Fixed rate mortgages below 2% axed from the market as interest rates continue to rise

themoomins

Great thread with some interesting points. My opinions

People think the gov/BoE won't raise interest rates very high to protect the housing market.  I think this is false hope. Unless another mechanism can be found to control inflation then they will absolutely sacrifice the housing market for the rest of the economy and the future of the GBP.  It already happened 30 years ago and the pain was brutal but relatively short term. Turkey is a good example of spiralling inflation (in the past).  My old Turkish friend told me they had to remove a number of zeroes from the Lira back in about  2002 because you were having to calculate relatively low prices in the millions!  It looks like Turkey is going down the same path again.

The other thing is the overpaying of mortgages.  I get the financial mechanics of letting inflation eat away at the debt but it is not that simple.  Current interest rates are well below real inflation and won't catch up any time soon.  My current fix is about 1.5% ending in 2025. If my earnings don't keep up with inflation (if by that point I still have a job), and if my savings aren't keeping up with inflation, then I'll be in a far better position if I have paid off my mortgage when it comes to the end of the fix.  It is the overall package of having the security of a fully paid up house, knowing you can't lose it and knowing you won't be paying triple (or maybe worse) as your income flatlines.  Ensuring a good amount of savings in addition to this plus keeping all my shares whilst they are low knowing they will eventually go back up means I have all bases covered, whilst working hard to pay that (relatively small) mortgage down.

Getting_greyer

This time next year base rate will be lower. Heard it hear first.

Slithery

The bass rate is looking slappier than ever according to this recent video...

https://www.youtube.com/watch?v=nFZ92XikftU

Sarah1Mitty2

Thrugelmir said:

Sarah1Mitty2 said:

Thrugelmir said:

Sarah1Mitty2 said:

Thrugelmir said:

Sarah1Mitty2 said:

Thrugelmir said:

Sarah1Mitty2 said:

Thrugelmir said:

Sarah1Mitty2 said:

Thrugelmir said:

lookstraightahead said:

This should be of no surprise to anyone. No one should get into any type of trouble as the banks 'stringent affordability checks' are watertight (😏🙄). 

Onus is placed on the banks to factor in affordability by the regulator. How people choose to spend their disposable income is up to them. When the squeeze hits won't be the mortgage lenders that suffer a downturn in trade. 

People have been saying that the squeeze is coming for years, but I thought lending tended to drop during recessions, or is that incorrect?

Lending is already tailing away. Doesn't require a recession for consumers to sit on their hands. Inflation is the real problem currently. 

If it is doesn`t that mean that mortgage lenders won`t do so well, I would have thought that they did better in the good times and any squeeze would affect them?

Lenders have the ability to widen their margins. With more business now driven through mortgage brokers. Lenders have changed their business models and reduced their fixed cost base. 

Cutting staff you mean?

No need to cut staff. The business model evolved some years ago with the introduction of the Mortgage Market Review regulations. 

What happened with that?

It was implemented. To avoid a repeat of the poor lending practices that some lenders adopted (i.e. Northern Rock, Halifax) in the run up to the GFC. 

So lending only to those with the best credit ratings you mean, wouldn`t that make it even more difficult for lenders to make money in a downturn?

Not at all. I'm reminded of this. 

The Worst Bank in the World? HBOS’s Calamitous Seven Year Life

http://www.ianfraser.org/the-worst-bank-in-the-world-hboss-calamitous-seven-year-life/

Very interesting link, thanks.

Richiem1987

Thrugelmir said:

Richiem1987 said:

Looking at a 2 base point rise, bringing the base rate to 1.5%. Noises from the BoE suggest rate rises are going to need to rise sharply. It may well go 1.5%, then 2.75%, 4% followed by 6% going into next year. The problem will be reposession rates rising at a dramatic rate, affordability tests failing (due to direction of interest rates) leaving only cash buyers in the market is going to have an affect and could push many into mortgage jail with negative equity. Not saying there will be a crash, just a correction. Going to be a bumpy ride. 

Market prices will fall until an equilbrium is reached. Property is a conveyor belt. With people falling off the top while others join at the bottom. Corrections can be progressive. While many people just sit on their hands and delay their plans. 

Indeed, I went into it knowing the risk, but couldn't wait any longer, had the money in the bank and pressed the button

Thrugelmir

Richiem1987 said:

Thrugelmir said:

Richiem1987 said:

Looking at a 2 base point rise, bringing the base rate to 1.5%. Noises from the BoE suggest rate rises are going to need to rise sharply. It may well go 1.5%, then 2.75%, 4% followed by 6% going into next year. The problem will be reposession rates rising at a dramatic rate, affordability tests failing (due to direction of interest rates) leaving only cash buyers in the market is going to have an affect and could push many into mortgage jail with negative equity. Not saying there will be a crash, just a correction. Going to be a bumpy ride. 

Market prices will fall until an equilbrium is reached. Property is a conveyor belt. With people falling off the top while others join at the bottom. Corrections can be progressive. While many people just sit on their hands and delay their plans. 

Indeed, I went into it knowing the risk, but couldn't wait any longer, had the money in the bank and pressed the button

Totally agree. If you view and treat a property as a home and not a investment. Then you'll never question your decision. 

Sarah1Mitty2

https://www.msn.com/en-gb/money/other/martin-lewis-raises-alarm-on-fixed-rate-mortgages-ticking-timebomb/ar-AAXI0ok?ocid=uxbndlbing

redundantmortgage

I looked at mortgage rates a couple of days ago and saw I could fix at 2.39% for 10 years. That's not much more than I paid when I took out my mortgage over 5 years ago which was definitely cheaper than a 10 year fix. A 10 year fix back then was possibly more than it is now.

The point is that if the banks really thought interest rates would hit double digits in the near future then they wouldn't be offering people 10 year fixes at 2.39%.

For the people who say they lived through the 'dark days' of double digit interest rates, instead of arguing whether it was easier or more difficult back then perhaps you could advise what you would do if you had a 6 figure mortgage and interest rates were to hit double digits.

Thrugelmir

redundantmortgage said:

The point is that if the banks really thought interest rates would hit double digits in the near future then they would be offering people 10 year fixes at 2.39%.

Banks make a margin on what they lend. The BOE base rate is of no consequence. What matters is the cost to the bank of the funding. If it's fixed for 10 years then so is the bank's profit margin. With a 10 year fix less ongoing costly administration. 

Sarah1Mitty2

Thrugelmir said:

redundantmortgage said:

The point is that if the banks really thought interest rates would hit double digits in the near future then they would be offering people 10 year fixes at 2.39%.

Banks make a margin on what they lend. The BOE base rate is of no consequence. What matters is the cost to the bank of the funding. If it's fixed for 10 years then so is the bank's profit margin. With a 10 year fix less ongoing costly administration. 

How can a bank fix it`s funding costs for ten years?