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What sort of jumps can we expect in mortgage rates in the coming year?


haroldshand

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haroldshand

This is how dis-interested I have been with the mortgage rates, I cannot think of one time I have shown any interest in the mortgage  rates since Covid started.

What are the rates like now and what can we expect after a BOE hike to 3%, I really have no clue except for the Google search I just did which is full of thrills and "offers" which I cannot be bothered to decipher right now.

Quick glance and it looks to me those on variable rates are in trouble and more so if the have relied on a low teaser rate for a couple of years?

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Some rates ain't straightforward.

https://www.barclays.co.uk/mortgages/remortgage/rates/

So when someone boasts they have remortgaged at 2% for 5 years that doesn't factor in a £1749 charge.

However it is fair to say that with SVRs at c.3.5% above base rate, then someone coming off a teaser into it is going to have a huge jump in payments. At 3% you are most likely looking at near 5% for a vanilla no fees one, 6.5% SVR. 

The disastrous cases will be the people have taken out loans with the reliance on low rates, relying on the ability to remortgage to something else, plus borrowing as much as the computer says they can. 

For instance I can imagine that those who bought new build London flats recently may have a declining value, so the highly leveraged would face either increased mortgage costs or a demand for more money to remain at a certain LTV. If the banks are going to be prudent they may not even want to lend on new build at all. 

I can imagine there will have to be another prop to deal with this type of thing as it'll make the current cost of living crisis appear like a blip. For the worst cases of those coming off cheap rates into expensive ones (this might be a purchase in 2018 on a 5-year ending in 2023) that may mean a doubling of mortgage cost.

The news stories in the papers won't be about fat working class people with no jobs complaining about heating or eating, but it'll be middle-class people whining that they haven't done anything wrong. So the political will to do something will be large.

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HousePriceMania
Posted (edited)
4 minutes ago, Boon said:

Some rates ain't straightforward.

https://www.barclays.co.uk/mortgages/remortgage/rates/

So when someone boasts they have remortgaged at 2% for 5 years that doesn't factor in a £1749 charge.

However it is fair to say that with SVRs at c.3.5% above base rate, then someone coming off a teaser into it is going to have a huge jump in payments. At 3% you are most likely looking at near 5% for a vanilla no fees one, 6.5% SVR. 

The disastrous cases will be the people have taken out loans with the reliance on low rates, relying on the ability to remortgage to something else, plus borrowing as much as the computer says they can. 

For instance I can imagine that those who bought new build London flats recently may have a declining value, so the highly leveraged would face either increased mortgage costs or a demand for more money to remain at a certain LTV. If the banks are going to be prudent they may not even want to lend on new build at all. 

I can imagine there will have to be another prop to deal with this type of thing as it'll make the current cost of living crisis appear like a blip. For the worst cases of those coming off cheap rates into expensive ones (this might be a purchase in 2018 on a 5-year ending in 2023) that may mean a doubling of mortgage cost.

The news stories in the papers won't be about fat working class people with no jobs complaining about heating or eating, but it'll be middle-class people whining that they haven't done anything wrong. So the political will to do something will be large.

I said we'd see 5% UK mortgage rates by the end of the year and people laughed.

Last time I looked average rate was 4%.

https://tradingeconomics.com/united-kingdom/mortgage-rate

 

United Kingdom BBA Mortgage Rate

Some of those < 1% deals were too good to be true...what is it they say...

if something is too good to be true then it. probably. is. - Post by  leong_waytogo on Boldomatic

Edited by HousePriceMania
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spygirl
1 hour ago, Boon said:

Some rates ain't straightforward.

https://www.barclays.co.uk/mortgages/remortgage/rates/

So when someone boasts they have remortgaged at 2% for 5 years that doesn't factor in a £1749 charge.

However it is fair to say that with SVRs at c.3.5% above base rate, then someone coming off a teaser into it is going to have a huge jump in payments. At 3% you are most likely looking at near 5% for a vanilla no fees one, 6.5% SVR. 

The disastrous cases will be the people have taken out loans with the reliance on low rates, relying on the ability to remortgage to something else, plus borrowing as much as the computer says they can. 

For instance I can imagine that those who bought new build London flats recently may have a declining value, so the highly leveraged would face either increased mortgage costs or a demand for more money to remain at a certain LTV. If the banks are going to be prudent they may not even want to lend on new build at all. 

I can imagine there will have to be another prop to deal with this type of thing as it'll make the current cost of living crisis appear like a blip. For the worst cases of those coming off cheap rates into expensive ones (this might be a purchase in 2018 on a 5-year ending in 2023) that may mean a doubling of mortgage cost.

