Mortgage Rate Rises

[Hagar]

Buying a home to live in shouldn't require any of us to even try and predict the future. We are not investors.

Yes but if you were like my wife and did not trust the banks or government not to spring a rate rise out of the blue, we had a contingency fund going. Our spending did not ruse in the good times to take advantage of low rates, Money got paid into the bank and sat there. It's possibly why we never paid on credit but always cash when we needed stuff. Whacky ideas eh.

 

[danlightbulb]

Yes but if you were like my wife and did not trust the banks or government not to spring a rate rise out of the blue, we had a contingency fund going. Our spending did not ruse in the good times to take advantage of low rates, Money got paid into the bank and sat there. It's possibly why we never paid on credit but always cash when we needed stuff. Whacky ideas eh.

And that's great, but many people can't save in the face of rising bills and rent/mortgages which take up a large proportion of your income.

In my case, I saved nearly £40k in about 10 years whilst renting. Then I spent it on a house deposit. Mortgage is £400 higher than rent was, so I can't save any more.

 

[BongoHunter]

I think some posters are missing the point. Economies are very complex things, but essentially:

BOE rate increase is trying to decrease inflation - this is a given.

Inflation occurs when you have to much money chasing to few goods.

Increasing base rate works - as increasing the cost of borrowing, which among the general public is typically mortgages, reduces the amount of money they have to spend after paying their mortgage, reducing demand on goods, which leads to a decrease in inflationary pressure.

For the BOE to bring down inflation - the base rate is pretty much the only lever to pull, and they will keep pulling it until mortgage and rental costs are high enough that demand for goods has been lowered sufficiently to reduce inflationary pressure.

The question is - how high and for how long can they keep doing this without damaging the economy, more than inflation already is. At some point there's not enough people spending to keep businesses going, which puts people out of work, and a spiral downward in employment could get quicker very quickly indeed (this is probably not a concern for them right now with the current employment numbers). It can also stop businesses being able to invest in new equipment, products and processes - as the cost of borrowing to do it makes it uneconomical, causing businesses to stagnate.


Cue someone replying with a load of other valid points about how inflation should be brought down - I'm sure your correct, and yes there are other factors at play, but the BOE doesn't have an influence over it OR it will delay a reduction in inflationary pressure which goes against their mandate anyway.

 

[BongoHunter]

This is the problem. House purchasing to live in it vs buy to let is not two different categories of risk and potential cost. We are all bundled into the same cesspit.

Not quite though right? Percentage deposit required is typically higher for BTL's - and so are the mortgage rates, which are typically variable.

 

[nightwish]

If the government starts helping home-owners to pay their mortgages, without providing equal or greater assistance to those who do not yet own a home, you're creating an absolute powder-keg of inequality. I don't think any government can afford to go that far politically, never mind financially. Pandering to the middle-England, middle-aged (or older) homeowners keeps the core voters happy, but if you set every middle-aged (or younger) non-homeowner anywhere in the UK against you, I think you're well on your way to losing the next election.

 

[Freakbro]

Is it really bad luck, or bad management by our Government? Bad luck implies its all chance - none of this is chance, it is a sequence of events all layering up, bad national decision after bad national decision. Why should you pay for that?

Turn that on its head and you've only benefitted from a decade+ of cheap mortgages because of a sequence of events all layering up with bad national decisions leading to the financial crash of 2008. So why should you be shielded when those events go one way but get the benefit when they go the other?

Its not gambling, mortgaging and remortgaging your one and only home. The system encourages these short term deals, and even if you wanted something more long term, you're then hit by punitive charges to disincentivise you from doing it. That isn't stability.

But it is gambling on your part. You could have paid more but got the security of knowing your payments wouldn't change for 10 years, or pay less for 2 or 5 yrs and take the chance of what the rates will be when the fix ends. That is a gamble and unfortunately this time the dice have just come up craps.

The banks aren't trying to disincentivise you from a longer fix, the rate is higher because all they are doing is mitigating their own risk assessment.

 

[danlightbulb]

Turn that on its head and you've only benefitted from a decade+ of cheap mortgages because of a sequence of events all layering up with bad national decisions leading to the financial crash of 2008. So why should you be shielded when those events go one way but get the benefit when they go the other?

I personally have categorically disbenefited from a decade+ of cheap mortgages, because it helped push up prices further out of reach.

If you mean other people, then yes many have benefited. And yes, that benefit is not justified, given they did nothing for it other than have fortunate timing.

So my point in this really, is that I would much rather prefer a stable system, where inflation rates are normal, not too low or too high, and where housing costs rise broadly at the same rate as wage growth, not in a huge bubble. That is the model we should be aiming for. But we aren't there, so in the meantime certain groups should get support when things go south, and the country as a whole needs to work towards a more sustainable and fairer model of property building and ownership. That is my view.

