Mortgage Rate Rises

[Mercenary Keyboard Warrior]

It wasn't that easy to get onto an interest only mortgage before when I last checked, the bank I spoke to about it basically said you can get one if you can prove you are saving towards paying off the balance.

I prefer capital repayment anyway when possible, I was just evaluating options at the time.

My suggestion was to make it a default option that people could do if they're in trouble without the same requirements, to tide people over. It might be that it's a little like the energy costs, go sky high for a couple of years but then settle back down a bit, though 0.5% base rate feels like it won't be coming back again anytime soon.

Yeah a quick search for myself quickly wrote off interest only as an option. But extending the team seemed fully in my control, although I am a young buck.

Indeed, again the dummies screwed this option since many took them out with no actual plan to pay it back.

I actually had a financial advisor suggest it to me back around 2000. I couldn't get him out of my house fast enough after that.
I was the "inheritance generation so could just wait for that!"

 

[Raymond Lin]

There was an end terrace house i looked at back in October 2020, 2 bed, 1 bathroom, basement, nice little garden with off road parking for 2 small cars and a view over looking the city as it's on a hill. 10min walk to city center. Because of next door is a plot that is going to be a construction site for a house sometime in the future (I looked up council planning), the price was good, £180k. One thing or another, I didn't get it and now on Zoopla it is estimated to be worth £217 to £240k.

I would love it if it drops back to £180k....but the person who bought it, he is not in negative equity, no way it would be under £180k.

 

[neocon]

There was an en terrace house i looked at back in October 2020, 2 bed, 1 bathroom, basement, nice little garden with parking and a view over looking the city as it's on a hill. 10min walk to city center. Because of next door is a plot that is going to be a construction site for a house sometime in the future (I looked up council planning), the price was good, £180k. One thing or another, I didn't get it and now on Zoopla it is estimated to be worth £217 to £240k.

I would love it if it drops back to £180k....but the person who bought it, he is not in negative equity, no way it would be under £180k.

Put an offer in at 180

Are any Zoopla estimates realistic?

 

[dlockers]

Are any Zoopla estimates realistic?

Not really. It reckons the house I bought for £450k and sold for £525k is now worth £600k lol (+11 months).

 

[Raymond Lin]

Put an offer in at 180

Are any Zoopla estimates realistic?

Not for sale and I don't have the stomach to take on a 6-7% interest rate now given the choice.

 

[danlightbulb]

Yep, lost track of how many times I have said this.

And how many times do I have to say that what is best for me is also best for millions of other people like me. That is why I use myself as an example quite regularly, because I am a fairly typical working, nearly middle aged person with a mortgage.

He only cares whats best for Danlightbulb and thats it

You are wrong. Yes I care about my own circumstances - who doesn't. But I want society to be fair for everyone. We are taking one topic in isolation, but Im happy to discuss my views on any aspect of policy and you will see that I am quite centrist overall including some quite left wing ideals as well as some more right wing ones. I was renting for 12 years, trying to save a deposit against ever rising housing prices - don't think for a minute I don't care about renting and social housing too.

You were all for small government before when you thought it would lower your bills.
Now your all for nanny state large government.

Who said this needs to come from a larger state? A special BoE rate for remortgaging only requires no admin, no government cash payments to people, it just automatically gets reflected in the lending rates to banks by the BoE creating a separate market. No extra state size required, not even financially, because the effect will be on money supply (which will trickle in over time as more people remortgage) not directly on Government debt as direct handouts would be.

Its not me who is blocking sensible policy discussion here, its you, with your continual put downs.

Cutting expenses varies massively dependent on what lifestyle people are leading. A lot of people spend thousands a year on nice cars, holidays etc.

Completely agree, but the thing is that that spending is supporting the economy and supporting other people's jobs ultimately. So if that money now goes direct to bank, it doesn't get spent in the economy and causes a recession. And who is worst hit by that recession? Most likely younger people in retail and hospitality jobs again.

