Mortgage Rate Rises

[robj20]

Are we talking household income here?
Mines about 23% of just my income then the wife has her UC no idea what she gets for that. She currently pays the mortgage. I'd imagine it's got to be no more than 15% of household income.
Makes me feel a little better about it going up.

 

[fez]

It's usual to be a much larger proportion when you first buy and reduce significantly over time as your wages increase. Rate rises are setting that back for many, of course.

I think plenty of people keep upsizing for a while during their careers though which wipes out any of that. And wages have stagnated massively over the past 20 or so years.

As a brief example. Someone who bought a £500k house with a £100k deposit would be paying about £1700/month when rates were around 1.9%. To have an 18% cut of your net pay going to a mortgage would require your post tax salary to be £8500/month on a £1700 monthly payment.

Currently that same mortgage would require you to be bringing home about £12k/month after tax.

I would wager that very few people on that sort of money have that sort or mortgage.

I think the stats would be far more interesting and relevant if you took out the people near the end of their mortgages. I think the average person who is in the heart of paying down a mortgage would love to only be putting 18% of their net pay into it.

 

[robj20]

If I overpay right now am I best reducing the term. Then when we remortgage could potentially change the term back?

 

[b0rn2sk8]

You can change what you want when you remortgage.

 

[delta0]

If I overpay right now am I best reducing the term. Then when we remortgage could potentially change the term back?

Changing the term outside of an overpayment will usually trigger an affordability assessment.

 

[jaybee]

My base payment currently is under 35% net income....just.
When we remortgage if rates are as they are now it will become about 50%.

 

[robj20]

You can change what you want when you remortgage.

There'll be 15 years remaining, so changing to 20 years is certainly an option.
I know some like to pay it off as fast as possible but we'd rather enjoy our money while we can. Got a balance to strike. So hard to plan for with rates changing.

 

[fez]

My base payment currently is under 35% net income....just.
When we remortgage if rates are as they are now it will become about 50%.

Ours currently is about 18% and was about 13% on our previous rate. We both earn decent money and have a relatively modest mortgage at £190k ish. The next house we buy will probably put us up to 35% ish of our net take home between us I imagine. Most people our age and on our salaries won't have that small a mortgage. We have just been very lucky.

 

[tamzzy]

Are we talking household income here?

yeah. i'm single, so my income = household income

Needs must at times... My other outgoings are not huge - No loans or credit card balances, car is owned outright. If I remove what is put into savings pots (discretionary), then total bills including food come to 70% of Nett giving 30% of disposable income per month.

same. everything is owned outright bar the mortgage. if there's a big spend (such as my recent solar PV system), i get a 0% CC and put minimum payments until the last payment then pay it off as a lump sum.

i put 50% of my monthly net income into savings/investments and any interest/dividends from this gets rolled over and untouched
30% is mandatory spending for mortgage and bills
the rest (~20%) discretionary spending and if i don't spend all of it, the rest goes into rainy day funds

could pay off the mortgage right now, but i don't see why i should (2.35% x 10 years, 8 years left) and savings/investments getting 5-12%

 

[slinxy]

Its just an exercise in curiosity.

Essentially he wants to see if the interest paid over the mortgage has been eroded away by the increase in house price e.g.

• Paid £100,000 for house in 1995
• Use the calculator in his link to estimate what £100,000 is now equal to in today's money - £198,000 (rounded from that calculator)
• House is now "worth" £300,000 today (price if you were to sell it today)
• £300,000 less £198,000 (value of house currently less value of house in 1995 adjusted for inflation) = £102,000 "gained value"
• Total Paid in Deposit+Mortgage Payments = £250,000 (so £100,000 for house (point 1) and therefore £150,000 paid in interest)
• £150,000 interest paid less £102,000 "gained value" = £48,000 in interest paid (comparatively)

At least I think that's what he is trying to see.

yub this....

on some sites/groups, they say it's better to pay for something now on interest free as the value of the pound lowers with inflation.

for example, rather than paying 10k for a watch outright in 2021, I took three years to pay off the watch interest free.. in theory I would have to spend £11,925.54 in today's money for it to be "worth" the same as the 10k I spent in 2021. Swiss watch prices are going bonkers at the moment. also if you had the cash it can be sitting there in a high interest account earning 5% APR.

