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


haroldshand

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King Penda
2 hours ago, A_P said:

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

This is why I paid my hovel off in just over 6 years instead of 17.I’d saved 12k  doing that at 4% or less.if rates hit 6% plus I’ve saved a lot more

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4 minutes ago, King Penda said:

This is why I paid my hovel off in just over 6 years instead of 17.I’d saved 12k  doing that at 4% or less.if rates hit 6% plus I’ve saved a lot more

This is the thing. If rates do hit 6% what are savings rates going to be and more importantly the real rate of inflation?

We could pay the small mortgage off at any time. For now we have 2.5 years at 2%. Anything around 4-5% I'll stick. Above that then I'll get rid. Should be some good deals around if we 6+% but I can't see it myself for now.

Well done on paying the 🏠 off btw!

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Bobthebuilder
50 minutes ago, A_P said:

We could pay the small mortgage off at any time. For now we have 2.5 years at 2%. Anything around 4-5% I'll stick. Above that then I'll get rid. Should be some good deals around if we 6+% but I can't see it myself for now.

If you have the cash to pay it off, then I would look at an offset mortgage. I set one up about 4 years ago and I really like the flexibility that it offers. Sometimes I use the cash in the offset to pay the monthly payment if I am a bit short on cash that month, otherwise I stick the monthly amount into my stocks and shares ISA, or put towards some home improvements.

Since I set mine up I have saved around £10k in interest payments. Paid for my doors and windows.

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18 hours ago, WICAO said:

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...

Anecdote. I ordered a 1l bottle of vodka for £16 from Tesco. I always say no substitutes. As I was unpacking I find a 75cl bottle of vodka. "What's this?", I ask. They had run out of the 1l bottles but not to worry because this one was cheaper at £15.50!

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haroldshand

I have finally got off my backside and got pen to paper and done a few sums myself.

Looking at say the old fashioned variable mortgage because I am totally flummoxed on the dozens of  method payments and gimmicks you kids have these days. If say someone with a £200,000 mortgage sees their rate jump to 3.0% on average due to whats  now being predicted then I calculate that they will be paying an extra £600 per month thereabouts.

OK, it's not pleasant along with rising inflation that could well be stretching home owners another £300-500 per month come next year and where they will now have to find an extra £1,000 per month(including extra mortgage payments) probably in 2023.

But on the whole I can see with a few cut backs most people getting through this with just a little pain?

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spygirl
11 minutes ago, haroldshand said:

I have finally got off my backside and got pen to paper and done a few sums myself.

Looking at say the old fashioned variable mortgage because I am totally flummoxed on the dozens of  method payments and gimmicks you kids have these days. If say someone with a £200,000 mortgage sees their rate jump to 3.0% on average due to whats  now being predicted then I calculate that they will be paying an extra £600 per month thereabouts.

OK, it's not pleasant along with rising inflation that could well be stretching home owners another £300-500 per month come next year and where they will now have to find an extra £1,000 per month(including extra mortgage payments) probably in 2023.

But on the whole I can see with a few cut backs most people getting through this with just a little pain?

If it was just IR and the increase stops at 3% then maybe.

However ...

IR tend to rise, economies slow, jobs lost, cost if stuff goes up.

The economy and peoples finances arent simple one variable  equations.

The biggest fallout isnt going to be increasing mortgages, itll be cost if givernmrnt debt and the cuts in public sector and benefits.

35% of UK households gave mortgages attached.

However over 50%+ rely on ukgov ott spending one way or another.

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13 hours ago, Bobthebuilder said:

If you have the cash to pay it off, then I would look at an offset mortgage. I set one up about 4 years ago and I really like the flexibility that it offers. Sometimes I use the cash in the offset to pay the monthly payment if I am a bit short on cash that month, otherwise I stick the monthly amount into my stocks and shares ISA, or put towards some home improvements.

