how many are going to find this *painful* and how many will have to sell / mortgage on interest only until they are 70 / seriously drastic and life changing issues?
Not painful to me short term. My mortgage was £800 a month a year ago. I had agreed a £1000 a month DD with bank and then I overpay by £550. My monthly payment has now gone over £1000 so I am technically £50 worse off a month but I could just drop my overpayment by £50.
Longer term it means my mortgage is not being as overpaid as the £200 surplus has gone.
My situation happens for those people who were extremely lucky enough to have been buying houses 20/30 years ago so I would guess a fair few people are not really noticing these rate increases.
The OP was quite a clear question “So, Interest Rates and Mortgages – how’s everyone looking?”;
And the vast majority of the thread is exactly that, with the odd interjection or discussion about wider macro stuff. That in no way constitutes 'derailing the thread', it's simple discussion about related subjects. I really don't understand why some on here continually seek to police and control what people say on any subject. It's extremely tiresome.
Back on topic, the BoE/govt could take any number of measures to control inflation which wouldn't crucify working people and mortgage holders. Instead though they've chosen the one course of action which further enriches those at the top, and loads more costs on to people who are already being squeezed by stratospheric energy bills and higher prices for daily essentials. Got any views on that or is it a banned subject?
Are they:
A) **** clueless?
B) putting up a smokescreen, whilst implementing a policy that will line their own pockets? Trying to look like they care, whilst not giving a shit?
C) doing something smart, that is too clever for me to comprehend?
D) fiddling whilst the country burns?
E) something else I’ve not considered?
or
F) all of the above
When you say they you do mean The Bank of England are putting rates up, and then the Government are independently of that speaking to lenders. Yes it doesnt sound that well joined up.
Their problem is, there isn't a pain free way of reducing inflation, especially if interest rates are the only tool available.
Although, as mentioned about, raising income tax would probably be more effective as it wouldn't have any lag and apply much more evenly to everyone (eg people without mortgages).
I suspect what the government want, is spending reduced, but lenders not repossessing or letting people get too far into debt - best of a bad set of choices.
Their problem is, there isn’t a pain free way of reducing inflation, especially if interest rates are the only tool available.
The problem is where the pain is concentrated. It's certainly not those who can afford it. There are plenty of other ways of controlling supply side inflation. Price caps on energy or goods for hiking tax for higher earners etc. If interest rates are the only tool, then that shows a complete failure of imagination and lack of will to create new tools. And besides, as rone has I'm sure posted, there's significant evidence that hiking interest rates themselves is a major contributor to inflation. Handing more money to asset owners who don't need it isn't going to lower prices is it?
The problem is where the pain is concentrated. It’s certainly not those who can afford it.
^ This.
Deciding who has the most pain though is difficult, because there are a very vocal bunch of wealthier home owners and lazy reporting that would have you believe that hundreds of thousands will be homeless shortly and the housing market will collapse etc. When we are speaking of homeowners of valuable properties earning significantly more than average and currently enjoying the fruits of that wealth - and very reluctant to give that up.
Handing more money to asset owners who don’t need it isn’t going to lower prices is it?
And some of these people are shouting loudly and not taking no for an answer.
Overall, I feel our standard of living will take a hit (as it has for many less well off already) for the middle and more earners, and I also feel that a very different approach is needed to move where the money is flowing by using tax rather than interest rates.
I also feel that a very different approach is needed to move where the money is flowing by using tax rather than interest rates
Increasing the higher rate of tax would be the most efficient/effective way to curb inflation.
But its hardly a vote winner and the Governments approach has always been to blame others (Europe, immigrants, BoE) than make difficult decisions.
Especially when Starmer can state he doesn't agree with the tax rises and will reverse them. Whether he is lying or not is irrelevant, he is not exactly known for his integrity.
whilst this is hitting middle earners more, isn't that because the target needs to be consumers of the things that are inflating (goods and services)? The cost of foreign holidays and caviar isn't the problem, so whacking costs up on the top 1% (of whom there aren't very many) won't make a significant difference to inflation
whilst this is hitting middle earners more
Its not though.
Only 30% of the population have a mortgage and its going to hit those who have large amounts of debt and are unlucky enough to be coming to the end of their fixed deal. These are likely to be first time buyers who bought their house 2 years ago.
From a personal point of view (as a middle earner), I was fortunate/lucky enough to take out a 5 year fixed, 18 months ago. Increasing interest rates has zero affect on my finances and my ability to consume. Fingers crossed it sorts itself out over the next 3.5 years...
