Mortgage Rate Rises

[Hodders]

Paying 6% on an interest only tracker (with offset account) that has been full of win over the last decade (paying less than 1% for a lot of it) until the last couple of years.

We've been really conscientious about building up funds to pay back the capital and as a result we've got/had the ISAs just about ready to pay it off when the mortgage matures in August next year.

When Liz Truss started to tank our ISAs we had to mitigate risk and cash a load in. At least this means we are offsetting about 85% of the loan value.

Should hopefully end up with about £45k excess after we pay it off.

I dread to think how many people are going to get repossessed when they can't pay back the capital on an interest only mortgage.

Kids will be finishing uni in about 3 years so I reckon we'll both take early retirement (in our mid/late 50s) after that. No idea how much time we have, would hate to waste it!

 

[Jono8]

I wonder if I'm on the highest rate around here at 7.24% SVR

Due to circumstances I cba with the hassle of getting a new mortgage product and tbh, since there's less than 10K left, it's only risen by £20pm from the start of all this. Which I think also goes to put in perspective when 'the older generation' go on about the high rates of the 80's, but don't take into account it was on much lower amounts and how much more sensitive mortgages are now to interest rate rises.

I have to continually explain this to my mum when she keeps going on about 15% interest rates they had briefly.

A large percentage of a small amount can still be a lot more than a lower percentage of a much larger amount.

15% of £20k is £3k a year interest
5% of £200k is £10k a year!

Still doesn't hit home with her

 

[tonys]

I have to continually explain this to my mum when she keeps going on about 15% interest rates they had briefly.

A large percentage of a small amount can still be a lot more than a lower percentage of a much larger amount.

15% of £20k is £3k a year interest
5% of £200k is £10k a year!

Still doesn't hit home with her

Yes this is true, but the interest rate increases for us back then were monthly not some time in the future once the fixed term ended as you are finding out now.

 

[Minstadave]

I have to continually explain this to my mum when she keeps going on about 15% interest rates they had briefly.

A large percentage of a small amount can still be a lot more than a lower percentage of a much larger amount.

15% of £20k is £3k a year interest
5% of £200k is £10k a year!

Still doesn't hit home with her

And wages were higher relative to house prices too.

 

[adam cool dude]

I have to continually explain this to my mum when she keeps going on about 15% interest rates they had briefly.

A large percentage of a small amount can still be a lot more than a lower percentage of a much larger amount.

15% of £20k is £3k a year interest
5% of £200k is £10k a year!

Still doesn't hit home with her

The average household disposable income was 12k in 1990 and 38k today. 3k a year interest in 1990 is 25% of that wage. Today it is not far off 25% either.

Yes it is more expensive to buy now but not by as much as you think.

What made things so good from the 1990's on was that there was hope and real wage growth all the way up to 2008. The outlook today doesn't seem as good.

 

[Freakbro]

The average household disposable income was 12k in 1990 and 38k today. 3k a year interest in 1990 is 25% of that wage. Today it is not far off 25% either.

But the avg person didn't pay 15% on their mortgages. It's often quoted as it was the highest point in the 90's, but it lasted for less than 1 day, where the base rate went from 10% to 12% to 15% on the 16th Sept 1992 (Black Weds) and dropped back to 10% on the 17th.

Average base rate in 1992 was 6.8%

In fact, the whole trend of interest rates from 1979 - 2023 (with 3 discernable "shocks" where the rate temporarily rose significantly) has been one of decline from 17% in 1979 to 0.25% in 2022

Yes it is more expensive to buy now but not by as much as you think.

It really is, you just need to look at the ratio of avg house price to avg earnings to see that.

 

[adam cool dude]

It really is, you just need to look at the ratio of avg house price to avg earnings to see that.

Down south yes but the cost of houses around here isn't that bad. A 3 bed detached will set you around 250-300k.

That is 5 times the salary of two people on 30k a year which is easily achievable.

