Mortgage Rate Rises

[Lima]

Back to the OP’s question .

Bank of England interest rate could hit 4% or more, ex-policymakers warn

The Bank of England will probably need to raise interest rates much more sharply than financial markets expect to get soaring inflation under control, former policymakers said on Wednesday.

www.reuters.com

I think BOE interest rate will be around 3.5 % this time next year so fixes will be at around 4% and above.

For myself I still have 2X mortgages on my buy to let’s that are fixed at 2.39 so I’m thinking of selling one and clearing both mortgages. A BTL fix could be as high as 4.5% next year so a rise from a 5 year fix at 2.39 doubles the interest and I’m not passing that increase onto my tenants.

BoE base rate is currently 1.25% and my new deal is going to be over 3.1% and that’s with 48% ltv….

Base rate of 3.5% will not be 4% at the bank as you suggest. 3.5% base would more likely be 5-6% to the borrower and that’s with strong ltv.

 

[Chris344]

BoE base rate is currently 1.25% and my new deal is going to be over 3.1% and that’s with 48% ltv….

Base rate of 3.5% will not be 4% at the bank as you suggest. 3.5% base would more likely be 5-6% to the borrower and that’s with strong ltv.

This is where I think it’s heading, sadly.

I have a dilemma. My current 1.49% fix ends in Jan 23 - right in the peak of when these rates are expected to be high.

This means the lenders rates will be around 5.5%, my mortgage would increase by £1277 a month which is not great.

So, I’m thinking of paying my ERC and fixing for 5 years at 2.49% - my broker can get me this rate with Barclays on my current LTV.

 

[Mysterae_]

This means the lenders rates will be around 5.5%, my mortgage would increase by £1277 a month which is not great.

Are you sure it'll go up that much? Seems a hell of a lot.

 

[Chris344]

Are you sure it'll go up that much? Seems a hell of a lot.

I have used a couple of online calculators which takes in account the mortgage balance and applies a 5.5% interest rate to give an indication of monthlies.

 

[413x]

I have used a couple of online calculators which takes in account the mortgage balance and applies a 5.5% interest rate to give an indication of monthlies.

Your mortgage must be absolutely huge to go up 1200 a month.

For me it's roughly 100ppm extra per 1pc rise

Which is a 200k mortgage over 24 years

 

[Mysterae_]

I have used a couple of online calculators which takes in account the mortgage balance and applies a 5.5% interest rate to give an indication of monthlies.

A quick play with numbers and I can see you'd be right if your mortgage is considerable.

- £450,000 @ 1.49% equals approx £1,800 pm for 25 years
- £450,000 @ 5.50% equals approx £2,800 pm for 25 years

I couldn't imagine trying to find another £1,000 pm with all the other increases in outgoings, I hope you can manage. Running my own numbers if the rate is 5.5% when I renew in Sept '24 then my mortgage will increase by around £300 pm which is manageable. The added issue I have is that by that time the maximum term I can get is 15 years. Sounds like a prison sentence! I can at least reduce the term with good behaviour by overpaying and cashing in investments.

 

[413x]

A quick play with numbers and I can see you'd be right if your mortgage is considerable.

- £450,000 @ 1.49% equals approx £1,800 pm for 25 years
- £450,000 @ 5.50% equals approx £2,800 pm for 25 years

I couldn't imagine trying to find another £1,000 pm with all the other increases in outgoings, I hope you can manage. Running my own numbers if the rate is 5.5% when I renew in Sept '24 then my mortgage will increase by around £300 pm which is manageable. The added issue I have is that by that time the maximum term I can get is 15 years. Sounds like a prison sentence! I can at least reduce the term with good behaviour by overpaying and cashing in investments.

I didn't think a mortgage of that size would be impacted so much. I was picturing a 700-800k mortgage.

 

[Mysterae_]

I didn't think a mortgage of that size would be impacted so much. I was picturing a 700-800k mortgage.

That's even worse...

- £750,000 @ 1.49% equals approx £3,000 pm over 25 years
- £750,000 @ 5.50% equals approx £4,600 pm over 25 years

Imagine trying to get a pay rise of £1,600 pm extra just to cover your mortgage, that's almost a £29k salary increase, before deductions. That's why I don't think interest rates will get that high, it'll be carnage in that sector of the market.

 

[Chris344]

Your mortgage must be absolutely huge to go up 1200 a month.