I have been pondering this a bit. It seems to me the issue here is house price inflation and the recent historically low interest rates not the rise to 5% - the house price inflation and the low interest rates combined have led to folk taking on huge mortgages that are too difficult to pay once we come out of the low interest rates we have enjoyed the last 15 years or so. the last 15 years are out of line with the historical trend. Too many folk either from desperation to buy or from forgetting that interest rates can and are likely to rise are now in unsustainable positions. When I bought my flat in 92 ish interest rates were around 6% which was low compared to the previous couple of decades but I made sure I could afford it if interest rates rose as I remembered double digit interest rates. They of course continued to drop.
Hose price inflation seems to have taken that away from folk - they felt they had to mortgage to what they could afford in payments at the low interest rates so a rise back towards what has been normal historically has left folk in a horrid position.
In 1970 my parents bought a really nice house for what was around a years salary for him as a well paid public servant. sold 4 years later for 4x the price.
I bought in 92 for 2.5 times my nurses salary. its now worth 10X the salary for the same job. I could not take that job in Edinburgh now there is simply nowhere I could afford to live - rental or buying anywhere near where I worked. ( I have looked - even the burbs are out of reach price wise. - ex council flat in pilton might be possible)
Of course back in the 70s and for a while after inflation was higher which actually made paying off a mortgage easier as wages rose but the amount owed did not so your mortgage payments dropped as a % of your income
How we get out of this mess is much harder to see. Static house prices and sustained inflation could over time reduce the multiples of salary needed to buy but that ratio of average salary to average house price needs to drop back to 2.5 or so, so that would take many years of pain. A house price crash would do the job but at a huge cost to many folk. A massive house building programme will reduce inflationary pressures on house prices as would rent controls but again will take many years to bring houses back to affordable
I can remember established folk saying how sorry they were for young folk starting out on the "housing ladder" when we had to pay 2.5 times income for a property as they paid 1X. By heck tho young folk now I really feel for - even if you have two folk earning average wage anything in an expensive area is miles out of reach. two nurses could not buy my flat.
Surely as few new folk enter the housing market there has to be a correction? Its just unsustainable
sorry rather rambling thoughts
https://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/
And more importantly what items are increasing due to high demand and which of those items demand will be lowered due to interest rate rises? It is none isn't it....
Another one here who recognises the fortune/luck in taking a 5yr fix when we moved a year ago. We're quite frugal in terms of lifestyle and are saving as much as we can every month with interest rates what they are, in order to pay off a large chunk of the mortgage before the 5yr fix ends (First Direct unlimited overpayments allowed).
Whilst we're both in good health and earning, we'll hammer away - the current situation just shows how people can find themselves with little control and that is terrifying.
Having moved from a leasehold flat with the associated management company, ground rent, external wall insulation (EWS1) stress thrown in over the years, it's incredible the difference having more control over things makes. People just want a secure home, and are happy to pay for it. But it's a sh1t situation where those renting are having to fork out a higher and higher percentage of their pay in an attempt to regain some sense of security. Someone asked why people don't protest, well I can imagine people are utterly drained of any energy, and using up what fumes they have left for a situation that is unlikely to register on those who wield power feels understandably pointless.
a few % drop in house prices is neither her nor there. We need a 75% drop relative to wages
Mortgage crisis: UK lenders agree to 12-month grace period on repossessions
matt_outandaboutFull Member
Not just the UK of course:
as with all these stories about price drops, it’s somewhat meaningless unless you can see the total number of sales. 2008-2010 saw significant drops, but didn’t result in a crash as everyone stopped moving. This, in theory should be different as this time rates are going up, not down and so it should exacerbate the situation, but without those numbers, it’s somewhat meaningless.
TJ - totally agree with you. I'd add that the historical income multiples you are talking about are for a single earner, worst case it used to be 2.5 - 3 x main income and 1 x second income. For the last 25 years or more it's all been based on a multiple of joint salary, this has a massive knock on effect to family life (or lack thereof)
When the government bailed out the banks in 2008 they create huge moral hazard, they should have let bad businesses (banks) go to the wall, house prices drop, and things get back to normal. Instead they compounded the problem by printing money and dropping rates to near 0%, making things more "affordable" and encouraging people to over-borrow and over-spend. We aren't here by accident, we are here because of ****less short termism with politicians more interested in re-election and keeping their snouts in the trough than doing the right thing.
As painful as it will be we really need to accept that fact that as a nation we are poorer and we need to cut our cloth accordingly. More state support will just kick the can further down the road and make the end result even more painful.
I know some here think that borrow and spend is the answer, and appreciate their point of view, but I don't agree with it.
Well if it's not sorted in a year's time we will be screwed.....
