Are we on the return to normality?

BikingBud

brownbagsFTB said:

@sammyjammy yes I know, I was referring to government intervention (sorry that wasn’t clear). They’d probably have to come up with a scheme to either discount mortgage rates specifically or freeze them at a certain level. Such a large number of people losing their homes isn’t good for anyone. In the past, they have introduced schemes for people to offset high mortgage rates so there is a precedent 

Isn't that the flat spot on the curve that  has allowed this situation to develop beyond control?

OhWow

MattMattMattUK said:

OhWow said:

MattMattMattUK said:

OhWow said:

When these artificially low interest rates started, one mortgage repayment calculator (BBC?) also showed a warning of what the repayments would be if interest rates rise to 10%.

Interest rates were not "artificially low" any more than they could be "artificially high", the interest rate is set by the BoE, not a natural phenomenon. 

OhWow said:

A 1% rise from a 1% interest rate, was always going to be very painful, especially for those who have only bought in the last few years. At least others had a chance to make hay while the sun shined and were able to reduce the amount they borrowed (I hope).

I doubt many people would care about a rise of 1% to 2% and it would not be painful, however any situation where interest rates rise 5-7% is going to be painful not just for individuals, but for the whole economy. 

It sounds like you have only bought in the last few years? From 2008, the rates dropped lower than I have ever seen. These low rates are not the norm.

It is irrelevant when I bought, norms can change, they have been <2% for 15 years, that means that they have become normal.

OhWow said:

Have a look at this chart and you will see "the whole economy" has lived with much higher interest rates, for decades.

https://www.propertyinvestmentproject.co.uk/property-statistics/uk-interest-rate-history-graph/

If interest rates rise to 5% that will suck more than £240 billion out of the real economy just from mortgage interest, it will have a further impact with linked non-secured debt, corporate debt and the impact on government borrowing. The interest rate matters not if the repayments are affordable, but it matters hugely if it means that instead of spending money in the real economy all people do is pay extra money in debt interest, that is hugely damaging to the economy. 

I am lucky, I could still pay my mortgage if interest rates went north of 10%, but most cannot and many will have to cut back almost all non-essential spending even at 5%. Crippling the economy and saying that it is fine because interest rates were higher thirty or more years ago is idiotic. 

It's unfortunate that some thought that 2% is the norm.The interest rate rises were always "when" and not "if" but the rates are having to rise quickly. Most realised that after a pandemic the economy would come roaring back, but we are now having to cope with the war too.

Interest rate rises are happening to control the rampant inflation and mortgage rates rising very quickly are just a side affect.

OhWow

brownbagsFTB said:

@sammyjammy yes I know, I was referring to government intervention (sorry that wasn’t clear). They’d probably have to come up with a scheme to either discount mortgage rates specifically or freeze them at a certain level. Such a large number of people losing their homes isn’t good for anyone. In the past, they have introduced schemes for people to offset high mortgage rates so there is a precedent 

Paid for by taxes, that would mean that the young people who are renting would have to buy a house for those who couldn't afford to pay their mortgage.

However, the government have the Support for Mortgage Interest for those out of work and on certain benefits. It's a loan with interest, which has to be paid back.

https://www.gov.uk/support-for-mortgage-interest

Putting a charge on the property for the loan to help with the interest payments, means taxpayers get their money back, with interest.

Kim1965

I can remember huge numbers defaulting on mortgage in the early 90s i think.
Mortgage interest rates have been ridiculously low and a generation believe this is the norm. I doubt the government will come to peoples rescue. House price rises have been abnormally high, interest rates will rise house prices will drop. There will be casualties and long periods of negative equity. Chuck in a load of people selling buy to lets... 

Bubblebutt9

You can’t really blame consumers for thinking interest rates of 2% are the norm when that’s all they have really known. As an adult buying a house for the first time 8 years ago base rate was 50bps and it’s not materially changed until now. So people start to get used to low interest rate environments. I always thought the Bank of England would increase rates steadily when the economy started to recover properly. But now it seems they want to stop inflation getting out of control which has been caused by energy and fuel costs rising too rapidly. These are essential commodities that consumers need to buy so raising interest rates won’t work the energy crisis needs to be fully tackled first. 

dander

Kim1965 said:

I can remember huge numbers defaulting on mortgage in the early 90s i think.
Mortgage interest rates have been ridiculously low and a generation believe this is the norm. I doubt the government will come to peoples rescue. House price rises have been abnormally high, interest rates will rise house prices will drop. There will be casualties and long periods of negative equity. Chuck in a load of people selling buy to lets... 

Yes, I remember buying my first flat in 1993, I was right at the cheapo end of things and almost everything I went to see was a repossession. I remember lots of places had the kitchens, boilers, anything worth a bit of money, torn out as the owners tried to salvage something. Offered once and had the deal fall through before I bought on my second go, and both times I saw that the previous owners had paid over twice what the flats were now on the market for.  I probably lived in that flat for 5 or more years before its value returned to what the previous owners had paid for it. I was on a 12% interest rate so I bought when things were getting better! Of course I had a mis-sold endowment mortgage too, but that's a whole other story! 

I don't believe the government will rescue anyone now any more than they did then. It's just middle-class personal finances at the end of the day - not their problem.  Energy is different, that is life and death and disproportionately affects the poorest people. 

Kim1965

I seem to remember the huge spike in house prices driven by the ending of double miras relief. 
 I can see a lot of low end housing becoming available as landlords offload properties, rather than sorting the epc rating to c. A correction may help first time buyers. 

Newheight13

5 man tent from Argos on a 9 months interest free credit seems the best deal out the now. 

Aberdeenangarse

I believe the days of ultra low Interest rates are behind us. Rates of around 5% will be the new norm.