The news stories in the papers won't be about fat working class people with no jobs complaining about heating or eating, but it'll be middle-class people whining that they haven't done anything wrong. So the political will to do something will be large.

The disastrous will be HTB, coming off low teaser rate, then straight into much higher rates and then getting the 'free' 25% loan weighing more n more, year by year.

Mr n Mrs HTB are normal are young couple, about to start popping kids out, so triply hit - higher SVR, paying for the 25% 'freeby' and down an income.

 

 

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Frank Hovis
1 hour ago, HousePriceMania said:

said we'd see 5% UK mortgage rates by the end of the year and people laughed.

 

I laughed at the idea of 5% BoE base rate by the end of the year; not 5% mortgage rates.

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Axeman123
1 hour ago, Boon said:

The disastrous cases will be the people have taken out loans with the reliance on low rates, relying on the ability to remortgage to something else, plus borrowing as much as the computer says they can. 

Another factor is that many people were encouraged to get their outgoings right down in readiness to apply for the mortgage, to maximise the ammount they could borrow (and "affordability"). A lot of those people then ran out and got two new cars on PCP etc once they were in, negating the presumed affordability of the mortgage. Even when forced to give themselves some breating room, most people instinctively leverage to the max for short-term lifestyle.

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Yeah, effectively HTB is borrowing stupid (10x+) salary.

I think you can paint a picture of those who will be mostly fucked. It might be a bigger fuck than the current cost of living thing, as worst case the mortgage payments alone will more than double overnight.

- Bought HTB in London in 2016-2018 (so the equity loan repayment kicks in now or soon).
- Maxed out the HTB component at 40%, high LTV mortgage for the rest
- Early 30s when bought, thus considering kids or having kids
- Value of new build flat maybe 10-15% less today, so difficult to sell, difficult to remortgage
- In a career which doesn't have large wage increases when qualified. Ie teacher, nurse, police
- Profligate spender with 'live for today' attitude, or likes to pretend they are rich (ie contract car)

I don't think that type of person is that rare really. It might even be the most common type of person that does HTB.

One thing may differ is the political will. So far it is easy for Sunak to ignore the people whining about 'heat or eat', usually the media gives them an out because those people are on benefits or working class.

But struggling now will be attractive middle-class people, who will straight-facedly go on TV and claim that they did nothing wrong. Sadly it might make a compelling case for the public to get behind.

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HousePriceMania
47 minutes ago, Frank Hovis said:

 

I laughed at the idea of 5% BoE base rate by the end of the year; not 5% mortgage rates.

I've never said BoE would raise rates to 5%, if I did I would have been joking.  I'll be surprised if IRs go much above 1% any time soon.

However, like before Term, Funding came in, mortgage/savings rates are attached to the cost of raising money in the real world.

 

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haroldshand
6 hours ago, HousePriceMania said:

I said we'd see 5% UK mortgage rates by the end of the year and people laughed.

Last time I looked average rate was 4%.

https://tradingeconomics.com/united-kingdom/mortgage-rate

 

United Kingdom BBA Mortgage Rate

Some of those < 1% deals were too good to be true...what is it they say...

if something is too good to be true then it. probably. is. - Post by  leong_waytogo on Boldomatic

No you never, you said "UK rates would go to 5%".

Stop point scoring and posting TOS style and people might take more interest in your one sided manta

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haroldshand
5 hours ago, Frank Hovis said:

 

I laughed at the idea of 5% BoE base rate by the end of the year; not 5% mortgage rates.

I just said the same and I cannot remember anyone laughing, disagreeing yes

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haroldshand
5 hours ago, Axeman123 said:

Another factor is that many people were encouraged to get their outgoings right down in readiness to apply for the mortgage, to maximise the ammount they could borrow (and "affordability"). A lot of those people then ran out and got two new cars on PCP etc once they were in, negating the presumed affordability of the mortgage. Even when forced to give themselves some breating room, most people instinctively leverage to the max for short-term lifestyle.

What individuals  might or might not have done outside the mortgage is no interest to me really. What I want to know is those paying say  £1,200 today will they be paying £2,400 at some point?

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spygirl
5 hours ago, Frank Hovis said:

 

I laughed at the idea of 5% BoE base rate by the end of the year; not 5% mortgage rates.

And now?

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spygirl
5 hours ago, Boon said:

Yeah, effectively HTB is borrowing stupid (10x+) salary.

I think you can paint a picture of those who will be mostly fucked. It might be a bigger fuck than the current cost of living thing, as worst case the mortgage payments alone will more than double overnight.

