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/

The markets have priced in 2 base rate increases but th Bank of England are saying that’s an over reaction. I’m with the pp who said I expect cuts next year

As defence budgets are forced to rise benefits are going to get hit, Tory and Reform are both talking about being tough on benefits and the causes of benefits.

The "markets" change their mind by the hour, the BOE will say anything to keep people paying their debt interest and to encourage others onto the debt ladder.

I googled what he thought would happen to interest rates and house prices ai said…
”Gary Stevenson
predicts that the US-Iran war will lead to a period of higher-for-longer interest rates in the immediate term, followed by an aggressive explosion in house pricesonce rates eventually collapse.

Interest Rate Outlook

• Short-Term (Next 6–12 Months):Gary expects interest rates to remain high or even increase furtherthroughout 2026. He attributes this to "cost-push" inflation triggered by the war's disruption to global energy and food supplies.
• Medium-Term (1–3 Years): He maintains that central banks will eventually be forced to collapse rates back toward zero. His reasoning is that the "hollowing out" of the middle class will leave the economy unable to sustain high borrowing costs without a total depression.

House Price Predictions

• Current Phase (2026): Gary notes that the war is currently "destroying" near-term housing market recovery as mortgage rates jump in response to the crisis.
• The "Explosion" (Post-2026): His core thesis is that as soon as interest rates start dropping, the ultra-wealthy—who have accumulated "enormous piles of cash"—will flood the market to buy assets.
• Timeframe: He has famously predicted that house prices could double within a 5-to-6-year window from the point interest rates begin their significant descent. ”

Bond market runs the government, we saw this with Truss budget U-Turn, bond market controls mortgage rates, house prices do not control the bond market.

LOL, he sounds like a multi BTL debt landlord, why on earth would someone who is "ultra-wealthy" want to buy up loads of rabbit hutch property up and down the UK?

They will not dare. They don't have enough police and prisons to deal with benefit riots, for starters. Even Farage stopped mentioning benefit cuts the moment he realised Reform has real chances in elections.

He doesn’t think rich people would soil their hands by actively being hands on landlords, instead he thinks the rich don't need to be "hands-on" because they can swap between three interchangeable forms of income from the same asset: rent, profit, and interest. Holding property in a structure like a REIT allows them to:

• Receive Profit instead of Rent: By owning shares in a corporate structure (like a REIT) that owns thousands of properties, the wealthy receive "dividends" or "profit" rather than collecting "rent" directly from tenants.
• Avoid the "Hassle": Multinational corporations or large investment funds handle the day-to-day management (landlording), while the ultra-wealthy simply hold the paper asset.
• Scale Ownership: Stevenson notes that while a single rich person can only live in one house, they can effectively "own" thousands of homes through these financial mechanisms.

In his view, the modern economy is shifting toward this model, where "multinationals own thousands of properties" and extract as much value as possible from those who have no choice but to rent or pay interest on massive mortgages

Agreed and at the time it was a better rate than a 5 year and so far we’re better off as we added to the mortgage and got a further preferential rate. We also like the certainty as well.

5% is still pretty low on the grand scheme of things. We've had 2 decades of incredibly low interest rates so people's expectations have become unrealistic.

5% is still historically low

Hard to see what they can do though without cutting benefits, they have to spend more on defence, their ability to borrow is currently limited, they've already squeezed the middle and small businesses with taxation and seems its tricky to tax the ultra rich.

There would be rioting in the streets.
People can barely afford to eat as it is
Our local food bank is like something out of Soviet communist Russia, queues out the door

This is what the benefit class does for fun. Imagine how their anger will look like.
https://www.bbc.co.uk/news/articles/cm25yv7z3jko
On the other hand, pensioneers and educated professional don't riot. So guess who will be squeezed again. 20% stamp duty, 75% inheritance tax and so on.

They said the same about commercial property - We all need to work somewhere right? - Look how that ended up? Truly wealthy will make a fortune from their shares/businesses if rates are cut hard (they won"t be IMO because we are now at the stage of sovereigns going bust not just banks) why bother getting too heavily involved in the most illiquid asset class of them all when you can invest in more profitable more liquid areas? The truly rich own land, that is the big scam, along with being able to create money and lend it out at interest.

Can"t see a few muppets stealing sandwiches changing the course of geopolitical reality TBH.

Not true, Reform were on TV the other morning, Conservative defector guy, saying that benefits spongers are going to get hammered when they are in power - "Having mild anxiety does not stop you working he said" - a mass global depression caused by a war in the ME on the other hand may stop quite a few people working? Ultimately though policy won"t be decided by a few arseholes stealing sandwiches because their phone told them to.

@KeepPumping I've double-checked - the only thing Farage promises now is to stop foreign born people from claiming benefits, but 86% claimants are UK-born so it's nothing.
Pretty sure this idea will be supported by many. He's just like all of them really.
Maybe this guy on TV hasn't read the latest memo.

We aren’t quite at the nothing to lose yet stage but we’re getting close
and actually Marks & Spencer’s were most disgruntled that they weren’t getting the perceived justice. They think they deserve for protecting two slices of jam covered bread that they sell for 2000 billion percent profit.

Yes, there is an element of farce to the whole thing, M&S need to get better security, anything that gets nicked needs to go behind a glass wall with an assistant handing things out through a hatch when you have paid, that would cost money though, and staff wages, who really cares, they are not stealing old grannies handbags just making some sort of daft statement against the system that stops them buying a house?

Have you actually spoken to a mortgage broker? That should be your first port of call. You can usually overpay with a fixed rate too, not just tracker.

That's the whole point. People can't 'choose where they live' any longer!

I don't think there are 'solutions' to what is happening. There will be lots of attempts at solutions though, which will make things even worse. See GFC!

I agree that the UK is in a v exposed position. I think the US Fed will cut later in the year. Japan will probably do an about turn.

It's the seller's expectations that need to become realistic. This will happen but possibly very slowly.