Mortgage Rate Rises

[HangTime]

I always love talk of the great house price crash in 2008 when you look at the graph is was a short term blip and if you drill down from the national figures quite a lot of areas had a plateau not even a dip. This latest crash is still only lopping off the CoVID boost and I’ve yet to be convinced it will result in any meaningful drop in prices, the current fall combined with higher rates hasn’t made houses more affordable!

Indeed. We haven't had what I would call a genuine 'correction' in a very long time, although there was a prolonged slump in the early-mid 90s.
That's not to say if you bought at the peak on a high LTV you might not have issues with negative equity but the volume of repossessions was still very low, under 50k a year. Every year 1991-1996 had higher repossessions than any years since, despite the population being lower.

I was looking at houses around 2015 sort of period and even allowing for inflation current prices are still higher.

Part of the issue is the double-whammy of high prices and increased interest rates, I mean 'high' interest rates would be less of a problem if there was a proper crash because you could buy a house with no/small mortgage. So housing would be more affordable if prices fell enough, but they never seem to drop much.

 

[matt100]

About £260 on a 25 year mortgage. Probably due to front loading more interest, ******* away £4.5k extra a year at the beginning and paying less off the capital than a lower rate but not having to pay as much interest as the balance goes down later. Affordability is important but it's a lot of money that will have a significant impact on net worth over a few years.

For your fixed period of say 2 years, you’d be paying approximately £4.5k per year more (less a bit due to repayments) than you would if the interest rate was 1% lower.

Comparing it over 25 years it will be ‘only’ £200 per month or so but that’s because the amount outstanding won’t be near £450k for the whole 25 years, it’d be roughly half that. Very unlikely you’d be fixing for 25 years though.

No! Go use a calculator, it's £200 a month. Not £4500 per year.

I've no idea why, I'm just telling you what the calculators say and I only know as I've been daydreaming about the next move which I had half planned to be a £1m max but the rise in rates has made that more likely £900k.. but noticed along the way how relatively little difference fractions of a percent make.

 

[Nemiyen]

Can you not math?

Nope

I'll concede, it's not as bad as I thought but it depends on the starting percent as I've got it to 279 extra per month on 450k when going from 5.84% (my current rate) to 6.84% on a fresh 25 year mortgage.

I'd be annoyed at the extra £80k I'd have to pay out though!

 

[matt100]

Nope

I'll concede, it's not as bad as I thought but it depends on the starting percent as I've got it to 279 extra per month on 450k when going from 5.84% (my current rate) to 6.84% on a fresh 25 year mortgage.

I'd be annoyed at the extra £80k I'd have to pay out though!

You'd have to be out of your mind to sit on it for 25 years but at least you've mathed now

So for jaybees mate we're talking a few grand extra, not necessarily the end of the world.

 

[EvilRob]

No! Go use a calculator, it's £200 a month. Not £4500 per year.

I've no idea why, I'm just telling you what the calculators say and I only know as I've been daydreaming about the next move which I had half planned to be a £1m max but the rise in rates has made that more likely £900k.. but noticed along the way how relatively little difference fractions of a percent make.

The extra monthly payment might be £200, but the extra interest you are paying is ~£4500 a year (slightly less as you will pay off a small amount of the capital through the year). 1% of 450k is simple maths.

If the mortgage is £200 more a month and the interest is an extra is £4500 a year, guess what that means? It means you are paying less off the capital in the short term than you were on your old rate. Like I said, affordability is important but this would have a significant impact on net worth over the next few years (less paid off capital, so less equity + opportunity cost of not investing the £200).

The point I'm making is £200 extra a month might not sound like much, but that's not the full picture - 1% more of a 450k mortgage is a lot.

 

[Nemiyen]

You'd have to be out of your mind to sit on it for 25 years but at least you've mathed now

So for jaybees mate we're talking a few grand extra, not necessarily the end of the world.

The initial hit for the fix rate period is still a fair wack though! Plus, a lot of people went from 1.79 (or better) to recently 5.84 or so which is 4 percent more! Making that £279 per month more about £950 in your example. Granted, if you got a mortgage for that much you might be able to afford the increase but that's a crap load more!

 

[matt100]

The initial hit for the fix rate period is still a fair wack though! Plus, a lot of people went from 1.79 (or better) to recently 5.84 or so which is 4 percent more! Making that £279 per month more about £950 in your example. Granted, if you got a mortgage for that much you might be able to afford the increase but that's a crap load more!

Oh for sure I was just talking specifically about jaybee's friend's situation.

 

[Nemiyen]

Oh for sure I was just talking specifically about jaybee's friend's situation.