 

[Freakbro]

Down south yes but the cost of houses around here isn't that bad. A 3 bed detached will set you around 250-300k.

That is 5 times the salary of two people on 30k a year which is easily achievable.

And it used to be 3-4 times 1 wage.

So again that shows how much more affordable houses were previously.

 

[radderfire]

A large percentage of a small amount can still be a lot more than a lower percentage of a much larger amount.

a lot less

 

[413x]

Down south yes but the cost of houses around here isn't that bad. A 3 bed detached will set you around 250-300k.

That is 5 times the salary of two people on 30k a year which is easily achievable.

Yeah it's similar here. And makes a big difference. A huge difference.

You can get a nice house here (nothing grand) for 300

Get towards 400-500 and you can get a very nice house. Either more land or bigger sqm of house.

 

[413x]

And it used to be 3-4 times 1 wage.

So again that shows how much more affordable houses were previously.

Gone are the days of 1 wage.

Makes sense though and it's a consequence of women entering the workforce.

Suddenly "couples" have much more disposable. And where do most people put disposable? Into housing.

Rules for lending getting ever looser?.. Max out that mortgage.

But maxing out that mortgage is the best thing.

 

[kona786]

This is where more than 1 wife should be made legal. 3 or 4 wages should cover it!

 

[tonys]

And it used to be 3-4 times 1 wage.

So again that shows how much more affordable houses were previously.

When we brought our house in 1981 it was 2.5x main wage 1x overtime and 1x the wife's as I've said before and we had to use both wages to get the house. That was at a high interest rate on a variable rate.
The house we ended up with was almost half the average value at the time(£12,000 compared to £20,000). It was not to bad inside but did require some work to be done. My take home pay was about £42ish a week and the wife about £30ish.

 

[200sols]

Down south yes but the cost of houses around here isn't that bad. A 3 bed detached will set you around 250-300k.

That is 5 times the salary of two people on 30k a year which is easily achievable.

So only about double the 90s house prices to earnings ratio 'ooop norf' then, you didnt really make the point you were trying to there.

 

[adam cool dude]

So only about double the 90s house prices to earnings ratio 'ooop norf' then, you didnt really make the point you were trying to there.

The point I was trying to make is there are plenty of places where buying a house is still a huge possibility. Pretty much anywhere Peterborough and up really.

 

[tonys]

The point I was trying to make is there are plenty of places where buying a house is still a huge possibility. Pretty much anywhere Peterborough and up really.

So long as Londeners and high earners aren't involved to push the price up

 

[Will Gill]

My 1.2% 5 year term just ended, now stuck with 4.6%

First world problems

 

[tonys]

My 1.2% 5 year term just ended, now stuck with 4.6%

First world problems

Did you budget for an increase when you took out the 5yr term and save some of the money you would have been paying on a higher rate?

 

[Freakbro]

When we brought our house in 1981 it was 2.5x main wage 1x overtime and 1x the wife's as I've said before and we had to use both wages to get the house. That was at a high interest rate on a variable rate.
The house we ended up with was almost half the average value at the time(£12,000 compared to £20,000). It was not to bad inside but did require some work to be done. My take home pay was about £42ish a week and the wife about £30ish.

Thank you for proving exactly what I said.

Average wage in 1981 was £6,000, average house price was £22,000 so between 3-4x 1 wage.

At about £42 take home a week (which is approx £3,000 gross in 1981), that is about half the average wage, hence why you bought a house at half the average price, so your 1 wage was still in the ratio of 3-4x of the house you could afford to buy.

Nowadays, the avg wage is ~£34k and avg house price ~£282k, which is ~8x 1 wage

 

[Freakbro]

The point I was trying to make is there are plenty of places where buying a house is still a huge possibility. Pretty much anywhere Peterborough and up really.

Careful, or you'll end up like Quartz, where the solution is that every young person in the UK just needs to move to Aberdeen to buy that flat above the chippy for £15k