For me it's roughly 100ppm extra per 1pc rise

Which is a 200k mortgage over 24 years

If you're currently on a 1% deal, that would mean a £400 a month increase on your 200k mortgage if lender rates hit 5%.

 

[413x]

If you're currently on a 1% deal, that would mean a £400 a month increase on your 200k mortgage if lender rates hit 5%.

Yeah its roughly 100 per month extra for each 1 percent rise. That's what scared me into an early switch (ie paying an ERC)

Doesn't take long to break even on a 2k ERC when you see your monthly bills could go up 3-400 every month

 

[Chris344]

A quick play with numbers and I can see you'd be right if your mortgage is considerable.

- £450,000 @ 1.49% equals approx £1,800 pm for 25 years
- £450,000 @ 5.50% equals approx £2,800 pm for 25 years

I couldn't imagine trying to find another £1,000 pm with all the other increases in outgoings, I hope you can manage. Running my own numbers if the rate is 5.5% when I renew in Sept '24 then my mortgage will increase by around £300 pm which is manageable. The added issue I have is that by that time the maximum term I can get is 15 years. Sounds like a prison sentence! I can at least reduce the term with good behaviour by overpaying and cashing in investments.

My mortgage balance is c£518k - we live in London Zone 4/Bexley and have a good sized house which suits my family.

Yeah its roughly 100 per month extra for each 1 percent rise. That's what scared me into an early switch (ie paying an ERC)

Doesn't take long to break even on a 2k ERC when you see your monthly bills could go up 3-400 every month

This is my dilemma, our ERC is £16k - do I gamble and lock in now or ride it out.

That's even worse...

- £750,000 @ 1.49% equals approx £3,000 pm over 25 years
- £750,000 @ 5.50% equals approx £4,600 pm over 25 years

Imagine trying to get a pay rise of £1,600 pm extra just to cover your mortgage, that's almost a £29k salary increase, before deductions. That's why I don't think interest rates will get that high, it'll be carnage in that sector of the market.

I do think they have the potential to hit those levels. Impact will be felt in the south where prices are typically very high. My brokers view is that rates will continue to increase and peak at the end of next year, then fall to where they are today and remain there.
https://www.bloomberg.com/news/arti...holds-can-withstand-rates-of-up-to-5-boe-says

I know people with 700-800k mortgages with deals coming to an end in the next 18 months or so.

 

[413x]

Later it gets the less the erc pay is worth doing right?

I was agonising over it, but longer I waited the rates kept ticking up.

In end I worked out if I got a 5yr rates only had to tick up 0.5pc for me to break even (50 pounds a month * 60 months =3k vs erc 2k)

Others have said 'you can invest that 2k if you don't spend it on erc'. Valid point. Except my investments have been **** for a year too!


I also did the "what's going to hurt more".
-A) rates stop at 2.5pc (mortgage not bank) and retrace to 1pc and I've burnt a few k. I end up in 1.93 for 5 years and they drop. But lowest they can go is 1 percent for me really. I've lost 2k erc, + 100ppm * 6k.
Total 8k
B) rates spike to 6pc (mortgage).
I'm now down 400ppm*60.
Total 24k.


8k over 5 years. I can live with that.
24k? That's sickening.

So I took the erc.
I mean I could go higher. Probably not. But it could.


Chances are it well fall somewhere in the fix was better. But swing probably under 10k over the term.

Still. The guarantee of fixed price for 5 years makes life a lot less stressful

 

[Chris344]

Later it gets the less the erc pay is worth doing right?

I was agonising over it, but longer I waited the rates kept ticking up.

In end I worked out if I got a 5yr rates only had to tick up 0.5pc for me to break even (50 pounds a month * 60 months =3k vs erc 2k)

Others have said 'you can invest that 2k if you don't spend it on erc'. Valid point. Except my investments have been **** for a year too!


I also did the "what's going to hurt more".
-A) rates stop at 2.5pc (mortgage not bank) and retrace to 1pc and I've burnt a few k. I end up in 1.93 for 5 years and they drop. But lowest they can go is 1 percent for me really. I've lost 2k erc, + 100ppm * 6k.
Total 8k
B) rates spike to 6pc (mortgage).
I'm now down 400ppm*60.
Total 24k.


8k over 5 years. I can live with that.
24k? That's sickening.

So I took the erc.
I mean I could go higher. Probably not. But it could.


