Those 10% who do understand how these things work will have been pragmatic in how much they borrowed expecting Interest Rates to return to “normal” levels in the longer term.
I don't think that's really very fair.
With house prices being what they are, I don't think a lot of people have had a lot of choice in what they borrow - it's not been a case of buying mansions, it's just been buying somewhere to live.
I mean, sure, people might have had their heads in the sand with which way interest rates would go, but the alternative was potentially to watch house ownership get further and further out of reach.
purposely choosing to miss the point again!
No. It’s you who has. As pointed by others they still had outgoings similar to now that weren’t essential.
I did find myself idly mulling the idea just dropping onto a tracker or some sort of variable rate when our current 2% fix ends in a bit under a year, Yes potentially we'll have an indeterminate period with seriously Jacked up monthly payments, but if base rates are brushing 5-6%+ when we end up needing to re-mortgage I'd be loathe to take a fix something like what 8% potentially(?) even if it was just for 12 months, 24 months at that level would probably be pretty tough for us (but doable), if base rates do start to drop off in say mid-2024ish(?) where does that leave anyone who's taken a silly high 24 month Fix? The squeeze for them lasts even longer... If we did take a tracker @ Base rate +2%, obviously there would be some financial pain, but it would reduce a bit sooner when (if) the base rate goes down.
The question has to be just how high and for how long are interest rates expected to go? is there any sensible forecast? And you could base such a decision on financial "Experts" future estimates right now?
I've found one "forecast" that says it will "trend" around 5.20% during 2023, reducing slightly to a "trend" of 4.70% in 2024. So If we're seeking a fix in 23 it's going to be at least 7% and stay there while Rates potentially drop over the following 12 months.
Still feels like a huge gamble though...
We are in the same boat, fixed deal ends summer 2023. I doubt we will be seeking a new fixed deal at that point, just ride the very painful SVR rollercoaster.
I mean, sure, people might have had their heads in the sand with which way interest rates would go, but the alternative was potentially to watch house ownership get further and further out of reach.
But this has been the issue.
I could have borrowed double what I have and bought fancy house, but chose not too as I didnt want want the debt burden.
I have friends who have paid over asking price for properties, in the thought that if they didnt they would miss out.
The rise in house prices isnt driven by demand.
Its been driven by cheap credit.
This increase in interest rates will help to correct the correlation between average earnings and average house prices.
The question has to be just how high and for how long are interest rates expected to go? is there any sensible forecast? And you could base such a decision on financial “Experts” future estimates right now?
"The markets can stay irrational longer than you can stay solvent..."
We took a 10 year fix in 2015. My thinking was that interest rates had been at historic lows for about 5years, and with base rate at 0.5% there was only one way it could go. It went down, and stayed down for about 5 years 😆
That’s why a lot of people rented white goods and TVs
God, yes, I'd forgotten about that, I was watching my rented videos on a rented TV, in my rented flat! I was shielded somewhat from energy costs since the flat had no heating apart from a gas fire in the living room so that was a bit of luck.
The question has to be just how high and for how long are interest rates expected to go? is there any sensible forecast? And you could base such a decision on financial “Experts” future estimates right now?
I’ve found one “forecast” that says it will “trend” around 5.20% during 2023, reducing slightly to a “trend” of 4.70% in 2024. So If we’re seeking a fix in 23 it’s going to be at least 7% and stay there while Rates potentially drop over the following 12 months.
Have a read:
https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022
Chart 2.7
However, these forecasts are changing every day, and you can only forecast on what you know, or is reasonable.
No forecast would ever had the war in Ukraine within them.
It all pends on your appetite for risk?
Rates could go up or down over the medium term.
Do you want certainty or a fixed deal over a 2 year period, or do you want to risk potential savings of a tracker, vs rates continuing to increase?
the flat had no heating apart from a gas fire in the living room
When I bought my first house I wouldn't even put the gas fire on as I couldn't afford it - I'd sit in a sleeping bag on my second-hand sofa watching the TV (a nice one, see above), occasionally hopping over to the fridge to get a tin of Morrisons own-brand lager.
I doubt we will be seeking a new fixed deal at that point, just ride the very painful SVR rollercoaster.
I'm sort of coming to that conclusion, but bolstering our savings just to see us through a couple of years (at least) of rollercoaster riding feels demoralising. plus I wanted to maximise overpayments too while our borrowing is still "Cheap" but then that then becomes money we won't have to shore up our mortgage payments for the indeterminate duration coming storm, unlike some our finances are finite.
