Largely depends on whether you can earn more money in interest from having it in the bank compared with the interest you are paying on your mortgage.
Mortgage Rate Rises
- Thread starter glenimp617
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Largely depends on whether you can earn more money in interest from having it in the bank compared with the interest you are paying on your mortgage.
I have never been of that mindset and to be frank, if I dont absolutely need something I don't spend the money.
Soldato
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And lots of people share that - but some costs are unavoidable. Like housing costs.
Agreed, those are the ones to pay first and foremost.
What does 'renewal' mean when it comes to mortgages though? What I think is sometimes not fully appreciated is that mortgages are a long term agreement (decades) that often include short-term lock-in periods. People may think of it like a cycle of 'renewals' in terms of taking out a new mortgage every few years but beneath the service it's not really operating like that.
I need to understand more about exactly what this 4.5% cap applies to.
What about those that borrowed 499k? Surely they're fine?
500k where? A council estate in the north? Yeah probably excessive. A 3 bed semi in the south east? Might not be enough!
If all our parents took the outlook that life costs a lot of money and that reproduction was not a priority, half of us would not be here. People are only trying to live. Have a pop about Sky TV, Netflix, Cars and Latte's, but having a family.... it's our main purpose on earth arguably and the most natural thing we can do. I don't think people should be criticized for having a family and then wanting a roof to live under. Bringing a family into this world is tough. A lot of FTBers already have larger families by the time they come to buy in their 30s through years of living life in the UK and getting stuck in a rent trap. I think your comment is a bit short sighted and selfish.
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Soldato
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Well my idea of it would be existing domestic mortgages only.
Look at what it is that is trying to be achieved here. Money removed from the economy, we all agree on that.
But how it is done, is open. There are lots of options.
Interest rate rises really hurt a not small subset of people, whilst benefiting some (people with decent savings) and having little impact on a good number too (elderly who have paid off their mortgages primarily).
Why is it acceptable that only one group takes the pain of trying to control inflation? It really is bonkers.
Raise rates within reasonable limits, yes. Raise taxes at the high end too. Wealth tax so wealthy people pay more too, but so as not to impact elderly but not wealthy people. Protect renters, but increase taxes or rates on buy to lets. Landlords always have the option to sell and exit the market if they don't like it any more - those with one home do not.
It is about targeting pain fairly across everyone, which is not happening right now.
The purpose of putting interest rates up isn't solely to make housing more expensive. More generally it will squeeze credit and put downward pressure on other items that might be bought on credit. Additionally, the UK imports a lot of food and fuel. Putting our interest rates up supports Sterling and hence in theory may reduce inflation by reducing the cost of imported goods.
The average mortgage has fallen, it is no longer over £200k. It's down to under £185k: https://www.finder.com/uk/mortgage-statistics
"The average value of a mortgage granted in the first 3 months of 2023 was £184,376. This is down from a decade-high average mortgage size of £203,381 in the quarter from July to September 2022"
Regarding 1988 situation, have a look at this article: https://moneycomms.co.uk/30-years-since-the-first-fixed-rate-mortgage-whats-happened-since/
75% LTV on average house price meant about £41.5k mortgage.
"In November 1988 the monthly mortgage repayment for someone borrowing 75% of the average house price was £461 and accounted for 44% of the average gross salary."
44% of gross on a 75% LTV can't be a million miles off what it would be today.
That still doesn't really address my question (appreciating you are not the OP). Like physically when we say a "cap renewals at 4.5%" what does that actually mean in practice - what is a 'renewal' in this context, is this 4.5% a static number or does it move and if so on what basis, etc.
People really forget that bit. We're a net importer and with other countrys raising their rates, especially the US, if we didn't do the same our currency would weaken meaning all our imports would get dearer, helping fuel inflation as well.
I hope people are starting to realise what a whack-a-mole this is, and there's no one easy solution to fix the problem.
And there's definitely not going to be any way out of this that isn't going to cause a lot of pain to some people.