I just want to see if the rate of inflation out paces the rate of interest bank charges and what effects it has the appreciation (cost) value of the house.

 

[413x]

Still a lot of people on deals 1-2%. Shock will continue for some time.

If rates are still 5pc when it comes to 2027 renewal the extra would be a holiday gone.

The difference between 1.9pc and 5pc on our 195k mortgage is about 300ppm

So yeah that's one of my holidays gone. That's cost of my Greenland trip.

Not easy to recoup 3600 when you have low cost base.

Would definitely stop going out for food. And already stopped buying lego and stuff like that. But there's not much left to cut for me as my costs are already quite low

 

[EvilRob]

I think plenty of people keep upsizing for a while during their careers though which wipes out any of that. And wages have stagnated massively over the past 20 or so years.

As a brief example. Someone who bought a £500k house with a £100k deposit would be paying about £1700/month when rates were around 1.9%. To have an 18% cut of your net pay going to a mortgage would require your post tax salary to be £8500/month on a £1700 monthly payment.

Currently that same mortgage would require you to be bringing home about £12k/month after tax.

I would wager that very few people on that sort of money have that sort or mortgage.

I think the stats would be far more interesting and relevant if you took out the people near the end of their mortgages. I think the average person who is in the heart of paying down a mortgage would love to only be putting 18% of their net pay into it.

If they kept taking new mortgages then they would be near the beginning still. If you want to take out people near the end of their mortgages, take out people near the beginning too and I suspect it averages out Wages may have stagnated for the same role/seniority, but as people progress through their careers they get promoted and earn more.
Also re your calcs this is usually going to be a couple.

 

[slinxy]

my mortage with it's overpayments is 33% of my house hold income, which is just mine as I live on my own.

It's nothing to worry about as long as it any all your other essential outgoings fall under 50%, for the most simple method of budgeting..

 

[glenimp617]

Its just an exercise in curiosity.

Essentially he wants to see if the interest paid over the mortgage has been eroded away by the increase in house price e.g.

• Paid £100,000 for house in 1995
• Use the calculator in his link to estimate what £100,000 is now equal to in today's money - £198,000 (rounded from that calculator)
• House is now "worth" £300,000 today (price if you were to sell it today)
• £300,000 less £198,000 (value of house currently less value of house in 1995 adjusted for inflation) = £102,000 "gained value"
• Total Paid in Deposit+Mortgage Payments = £250,000 (so £100,000 for house (point 1) and therefore £150,000 paid in interest)
• £150,000 interest paid less £102,000 "gained value" = £48,000 in interest paid (comparatively)

At least I think that's what he is trying to see.

I was thinking this exact same thing yesterday.

 

[jaybee]

My 1.89% fix is up July 2025. Can start looking for a new deal in February. Not looking forward to that.

Same rate and time period as me.
So as someone who has not remortgaged ever before and this will be my first time, is it best to start looking the day it ticks over 6 months before your fixed period ends, on the basis that most agreement in principals last for 6 months? i.e. In case the rates go down the next day and forever up until your renewal?

And then assuming rates will come down gradually...keep checking rates what weekly? Monthly? And reapply if rates improve continuously over and over again, potentially with the same provider overwriting your original offer? Are there limits on how much you can do this? Are there limits on how many you can apply for with different lenders? Will applying for multiple and having multiple open damage your credit history?

And what if a rate drops massively days before your fixed period ends and you had previously agreed to starting a new deal? What is the point at where you have to commit and/or can't pull out?

 

[slinxy]

Same rate and time period as me.
So as someone who has not remortgaged ever before and this will be my first time, is it best to start looking the day it ticks over 6 months before your fixed period ends, on the basis that most agreement in principals last for 6 months? i.e. In case the rates go down the next day and forever up until your renewal?

