I'm terrifed! Like many!

IvyFlood

fewcloudy said:

Lots of terrified people, lots predicting higher and higher interest rates.
Be careful of acting in panic.
Bank of England will intervene and do things unexpected, or government will.
Many events causing this could change in the next year and finding yourself on a 10yr fix based on today's rates might be an awful position to be in 2yrs down the line.

I think we'd only fix for 5...

CSL0183

fewcloudy said:

Lots of terrified people, lots predicting higher and higher interest rates.
Be careful of acting in panic.
Bank of England will intervene and do things unexpected, or government will.
Many events causing this could change in the next year and finding yourself on a 10yr fix based on today's rates might be an awful position to be in 2yrs down the line.

That’s true, risk averse. 

Doubtful the base rate will ever return to the lows we have all enjoyed. The Covid pandemic and the fallout will last many many years. That money (debt) needs to be paid back. 

Nationwide made a bold move last night, new mortgages for new customers today up at close to 6%. 

I would never fix for 10 personally as generally you increase equity; decrease LTV and get access to better rates but that only works if you start off at 90-95% and work your way down to <60-%. 

The question for most is, 2 or 5. Will 2 be enough to recover from the Pandemic, debt, energy, Ukraine and the plunging £ or will 5 be the better choice. 

For the reasons you mention, knee jerk at 10 may come back to bite when they drop again but what if they don’t and 3% BOE BR is the new norm? Fixing for 10 may turn out to be a great move when you look back 10yr from now. We have all been fortunate with mega low rates the last decade that we all think that was normal and todays 2,3,4% is abnormal.  

Seraphi

fewcloudy said:

Lots of terrified people, lots predicting higher and higher interest rates.
Be careful of acting in panic.
Bank of England will intervene and do things unexpected, or government will.
Many events causing this could change in the next year and finding yourself on a 10yr fix based on today's rates might be an awful position to be in 2yrs down the line.

I don't think the Bank of England or the Government are going to intervene to save people from high mortgage rates if interest rates rise.

It's fair to point out that the mini-budget hasn't actually been voted through yet. Should Conservative MPs rebel and vote it down, then forecasts being made today would change and would be a more favourable.

Personal opinion, but I don't think anyone who locks into a 3.5% rate today is going to regret it in 2 years given where interest rates are inevitably going to go due to inflation - even without the effects of the mini-budget.

PK_London

I think mortgages rates up to 5% are sadly just about reasonable today. Inflation is probably well over 10% and will remain high so i don't see rates dropping. Banks up until recently stress tested people to see if they could afford a rise of at least 4% over their current rates so 99% of mortgage holders should be fine even with todays rates. The worry is how high they go. It might be worth paying the ERC to lock in todays rates for 5yrs. I'll be astonished if base rates dont rise by another 0.5% come November.

Having said that - don't panic into making a rush decision. Its possible the BOE does something to calm markets which may reduce rates. As things stand today I think any offer at or below 5% is seriously worth considering 

MattMattMattUK

PK_London said:

IvyFlood said:

Our 5 year fixed term (Nationwide) ends next September and we can only avoid ERC in the 3 months prior, so July. We don't actually know if we want to remortgage as I didn't realise you need to go through all the conveyancing again but depends what deal we get.

Regardless, I am absolutely terrified of what the rates will be next July. I had heard about some lenders offering deals that last 6 months so we could start looking Feb 23 ready for July 23.

We borrowed 165k and as of today we owe 143k, 18 years left next September.

I realise we'd all be millionaires if we knew, but what will things be like next year?! I've heard some right horror stories. Should we sit tight in the hope things might have calmed down or is that wishful thinking?! OR I don't know if its worth paying ERC (approx. £1400) and securing a new deal now, but then I heard that some lenders are halting new deals so not even sure about that!

Its a very scary time!

I'm terrified too. Without getting all political, with energy prices where they are and the cap the government is funding, I dont see how they can borrow less. Rolling back on the taxes might make some impact on the value of the pound but not enough to mitigate circa 5-6% interest rates.

It depends what you are looking at, the general fiscal irresponsibility of borrowing billions to cut taxes, as well as the tax cuts themselves is probably responsible for 2-3% of the interest rate rises. Predictions before their stupidity were for 3-4% by the end of next year, current predictions are 6% or more with the extra being down the government's choices. If the tax cuts were cancelled and even reversed and 2% was put on the higher and additional rate bands and and the previous corporation tax rise was reintroduced then we could probably hold interest rates under 5%, but if anything Truss/Kwarteng seem likely to announce more tax cuts. 

