Mortgage Rate Rises

[danlightbulb]

Am I right in thinking, that if I renew for 2 years at say 4 percent, and then another 3 years at 4 percent, rather than just doing 5 years at 4 percent, my total payment overall will be lower, as the percentage is worked out in what's left at the time of taking out the renewal, rather than what's left at the time of each payment?

No, because the term also reduces. It's the same either way.

 

[BDEE]

there will be at least one more bump prob to 4% .. then it will take 3-5 yrs to come down to a stable 2%

What I find really interesting is the people posting who seem to think that interest rates at 2-3% is "normal".

It is far from normal, but this is a result of years and years of weak MPC action where they should have been raising interest rates back up closer to pre-2008 levels, but decided not to. We have had stimulus after stimulus in the housing market and it has sky rocketed house prices. COVID measures made it even worse and prices were already going through the roof for materials and labor post brexit - The opportunity was lost. Had they done a slow and gradual rise sooner then we wouldn't have a whole generation of home owners who now think that rates at 4-5% are high, when actually that is more "normal" than the artificially low rates seen over the last decade.

 

[delta0]

Interests below 2% certainly were not normal. Not just through historic precedent but also other countries were keep their rates higher. It would be absurd to expect that to continue forever. Even worse to try and max out borrowing and not expect bad things to happen when the rates inevitably went back up.

 

[danlightbulb]

But to both of you above, what choice do you have as a buyer needing a home? You have to stretch to your max because even low end houses are expensive. And then once you're in, if rates rise you're locked in to that - where else can you go?

So whilst rates can change, the Gov/BOE has a responsibility to make sure they don't change in an unfair way to the many people who had no choice to buy a house to live in. The past 10 years of low rates is long enough that it is the new normal and if it isn't to be sustained it can't be done over a short timespan because the shock would be massive.

 

[413x]

But to both of you above, what choice do you have as a buyer needing a home? You have to stretch to your max because even low end houses are expensive. And then once you're in, if rates rise you're locked in to that - where else can you go?

So whilst rates can change, the Gov/BOE has a responsibility to make sure they don't change in an unfair way to the many people who had no choice to buy a house to live in. The past 10 years of low rates is long enough that it is the new normal and if it isn't to be sustained it can't be done over a short timespan because the shock would be massive.

Yeah. Normal has moved on. The 5pc is high now, it just is. Rates being so low for so long has driven up property price so that new home owners are vulnerable to these small changes, but not much else you can do as a FTB.

Houses are so much now that even tiny percentage rises by historic standards are brutal.

Can't really compare now with 20 years ago. Times have changed.

If rates had stabilised at 2 rather than near zero maybe houses wouldn't have rocketed in price so much.

 

[unwashed potato!]

Yeah. Normal has moved on. The 5pc is high now, it just is. Rates being so low for so long has driven up property price so that new home owners are vulnerable to these small changes, but not much else you can do as a FTB.

Houses are so much now that even tiny percentage rises by historic standards are brutal.

Can't really compare now with 20 years ago. Times have changed.

If rates had stabilised at 2 rather than near zero maybe houses wouldn't have rocketed in price so much.

Exactly.

5 percent of 500k house, is a lot more than 15 percent of 100k house.

Do they ever post how much money they take from interest rates in mortgages? Interested to know what the increase amount is now as it's a big difference each month. Surely that 1 trillion of debt will be paid off in no time

 

[delta0]

But to both of you above, what choice do you have as a buyer needing a home? You have to stretch to your max because even low end houses are expensive. And then once you're in, if rates rise you're locked in to that - where else can you go?

So whilst rates can change, the Gov/BOE has a responsibility to make sure they don't change in an unfair way to the many people who had no choice to buy a house to live in. The past 10 years of low rates is long enough that it is the new normal and if it isn't to be sustained it can't be done over a short timespan because the shock would be massive.

I refuse to stretch myself. If someone must buy but have to stretch then look at a cheaper property or a cheaper area.

 

[delta0]

Yeah. Normal has moved on. The 5pc is high now, it just is. Rates being so low for so long has driven up property price so that new home owners are vulnerable to these small changes, but not much else you can do as a FTB.

Houses are so much now that even tiny percentage rises by historic standards are brutal.

Can't really compare now with 20 years ago. Times have changed.

If rates had stabilised at 2 rather than near zero maybe houses wouldn't have rocketed in price so much.

Prices have gone up in the past regardless of the interest rate being low. We are a country that is dominated by home ownership and there’s a shortage of supply. We will see only a short term impact to prices from the interest rate jump we’ve had as fundamentally the market has more demand than supply.

 

[danlightbulb]

I refuse to stretch myself. If someone must buy but have to stretch then look at a cheaper property or a cheaper area.

It's not that easy to do.

My example: 42 years old, needing a 30 year mortgage = had to buy now (get too old and can't get the term needed to afford the repayments).

Area east Birmingham. 3 bed semi. Need parking. Houses in my budget all getting overbid by £20-30k.

Yes, could get a terrace in a crappy (crime ridden, run down) area with no parking for maybe £180-£200k. It doesn't get much cheaper than that. I paid £250k for a place advertised at £230k and was up against several other bidders.

What would have me do?

 

[delta0]

It's not that easy to do.