Yeah we did a similar thing with our mortgage. Fixed for 2 years but landed on a 5.84 rate when 4.54 is the rate now for 2 years. If we fix for 5 then we can get it for 4.04 which saves us a fair bit. If my work shares didn't crap the bed we could, at a push, be mortgage free by December 2025 but that's not looking likely now unless things really pick up. I'm looking at paying the ERC and locking in to the 5 year fix. I just don't want to land us in the same position if everything drops again down to 2.99 or something!

 

[matt100]

Yeah we did a similar thing with our mortgage. Fixed for 2 years but landed on a 5.84 rate when 4.54 is the rate now for 2 years. If we fix for 5 then we can get it for 4.04 which saves us a fair bit. If my work shares didn't crap the bed we could, at a push, be mortgage free by December 2025 but that's not looking likely now unless things really pick up. I'm looking at paying the ERC and locking in to the 5 year fix. I just don't want to land us in the same position if everything drops again down to 2.99 or something!

Why on earth would you do any of that if you could be mortgage free in 2 years?

 

[Nemiyen]

Why on earth would you do any of that if you could be mortgage free in 2 years?

Plan for the future but think about the now. Probably can't do it now until 3 or 4 years. Had to get my money back from a SAYE scheme twice (shares less than the option price) and maybe have to do the same this year, will see.

Plus I need a new car soon so that's another year down and my girlfriend won't stop finding or booking holidays that set us back as well (not complaining too much on that one)

 

[Conanius]

It's good to see rates are finally starting to come down a bit. I know rates are no where near record highs, but the comparisons to 30+ years ago are silly when you look at the scale of borrowing in total and house price:income.

I'm hopeful we see more progress before my deal is up in Jan 27 - 3% would be great. I noticed a significant jump in estimated value on Zoopla this month... back above previous peak - did anyone else?

 

[fez]

It's good to see rates are finally starting to come down a bit. I know rates are no where near record highs, but the comparisons to 30+ years ago are silly when you look at the scale of borrowing in total and house price:income.

I'm hopeful we see more progress before my deal is up in Jan 27 - 3% would be great. I noticed a significant jump in estimated value on Zoopla this month... back above previous peak - did anyone else?

Pretty sure the housing "crash" is over now that rates are looking like coming down. No doubt they will just grow at a slower rate for a few years while people find new and creative ways to find the money for massively overpriced housing.

 

[slinxy]

UK real house prices: Did you miss the 16-year crash?

Most of inflation's damage to real property returns has been done in the past two years. But the picture looks grim across longer timeframes.

www.thisismoney.co.uk

• The average UK buyer will have seen a real-terms (after inflation) loss if they bought after December 2015

 

[adam cool dude]

UK real house prices: Did you miss the 16-year crash?

Most of inflation's damage to real property returns has been done in the past two years. But the picture looks grim across longer timeframes.

www.thisismoney.co.uk

That is all well and good but when taking into account wage inflation (or lack there of in a lot of sectors) it paints a different picture.

I bought my house in 2010. Same house would cost me £100k more to buy today. In the past 13 years I haven't had 100k's worth of pay rises. Far from it with the exception of promotions.

 

[matt100]

That is all well and good but when taking into account wage inflation (or lack there of in a lot of sectors) it paints a different picture.

I bought my house in 2010. Same house would cost me £100k more to buy today. In the past 13 years I haven't had 100k's worth of pay rises. Far from it with the exception of promotions.

But you get paid your wage every year?

 

[Vanquish-Storm]

Anyone else got ages to pay if their Mortgage rather than a few years to go haha!?

 

[dlockers]

Anyone else got ages to pay if their Mortgage rather than a few years to go haha!?

23 but about to extend to 30. Plan to overpay pension and then use 25% lump sum to clear it (maybe).

 

[neocon]

Colleague of mine bought a new build (Bedfordshire ) in 2019 for 600k and today Zoopla or whatever was saying it's valued at 780k. Where in earth do they pull there valuations from? How can it possibly have gone up 180k?

 

[dlockers]

Colleague of mine bought a new build (Bedfordshire ) in 2019 for 600k and today Zoopla or whatever was saying it's valued at 780k. Where in earth do they pull there valuations from? How can it possibly have gone up 180k?

Quality new builds tend to do quite well...at £600k it must have been mega. People are off put by the remaining developments taking ages to build/disruptive. Bedford is also up and coming post lockdown. Some right nutters have moved there tho

 

[EvilRob]

Colleague of mine bought a new build (Bedfordshire ) in 2019 for 600k and today Zoopla or whatever was saying it's valued at 780k. Where in earth do they pull there valuations from? How can it possibly have gone up 180k?

Zoopla can be over or under by a decent margin but house prices have gone up significantly since 2019. Where have you been??