Chances are it well fall somewhere in the fix was better. But swing probably under 10k over the term.

Still. The guarantee of fixed price for 5 years makes life a lot less stressful

Exactly my thoughts too, I'm currently agonising over it, very much so . If I don't act now and there's a .50 increase come 7th Aug then it will mean rates ticking up again.

Where you you see interest rates going in the next 18 months?

On the 1st Feb 23, my ERC drops from 3% to 2% (-c£6k) - to hit that, I'd have to submit a full mortgage application before the MPC meeting on the 7th with a view to dragging (given mortgage offers are valid for 6 months) it out and setting the start date around 3rd Feb 23.

 

[413x]

Exactly my thoughts too, I'm currently agonising over it, very much so . If I don't act now and there's a .50 increase come 7th Aug then it will mean rates ticking up again.

Where you you see interest rates going in the next 18 months?

On the 1st Feb 23, my ERC drops from 3% to 2% (-c£6k) - to hit that, I'd have to submit a full mortgage application before the MPC meeting on the 7th with a view to dragging (given mortgage offers are valid for 6 months) it out and setting the start date around 3rd Feb 23.

Personally. I hope (for everyone's sake) they don't go above 3pc bank rate.

I think it's harder now than when I made the decision. But the influencing factors are the same.

The BoE keeps saying they hope it will peak early 2023 but I don't think that can be relied on.

I'd say it getting near coin toss. As locking in now is significantly higher than when I did.

At 1.93, worst for me it could get of it drops to 1.00ish in 2 years.

Now I'd be looking at 3.00
Lockimg in for 5 years at 3.00 and it dropping to 1.00 is much worse than 1.93.


But really it's a guess. If no erc I'd absolutely be fixing. But with erc? It gets harder each month.


Worst case? I guess I see bank rate at 4pc. Because any more will decimate everything.
I don't know if that's unlikely? Or if that will last months.. Or years.
I dunno. I think I would be inclined to fix still. But I'd also be tempted to hold out to get a deal with 5 months expiry to avoid the erc. As for me that would now only be 2 months away.

But my fix naturally ends Feb 2023. Probably the absolute peak of the rates.

 

[413x]

Exactly my thoughts too, I'm currently agonising over it, very much so . If I don't act now and there's a .50 increase come 7th Aug then it will mean rates ticking up again.

Where you you see interest rates going in the next 18 months?

On the 1st Feb 23, my ERC drops from 3% to 2% (-c£6k) - to hit that, I'd have to submit a full mortgage application before the MPC meeting on the 7th with a view to dragging (given mortgage offers are valid for 6 months) it out and setting the start date around 3rd Feb 23.

Personally. I hope (for everyone's sake) they don't go above 3pc bank rate.

I think it's harder now than when I made the decision. But the influencing factors are the same.

The BoE keeps saying they hope it will peak early 2023 but I don't think that can be relied on.

I'd say it getting near coin toss. As locking in now is significantly higher than when I did.

At 1.93 (my new rate) , worst for me it could get of it drops to 1.00ish in 2 years.

Now I'd be looking at 3.00 (my rate if buying now)
Lockimg in for 5 years at 3.00 and it dropping to 1.00 is much worse than 1.93.


But really it's a guess. If no erc I'd absolutely be fixing. But with erc? It gets harder




Edit. Just seen your erc is 3pc.
Id wait for the 2. You can probably look at deals now to avoid the 3. I know at 2pc for me the decision would be much harder though

I didn't know you could get remortgages with 'validity' time of up to 6 months! Had I had known I could have easily got 1.3 back in January and still fall in the 1pc erc fee!

 

[Chris344]

Personally. I hope (for everyone's sake) they don't go above 3pc bank rate.

I think it's harder now than when I made the decision. But the influencing factors are the same.

The BoE keeps saying they hope it will peak early 2023 but I don't think that can be relied on.

I'd say it getting near coin toss. As locking in now is significantly higher than when I did.

At 1.93 (my new rate) , worst for me it could get of it drops to 1.00ish in 2 years.

Now I'd be looking at 3.00 (my rate if buying now)
Lockimg in for 5 years at 3.00 and it dropping to 1.00 is much worse than 1.93.