Since I set mine up I have saved around £10k in interest payments. Paid for my doors and windows.

We did consider an off-set at the time, however, decided to go for a standard fix and plow the excess into a broad spectrum of investments. I think if we had gone for it our focus would have been more on filling the off-set up. Happy to continue as is for now. We are in bit of a unique position in that we do not have children, <40, cheap COL area, multiple income streams and have no lifestyle creep.

8 minutes ago, haroldshand said:

I have finally got off my backside and got pen to paper and done a few sums myself.

Looking at say the old fashioned variable mortgage because I am totally flummoxed on the dozens of  method payments and gimmicks you kids have these days. If say someone with a £200,000 mortgage sees their rate jump to 3.0% on average due to whats  now being predicted then I calculate that they will be paying an extra £600 per month thereabouts.

OK, it's not pleasant along with rising inflation that could well be stretching home owners another £300-500 per month come next year and where they will now have to find an extra £1,000 per month(including extra mortgage payments) probably in 2023.

But on the whole I can see with a few cut backs most people getting through this with just a little pain?

You didn't want to use the tool I provided then? O.o

Yes I suspect most will get through as they always do. Ultimately it is one less PCP on the drive and/or one less holiday a year. A fine balancing act as things seesaw, however, there is always an equilibrium as spare money finds a home.

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haroldshand
8 minutes ago, spygirl said:

If it was just IR and the increase stops at 3% then maybe.

However ...

IR tend to rise, economies slow, jobs lost, cost if stuff goes up.

The economy and peoples finances arent simple one variable  equations.

The biggest fallout isnt going to be increasing mortgages, itll be cost if givernmrnt debt and the cuts in public sector and benefits.

35% of UK households gave mortgages attached.

However over 50%+ rely on ukgov ott spending one way or another.

I totally agree with you and I am old enough to know that these things snowball and branch off into various other issues like extended two wage households becoming one or commissions dropping etc etc.

That's why I am asking the question and wanting to hear others views as I know these things  always morph into something different than before like I believe this time there could well be no welfare state to speak of because of it being abused while the UK was "booming" and those that actually paid into that insurance policy paid for a welfare lifestyle of millions of layabouts already.

Or the BTL highly leveraged business, how will that pan out?

So many questions that will make the next recession different to the one in the 1980's and 1990's

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haroldshand
5 minutes ago, A_P said:

We did consider an off-set at the time, however, decided to go for a standard fix and plow the excess into a broad spectrum of investments. I think if we had gone for it our focus would have been more on filling the off-set up. Happy to continue as is for now. We are in bit of a unique position in that we do not have children, <40, cheap COL area, multiple income streams and have no lifestyle creep.

You didn't want to use the tool I provided then? O.o

Yes I suspect most will get through as they always do. Ultimately it is one less PCP on the drive and/or one less holiday a year. A fine balancing act as things seesaw, however, there is always an equilibrium as spare money finds a home.

I am old school mate and like pen and paper combined with old codger experience, but I will have a play with it.

Thanks

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spygirl
8 minutes ago, haroldshand said:

I totally agree with you and I am old enough to know that these things snowball and branch off into various other issues like extended two wage households becoming one or commissions dropping etc etc.

That's why I am asking the question and wanting to hear others views as I know these things  always morph into something different than before like I believe this time there could well be no welfare state to speak of because of it being abused while the UK was "booming" and those that actually paid into that insurance policy paid for a welfare lifestyle of millions of layabouts already.

Or the BTL highly leveraged business, how will that pan out?

So many questions that will make the next recession different to the one in the 1980's and 1990's

BTL is insane leverage and limited investment.

Itll blow up.

Its would have in 2008, if the CBs had not gone down the folly of ZIRP.