 

[Mrwong]

Turn that on its head and you've only benefitted from a decade+ of cheap mortgages because of a sequence of events all layering up with bad national decisions leading to the financial crash of 2008. So why should you be shielded when those events go one way but get the benefit when they go the other?



But it is gambling on your part. You could have paid more but got the security of knowing your payments wouldn't change for 10 years, or pay less for 2 or 5 yrs and take the chance of what the rates will be when the fix ends. That is a gamble and unfortunately this time the dice have just come up craps.

The banks aren't trying to disincentivise you from a longer fix, the rate is higher because all they are doing is mitigating their own risk assessment.

Depends on the person.

20% deposit and we paid it off in 7 years, pretty good going for London. 2 x 2year fix and 1x 3 year fixed, we lived at home and rented it out, we used the rent money for living and ALL wages into savings account. it was more like 6.5 years, in theory as we ended up with savings.

We sold it to buy a 2 bed, funny we never got to live in the one bed.
I really have to thank 2008 and Lloyds, 28pence sold at 66 pence.

 

[413x]

Government aren't going to give money to individuals over burdened by a mortgage when it's a choice. And that the base rate rises are Designed to cause hardship to those in debt.

 

[decto]

And that's great, but many people can't save in the face of rising bills and rent/mortgages which take up a large proportion of your income.

In my case, I saved nearly £40k in about 10 years whilst renting. Then I spent it on a house deposit. Mortgage is £400 higher than rent was, so I can't save any more.

Depending on rate you pay off ~15% capital over 5 years, wages will rise and an aggregate increase could easily be 10-15% resulting in a 8% FIx rate feeling like 5.5-6% at the end of 5yr term. If you graft a little, manage expenses, add 50% of any pay rise as an overpayment you can likely pay off another 10% in real terms meaning you'd feel less than 5% at renwal and probably less as when the economy does finally break, interest rate will get slashed as quickly as they went up. 4 years gives you a lot of options to take responsibility for your decisions.

Been there, have the t-shirt.

Plenty of people dropping off a 2year any time soon with no chance to prepare in a much worse situation.

You're wasting a lot of your time crying for your bad choices to be baled out and blaming the government for a global recession. Think of all the McDeliveries you could be making right now.

 

[Mrwong]

Depending on rate you pay off ~15% capital over 5 years, wages will rise and an aggregate increase could easily be 10-15% resulting in a 8% FIx rate feeling like 5.5-6% at the end of 5yr term. If you graft a little, manage expenses, add 50% of any pay rise as an overpayment you can likely pay off another 10% in real terms meaning you'd feel less than 5% at renwal and probably less as when the economy does finally break, interest rate will get slashed as quickly as they went up. 4 years gives you a lot of options to take responsibility for your decisions.

Been there, have the t-shirt.

Plenty of people dropping off a 2year any time soon with no chance to prepare in a much worse situation.

You're wasting a lot of your time crying for your bad choices to be baled out and blaming the government for a global recession. Think of all the McDeliveries you could be making right now.

You can do it, people just need to filter the knowledge which is not freely available. Good option is to buy with a friend or two, and rent it out, live at home, you be amazed how fast you can pay it down.

 

[stuman]

Government aren't going to give money to individuals over burdened by a mortgage when it's a choice. And that the base rate rises are Designed to cause hardship to those in debt.

Should it not be a method of stopping people spending money especially on food and energy and not just punishing people who have bought a house?

 

[Mrwong]

Government aren't going to give money to individuals over burdened by a mortgage when it's a choice. And that the base rate rises are Designed to cause hardship to those in debt.

Government wants you to be in debt, the longer it takes to pay your debt the greater the chance you will be working and seeking promotions, keeps you paying tax.
Once you become economically inactive you become an economic liability.

 

[Mrwong]

Should it not be a method of stopping people spending money especially on food and energy and not just punishing people who have bought a house?

Government punishes you everyday. They pay out based on CPI while any payments to them are based on rpi, rpi being higher.

 

[jpaul]

putting some figures on mortage increase it's average 3% hit on income - for many that will be offset by payrises,
so when you view it in perspective of there needs to be pain and we have to realise we are poorer - it doesn't seem outlandish

The Macroeconomic Policy Outlook Q2 2023 • Resolution Foundation

www.resolutionfoundation.org

 

[MichaelAwkward]

Cue someone replying with a load of other valid points about how inflation should be brought down - I'm sure your correct, and yes there are other factors at play, but the BOE doesn't have an influence over it OR it will delay a reduction in inflationary pressure which goes against their mandate anyway.

