If 5% rate is here to stay

[JustAlice]

I've read yesterday that average 2-year interest rate is now 5.4%, and a 5-year rate is 5.9%, meaning that banks think the rates will be growing long-term.
As a FTB I'd like to stay optimistic - ME conflict without NATO support can't last forewer, right? The banks change their forecasts all the time. But I've made some calculations in another thread and still can't get over how jump from 1% to 5% interest rate in a relatively short time means we have now 100K less to spend on a property.
The properties we're looking at are fairly modest, and now I'm not sure we'll be able to afford them, even being high-earners.
Am I the only one who was unaware that higher interest rates impact borrowing power so badly?

This is the calculator I used, with 60 month fixed rates, and the term of 20 years. www.themoneycalculator.com/mortgages/calculators/mortgage-payment-predictor/#!/dealfinder/mortgages/

I agree that 5% should be a reasonable rate. Unfortunately, house prices in many areas are 50% higher than they should be relative to incomes compared to the mid 90s.

It all makes sense. Apart from the odd blip (possibly later this year/next year), we are very likely in a period of high inflation for the foreseeable future. The economy is doing very badly.

Previously when the economy has been in the double rooms, they drop the rates to release peoples spending power
That’s not happening at the moment that was my point

I see. I personally think they will before too long because I think we will hit an undeniable recession (lots of fudging of figures going on for some time!). I think there will be more QE on steroids too and then higher inflation. I could be wrong, obviously!

Not really sure how NATO plays much of a part? As I read it there was a gamble on toppling the Iranian leadership, it failed, they are now even more powerful and emboldened on the world stage and are going to have a list of demands such as American bases out of the Gulf states or else there will be disruption to energy supplies, can"t see them letting the killing of their supreme leader go like a bad day at the office TBH. Europe etc.will be scrambling to get diplomatic channels going because the rate rises and inflation will make 2008 look like a Disney movie when they hit our debt based Ponzi scheme of an economy.

Agreed I’m definitely not locking into a two year fixed at the moment. It’s gonna be a bit painful in the short term but I don’t see what other solutions are available to the government given the current state of affairs.

The previous QE/Interest rate cutting was done with the full co-ordination and co-operation of the other central banks, things are way different now, do you think the U.S for example will hold back on raising rates because UK mortgage payers get hurt? Or Japan hold off on rate rises because it sends U.S debt costs higher? UK is in a VERY exposed position this time, we have learned nothing from the past.

The smart move was lock into a 10 year fix two or three years ago, rates were at historic lows, there were plenty of people advising that as a good move. Bad news for people coming off fixes now though.

Yes, but house prices have to adapt to rates otherwise people won"t be able to move for work, downsize etc.

I'm not much into ME politics, so the way I see this - in the next few weeks Trump says "Now it's up to Iranian people to earn their freedom" and withdraws, Iranian government is happy it's over and opens Hormuz.
But now I see it might be too.. simplistic...

S of H is an earner for them ( politically and financially) to repair all the damage done to their country ( and their military/nuclear programs) and to pacify citizens restless over the economy, why would they completely open it? They can charge ships to pass and bait the U.S by hampering them and their allies.

House prices in SE showed more resilience even after 2008, it will probably be the case now as well and we can't expect pricess dropping for 10% all over the country. Somewhere it'll be 20%, somewhere just 5%.
Though I've read that prices in the North this time are actually rising, as landlords see more opportunities there than in overheated SE.

https://www.bbc.co.uk/news/business-26389009

https://www.bbc.co.uk/news/business-14445857

https://www.whatmortgage.co.uk/news/hundreds-thousands-home-owners-still-stuck-negative-equity/

Can"t see the globally co-ordinated rate cuts happening this time, could always be wrong though, you never know what the bankers will do to save their Ponzi, but with the geopolitics now at the energy wars stage the banks and banking class are no longer the main players they were, the bond market is going to start demanding much higher rates I think.

Gary's economics said this morning that the financial markets are expecting the base rate to go up to 4.75% this year, but he also said that he personally doesn't think it will go up that much, he also said that food and energy will go up and that the Gov will struggle to do much about it as the rate that they borrow money at has gone up.

The shorter the term, the less interest you'll pay overall. However a shorter term means you will be able to borrow less. If I was looking to take on a mortgage I'd take the longest term possible and over pay. The hardest years of a mortgage should be the early ones. You can always get a shorter term later.

Yes but then people choose to live where they live. There are swathes of the country where buying a property on NMW and certainly NLW is possible, but people dont want to.

No, but the southern investors don’t mind buying them for what they perceived to be buttons and renting them out to the local communities with everything that comes with that

4.75% is still laughably low by historical standards, this crisis is the biggest in living memory as far as energy supplies go? SKY news babbling now about "Military bases on the Moon", the distraction phase has moved into full swing.

With the large drops in immigration that are happening can"t see that continuing, and a lot of these investors will now be getting stung by higher interest rates, we are not in the middle of a "mass landlord exodus" for nothing?

White collar workers may not get the same job opportunities there as in and around London. Thus the prices.
A lot of people tried to leave London and had to come back.

But they don't rent them to skilled immigrants, I think a lot of cash in such areas comes from benefits, so guaranteed stable income.

Well not everyone is a white collar worker

About 5 years ago we fixed for 10 years and our family said we were mad as the rates were likely to drop. Our rate is 2.24% so we have been very lucky. We’re now looking to save up and pay the remaining balance off once we get to the end of the fixed term.

People on benefits could buy houses if they weren’t priced out of them
Somebody on minimum wage being topped up by universal credits could be in a comfortable position very quickly if it wasn’t for the outside interference in the natural market but anyway that’s not what this thread is about

This only works out good value if the 10 year fix is cheaper than the 5 year fix though.

I fixed for 5 years at around 2% in 2020, and again at 4% last year. The mortgage payment did increase last year, but not by very much because a) my loan had significantly decreased by then, and b) I had a better loan/value ratio when I re-fixed.

I could have fixed for 10 years in 2020 but it would have worked out more expensive overall, because I would have been paying a higher rate during the first 5 years of the mortgage, when the loan was at it’s most expensive.