Of course back in the 70s and for a while after inflation was higher which actually made paying off a mortgage easier as wages rose but the amount owed did not so your mortgage payments dropped as a % of your income
This is it - my folks bought in 1980 for about 3.5x salary. The high inflation of the 80s was very tough, but it meant that by 1990 the mortgage was absolutely peanuts (a few months salary). So when dad lost his job that recession, we didn't lose the house.
Fast forward to 2015, I bought for about 8x salary. In 2025, the original purchase price of 220k is likely to still be around 6 years worth of my salary....
More state support will just kick the can further down the road and make the end result even more painful.
In what way would state support be worse than not supporting people?
You simply seem to be justifying goverment choices as a means to ruin people's life - as the best choice.
If the government can make a mess of things it should be on the hook for putting it right - because the market as a tool isn't working.
Let's stop pretending that we only have it good for the very wealthy and everyone else should suck it up.
In what way would state support be worse than not supporting people?
State support for people that really need it is one thing, I’ve no objection to that. Trouble is 15 years of ZIRP has encouraged people to over borrow and spend. It was foolish to think that interest rates could stay so low for ever, yet people based possibly the largest financial decision they will ever make on that assumption. A lot of people seem to have been living lives they cannot afford, government support for these people would simply support the entitlement and assumption that there are no consequences to poor decisions.
You simply seem to be justifying goverment choices as a means to ruin people’s life – as the best choice.
Of course I’m not, but I strongly object to those of us who have lived within our means being used to bail out those who chose not to. How about the generations who will be paying higher taxes with a lower standard of living, don’t they deserve some consideration?
If the government can make a mess of things it should be on the hook for putting it right – because the market as a tool isn’t working.
Of course it should, but how exactly? Conjuring up money and giving it away has led in part to the inflation we now see, and the weakening of our currency. More of the same won’t help. I don’t believe the market has been allowed to operate as a market for a long time (if ever) - constant government intervention to maintain the illusion of never ending growth hasn’t helped so what makes you think more of the same would? Surely it’s naive to think that we should be able to see constant growth? Sometimes you need a contraction to remove dead wood and allow new growth based on something real.
Let’s stop pretending that we only have it good for the very wealthy and everyone else should suck it up
I think we all need to suck it up. There is absolutely an imbalance and growing gap between rich and poor, and that needs to correct, but the game is rigged in their favour and always has been. Taking more from the rich won’t solve everything, there are too many structural issues that need to be corrected. We all need to take some responsibility for ourselves, not just find the next teat to suck on, or pocket to pick.
In answer to the OP - our 5 year fix ends later this year so mortgage repayments will go up considerably. Along with the rest of the cost of living increases we will feel it but we’ll be OK largely because we have been careful with money, chose the house we could afford rather than the one we really wanted, etc. We will tighten our belts a bit more when we need to.
It was foolish to think that interest rates could stay so low for ever, yet people based possibly the largest financial decision they will ever make on that assumption.
Why?
I bought my house 6 years ago with a mortgage rate of 1.5 have remortgaged once since at 2.04
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years, infact every single person I have ever had a conversation with were saying your stupid to not buy a house.
It's not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
We were at that tipping point when our mortgage had reduced to an amount that allowed us to save a chunck of money every few months, and lob this at the capital. We liked the effect it was having, seeing the monthly payment drop noticably each time we did this.
Obviously this has stopped happening. We are still saving, but paying off a bit of the capital seems to just leave the repayment static as the rate increases keep pushing it up.
It’s not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
That’s quite a naive outlook. It’s fairly common knowledge how historically low interest rates have been since 2008.
People making money arranging mortgages are not going to try and talk you out of it.
I bought in 2007ish at 4.99%. That’s not ancient history.
Obviously the problem is that at today’s prices, at that same interest rate I couldn’t buy this house on my current wages. So something is broken.
Either prices need to reset or wages grow. The trouble with prices crashing is, as I’ve found out in 2008 you end up in negative equity and have to pay whatever rate the bank wants, as others won’t take on the debt. It’s kind of lose lose for the less well off.
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years,
Really? I don't disbelieve you but thats outrageous. I remember when 6% was a low interest rate and all my financial decisions were based on being able to pay if rates climbed again
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years, infact every single person I have ever had a conversation with were saying your stupid to not buy a house
They’re selling you a product - it’s up to you to do the research. Interest rates have never been stagnant.
It’s not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
No company is doing that. Your fix is still fixed after which you're on the svr, exactly like your paperwork said you would be
A lot of people seem to have been living lives they cannot afford, government support for these people would simply support the entitlement and assumption that there are no consequences to poor decisions.