I don't think anyone is arguing that the BoE could do more or do things differently (although they definitely could've started earlier!) - the blame for all of this lies at the Government's feet, who have a whole plethora of levers they could've pulled as we came out of COVID to wind back in some of the money spent (arguably unwisely in a lot of cases) in a national crisis. Ukraine and supply chain shocks etc are almost a red herring, or such a small proportion of the sources of inflation so as to be meaningless since they affected all our neighbouring countries in the same way and in some ways less than us.

A progressive recovery tax which hit the richest hardest coming out of lockdown would've done wonders to help avoid half of this pain we're now enduring. Corporation tax in particular would've been an effective measure to tax back some of the support businesses received during the period through furlough and more recently the energy bill relief scheme, with a sensible threshold to support small businesses. Instead we got dithering for almost 3 years before it was changed in any meaningful way. The current rates and thresholds should've been brought in WITH furlough.

To be fair to Government (as in, the civil service and other agencies), the real problem has been the Conservative party but then a lot of them, their friends and people associated with the party would be those paying more back (except those who have arrangements in place to avoid tax altogether) so here we are.

 

[Shoza]

We just need to make housing cheap & affordable for everyone. It’s a sick joke how bad housing is in the UK. There are plenty of options to government to sort this forever (rent controls, restrictions on resales, actually building some bloody affordable housing for rent / sale) all would help.

I am a homeowner with a low mortgage and a house that’s gone up £250k in value since 2014. I actually don’t care about it. I will live here now until I die. I am comfortable and secure. I wish that for everyone over massively inflated housing.

Why so many people in the UK don’t share that view I don’t know. Good, clean, safe affordable housing would sort so many issues in this country and it’s a cheap fix.

 

[413x]

Should it not be a method of stopping people spending money especially on food and energy and not just punishing people who have bought a house?

I agree it should be spread around fairer.
For example shouldn't be inflation matching pension increases.

Rate rises reward the richest unfortunately

 

[pc-guy]

I think some posters are missing the point. Economies are very complex things, but essentially:

BOE rate increase is trying to decrease inflation - this is a given.

Inflation occurs when you have to much money chasing to few goods.

Increasing base rate works - as increasing the cost of borrowing, which among the general public is typically mortgages, reduces the amount of money they have to spend after paying their mortgage, reducing demand on goods, which leads to a decrease in inflationary pressure.

For the BOE to bring down inflation - the base rate is pretty much the only lever to pull, and they will keep pulling it until mortgage and rental costs are high enough that demand for goods has been lowered sufficiently to reduce inflationary pressure.

The question is - how high and for how long can they keep doing this without damaging the economy, more than inflation already is. At some point there's not enough people spending to keep businesses going, which puts people out of work, and a spiral downward in employment could get quicker very quickly indeed (this is probably not a concern for them right now with the current employment numbers). It can also stop businesses being able to invest in new equipment, products and processes - as the cost of borrowing to do it makes it uneconomical, causing businesses to stagnate.


Cue someone replying with a load of other valid points about how inflation should be brought down - I'm sure your correct, and yes there are other factors at play, but the BOE doesn't have an influence over it OR it will delay a reduction in inflationary pressure which goes against their mandate anyway.

The fundamental flaw in that is the inflationary pressure is not consumer driven.

Most of the inflation basket items are brexit/energy cost related which had nothing to do with consumer spending.

Increased asset values is driven by QE measures.

 

[Mrwong]

I don't think anyone is arguing that the BoE could do more or do things differently (although they definitely could've started earlier!) - the blame for all of this lies at the Government's feet, who have a whole plethora of levers they could've pulled as we came out of COVID to wind back in some of the money spent (arguably unwisely in a lot of cases) in a national crisis. Ukraine and supply chain shocks etc are almost a red herring, or such a small proportion of the sources of inflation so as to be meaningless since they affected all our neighbouring countries in the same way and in some ways less than us.

A progressive recovery tax which hit the richest hardest coming out of lockdown would've done wonders to help avoid half of this pain we're now enduring. Corporation tax in particular would've been an effective measure to tax back some of the support businesses received during the period through furlough and more recently the energy bill relief scheme, with a sensible threshold to support small businesses. Instead we got dithering for almost 3 years before it was changed in any meaningful way. The current rates and thresholds should've been brought in WITH furlough.

To be fair to Government (as in, the civil service and other agencies), the real problem has been the Conservative party but then a lot of them, their friends and people associated with the party would be those paying more back (except those who have arrangements in place to avoid tax altogether) so here we are.

I don't see a big house price drop, more likely a 2% to a max of 10% and that is pushing it. BOE always lag and over react which is the main cause of harm. The gov and BOE always fail to manage the economy once it starts to heat up, they always do nothing and hope for the best.