type of build thats cash only buyers and you can buy for about 60-70% of the price if it were mortgagable!

That's the thing @Feelingstrange2. The lenders all think they will get bailed out whatever happens. My (limited) understanding is that the mortgages aren't held by the banks but get sold on. There is a whole additional layer of financial institutions (the shadow banks) which are unregulated and a massive can of worms.

Knew they would have found a way around it!

I've got my Grandfathers mortgage deed from 1937! Basically he borrowed from a local friendly society which was funded by local people with money to save! Presumably the precursor to a building society?

Even when I as qualifying as an ACA in late 80s private mortgages through local solicitors existed - although they were not common.

Another funny story. In 1973 my Dad passed his driving test. He went to buy a used car with a loan and they wanted him to take a second mortgage! Luckily his Dad heard about it and helped him out instead.

Things have changed @Feelingstrange2!

Gilt yields are still going up which is worrying. I suspect the BOE is already intervening as they did with the Truss debacle.

As I have previously spoke about, the danger of stagflation. Yields are going higher.

https://www.independent.co.uk/news/business/mortgage-interest-rates-borrowing-lending-b2675810.html

Would you be advising someone to pull out of buying? I'm.guessing none of us know but we can't avoid a gut reaction to the evidence!

It looks like America will be unhindered by high energy prices for the next few years as Trump has already said ‘Drill baby, Drill’.
Whereas here the Net Zero drive is going to impact us immensely and add to the malaise in the economy.

Does anyone here watch Gary's economics on YouTube? He seems to predicting something quite different I'd be interested in your thoughts and if/why you disagree. I don't know what to believe!

As you say, no one knows! The good thing is that you have said that your DS has not over borrowed, has secured a good rate for 5 years (10 would have been even better!) and has plans to take in a lodger. I think you also said he is single without children so if/when he meets a partner that would help with the bills too. I am more worried about people who stretch to the max without any thought or are encouraged to take mortgages with massive terms into retirement.
I do think prices will reduce, who knows at what speed, but having a secure home could be fantastic for him, depending on his circumstances.

I sometimes watch his videos. He's right about inequality having increased and being destructive. I don't agree with him about house prices though. I don't think 'the rich' will be rushing in to hoover up all the housing stock. There are some financial institutions buying but it can't be all over because I have seen advertised reductions in asking price across the UK on new builds. The yields on rental income just aren't that good anymore with taxes being much higher. Rates could go down when a recession becomes obvious (or not, @Lightscribe thinks we will go straight to stagflation rather than having disinflation/ deflation first and she may be right).

I think when you want to buy you buy.

But if it looks like the economy is about to be flushed down the pan the fundamentals of buying become doubly important :

Look for value.
Avoid stuff that is likely to attract negative equity.
Don't overstretch yourself on payments.
Try to get something that has resale appeal if you envisage moving in the future.

There seems to be a kind of view that "looking to buy" has to be a kind of boolean thing. Either you are looking to buy or not.

But there is nothing wrong with keeping an eye out constantly and then taking advantage when you see something that is right for you and see value. No need to put yourself under pressure by announcing you are "looking to buy" and then having to purchase a place in six months because that is viewed by yourself as some measure of buyer success.

And remember that your first purchase will likely affect your entire trajectory on the housing ladder, with you either ending up with NE and living for years in a space that is too small for your needs, to setting yourself up long term to a life in a dreamhome.

He’s a one trick pony, who overeggs exactly what he used to do and what he got right.

He basically made his whole career of option trading against rates rising.

His premise was that they will forever print money and will forever have ZIRP policy.

He was lucky that he was ‘right’ post 2008. That was within the 40 year disinflation cycle, QE abound. That disinflation cycle lasted up until 2019/20.

From there he’s been wrong and he keeps doubling down. Macro economists have been proven right from 2020 (including myself) that we are now in a 70’s style inflation cycle.

The problem is now (because of government debt and debt to GDP ratios) we can’t raise rates high enough to curb inflation.

What we are seeing now is that is being priced into the treasury market. Inflation will to continue to compound on low growth high tax metrics of the UK (although yields rising is global) so we will continue to have ‘waves’ of inflation (something I’ve maintained from the beginning on here)

What does this mean for mortgages? Well it’s catch 22 because they are linked to swap rates. But BoE can’t raise rates to 6-7% (eventually maybe even to 10%) because 25% of our debt is index linked. In other words the UK goes bust, but essentially that’s what they need to do.

What they will have to endure is what has happened in China. Stagflation, stock market and real estate bust, devalue the £ to inflate away the debt (more QE) to restructure the country and its debt. (see Chinas deflation and yields currently)

I wouldn’t advise someone to pull out of buying if they are buying a home @Feelingstrange2

Obviously it’s a bad time to buy if you’re looking for an investment opportunity though. Or is it? Maybe it’s a reasonable time to buy while prices are subdued in most areas. Not if you expect a quick return on your investment, though.

I watched Gary’s Economics after someone recommended him on Mumsnet. I did think he had some interesting things to say and has a good presentation style @Learsfool

Haven’t watched him recently to say whether he’s still interesting or just repeating the same message in different ways which would get boring.

Thank you @Lightscribe that's incredibly helpful. Just been having a google about swap rates
What it is that Gary has been wrong about recently in your view?

'What they will have to endure is what has happened in China. Stagflation, stock market and real estate bust, devalue the £ to inflate away the debt (more QE) to restructure the country and its debt. (see Chinas deflation and yields currently)'

Japan is an even more extreme example no?
But both these countries have massive positives compared to the situation of the UK economy. Japan has continued to have a strong manufacturing base and a trade account surplus, whereas the UK has a deficit. China is clearly in trouble now and has a lot of debt but is also a very strong manufacturing base, generally far more efficient and has a much more compliant population and smarter politicians.

I can see lots of QE coming everywhere, lost more inflation (this has been under measured already) and lots of devaluation of the £ but this could be sudden as well as gradual.
I'm much more sympathetic to Gary's views than you are @Lightscribe!

The U.K. is become more equal - our GINI coefficient has fallen since 2000.
data.worldbank.org/indicator/SI.POV.GINI?locations=GB&start=2000

That's clearly not the case @shockeditellyou. You only need to look around to see that the gap between most people and the extremely rich has increased, especially since the GFC.
I think the Gini coefficient just looks at incomes. I'm not quite sure how it is calculated, perhaps the fact that most people's incomes have been falling in real terms makes it appear more favourable if it looks at medians. What it doesn't appear to measure at all is the massive disparity in wealth. Asset prices have been on a tear, especially recently. Those with assets benefitted hugely from QE and all the other stimuli since the GFC. Charles Hugh Smith has some great work on inequality although he is US based and I think it may be even worse over there.

The GINi coefficient literally looks at wealth inequality, and it is decreasing in the UK.

What we do see, is that with minimum wage increases, the distance between the bottom and the middle is shrinking, so the middle are feeling more hard done by. Statistically, the UK is seeing less wealth inequality.