Which were the poor decisions? To keep buying food despite rising prices? To keep children warm despite rising heating costs? To keep a roof over their heads in times of higher rents and higher house prices?
I would be surprised if any *reputable* lender didn't stress test mortgage applications; yes, you're ok at today's Y% but could you afford 2Y%?
How?
If not, what will you do?
Rachel Reeves with not a clue about the ability of government to control its own back. Or any interest in it.
Https://twitter.com/TheMendozaWoman/status/1671780756681637892?t=goXG2zGoK30KrPZx9YunsQ&s=19
This constant accepting of the failing status-quo - no matter how it effects the people is mind blowing.
Of course I’m not, but I strongly object to those of us who have lived within our means being used to bail out those who chose not to. How about the generations who will be paying higher taxes with a lower standard of living, don’t they deserve some consideration
Given the source of all net money creation is the government/BoE - who do you think is subsidising who?
People who pay higher taxes do not fund the other people. It's a Neoliberal myth designed to keep wealthy people with their wealth, and give them importance.
The Government (BoE) is the monopoly creator of money - the taxes you pay were previously spent government money. A private individual cannot create money - try it - you'd have someone at your house before you say counterfeit.
Money circulation is two sources. Commercial bank money (which are made up of loans and done with license of the BoE) commercial banks have accounts at the BoE. When they make a loan there s a liability so it has to be paid back. So there is no net money creation from a commercial bank.
All other new money is from the BoE. It's the simply the monopoly issued of the pound. It funds you.
The last time I remortgaged was not that long after 2008 when getting a mortgage was not that easy. I was going for a 3x salary for an LTV 40% mortgage and had to bring in my wife's salary before I could get it and was even questioned about some of my outgoings down to £20. A pain in the arse at the time but I would call that responsible lending.
Of course it should, but how exactly? Conjuring up money and giving it away has led in part to the inflation we now see, and the weakening of our currency. More of the same won’t help. I don’t believe the market has been allowed to operate as a market for a long time (if ever) – constant government intervention to maintain the illusion of never ending growth hasn’t helped so what makes you think more of the same would? Surely it’s naive to think that we should be able to see constant growth? Sometimes you need a contraction to remove dead wood and allow new growth based on something real
The COVID stimulus package was largely income replacement and was not responsible for the source of this inflation. There is no evidence to support this.
And neither is their a direct link between government spending and currency speculation.
The USA had a massive government spending stimulus - what did it do - strengthened the economy and the dollar strength went on a massive run.
Recently it's cooled off a bit and the pound has gained a bit of strength.
Currency markets simply go up and down based on speculation. There is no real control of that given traders will make money on both directions based on a trend. If you watch the way Forex works - lots of traders simply trade tends and not fundamentals. Not sure how ultimately this is a good indicator of anything.
The mistake is to assume the current framework we have for monetary policy is the correct one and we should simply adhere to it.
The government could simply decide on different targets within the economy and target investment in infrastructure and enable to resources and work force.
As it stands we have a government that is only concerned in keeping the financial markets stable at the behest the real economy (consumers, workers, state services, infrastructure.)
The evidence is all around for interest income flowing into assets -money is flowing back into crypto again. That's definitely excess money.
I don't understand why more of the electorate aren't asking the government why are you serving up a system that doesn't work?
I mean, who was the last person you talked to that was enjoying the benefits of the UK government?
It must be such a small number of people - the rest of us simply bumble around going on about how we need to suck it up apparently because they can't do anything.
That's nonsense - the economy could be reorganised for much better outcomes.
The BoE could simply be told not to keep increasing rates for a start.
People who pay higher taxes do not fund the other people. It’s a Neoliberal myth designed to keep wealthy people with their wealth, and give them importance.
It would help if you explained what would happen if the high tax payers stopped paying tax if those taxes are not funding anything (in a roundabout way)
Would/should the government continue to spend the same amount of money knowing that it has lost £140 billion from just the top 10% for example?
Which were the poor decisions? To keep buying food despite rising prices? To keep children warm despite rising heating costs? To keep a roof over their heads in times of higher rents and higher house prices?
I posted similar 6 months ago when this was coming and was called condescending.
Those that genuinely need support because they cannot eat or heat should be supported. But how many are at that point because when they had spare cash as a result of low interest rates instead of creating a rainy day pot or paying down mortgage it got spent, on cars and holidays and whatever else. And now are exposed. It wasn't hard to understand, any money expert, eg Martin Lewis types, would advise on a pot of accessible savings, so those that could but haven't done that are naive at best, wilfully culpable in some cases.