My example: 42 years old, needing a 30 year mortgage = had to buy now (get too old and can't get the term needed to afford the repayments).

Area east Birmingham. 3 bed semi. Need parking. Houses in my budget all getting overbid by £20-30k.

Yes, could get a terrace in a crappy (crime ridden, run down) area with no parking for maybe £180-£200k. It doesn't get much cheaper than that. I paid £250k for a place advertised at £230k and was up against several other bidders.

What would have me do?

Are you able to afford the current interest rates? What about if they were higher? My mortgage provider (HSBC) assess against 8% as part of the lending criteria.

 

[danlightbulb]

Are you able to afford the current interest rates? What about if they were higher? My mortgage provider (HSBC) assess against 8% as part of the lending criteria.

Afford, technically yes. But 'affording' is different to living. Yes if I had to I could pay the mortgage at a higher rate, but there would be no discretionary income left. That isn't good for the economy as at my age I'm quite economically active. So the general point is that it's not good to tie up economically active people's income in mortgage repayments at the expense of the economy.

 

[delta0]

Afford, technically yes. But 'affording' is different to living. Yes if I had to I could pay the mortgage at a higher rate, but there would be no discretionary income left. That isn't good for the economy as at my age I'm quite economically active. So the general point is that it's not good to tie up economically active people's income in mortgage repayments at the expense of the economy.

There’s always things that tie up economically active people’s money. Historically low interests did help free up money. You are fortunate in that you can afford higher rates so you have not pushed yourself to the limit. I think many including myself have got used to low interest rates but there are many (I hope!) that knew that it would not last forever.

 

[danlightbulb]

There’s always things that tie up economically active people’s money. Historically low interests did help free up money. You are fortunate in that you can afford higher rates so you have not pushed yourself to the limit. I think many including myself have got used to low interest rates but there are many (I hope!) that knew that it would not last forever.

Not lasting forever is fine, but what is wrong is shifting it overnight and screwing people over.

Like someone said above, it should never have been 0% in the first place. But given it was, and people have leveraged against that (because they had to), it's wrong to let it jump up to 4% plus over anything less than 10-15 years of time horizon.

 

[Uther]

I'm sure people expected them to go up over time, but not an event like Truss and Kwarteng basically throwing a hand grenade at the economy (something you supported IIRC danlightbulb...)

 

[200sols]

Not lasting forever is fine, but what is wrong is shifting it overnight and screwing people over.

Like someone said above, it should never have been 0% in the first place. But given it was, and people have leveraged against that (because they had to), it's wrong to let it jump up to 4% plus over anything less than 10-15 years of time horizon.

10-15 years would render monetary policy useless and in such a scenario all your wealth would be utterly destroyed by inflation over time.

 

[delta0]

Not lasting forever is fine, but what is wrong is shifting it overnight and screwing people over.

Like someone said above, it should never have been 0% in the first place. But given it was, and people have leveraged against that (because they had to), it's wrong to let it jump up to 4% plus over anything less than 10-15 years of time horizon.

Unless you are on a variable rate then a sudden change or a slow change over a few months like other countries have had shouldn’t make any difference. It’s still lower than US and Canada rates. We just got too used to it and any significant shift was going to be like a shock. It was very publicly done by the UK but in reality other countries have just as high or higher rates.

 

[danlightbulb]

10-15 years would render monetary policy useless and in such a scenario all your wealth would be utterly destroyed by inflation over time.

What's the difference between wealth being destroyed by inflation or by mortgage repayments?

I'm sure people expected them to go up over time, but not an event like Truss and Kwarteng basically throwing a hand grenade at the economy (something you supported IIRC danlightbulb...)

I supported a policy of growth and lower taxes for normal (not wealthy) working people not screwing over interest rates.

 

[200sols]

What's the difference between wealth being destroyed by inflation or by mortgage repayments?

Inflation destroys everything, higher interest rates only destroy the over leveraged. Yes its not nice but its better than the alternative.

I supported a policy of growth and lower taxes for normal (not wealthy) working people not screwing over interest rates.

You supported that despite economists saying rates would go to 7% under such a scenario, it was lunacy and everyone told you so.

 

[danlightbulb]

Inflation destroys everything, higher interest rates only destroy the over leveraged. Yes its not nice but its better than the alternative.


You supported that despite economists saying rates would go to 7% under such a scenario, it was lunacy and everyone told you so.

Rates were going there regardless, I think now. Despite the inflation being mostly externally driven so uncontrollable domestically, our currency was still on the floor and other countries were raising rates.

The issue for me is not so much what is happening right now, it's the injustice of the past 10 years and the set up of all this.

Do you think it's fair that interest rates have been low for 10 years, helping houses prices to rise so high (amongst other factors), meaning a lot of people had no choice but to take on a lot of debt, and then rates suddenly rise to cause those people a lot of pain? Is that fair on those people?

 

[Fiocca]

I don't understand why we don't have lifetime rates as standard. A home is a basic necessity and the ability to pay for one shouldn't be vulnerable to the wider economy aside from personal circumstances. That's not to say people can't choose a variable if they wish.

I split with my wife last year and bought her out to keep some stability for my daughter but my fix ends this summer. I'm going to be stuffed if my payments rise by a modest amount. If I had the option I'd quite happily pay an affordable extra each month if I could be on a lifetime fix.