 

[Mercenary Keyboard Warrior]

And how many times do I have to say that what is best for me is also best for millions of other people like me. That is why I use myself as an example quite regularly, because I am a fairly typical working, nearly middle aged person with a mortgage.


You are wrong. Yes I care about my own circumstances - who doesn't. But I want society to be fair for everyone. We are taking one topic in isolation, but Im happy to discuss my views on any aspect of policy and you will see that I am quite centrist overall including some quite left wing ideals as well as some more right wing ones.



Who said this needs to come from a larger state? A special BoE rate for remortgaging only requires no admin, no government cash payments to people, it just automatically gets reflected in the lending rates to banks by the BoE creating a separate market. No extra state size required, not even financially, because the effect will be on money supply (which will trickle in over time as more people remortgage) not directly on Government debt as direct handouts would be.

Its not me who is blocking sensible policy discussion here, its you, with your continual put downs.



Completely agree, but the thing is that that spending is supporting the economy and supporting other people's jobs ultimately. So if that money now goes direct to bank, it doesn't get spent in the economy and causes a recession. And who is worst hit by that recession? Most likely younger people in retail and hospitality jobs again.

Ooof.

The BOE sets the base rate. Not the lending rates. Competition sets the lending rate.
Your assumption is the lenders just accept less again in order to support your reduced payment.

Its possible but its far from certain.

Someone is paying in order for you to pay less. The question is does that person support your want or not.
If not then your likely going to see increased borrowing rates elsewhere.

 

[Doobedoo]

Will the increase in interest rates equal higher profits for lenders and the banking system?

 

[HangTime]

Completely agree, but the thing is that that spending is supporting the economy and supporting other people's jobs ultimately. So if that money now goes direct to bank, it doesn't get spent in the economy and causes a recession. And who is worst hit by that recession? Most likely younger people in retail and hospitality jobs again.

At the moment we have rampant inflation so that's kind of the whole point isn't it? To cool the money supply and get inflation back under control. Regardless, I think this is a tangential discussion, we're talking about what people who are struggling to pay their mortgage should do; the downstream indirect impacts on people in retail and hospitality that might happen in the future I don't see as directly relevant. If someone needs to pay their mortgage and decide to forgo a holiday or a flashy motor they shouldn't be stopping to think "oh noes what about Chantelle the waitress, we better book those flights / refresh that PCP after all"

 

[danlightbulb]

Ooof.

The BOE sets the base rate. Not the lending rates. Competition sets the lending rate.
Your assumption is the lenders just accept less again in order to support your reduced payment.

Its possible but its far from certain.

Someone is paying in order for you to pay less. The question is does that person support your want or not.
If not then your likely going to see increased borrowing rates elsewhere.

How many times do I have to say this. LISTEN and respond to what I am actually saying.

The BoE creates a new, secondary base rate. This applies only to remortgage borrowing (and could include other criteria as well if we wanted, such as LTV threshold, term length, how recent the purchase was etc).

Mortgage lenders (i.e banks) are able to apply this lower base rate to remortgage products only, and are then able to lend off that rate. They still make a profit because they are borrowing off the secondary rate. Nothing changes for them.


There is no government department handing cash out to people. Its all done via BoE creating a specific market for this specific thing, and then the banks draw off it using their own existing processes. So government borrowing does not increase AT ALL in this.

What does happen is the lower lending rate for remortgages means that slightly less money is pulled from the economy than would otherwise be the case, so over time there is not as much of a decrease in money supply as there would be otherwise. But, it means no massive mortgage shock so some money still kept in the economy to support jobs and businesses.

The nature of people coming off existing fixed rates and onto this new product would mean that this impact on inflation and currency value is fairly slow and steady. No big shock to money supply, the main base rate still applies to new lending (because those decisions are being made now and people can take into account their circumstances now). As all new lending is still based on the main base rate, the desired slow down to combat inflation is still happening as well.