I'm sympathetic to those in need but a question has to be asked about what is behind that before simply bailing out to allow them to do it all again.
Yes, aware that the same story could be pointed at bank bailouts too!!
All other new money is from the BoE. It’s the simply the monopoly issued of the pound. It funds you.
Agree that the BoE create and manage the currency, but I don’t agree that the BoE funds me by creating/managing the money supply. Surely, even in it’s current form, money is the medium through which we exchange labour and other things of value (typically the result of labour). I fund myself through my labour, and by paying taxes I fund public services and others in society who are less well off. If the BoE simply increase the money supply (via QE to support banks and government borrowing) then they are devaluing my labour.
the taxes you pay were previously spent government money
Agree, and this is part of the problem I have. The government simply cannot and should not keep spending money we don’t have. The money they are spending today and have spent over previous years will have to be repaid by the younger generations, who also carry the burden of debt from higher education. If somebody borrowed more than they could realistically afford to buy an overpriced house, why should the generation who have mostly been priced out of home ownership be forced to pay that persons mortgage via increased taxes and government “support”?
I realise there is an argument that a country’s finances can be run differently to those of a household, but the constant issuance of more and more debt hasn’t done us much good over the years in my opinion. We’ve just had a bigger credit card, which at some point will need to be paid off. The fiat money system has been a complete disaster.
I bought my house 6 years ago with a mortgage rate of 1.5 have remortgaged once since at 2.04
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years, infact every single person I have ever had a conversation with were saying your stupid to not buy a house.
It’s not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
You took out a mortgage for 25 years, did you not think to look and see what rates had been like for the previous 25 years? I’m sorry for your situation, but this is part of the problem. If it’s not your fault, whose fault is it? If you got hit by a car crossing the street because you didn’t look, would that be somebody else’s fault for not telling you to check for traffic? Sorry if that sounds harsh but society today seems to encourage entitlement without consequences. That in itself is a structural issue and a much longer conversation that will derail the thread even further!
Any details on this tinkering approach to giving interest only mortgage payments for 6 months (the biggest clue yet there might be a general election in the autumn?)
I want to do the maths on this for my own mortgage. Of course only works if rates are due to come down at the end of it.
The COVID stimulus package was largely income replacement and was not responsible for the source of this inflation. There is no evidence to support this.
I’m referring more to the QE used to bail out the banking system in 2008, and the subsequent dropping of interest rates to drive demand (household borrowing and spending).
The USA had a massive government spending stimulus – what did it do – strengthened the economy and the dollar strength went on a massive run.
The dollar is the global reserve currency so not sure a direct comparison with them is right. They are also less exposed to external forces because they are more self sufficient in food and energy production amongst many other things.
I don’t understand why more of the electorate aren’t asking the government why are you serving up a system that doesn’t work?
Because a large part of the electorate do not understand economics. It’s certainly not taught to a good enough standard in school. Also consider how best to control people? Keep them distracted by things like debt to be repaid and arguing with each other about the colour of the rosette they wear. The system that is in place serves the powers that be perfectly, and they have dumbed down the population sufficiently that few question it.
I’m sympathetic to those in need but a question has to be asked about what is behind that before simply bailing out to allow them to do it all again.
+1
I’m referring more to the QE used to bail out the banking system in 2008, and the subsequent dropping of interest rates to drive demand (household borrowing and spending).
Well yeah that Q/E was used badly. But not the Q/E itself. Its what they do with the money.
However was not inflationary.
. I fund myself through my labour, and by paying taxes I fund public services and others in society who are less well off. If the BoE simply increase the money supply (via QE to support banks and government borrowing) then they are devaluing my labour.
But you don't.
Where did you get the money to pay your taxes?
It has to come from somewhere and you didn't create it
So given the Government is the monopoly creater of UK pounds etc.
Agree, and this is part of the problem I have. The government simply cannot and should not keep spending money we don’t have. The money they are spending today and have spent over previous years will have to be repaid by the younger generations, who also carry the burden of debt from higher education.
The government (and it's agents) is the only source of money. No other institution has the power to create UK money.
Future generations don't pay back government debt. The national debt is a record of all money issued by the government not taxed back. Without it there would be no cash in the private sector.
Any details on this tinkering approach to giving interest only mortgage payments for 6 months (the biggest clue yet there might be a general election in the autumn?)
No, but suspect we are thinking the same! Probably kicking the can down the road, generate a pre-election feel good factor, and then either win and figure it out, or let the next lot take the blame.
No, but suspect we are thinking the same! Probably kicking the can down the road, generate a pre-election feel good factor, and then either win and figure it out, or let the next lot take the blame.
Agreed