Tope rated comment from article on EU bondsrising - 

At this point I ask, What is the point of all the QE?
The major issue is that it did not help Greece and Italy by giving them time to make structural reforms, cut red tape and make productive investments to jumpstart the economy. Italy ranks in many “doing business” rankings in some aspects still on par with some Central Asian or Latin American countries.
Instead Italian debt to gdp swelled from 120% in 2012 to over 150% today while annual GDP growth rates produced a black zero.
In other words, Italy spent 30% more than it produced over that time period yet it did not lead to more & sustainable economic growth (imagine investments in infrastructure, education, softening the impact of labor market reforms etc.).
In that regard, QE has by now proven to be a harmful tool by creating moral hazzard and actually slowing down the need to enact reforms. Politicians are provided with a free lunch - to the contrary, the more nonsense you do the more you can extort the ECB because it will do “whatever it takes”. QE should be abandoned immediately in the EZ and the ECB must be reformed to create real independence.
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sarahbell
On 04/05/2022 at 00:45, wherebee said:

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.

Are there station care home numbers and independent care?

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Axeman123
1 hour ago, haroldshand said:

I have finally got off my backside and got pen to paper and done a few sums myself.

Looking at say the old fashioned variable mortgage because I am totally flummoxed on the dozens of  method payments and gimmicks you kids have these days. If say someone with a £200,000 mortgage sees their rate jump to 3.0% on average due to whats  now being predicted then I calculate that they will be paying an extra £600 per month thereabouts.

OK, it's not pleasant along with rising inflation that could well be stretching home owners another £300-500 per month come next year and where they will now have to find an extra £1,000 per month(including extra mortgage payments) probably in 2023.

But on the whole I can see with a few cut backs most people getting through this with just a little pain?

I know more than one couple with mortgages around that level, where one partner has confided that they only have something like £300-500 per month left between them after direct debits. I think that is pretty common, so even a fraction of that as an increase on DDs either means no holidays or running up credit cards etc. The negative impact is multiplied by the tightness of many peoples' capacity for  discretionary spending.

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Axeman123

Here is a link to the Guardian via Yahoo finance:

https://uk.finance.yahoo.com/news/bank-england-rate-rise-means-133903882.html

"What the Bank of England’s base rate rise means – in numbers"

Choice quote on the direct impact of today's rate rise on mortgages:

"£504 How much more a £200,000 variable rate mortgage will cost each year as a result of today’s increase, according to figures from UK Finance. It says a 25 basis points rise in rates adds £42 a month to repayments"

Up until 13th December base rate was 0.1%, that implies a total £151/month* increase for the above example over the period (assuming the lender passed rises on in full). For a lot of people that will be noticed.

More info, this time on tracker mortgages:

"841,000 Number of borrowers on a tracker mortgage. These have an interest rate linked to the base rate so will definitely increase in cost – probably from next month. UK Finance says the average balance on a tracker mortgage is £121,034.

£25.22 How much more a month the average tracker mortgage will cost as a result of the latest increase."

*0.9x(42x4)

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Yadda yadda yadda
7 hours ago, Axeman123 said:

I know more than one couple with mortgages around that level, where one partner has confided that they only have something like £300-500 per month left between them after direct debits. I think that is pretty common, so even a fraction of that as an increase on DDs either means no holidays or running up credit cards etc. The negative impact is multiplied by the tightness of many peoples' capacity for  discretionary spending.

They're fucked. Unless they're fixed for a long time.

Lots of people will struggle for years but wages rising, even if behind inflation, will slowly get them through it. A couple with £500 per month after bills can't find many savings. Eating value range food is about all they will be able to do.

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haroldshand
4 hours ago, Axeman123 said:

Here is a link to the Guardian via Yahoo finance:

https://uk.finance.yahoo.com/news/bank-england-rate-rise-means-133903882.html

"What the Bank of England’s base rate rise means – in numbers"

Choice quote on the direct impact of today's rate rise on mortgages:

"£504 How much more a £200,000 variable rate mortgage will cost each year as a result of today’s increase, according to figures from UK Finance. It says a 25 basis points rise in rates adds £42 a month to repayments"

Up until 13th December base rate was 0.1%, that implies a total £151/month* increase for the above example over the period (assuming the lender passed rises on in full). For a lot of people that will be noticed.