- Bought HTB in London in 2016-2018 (so the equity loan repayment kicks in now or soon).
- Maxed out the HTB component at 40%, high LTV mortgage for the rest
- Early 30s when bought, thus considering kids or having kids
- Value of new build flat maybe 10-15% less today, so difficult to sell, difficult to remortgage
- In a career which doesn't have large wage increases when qualified. Ie teacher, nurse, police
- Profligate spender with 'live for today' attitude, or likes to pretend they are rich (ie contract car)

I don't think that type of person is that rare really. It might even be the most common type of person that does HTB.

One thing may differ is the political will. So far it is easy for Sunak to ignore the people whining about 'heat or eat', usually the media gives them an out because those people are on benefits or working class.

But struggling now will be attractive middle-class people, who will straight-facedly go on TV and claim that they did nothing wrong. Sadly it might make a compelling case for the public to get behind.

And people with naked IO mortgages, from 2002 onwards,  waiting for 'something' to happen.

All those idiot 'mortgage prisoners', whove wasted almost 15 of low rates to pay off their mortgage.

 

 

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Axeman123
9 minutes ago, haroldshand said:

What individuals  might or might not have done outside the mortgage is no interest to me really. What I want to know is those paying say  £1,200 today will they be paying £2,400 at some point?

Fair enough. My only point was that just because affordability was checked at a higher interest rate when the loan was made, does not mean people won't have taken on additional monthly outgoings right away.

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23rdian
7 hours ago, Boon said:

Yeah, effectively HTB is borrowing stupid (10x+) salary.

I think you can paint a picture of those who will be mostly fucked. It might be a bigger fuck than the current cost of living thing, as worst case the mortgage payments alone will more than double overnight.

- Bought HTB in London in 2016-2018 (so the equity loan repayment kicks in now or soon).
- Maxed out the HTB component at 40%, high LTV mortgage for the rest
- Early 30s when bought, thus considering kids or having kids
- Value of new build flat maybe 10-15% less today, so difficult to sell, difficult to remortgage
- In a career which doesn't have large wage increases when qualified. Ie teacher, nurse, police
- Profligate spender with 'live for today' attitude, or likes to pretend they are rich (ie contract car)

I don't think that type of person is that rare really. It might even be the most common type of person that does HTB.

One thing may differ is the political will. So far it is easy for Sunak to ignore the people whining about 'heat or eat', usually the media gives them an out because those people are on benefits or working class.

But struggling now will be attractive middle-class people, who will straight-facedly go on TV and claim that they did nothing wrong. Sadly it might make a compelling case for the public to get behind.

I hope they all get fucked. Proper fucked.

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wherebee
7 hours ago, spygirl said:

And people with naked IO mortgages, from 2002 onwards,  waiting for 'something' to happen.

All those idiot 'mortgage prisoners', whove wasted almost 15 of low rates to pay off their mortgage.

 

 

A mate of mine was on an IO; I advised him about 8 years ago to pay as much off as he could, especially as his wife is a rapid spender and if there is a thousand quid in the bank balance she'd go out and blow it on shoes.

He's dropped the mortgage by more than half.  I'm hoping it will get him through whats coming.

His mother in law is insanely rich, triple jabbed, and has a heart condition.  I'm really hoping for his sake she snuffs it before she goes into a home.

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WICAO

Here in Aus from what I've read today all the big banks are passing the full RBA 0.25% increase from yesterday on.  

What does that mean?  Firstly, not claiming to be knowledgeable as I'm paying cash for the home I'm building so take everything below with a pinch of salt. 

As an example, the Commonwealth Bank (first bank listed in the article I read) which as I understand it is one of the bigger Australian banks has their Standard Variable Rate currently at 4.55% (if you don't have one of their "wealth packages").  So on the 20 May that should increase to 4.8%. 

In comparison their fixed rates (again without wealth package) are currently 3.14% for a 1 year fix through to 4.64% for a 5 year fix.

They also have an "Extra Home Loan" at 2.19% which claims a Life of Loan discount for lower loan to value ratios but at a quick glance I can't quite make sense of it all and TBH it means nothing to me so I'm not going to spend time figuring it out.  I guess that will have 0.25% added to it.

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wherebee
25 minutes ago, WICAO said:

Here in Aus from what I've read today all the big banks are passing the full RBA 0.25% increase from yesterday on.  

What does that mean?  Firstly, not claiming to be knowledgeable as I'm paying cash for the home I'm building so take everything below with a pinch of salt. 