PK_London said:
I dont even think Labour's policies would make much of an impact.

General fiscal responsibility would calm markets and reduced the need for 1-2% of the rises.

PK_London said:
I was horrified to see Nationwide pretty much put new product rates up to almost 6% - when the base rate is 2.25%! Goodness know what things will be like in 6-12months when actual base rates are close to 6%. I cant BOE rates going below 2% any time soon. 

Nationwide and other lenders are pricing in much of the expected rise, base rate is likely to be 3.5-4% by the end of Q1, perhaps 5-6% by the end of the year, but if the lenders book that borrowing in early there is still margin on it. Longer term (5/10 years) rates are in the 5.4-5.8% rate which gives you a reasonable idea of where they expect them to be over the next ten ten years, with an average base rate of perhaps 4.5-4.8%. I can't see us having 2% interest rates for at least a decade with the damage Truss is doing to the economy. 

PK_London said:
Sooner or later we're going to have to pay more and see the value of properties decrease as a result.

Current predictions are a 10-15% drop in property prices based on interest rates settling in the 5-8% range, however the supply and demand imbalance means that they are unlikely to fall much more than 20% as an absolute maximum. 

PK_London said:

I dont think the UK government has the power to control inflation and keep rates down. The more they spend the worse it will get. The general advice here seems to be to really see if you can swallow the ERC and remortgage early. You might be paying a bit more now but you have security for the next 5yrs when hopefully rates will be lower again.

The government cannot do a huge amount to bring it down, but it can certainly push it up, as it just did with an inflationary surge due to devaluing the pound. One of the better ways to control inflation would be to restrict borrowing via lending criteria rather than interest rate rises which hugely harm the economy. Reducing the maximum mortgage borrow for new mortgages down to 3.5 times income would be a start, as would a cap on unsecured borrowing, ideally set at no more than 150% of annual income. Reducing the supply of cheap money would constrain inflation but not increasing it's cost would mean it would do far less harm to the real economy. 

Toonartist

fewcloudy said:

Lots of terrified people, lots predicting higher and higher interest rates.
Be careful of acting in panic.
Bank of England will intervene and do things unexpected, or government will.
Many events causing this could change in the next year and finding yourself on a 10yr fix based on today's rates might be an awful position to be in 2yrs down the line.

Depending on the rate you get at 10yr.

I secured 3.7% fixed for 10 years and I was on BoE+2%. Realistically, the BoE int rate would need to be below 1.69% for me to be worse off and even then the amount is a lot smaller than the amount I would have to pay extra if they rise to even 4%. 

If the rates rise to 5% or more, that was pretty much a low average over history, then I really can't see them dropping below 2% again, it's only happened once in 314 years. Virtually all of the time it's been above 4%. Also, if they reach 5-6%, they won't drop the rates down fast as that will most likely over heat economy.

But, it's a guessing game I'm just not banking on rates dropping to the unusually low levels we've had this last decade. My gut feeling is they'll stay around the 4% mark... maybe 3%.

PK_London

MattMattMattUK said:

PK_London said:

IvyFlood said:

Our 5 year fixed term (Nationwide) ends next September and we can only avoid ERC in the 3 months prior, so July. We don't actually know if we want to remortgage as I didn't realise you need to go through all the conveyancing again but depends what deal we get.

Regardless, I am absolutely terrified of what the rates will be next July. I had heard about some lenders offering deals that last 6 months so we could start looking Feb 23 ready for July 23.

We borrowed 165k and as of today we owe 143k, 18 years left next September.

I realise we'd all be millionaires if we knew, but what will things be like next year?! I've heard some right horror stories. Should we sit tight in the hope things might have calmed down or is that wishful thinking?! OR I don't know if its worth paying ERC (approx. £1400) and securing a new deal now, but then I heard that some lenders are halting new deals so not even sure about that!

Its a very scary time!

I'm terrified too. Without getting all political, with energy prices where they are and the cap the government is funding, I dont see how they can borrow less. Rolling back on the taxes might make some impact on the value of the pound but not enough to mitigate circa 5-6% interest rates.