Once the turmoil is over and the main base rate settles, or comes down, or as people's pay rises catch up, and as existing mortgage holders get further into term with lower LTV over time, the secondary rate will naturally become redundant and people will eventually move back onto normal deals.

 

[HangTime]

Will the increase in interest rates equal higher profits for lenders and the banking system?

Think of it like a supply chain. If your supplier increases their price, and you increase your price, you might make more or less profit depending on how much your prices are changing relative to your supplier.

It's a bit more nuanced than that, there might be lenders with a lot of existing capital who are less impacted by the increased cost of borrowing. But in simple terms, lenders have to get their money from somewhere, whether that be government bonds, from savers or whatever. So if it costs lenders more to get money to lend out they may not necessarily profit, especially if there is a lag involved (i.e. they agreed mortgages in the past at low rates but now have to pay more to get access to money).

To use an analogy, suppose a pint of milk cost Tesco 50p and they sell it for 75p. The price of milk from their supplier goes up to 60p. If they increase their price to 85p then the marginal profit remains the same at 25p (this is oversimplified as I'm excluding other costs, taxation etc but you get the idea).

 

[danlightbulb]

At the moment we have rampant inflation so that's kind of the whole point isn't it? To cool the money supply and get inflation back under control.

Well isn't there a balance to be found? We could kill inflation tomorrow, just lift the base rate to 100% and be done with it. If you don't care about the economy.

There is a balance to be found and I don't see why some new ideas can't be part of this.

 

[Mercenary Keyboard Warrior]

How many times do I have to say this. LISTEN and respond to what I am actually saying.

The BoE creates a new, secondary base rate. This applies only to remortgage borrowing (and could include other criteria as well if we wanted, such as LTV threshold, term length, how recent the purchase was etc).

Mortgage lenders (i.e banks) are able to apply this lower base rate to remortgage products only, and are then able to lend off that rate. They still make a profit because they are borrowing off the secondary rate. Nothing changes for them.


There is no government department handing cash out to people. Its all done via BoE creating a specific market for this specific thing, and then the banks draw off it using their own existing processes. So government borrowing does not increase AT ALL in this.

What does happen is the lower lending rate for remortgages means that slightly less money is pulled from the economy than would otherwise be the case, so over time there is not as much of a decrease in money supply as there would be otherwise. But, it means no massive mortgage shock so some money still kept in the economy to support jobs and businesses.

The nature of people coming off existing fixed rates and onto this new product would mean that this impact on inflation and currency value is fairly slow and steady. No big shock to money supply, the main base rate still applies to new lending (because those decisions are being made now and people can take into account their circumstances now). As all new lending is still based on the main base rate, the desired slow down to combat inflation is still happening as well.

Once the turmoil is over and the main base rate settles, or comes down, or as people's pay rises catch up, and as existing mortgage holders get further into term with lower LTV over time, the secondary rate will naturally become redundant and people will eventually move back onto normal deals.

Hang on, you think the banks borrow all their money from the BOE?

 

[200sols]

Will the increase in interest rates equal higher profits for lenders and the banking system?

The benefits of rising rates to banks have passed (IMO!). At lower levels they could make extra on the differentials, now we are well into lending drying up, reluctance to lend and you'll start hearing the term 'credit crunch' soon I'm sure.

 

[danlightbulb]

Hang on, you think the banks borrow all their money from the BOE?

No but they broadly base their profit margins on the difference between the base rates/money market rates and their lending rates, don't they? So mortgage products will generally track the base rates. If a new, secondary base rate was implemented, banks could base a specific subset of their lending off this new rate and track that instead.

How about not putting me down for once, and explain why you think it won't work so we can have a proper discussion.

 

[200sols]

No but they broadly base their profit margins on the difference between the base rates/money market rates and their lending rates, don't they? So mortgage products will generally track the base rates. If a new, secondary base rate was implemented, banks could base a specific subset of their lending off this new rate and track that instead.