As an example, the Commonwealth Bank (first bank listed in the article I read) which as I understand it is one of the bigger Australian banks has their Standard Variable Rate currently at 4.55% (if you don't have one of their "wealth packages").  So on the 20 May that should increase to 4.8%. 

In comparison their fixed rates (again without wealth package) are currently 3.14% for a 1 year fix through to 4.64% for a 5 year fix.

They also have an "Extra Home Loan" at 2.19% which claims a Life of Loan discount for lower loan to value ratios but at a quick glance I can't quite make sense of it all and TBH it means nothing to me so I'm not going to spend time figuring it out.  I guess that will have 0.25% added to it.

It means the monthly mortgage payments which borrowers on flexible rates pay will increase.  On a 100k loan balance, that  would be about 1100 monthly going up to 1150 monthly.  Of course, that depends on mortgage term remaining, and the terms of the loan.

So it's not a big change - yet.  But there are plenty of people in Oz, especially Sydney and Melbourne, who have mortgages of 1M+.  Now THAT sees payments of 5500 go up to 5800.  That's going to sting a bit more.

The real fun starts when the real rate rises kick in.  What if rates go to 8%?  Not unthinkable before end of year.  Then the 1M mortgage payer starts having to find 2500 extra PER MONTH.  12%? 5000 extra PER MONTH.

Go long on debt collectors and the like.

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WICAO
Posted (edited)
1 hour ago, wherebee said:

It means the monthly mortgage payments which borrowers on flexible rates pay will increase.  On a 100k loan balance, that  would be about 1100 monthly going up to 1150 monthly.  Of course, that depends on mortgage term remaining, and the terms of the loan.

So it's not a big change - yet.  But there are plenty of people in Oz, especially Sydney and Melbourne, who have mortgages of 1M+.  Now THAT sees payments of 5500 go up to 5800.  That's going to sting a bit more.

The real fun starts when the real rate rises kick in.  What if rates go to 8%?  Not unthinkable before end of year.  Then the 1M mortgage payer starts having to find 2500 extra PER MONTH.  12%? 5000 extra PER MONTH.

Go long on debt collectors and the like.

...and at those insane higher borrowings the punters firstly have to pay their high rates of tax, medicare surchages etc before they can pay the mortgage.  So in reality they wouldn't have to find $2,500 per month at 8% but actually closer to $5,000 per month!!

It scares the hell out of me just thinking about it.

Edited by WICAO
Can't do maths.
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You can see from the calc that a doubling is not likely today, but maybe later as people drop off their introductory rates.

In certain circumstances though it could happen. Longer mortgage terms have more interest exposure.

For instance borrowing £250k at 1.5% for 35 years is £766. If the SVR hits 6%, which it could do by the end of the year, then that is £1,426.

So the most vulnerable to this price shock are those on long mortgage terms,high leverage and low savings, added to over-paying in local market. Those face the pain of not being able to remortgage to a longer term to reduce their costs, and due to LTV may not be able to remortgage anyway. If they sell their equity is gone. Checkmate. The only hope is a prop but politically how are you gonna give one out if others are struggling to pay for heat and food?

Personally I don't think the financial literacy of the average person is very high. If you went out on the street and asked about interest rates I bet well over half of people have no idea that base rate is almost certain to go up 25bp tomorrow, let alone projections for the end of the year.

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WICAO
3 hours ago, Boon said:

...

Personally I don't think the financial literacy of the average person is very high. If you went out on the street and asked about interest rates I bet well over half of people have no idea that base rate is almost certain to go up 25bp tomorrow, let alone projections for the end of the year.

I think it's far worse than that.  What portion of the population can't even calculate a simple percentage of something let alone understanding how compound interest, mortgages and interest rates work...

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Posted (edited)
5 hours ago, A_P said:

Have a play around with this https://www.drcalculator.com/mortgage/

Just had a play around with this myself.

In our circumstances interest rates on the mortgage would need to go to 8.5% for our monthly payment to double. The payment itself isn't an issue, however we do not have a "normal" situation. The amount of interest over the remaining period is certainly eye opening. Which opens up some food for thought should interest rates rise this much.

For Harold's 1200 to 2400 here is an example:

 

mortgageexample1.JPG

mortgageexample1.1.JPG

Edited by A_P
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King Penda
On 03/05/2022 at 11:21, spygirl said:

The disastrous will be HTB, coming off low teaser rate, then straight into much higher rates and then getting the 'free' 25% loan weighing more n more, year by year.

Mr n Mrs HTB are normal are young couple, about to start popping kids out, so triply hit - higher SVR, paying for the 25% 'freeby' and down an income.

 

 

And university fees and n increase in pension contributions 

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