It depends what you are looking at, the general fiscal irresponsibility of borrowing billions to cut taxes, as well as the tax cuts themselves is probably responsible for 2-3% of the interest rate rises. Predictions before their stupidity were for 3-4% by the end of next year, current predictions are 6% or more with the extra being down the government's choices. If the tax cuts were cancelled and even reversed and 2% was put on the higher and additional rate bands and and the previous corporation tax rise was reintroduced then we could probably hold interest rates under 5%, but if anything Truss/Kwarteng seem likely to announce more tax cuts. 

PK_London said:
I dont even think Labour's policies would make much of an impact.

General fiscal responsibility would calm markets and reduced the need for 1-2% of the rises.

PK_London said:
I was horrified to see Nationwide pretty much put new product rates up to almost 6% - when the base rate is 2.25%! Goodness know what things will be like in 6-12months when actual base rates are close to 6%. I cant BOE rates going below 2% any time soon. 

Nationwide and other lenders are pricing in much of the expected rise, base rate is likely to be 3.5-4% by the end of Q1, perhaps 5-6% by the end of the year, but if the lenders book that borrowing in early there is still margin on it. Longer term (5/10 years) rates are in the 5.4-5.8% rate which gives you a reasonable idea of where they expect them to be over the next ten ten years, with an average base rate of perhaps 4.5-4.8%. I can't see us having 2% interest rates for at least a decade with the damage Truss is doing to the economy. 

PK_London said:
Sooner or later we're going to have to pay more and see the value of properties decrease as a result.

Current predictions are a 10-15% drop in property prices based on interest rates settling in the 5-8% range, however the supply and demand imbalance means that they are unlikely to fall much more than 20% as an absolute maximum. 

PK_London said:

I dont think the UK government has the power to control inflation and keep rates down. The more they spend the worse it will get. The general advice here seems to be to really see if you can swallow the ERC and remortgage early. You might be paying a bit more now but you have security for the next 5yrs when hopefully rates will be lower again.

The government cannot do a huge amount to bring it down, but it can certainly push it up, as it just did with an inflationary surge due to devaluing the pound. One of the better ways to control inflation would be to restrict borrowing via lending criteria rather than interest rate rises which hugely harm the economy. Reducing the maximum mortgage borrow for new mortgages down to 3.5 times income would be a start, as would a cap on unsecured borrowing, ideally set at no more than 150% of annual income. Reducing the supply of cheap money would constrain inflation but not increasing it's cost would mean it would do far less harm to the real economy. 

MattMattMattUK said:

PK_London said:

IvyFlood said:

Our 5 year fixed term (Nationwide) ends next September and we can only avoid ERC in the 3 months prior, so July. We don't actually know if we want to remortgage as I didn't realise you need to go through all the conveyancing again but depends what deal we get.

Regardless, I am absolutely terrified of what the rates will be next July. I had heard about some lenders offering deals that last 6 months so we could start looking Feb 23 ready for July 23.

We borrowed 165k and as of today we owe 143k, 18 years left next September.

I realise we'd all be millionaires if we knew, but what will things be like next year?! I've heard some right horror stories. Should we sit tight in the hope things might have calmed down or is that wishful thinking?! OR I don't know if its worth paying ERC (approx. £1400) and securing a new deal now, but then I heard that some lenders are halting new deals so not even sure about that!

Its a very scary time!

I'm terrified too. Without getting all political, with energy prices where they are and the cap the government is funding, I dont see how they can borrow less. Rolling back on the taxes might make some impact on the value of the pound but not enough to mitigate circa 5-6% interest rates.

It depends what you are looking at, the general fiscal irresponsibility of borrowing billions to cut taxes, as well as the tax cuts themselves is probably responsible for 2-3% of the interest rate rises. Predictions before their stupidity were for 3-4% by the end of next year, current predictions are 6% or more with the extra being down the government's choices. If the tax cuts were cancelled and even reversed and 2% was put on the higher and additional rate bands and and the previous corporation tax rise was reintroduced then we could probably hold interest rates under 5%, but if anything Truss/Kwarteng seem likely to announce more tax cuts. 

PK_London said:
I dont even think Labour's policies would make much of an impact.

General fiscal responsibility would calm markets and reduced the need for 1-2% of the rises.

PK_London said:
I was horrified to see Nationwide pretty much put new product rates up to almost 6% - when the base rate is 2.25%! Goodness know what things will be like in 6-12months when actual base rates are close to 6%. I cant BOE rates going below 2% any time soon. 