How about not putting me down for once, and explain why you think it won't work so we can have a proper discussion.

Nobody is going to lend to you at this 'mortgage base rate' when they can get 5% from UK gilts risk free.

 

[Mercenary Keyboard Warrior]

No but they broadly base their profit margins on the difference between the base rates/money market rates and their lending rates, don't they? So mortgage products will generally track the base rates. If a new, secondary base rate was implemented, banks could base a specific subset of their lending off this new rate and track that instead.

How about not putting me down for once, and explain why you think it won't work so we can have a proper discussion.

So your ignoring what I said, which is that someone is paying for your reduced rate.

If the BOE had a special reduced mortgage rate (which remember is the minimum) they still need to borrow that money in effect in order to fund it.
Again your missing someone has to be worse off in order to lend for less.

Who specifically that is is complicated. In the traditional model it would be savers.
Say its a building society. ABC , they have 1000 savers who all save £1000. You come along and want to borrow that £1M at the BOE special rate of 1%, the savers have to receive less than 1% for the BS to cover costs.
If the normal BOE rate is 3% then the savers will get more.

We always come back to this, for you to have basically cheap borrowing someone else has to be worse off.

 

[Mercenary Keyboard Warrior]

Nobody is going to lend to you at this 'mortgage base rate' when they can get 5% from UK gilts risk free.

Right which would then IMO force this to be UK government backed and hence we the tax payers would have to pick up the bill.

 

[HangTime]

Well isn't there a balance to be found? We could kill inflation tomorrow, just lift the base rate to 100% and be done with it. If you don't care about the economy.

There is a balance to be found and I don't see why some new ideas can't be part of this.

Sure there is a balance to be found which is why there is the MPC to vote on it and [partly] why the rates are only creeping up in small increments. Obviously it is subjective about where that balance lies, for me I don't consider a 4.5% interest rate to be massively unexpected with an inflation rate that it double that. Right now there is no recession and analysts (IMF etc) are not expecting one this year.

The balance works both ways too, IMO the reduced stamp duty for example was a step too far in the other direction, eventually we have to lie in the housing market bed we have made. If we run with near-zero interest rates and reduce taxation on property purchases that is going to fuel house price rises which as others have presented in this thread is the main driver for mortgage [in]affordability, not interest rates.

 

[danlightbulb]

Nobody is going to lend to you at this 'mortgage base rate' when they can get 5% from UK gilts risk free.

Ok fair point. So cant the BoE create the money, in the same way as they do for QE, and ringfence it specifically for this purpose?

It then wouldn't be an option for anyone to use the same money to get 5% on gilts, because the only use for this money can be on remortgages.

So your ignoring what I said, which is that someone is paying for your reduced rate.

Im not ignoring it, I addressed it.

The impact on other people is that the money supply doesn't come down quite as fast as it would otherwise, so there is a small impact on inflation and currency value. But, the fact that people would be coming off existing fixed mortgages at a fairly steady pace over a fairly long period of time means that this is not a shock impact, its actually very slow and steady.

The balance works both ways too, IMO the reduced stamp duty for example was a step too far in the other direction, eventually we have to lie in the housing market bed we have made. If we run with near-zero interest rates and reduce taxation on property purchases that is going to fuel house price rises which as others have presented in this thread is the main driver for mortgage [in]affordability, not interest rates.

I agree with you, it is ultimately a case of 'we shouldn't have started from here'. And the stamp duty giveaways were a terrible policy, badly impacted me particularly. But that ship has sailed and there are millions of people, like me, through no real fault of their own, who will be effected by a cliff edge change in mortgage payments when they come off a historic fix onto new rates. Do you think I was happy with the amount I had to pay for a house? Of course I think it was overvalued! But there is little other choice for people. It does need a reset, but putting millions into financial ruin isn't the way to do that. We should be doing it steadily and continually by ramping up housing supply.