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/

They won"t cope with the shock of finding out that was really an April Fools joke by the bankers, they will make money on the house, not the lottery win they expect though.

It’s a shock to all buyers but I would rather be paying it out of shit loads of equity!

They haven’t tried & are unlikely to do so despite them struggling to maintain the properties now.

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

Funny that!

The rate was 8.6% when I first got my mortgage!

Mortgage rates hit 17% at one point?

Quite possible it will be something similar again by the end of the year. Average of 6% + is a definite though.

For a matter of days and they had MIRA’s at the time

Highly unlikely

we were talking about this yesterday at family gathering. I said something about my first flat, how much it cost and needing a lodger to help pay the mortgage. My ds and his cousin both work in finance and they couldn't work out why I needed a lodger given cost of flat and my salary at the time. The interest rates at the time were something like 12% and then 15%, so the mortgage payments were really high.

My brother pointed out that when the rate goes from 5% to 7.5%, your mortgage repayments increase by 50%.

It is all quite sobering.

If so that will dampen house prices.

And the actual price matters because 17% of a lower number won’t be too dissimilar to a lower % of a higher number.

MIRAS was 1980-2000
Interest rates were 10-17.5% for the entire decade 70-80
Yes houses were cheaper but the interest paid was horrific

No one ever mentions this, the days at 15% was the 90s

And the actual price matters because 17% of a lower number won’t be too dissimilar to a lower % of a higher number
This!!!

The shocking headline grabber of 15% though was precisely for a matter of days
Four days actually.
During the 17% days wage inflation was counteracting any detrimental effects along with MIRA’s.

NOT in the 1970s-80s
Read what I wrote

Its was an absolutely awful decade for house buyers -the forgotten decade if you like where everyone just trots out 15% for days blah blah-yes in the 90s NOT in the 70s
It started in 8s and was up to 17.5% by the end of the decade
It was this and rampant inflation that led to MIRAS in the first place

• Average Home Cost (1970s): £9,277 (by the end of the decade).
• Average Earnings (1970s): £2,265.
• 1970s Market: Although affordable, housing prices doubled between 1971 and 1973.
• Deposit Time: In 1975, a couple could save a deposit in just 8 months; by 2024, this rose to roughly 11 years

Apologies you are correct about MIRA’s but it doesn’t look too terrible from where I’m sitting as a decade Not to mention you could leave one job on a Friday and start somewhere else on the Monday.

NOT in the 70s

I thought wage growth was high in the 70s & houses were still affordable?

“Despite the macroeconomic turbulence of the 1970s, annual GDP growth still averaged 2.7% and living standards rose significantly. Growth in real household disposable income (RHDI) per head was either low or negative for much of the decade, but grew rapidly in 1972–73 and 1978–79, leaving RHDI per head almost 30% higher in 1979 than it was in 1970.[18]This was a greater increase than was experienced in either the decade before (the 1960s) or the decade that followed (the 1980s).”

Fortunately, there was huge wage growth during the 1970s and house prices were far lower relative to incomes.
The hike in IRs must have been a huge shock but at least people could afford to buy as house prices were affordable relative to incomes and incomes increased a great deal. Compared to the situation today, that is preferable.

I thought earlier you said the "headline grabber" was 17%?

https://www.globalbankingandfinance.com/uk-house-prices-sink-0-5-march-halifax-data-shows/

Most people liived in council houses?

Japan Ten Year hitting 1997 levels, we are definitely leaving low rate world.

6.2% I’ve been offered today, slightly bad credit history, 2 year fixed

Oh dear.