Nationwide and other lenders are pricing in much of the expected rise, base rate is likely to be 3.5-4% by the end of Q1, perhaps 5-6% by the end of the year, but if the lenders book that borrowing in early there is still margin on it. Longer term (5/10 years) rates are in the 5.4-5.8% rate which gives you a reasonable idea of where they expect them to be over the next ten ten years, with an average base rate of perhaps 4.5-4.8%. I can't see us having 2% interest rates for at least a decade with the damage Truss is doing to the economy. 

PK_London said:
Sooner or later we're going to have to pay more and see the value of properties decrease as a result.

Current predictions are a 10-15% drop in property prices based on interest rates settling in the 5-8% range, however the supply and demand imbalance means that they are unlikely to fall much more than 20% as an absolute maximum. 

PK_London said:

I dont think the UK government has the power to control inflation and keep rates down. The more they spend the worse it will get. The general advice here seems to be to really see if you can swallow the ERC and remortgage early. You might be paying a bit more now but you have security for the next 5yrs when hopefully rates will be lower again.

The government cannot do a huge amount to bring it down, but it can certainly push it up, as it just did with an inflationary surge due to devaluing the pound. One of the better ways to control inflation would be to restrict borrowing via lending criteria rather than interest rate rises which hugely harm the economy. Reducing the maximum mortgage borrow for new mortgages down to 3.5 times income would be a start, as would a cap on unsecured borrowing, ideally set at no more than 150% of annual income. Reducing the supply of cheap money would constrain inflation but not increasing it's cost would mean it would do far less harm to the real economy. 

Thank you for a truly well constructed response Matt. I myself completed my purchase just over a week ago at  5yrs@ 2.29% (although missing the stamp duty reduction by just one day - would have saved me £2k but oh well).

I was watching a video on the inflation event between 1970 and 1980 where the average inflation rate was 10% per year, every year until the end. Interest rates actually continued to rise throughout that decade and house prices - in nominal terms continued to rise in spite of this. In real terms they were probably worth a lot less. However rampant price inflation - and rampant wage inflation pretty much paid people's mortgages off for them that decade.

I think 5yrs from now, house prices will be higher than they are today even if mortgage interest rates are ~8%. People will be earning a lot more too and the house price to wage ratio will be much lower. We are heading towards a new normal of moderate interest rates.

I think houses will be more affordable (if they keep building them) than they are today and efforts are made to curb BTL. 

The real losers in 5yrs time will be cash savers. You can see how the pound has lost so much value already. I think the other major currencies including the USD will follow. A lot of commentators in the US are pointing to the UK as the canary in the coalmine right now.

deejaybee

Markets are panicking at the prospect of a Labour government in a couple of years, so if the Tories get their act togethor and the opinion polls get back to reality, then the markets should calm down..

Toonartist

I think that is a reasonable assessment. What everyone has to remember is what's unusual is not the increase in interest rates now, its the fact that they haven't increased long ago.  As a mortgage underwriter it's something I've just been waiting to happen.

Clues were there at the end of last year, beginning of this, when inflation was at 6% with no sign of the BoE making any concerted effort to lift the rates enough to stamp on it early. It's now just rumbled on and gathered pace with the effects of the Ukraine war on top of the aftermath of Covid.

The recent changes to the taxation didn't really cause it, it was going to happen and would have happened earlier if the government hadn't stepped in with the capping of gas and electric which left unchecked would have added another 5% to inflation leading to an increase in rates anyway.

The timing of the tax cuts is interesting. It no doubt spooked the markets which has seen this sudden panic. It's like everyone suddenly realised what was going to happen while previously heads were a little buried in the sand. Time will tell if the lower taxation move will work to improve growth faster and help us out of the recession before other countries. It certainly is a gamble.

Cheesy77

deejaybee said:

Markets are panicking at the prospect of a Labour government in a couple of years, so if the Tories get their act togethor and the opinion polls get back to reality, then the markets should calm down..

Are you serious? What evidence do you possibly have to make a statement like that?

Even the International Monetary Fund have categorically slandered the policy of the current government. 

Rishi Sunak predicted and publicly stated the markets would react in this way to Truss' proposals during the leadership campaign. He predicted 7% interest rates and IMF emergency intervention if Truss got in. 

But yes it's the markets fearing a Labour government in 2 years....wow