And then assuming rates will come down gradually...keep checking rates what weekly? Monthly? And reapply if rates improve continuously over and over again, potentially with the same provider overwriting your original offer? Are there limits on how much you can do this? Are there limits on how many you can apply for with different lenders? Will applying for multiple and having multiple open damage your credit history?

And what if a rate drops massively days before your fixed period ends and you had previously agreed to starting a new deal? What is the point at where you have to commit and/or can't pull out?

It depends on the lender how far in advance you can agree a new mortage deal. my current lender would only agree 4 months in advance but 6 is the norm.
I would check websites a week before, so you know roughly what the rates are, who the cheaper ones are and how far in advance it can be agreed, so come the day you only have to check a few.

They do a soft credit check with the info that you give to them, then do a normal credit check to generate the paper work. Until you sign the paperwork and send it back, nothing has been finalised.

once I had one, I just kept a track of the BoE rates, if the rates went down then it's worth shopping around for another deal, there's no limit to the number of agreement you have in place but don't forget that there's paperwork and interviews for each agreement. It depends on how much work you want to put in to shave a few % points off but I managed to get mine down from 4.21 which was the lowest at the time down to 4.01%. Even if the bank you have the agreement with lowest their rates, they will not tell you, you have to find out for yourself and go though all the paperwork and interview again.

This is where a mortage broker comes in handy, they can do all the leg work for you and let you know the cheapest deals, or the one's that they are aware off. I still think that paying a fix cost for the life time of the mortage is worth having a broker for, if you are planning to remortage a few times. Saves time...

 

[Richie]

It's nothing to worry about as long as it any all your other essential outgoings fall under 50%, for the most simple method of budgeting..

Agreed. My total "bills" come to 83% of Nett but some of that goes into into some different pots each month (reason why at bottom):

Holiday Savings (pays for holidays through year)
Annual Expenses (Birthdays for people, Home Insurance, Factors Fees, Boiler Service and things like that)
Car Expenses (Insurance, MOT, RFL, Servicing, Maintenance)
"Fun" Pot (can buy what I want from this)

Every month I put money into them from my pay. It allows me to build up buffers in each pot and I don't need to touch my "living wage". I can save money by paying things annually rather than monthly e.g. Home Insurance or Car Insurance. It also means that if, for example, a big car repair expense came up or house repair, I can use that "pot" and not suddenly be struggling for a couple of months.


Horses for Courses though, everyone is different.

 

[Freakbro]

UK house prices fall as mortgage costs bite, says Nationwide

The Nationwide says the average cost of a home was down 4% on the peak seen in the summer of 2022.

www.bbc.co.uk

The UK's biggest building society said that UK house prices were down by 0.4% compared with the previous month.

Hardly the "crash" people have been expecting

But at least the benefit of the higher mortgage rates has started to filter through to put pressure on the ridiculous house price increases we've been seeing.

There was also a story the other day about rents coming down too (in London?) as tenants just literally can't afford them.

 

[200sols]

Hardly the "crash" people have been expecting

Adjust those figures for inflation.

 

[t2na]

UK house prices fall as mortgage costs bite, says Nationwide

The Nationwide says the average cost of a home was down 4% on the peak seen in the summer of 2022.

www.bbc.co.uk

Hardly the "crash" people have been expecting

But at least the benefit of the higher mortgage rates has started to filter through to put pressure on the ridiculous house price increases we've been seeing.

There was also a story the other day about rents coming down too (in London?) as tenants just literally can't afford them.

We were renting a place for the last 12 months when we relocated - and after we then moved out from the rental a few months ago the owners put the rent up by 300 quid on the advert for new tenants. No idea why, we always felt the rent was on the higher side anyway but sure, they want to make more money and they probably think they can justify that to any potential tenant.

They had 0 interest. Not a single viewing at all. We moved out at the end of Jan and they ended up dropping the rent back down to what we were paying originally and they've now got people living there. We were close with our neighbours and they said the house just sat empty for 3 months - and it was always funny to see the place relisted every month on Rightmove at a slightly lower price each time.