More info, this time on tracker mortgages:

"841,000 Number of borrowers on a tracker mortgage. These have an interest rate linked to the base rate so will definitely increase in cost – probably from next month. UK Finance says the average balance on a tracker mortgage is £121,034.

£25.22 How much more a month the average tracker mortgage will cost as a result of the latest increase."

*0.9x(42x4)

The biggest unknown is going to be a struggling housing market, it's not for no reason the BOE and politicians have thrown everything at saving it because it will damage so many other areas of the economy

Really sad thing is that many will get the blame like the BOE's Bailey who just happen to be here for D Day, but it really should be Tony Blair being hung up

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Axeman123
47 minutes ago, haroldshand said:

The biggest unknown is going to be a struggling housing market, it's not for no reason the BOE and politicians have thrown everything at saving it because it will damage so many other areas of the economy

It is too big to bail IMO, regardless of the pain it will cause. There are certainly a lot of people out there thinking that they are set for life about to get a wakeup call if the bottom falls out of property.

49 minutes ago, haroldshand said:

Really sad thing is that many will get the blame like the BOE's Bailey who just happen to be here for D Day, but it really should be Tony Blair being hung up

He could have called out the lunacy of house prices rising in a pandemic/lockdown, even just nipping that in the bud would have lessened the size of the falls to come in many parts of the UK. Some people that would have merely gotten banged up on one house took the opportunity to get themselves killed instead on a larger or second home off the back of that last housing mad melt-up.

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sarahbell
13 hours ago, Axeman123 said:

I know more than one couple with mortgages around that level, where one partner has confided that they only have something like £300-500 per month left between them after direct debits. I think that is pretty common, so even a fraction of that as an increase on DDs either means no holidays or running up credit cards etc. The negative impact is multiplied by the tightness of many peoples' capacity for  discretionary spending.

Because they have other debt?

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haroldshand
7 hours ago, sarahbell said:

Because they have other debt?

The one thing that stood out for me in the late 1980's/early 90's were how many people were happily swimming with no trunks on until the tide went way out and they were found out.

When everything seems fine with the economy you can get away with problem debt and forever conceal it to others, but recession expose you to everyone like I found back then

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Axeman123
7 hours ago, sarahbell said:

Because they have other debt?

Generally at least one of: PCP cars, childcare to enable both to work, or household stuff/renovations on some form of credit.

5 minutes ago, haroldshand said:

The one thing that stood out for me in the late 1980's/early 90's were how many people were happily swimming with no trunks on until the tide went way out and they were found out.

When everything seems fine with the economy you can get away with problem debt and forever conceal it to others, but recession expose you to everyone like I found back then

It is like the story of the grasshopper and the ant, not only do they get away with it many of them want to tell other people it is foolish not to join in!

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spygirl
14 hours ago, Yadda yadda yadda said:

They're fucked. Unless they're fixed for a long time.

Lots of people will struggle for years but wages rising, even if behind inflation, will slowly get them through it. A couple with £500 per month after bills can't find many savings. Eating value range food is about all they will be able to do.

Fixed for a long time - 5-10 years *and* overpaying a fair chunk - 2% a year.

Again, in the North theres been  a golden period to get a house for cheap- 40% deposit, 10y fix, 3% overpayment for 5/10 years.

Stick price - 200k, deposit 40k, fix at 2% ~700/m mortgage plus 500/m overpayment. Treat the overpayment as an investment.

Doable as a couple.

Mortgage destroyed before the fix ends.

 

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spygirl
51 minutes ago, haroldshand said:

The one thing that stood out for me in the late 1980's/early 90's were how many people were happily swimming with no trunks on until the tide went way out and they were found out.