But really it's a guess. If no erc I'd absolutely be fixing. But with erc? It gets harder




Edit. Just seen your erc is 3pc.
Id wait for the 2. You can probably look at deals now to avoid the 3. I know at 2pc for me the decision would be much harder though

I didn't know you could get remortgages with 'validity' time of up to 6 months! Had I had known I could have easily got 1.3 back in January and still fall in the 1pc erc fee!

Thank you that's very helpful. My ideal scenario is submitting a full application (via my broker) now and securing a rate of 2.4% with a view to the product starting >1st Feb 23 thus my ERC is dropped from 3%>2%.

I do personally see the base rate hitting 2.5-3% (which would mean 4.5% for me) in an effort to curb inflation - the energy cap is going up and up, fuel is up, the Ukraine situation isn't resolving anytime time etc. Like you, my current fix ends Jan 23 - right in the peak of any expected increase. What is difficult to accept is that I could have fixed for 5 years @ 1.59% but chose two as we wanted to move house next year and din't want to be restricted to our current lender. There's an article earlier where the BoE is quoted saying households can absurd a 5% interest rate, potentially meaning a 3.5% base and average mortgage rate of 5%.

Offers are typically valid for between 3-6 months depending on the lender.

 

[413x]

Thank you that's very helpful. My ideal scenario is submitting a full application (via my broker) now and securing a rate of 2.4% with a view to the product starting >1st Feb 23 thus my ERC is dropped from 3%>2%.

I do personally see the base rate hitting 2.5-3% (which would mean 4.5% for me) in an effort to curb inflation - the energy cap is going up and up, fuel is up, the Ukraine situation isn't resolving anytime time etc. Like you, my current fix ends Jan 23 - right in the peak of any expected increase. What is difficult to accept is that I could have fixed for 5 years @ 1.59% but chose two as we wanted to move house next year and din't want to be restricted to our current lender. There's an article earlier where the BoE is quoted saying households can absurd a 5% interest rate, potentially meaning a 3.5% base and average mortgage rate of 5%.

Offers are typically valid for between 3-6 months depending on the lender.

Yeah the offer I took was for 4 months.
I believe 6s are available.

It didn't matter for me. I was 8 months away and already in the 1pc window when I realised you even had a validity period (first remortgage).


I went direct as broker couldn't do better and got 750 cashback. Basically wiping out the product fee.

Would not have got that going to broker.

The broker hinted I should wait until my erc was over. He didn't think rates would go up that much.

Obviously. They have.

 

[Chris344]

Yeah the offer I took was for 4 months.
I believe 6s are available.

It didn't matter for me. I was 8 months away and already in the 1pc window when I realised you even had a validity period (first remortgage).


I went direct as broker couldn't do better and got 750 cashback. Basically wiping out the product fee.

Would not have got that going to broker.

The broker hinted I should wait until my erc was over. He didn't think rates would go up that much.

Obviously. They have.

Glad it worked out for you - I think you did the right thing.

I'll do some comparisons once I get the final illustration from the broker.

 

[413x]

Glad it worked out for you - I think you did the right thing.

I'll do some comparisons once I get the final illustration from the broker.

I admit I spent far far too long deliberating on it. I'd say it was only after a couple of months I was sure it was the right decision. But you haven't really committed anything if you haven't taken the offer up by then.

It's almost a no brainer to at least have an offer.

I guess another factor was that I fixed energy in October for 3 years and it was also the correct decision. No one knew about the war. So no one expected it to get this bad. But that decision has saved me 100s already.

 

[jonneymendoza]

Thank you that's very helpful. My ideal scenario is submitting a full application (via my broker) now and securing a rate of 2.4% with a view to the product starting >1st Feb 23 thus my ERC is dropped from 3%>2%.

I do personally see the base rate hitting 2.5-3% (which would mean 4.5% for me) in an effort to curb inflation - the energy cap is going up and up, fuel is up, the Ukraine situation isn't resolving anytime time etc. Like you, my current fix ends Jan 23 - right in the peak of any expected increase. What is difficult to accept is that I could have fixed for 5 years @ 1.59% but chose two as we wanted to move house next year and din't want to be restricted to our current lender. There's an article earlier where the BoE is quoted saying households can absurd a 5% interest rate, potentially meaning a 3.5% base and average mortgage rate of 5%.

Offers are typically valid for between 3-6 months depending on the lender.

When i got my mortgage offer, i asked the broker how long this offer is valid and they said its up to the lender..

The lender is santander btw....