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/

What would you do if you were me?
currently with an adverse credit lender at 4.73%, and my 5 year fix ends in october
I’m now able to use a high street lender (hopefully…)
lowish wage, not much buffer for rates
fix for 2 or 5? I’m leaning towards 5….

You cant really compare yourself to others though because some people will like a gamble and some wont

I would always choose a longish term fixed rate, no matter what, because I need to know that Im going to pay x amount and thats it.

Its a risk but then Im a risk taker. Others will see it as a risk to take a variable or capped etc.

I never once had a variable rate the entire mortgage period.

I’m the same as you to be honest, I like to know what I’m paying and that it won’t change for X years
annoyingly (and I could cry) the apartment above me just sold at auction for 55k. Mine was previously valued at 100k (exact same layout)

Sorry to hear that. This is likley to happen to a lot of property going forward though, particularly fleecehold and flats. The days of expected capital gain have come to an end. Stories like yours of property loosing money will be rife by the end of the year.

I would say to fix for the longest period available but you need to take your individual circumstances into account.

I think it will take longer to play out fully than just the end of 2026. I think the years of people making more money from just living in a house than they do from working hard every day are gone. That's before you even take inflation into account.

You mean leasehold? Nobody these days wants leasehold, that’s another reason why the market is less than buoyant - thousands of leasehold houses and flats up for sale for ages, mostly reduced.

I'm totally fine with leasehold if service charges are below 3K, and flats like this change hands pretty quickly in our area.
But I'll never buy a new built flat because even if they put starter SC below 3K, it will skyrocket.
The ones that are stuck have SC of 3.5 and above. I've just seen a 2br for 450K with 7K SC and I can't imagine what the owners can do about it now.
I've read that banks are unlikely to approve a mortgage if SC is above 1% of a property price.

No not just leasehold, the "freehold" homes with attached estate management fee's (fleecehold) seem to be struggling too in my area. I have seen several now not selling - even at less than 2022/2023 paid prices. Also the local developers here have started discounting the nearly finished new builds that are fleecehold arrangements. The market is changing pretty quickly.

Im not sure this is accurate as loads of flats sell every day. Virtually all big cities are made up of mostly flats and people live there and buy them.

Huge proportion of flats are owned by the landlords, that's why they didn't care about service charges as they could write them off. And now they can't sell at all and will have to rent their properties out even at a loss. Or maybe the council will be kind enough to buy.
There's Wandsworth in London, around W. bridge, the flats there are not shifting at all.

This was less to do with current circumstances (it’s been on the market over a year) and more to do with the fact they didn’t bother doing anything to it
it needed a new kitchen, 2 new bathrooms and new flooring throughout which is a big outlay on a cheaper end apartment

Who makes money on it though really? Most people when they have to sell a house have to buy a house with the proceeds and if they’re going up the ladder not down that’s not in their favour. Is it in terms of a percentage increase?
The only people I know whoever ever made money and spent the money lost the house.

Possible, but that would be a recession scenario? If US and Japan are in that state UK would be toast? Very few will be buying expensive houses at that stage.

If you downsized when the bubble was raging you made some money, now demand is down in many areas, there are not enough buyers so many people can"t even downsize.

many can still afford downsize even if their house has reduced as many bought decades ago.

Not if they can"t find a buyer.

Some previous posters were arguing it’s too expensive to downsize, and would take years to recoup the moving/tax charges.
I probably wouldn’t downsize if I thought I only had a 10 year horizon left.

Most houses if priced correctly find a buyer.

Some of my older relatives say this too. They bemoan spending 35k on stamp duty/moving costs etc even though they have hundreds of thousands of pounds of equity which wasn’t earned.

Most of the older people wanting to downsize have probably not moved for years and years so the stamp duty is quite a shock to them.

Have they all managed to sell?

They could downsize if they took a more broad view of the whole thing.
Too many people are over invested in Bricks and Morar for their retirement and inheritance planning
Before I pop my clogs, I will most definitely be selling the house and moving into a rental and distributing the cash.
Not to hide from inheritance tax there won’t be enough for that but to ensure liquidity
And that the assets are quickly distributed

They seem to be able to cope with the shock that their houses increased thirtyfold though, that’s palatable to them isn’t it?

But it is the most illiquid of all assets, you can"t really rely on selling it at a time of your choosing anymore?