When everything seems fine with the economy you can get away with problem debt and forever conceal it to others, but recession expose you to everyone like I found back then

Sounds made up but a bloke I worked with in 1991 was going out a millionaires' daughter - the Dad ran a number of office window cleaners, the mother hired n watered plants, all up the M4 corridor. 

Massive house - and mortgage.

Several cars.

 By 1993 the family were living in a caravan.

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goldbug9999
Posted (edited)

The real question is - what is the maximum rate at which the government can still afford to fund its deficit spending ?. Doubtful that the BoE will raise rates above that level under any circumstances. 

Rough calculation that each % point IR is £3 billion additional debt servicing cost on a years deficit.  So at 3% IR were its looking at nearly an extra £10 billion a year, and the starting point is what £45 billion.

So it looks like above 2 or 3% it gets into a death spiral of debt servicing costs OR it can massively curtails spending by say 200 billion to reduce the deficit.

* note the above does not factor in any existing debt rollover (gilt expiry) which would also presumably have to be refinanced at the higher cost.

Edited by goldbug9999
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haroldshand
7 hours ago, goldbug9999 said:

The real question is - what is the maximum rate at which the government can still afford to fund its deficit spending ?. Doubtful that the BoE will raise rates above that level under any circumstances. 

Rough calculation that each % point IR is £3 billion additional debt servicing cost on a years deficit.  So at 3% IR were its looking at nearly an extra £10 billion a year, and the starting point is what £45 billion.

So it looks like above 2 or 3% it gets into a death spiral of debt servicing costs OR it can massively curtails spending by say 200 billion to reduce the deficit.

* note the above does not factor in any existing debt rollover (gilt expiry) which would also presumably have to be refinanced at the higher cost.

 

doomed.webp

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haroldshand

https://www.telegraph.co.uk/business/2022/05/08/borrowed-time-bad-will-housing-crash-finally-comes/

Here is one for the bears and where with this article which is the most bearish yet in the DT in recent weeks and they have had plenty lately it's hysterical reading the comments and obvious anger directed  at the Daily Telegraph for daring to suggest such a thing. But this is the funny bit and where so many of them are full of  shit, so many of the comments start off with "of course I am angry at the mass uncontrolled immigration" then go onto say "it's for that reason house prices will never fall and you should say that in your article". Basically they are hoping for mass immigration and even betting on it as they shed their crocodile tears, these people would over populate Britain with 100 Million in order to profit in the housing market.

Of course there is the chance they could be right

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Frank Hovis
On 08/05/2022 at 09:12, goldbug9999 said:

The real question is - what is the maximum rate at which the government can still afford to fund its deficit spending ?. Doubtful that the BoE will raise rates above that level under any circumstances. 

Rough calculation that each % point IR is £3 billion additional debt servicing cost on a years deficit.  So at 3% IR were its looking at nearly an extra £10 billion a year, and the starting point is what £45 billion.

So it looks like above 2 or 3% it gets into a death spiral of debt servicing costs OR it can massively curtails spending by say 200 billion to reduce the deficit.

* note the above does not factor in any existing debt rollover (gilt expiry) which would also presumably have to be refinanced at the higher cost.

 

You're however basing that upon a £304bn deficit for 2020/21 which was highly unusual and down to Covid lockdown.

The graph below was forecasting from 2017 on.  It's arguable but I would say that a typical deficit would be £40bn with each percentage point being then £400m extra.

Government debt March 2021 was £2,224.5bn so a 30th (rough average of gilt issuance maturing each year) of that is £74bn meaning £740m extra per percentage point.

This is a combined £1.14bn additional cost per percentage point increase.

I may be hugely debt averse but i don't see that the government has an imminent problem now that furlough, track and trace, business loans and all the other costs of lockdown have been mostly done away with.

 

image.png.fcfcbf3c0f1269c036321e7572854780.png

Government debt link.

https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/march2021

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