Yes. So if they move back to their historic levels then many people will be in serious trouble.
Mortgage Rate Rises
- Thread starter glenimp617
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Soldato
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Interest rates are low compared to those times, but the cost of the house to people's wages is higher now than back then.
20% interest of a low amount is smaller than 5% interest on a bigger amount. I know that's a gross simplification.
20% interest of a low amount is smaller than 5% interest on a bigger amount. I know that's a gross simplification.
But things like that are "easy" to budget for*, and still aren't a lot in the grand scheme of things.
For a reasonable sized 3 bed mid-terrace:
Boiler: ~£3k, 10+ year life = ~£25/month
Windows & doors: ~£4k, again 10+ year life = ~£35/month
Roof: ~£10k, ~50 year life = ~£17/month
Yeah, they add up, but arguably if you can't afford to put aside a couple of hundred/month for maintenance then you can't really afford to buy.
* unless you're unlucky enough to need to replace the roof/windows & doors/boiler within the first few months of buying, which you should really have spotted/taken into account as part of the purchase.
It's not possible. Most of the western world couldn't service their debt if they happened.
If rates got up to 8pc..there would be chaos.
It would throw most of the FTBs under the bus. It would throw a lot of middle of mortgage term under as well.
Suddenly that productive part of society would be destroyed.
I cannot imagine many could survive with 10pc rates. It would also mean huge issues in the broader economy.
It would throw most of the FTBs under the bus. It would throw a lot of middle of mortgage term under as well.
Suddenly that productive part of society would be destroyed.
I cannot imagine many could survive with 10pc rates. It would also mean huge issues in the broader economy.
Houses are not 10k anymore though! The houses that were 10k in the 80s are now 250k+ and 20k houses are 400k+ generalisation of course but that seems to be the case.
The recent rise has added another 1k in interest over 5 years (£16.67 / month). Not too crushing
The recent rise has added another 1k in interest over 5 years (£16.67 / month). Not too crushing
Soldato
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My grandad is pretty switched on to be fair to him. But we were talking about spending 10k on a wedding and he said could be a deposit on a house. I had to break it to him that wouldn't even be half for one now! 
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My grandad is pretty switched on to be fair to him. But we were talking about spending 10k on a wedding and he said could be a deposit on a house. I had to break it to him that wouldn't even be half for one now!
Wasn't even a quarter of my first house 10 years ago!
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Soldato
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They are easy to budget for if you are so inclined.
Unfortunately most people aren't.
I mean forget people who have just bought a second hand house, try persuading someone who just moved into a new build they should be putting aside £75 say for maintenance and replacement of large value items that will happen potentially in 10 years.
Aint going to happen.
But its far worse for older houses. Many people stretched to buy aren't going to save the potential cost of a replacement roof in 10 years because they survey said its maybe got a 10 year life.
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well no there not .. except in the south .. starting with London .. the house i live in my dad bought for 32k .. in 82 ish it's only worth 140k now .. i bought it for 90k .. sibling request to my brother .. he ok'd it ..
So raising interest rates is not a method to reduce inflation? If that is the case then that's the economics equivalent of saying E=mc^2 is wrong.
So what caused this inflation? Printing ridiculous sums of money during 2020/21 is part of it. What do people do with extra money they have earned during this time? (talking 5-6 figures) they leverage it.
They take out loans which have an interest rate. Therefore increasing the interest rate will affect them. Hence why if you increase the interest rate quickly it will reduce spending (some of this is psychological) as a majority of people will do whatever they can to keep paying their mortgage. That means they will reduce their spending in other areas where possible.
Yes the rise in utility bills cannot be avoided but compare that to the monthly mortgage payment which for many is £1200+ per month. A 5% increase in their monthly payment will have a much greater affect on their spending power than a 30% increase in their gas bill.
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My two year fix is ending in September. I had been saving for a few years for a kitchen extension and renovations, unfortunately that was scuppered by covid and every man and his dog wanting house improvements.
It's turned out to not make financial sense doing the house up so I've moved the bulk into ISA and pension and the rest will probably go towards paying off some of the mortgage in September.
Hopefully that will make a difference towards retirement as a few thousand saved in interest per year could shave off years of working.
I guess that's what the BoE wants to reduce inflation but I think there would need to be a lot more blood until interest rates go down again. High streets are still bustling, there must still be plenty of people with furlough war chests burning holes in their pockets.
It's turned out to not make financial sense doing the house up so I've moved the bulk into ISA and pension and the rest will probably go towards paying off some of the mortgage in September.
Hopefully that will make a difference towards retirement as a few thousand saved in interest per year could shave off years of working.
I guess that's what the BoE wants to reduce inflation but I think there would need to be a lot more blood until interest rates go down again. High streets are still bustling, there must still be plenty of people with furlough war chests burning holes in their pockets.
Right, but my mortgage is 3.1k going to 3.7k and I need both a mortgage AND gas.
You're gonna have to choose. The Huw Pill doctrine, you are poorer and you will accept it.
However has your gas gone up by £600 per month?
My point is that as a % of a homeowner's income, the mortgage is the biggest expense. In general a home is the most expensive thing people will ever buy. Prior to buying a home many people would have never been in any sort of debt.
Also if your monthly mortgage payment along with many others went up by the same amount within 3 months instead of 15-18 months it would have had a much bigger psychological impact on the spending behaviours of consumers. Again this is based on those on tracker mortgages but even then many people who were on fixed rate terms decided to terminate early to fix again last summer/autumn.
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Right, but gas and food is what is driving the inflation maths. So you are saying I need to not buy stuff that isn't gas and food, to pay the higher price for gas and food?
I never said that but if you think the interest rate has little to no effect on inflation, then why is the Bank of England increasing it then?
Are they doing it for fun?