Soldato
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Definitely not easy to implement.
I suppose like the energy price cap, what could happen is you cap the variable rate of mortgages at 4.5% (or whatever number is arrived at, mechanism for this unknown), so that when a fixed rate product ends you drop onto the cap rate. An individual is then free to stay on the cap or seek out an alternative fixed product.
This is essentially the same thing as my idea for a secondary base rate.
Not sure what your point is with this. My figures were there or thereabouts.
Repayment on a 25 year term for £185k at 6% is ~£1200
Which is similar at about 44% of average gross salary
So even at the silly rates of the end of the 80's, the current situation is still as bad now.
Hence my point that we have to be at the peak of what they can increase interest rates to or things will get ugly very fast. If they up mortgages to 8% you are looking at 55% of gross monthly earnings. 10% and you are looking 63%
People will not be able to afford to live. We are at the limit already in my opinion.
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What about those that borrowed 499k? Surely they're fine?
500k where? A council estate in the north? Yeah probably excessive. A 3 bed semi in the south east? Might not be enough!
If all our parents took the outlook that life costs a lot of money and that reproduction was not a priority, half of us would not be here. People are only trying to live. Have a pop about Sky TV, Netflix, Cars and Latte's, but having a family.... it's our main purpose on earth arguably and the most natural thing we can do. I don't think people should be criticized for having a family and then wanting a roof to live under. Bringing a family into this world is tough. A lot of FTBers already have larger families by the time they come to buy in their 30s through years of living life in the UK and getting stuck in a rent trap. I think your comment is a bit short sighted and selfish.
My main purpose is not too breed! It's to have a good time!
I won't be defined by my biological obligations!
When you take a mortgage as a responsible adult you simply have to accept the fact that you are taking on a liability and the repayment terms of that debt i.e. the interest rate may change.
As a mortgage holder you benefit from your deposit being leveraged for the gain of property price increase. That is the upside. Interest rates going up is the downside.
It's like saying why should one subset of people get all the benefits of property prices going up. It's because they've taken the decision to be part of that subset. Mortgage owners have been huge winners for decades, now comes the pain. You can consider the timing aspect to be unfair, but in general it messes too much with the system if you now seek to bail out the subset that have benefitted for so long.
I KNOW it's difficult to get on the ladder, we are all encouraged to, people would taken smaller mortgages if they COULD, but at the same time, it's the big bad world and as an adult you have to know the upsides and downsides. Everyone gets a mortgage illustration, everyone answers the questions about the stress tests.
For context I'm not sat on a paid off house or a renter, I've had my mortgage for about 6 years and still in the 'painful' zone.
A clever seeming man on radio 4 yesterday who sounded as if he'd done lots of deep analysis said in terms of affordability (considering salary levels, interest rates, house prices and wider life costs), the situation today is not quite as bad as 2007, and late 80s was a bit worse again than that. So yeah probably another percent and a half and we're eclipsing anything anyone has seen for generations.
I feel if there were lifetime or even 20yr fixes available then there would be a lot less (and it would be valid) sympathy for mortgage holders.
But I'd also want less punishing ercs.
Most people now need a relationship for a house. And having to worry about break ups and the penalties often makes long fixes bad choices
But I'd also want less punishing ercs.
Most people now need a relationship for a house. And having to worry about break ups and the penalties often makes long fixes bad choices
Exactly.
That is what my original post was about. I just hope the BoE understand that they are virtually at the peak of what they can do interest rates wise before things get very ugly.
Soldato
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Whilst I agree with your points, I would never have wanted house price increases had I had the choice. That aspect is something that many have benefited from undeservedly and is a horrendous part of our society.
I don't know how you separate the people who have benefited from the undeserved increase in house prices vs the people who haven't. Perhaps wealth taxes? Windfall taxes? We are happy to do it on companies, why not individuals.
Inheritance tax you can't escape. And more substantial IHT. But it's generally unpopular