Right now it feels like someone presenting you with this set of choices:
And asking you which one you want shoving up your arse, with the caveat that they get to decide how fast and how many times they insert the chosen Cactus...
We took a 10 year fix in 2015. My thinking was that interest rates had been at historic lows for about 5years, and with base rate at 0.5% there was only one way it could go. It went down, and stayed down for about 5 years 😆
Certainly not a terrible bit of Foresight, but if you're coming off that deal in 2025, you could still find yourself in a similar boat as us mugs that only took out a 5 year fix in ~2018 thinking we were being clever. the major difference will be the amount of overpayment you can do in the intervening period, pay that sucker down if you can...
Totally agree that, particularly the cost of entry to the house owners club, means that many have no choice but to stretch what they can borrow. We did initially, and if this kind of rise had happened in 2005 when we were new to a mortgage we would have been utterly screwed.
Yet here is the problem: even the new higher mortgage payments are likely cheaper than rental payments.
That does not disregard there are a small group of folk who have *chosen* to extend what they borrow to keep up with the joneses on house size, cars and foreign holidays. How you differentiate between the 'have to' and the 'idiots' is impossible though, it does feel like a job for someone who likes counting other peoples money.
The which cactus do you want inserting is a good analogy for many at the moment, and not of their causing.
We fixed for 10yrs in April this year for just below 2%. We paid a few grand to get out early in hopes it would work out long term from what we were reading in the news.
What astounded me was that the mortgage broker was doing her absolute best to stop us from going early.
We were due to renew from the end of December and she was convinced that it would only go up by .1-3% come renewal time 'because it's stayed the same for the last 5 years'.
We played it safe and swallowed the pill thankfully. She even followed up during the cooling off period to see if we'd changed our minds. For a few months after we worried we'd done the wrong thing whilst paying off the fees.
I know a few people that have moved and over stretched and taken a 2-5 year tracker in the last year. I'm worried for them! Not entirely sure where it'll end.
We took a 10 year fix in 2015. My thinking was that interest rates had been at historic lows for about 5years, and with base rate at 0.5% there was only one way it could go. It went down, and stayed down for about 5 years 😆
Same, in 2017. I'm now in the fortunate position that when the deal runs out the mortgage will be paid off. If I need to move that obviously stuffs things up but at least we have equity.
I have absolutely no illusions about how fortunate we are.
Have a read:
https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022
Chart 2.7
Well it looks like they're already 2 Quarters ahead on reaching that 'peak' 3% (Cheers Liz/Kwasi), if that forecast were really the shape of things to come I'd actually be sort of encouraged, assuming lenders carry on offering Fixes circa ~2% above base rate we could maybe score ~5% in Q4 2023(?). But I'm just not sure I believe it, I reckon we're going to see them crank the base rate up a few more notches yet to at least to be on ~4% by then. Possibly peaking Q4:23/Q1:24 at which point a tracker perhaps becomes an attractive idea; but yeah, still not sure I quite have the appetite for that level of risk and it's not like rates will plunge back down, they'll gradually slide back towards 2% over the course of 18-24 months or so won't they. So a 24-36 month 5-6% fix taken out in Q3 2023 perhaps doesn't seem so crazy, especially when there's still a chance that some unforeseen events (like I dunno an election or further escalation in Ukraine) could create more market panic and interest rate hikes.
Ungggghh! Looks like I'm getting a medium girth, moderate length Cactus inserted and removed slowly at least three times...
They really are all taking the proverbial!
do you mean that you dont like running your current account down to below £500 the day before payday? so basically have £500 there if you need it
or that you have £500 every month available for “fun” which you can, in an emergency, not spend?
£500 a month to either put in savings or spend on nice things (trips, bike parts etc) and I like to have a minimum of a month's wages in easily accessible savings. Longer savings are separate. If there's anything in my main account with a few days before payday I sweep it into my easy access savings, anything over £1500 in that gets moved into my NS&I account although with rates going up and prizes getting less likely then that may change to a longer term savings account with a decent rate.
That £500 excess over basic every month is also used for a few 'bills' that I pay annually, car and home insurance for example, so I like to keep my outgoings down to that level based on basic monthly pay. Any extras or overtime are on top and usually go into savings. I've been down the massive debt/nearly bankrupt path once before and will never start back down that route if I can help it!
