Are we expecting BOE to remain at 4.75% on 8th February 2025?

TonyMMM

I thought rates would stay the same for a couple of months at least, but with today's inflation figure I suspect another .25% rise is now the most likely.

lojo1000

RelievedSheff said:

lojo1000 said:

Quote from a mortgage broker: "Following the most recent rate rise, one leading lender, offering a five-year fixed rate of 6.14% for borrowing at 90%, announced that the stress rate it was now going to use had risen to 10.39%."

That's before today's inflation numbers.

That's nothing new.

Stress testing of around +4% (or more) above the agreed interest rate has been around for years now.

I would like to see some of those completed mortgage applicants stress tests.

How does the conversation go in the mortgage office exactly?....

"Let's assume rates hit 10% and you lose your job and food and shelter inflation remains at 10%....Let's assume the last 20 years of monetary expansion need to come to an end as debt becomes unaffordable.....Let's assume taxes need to rise as govt finances get much worse due to the need to increase welfare payments, tax receipts fall, interest on debt rises dramatically".

"Do you still want to borrow 5x your income"

Applicant's Response: "Yes please, because I really want to get on the property ladder like all those good looking people I see on the internet".

Strummer22

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

lojo1000

Strummer22 said:

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

Is it not a reasonable assumption under a 'stress test' to assume someone would lose their job? 

If a mortgage would be unaffordable if someone loses their job, perhaps the house is too expensive/ LTV too high?

We seem to be in an upside down world where if the mortgage is too expensive, we aim to make the mortgage less expensive by:

- BoE/banks lowering rates
- borrowing from other sources to increase deposit/ reduce the rate
- extending the term
- taking the cheapest mortgage
- assuming everything will be okay

as opposed to assuming the house is too expensive for the applicant.

MattMattMattUK

The government want to grow the economy, the interest rate rises are sucking billions every month out of the economy. Inflation is almost entirely external factors or Brexit related, therefore raising interest rates are going to do little to resolve it and indeed are creating wider harms in the overall economy. That being said there needs to be an element of interest rises in the short term to defend Sterling which is already weakened following Brexit, Johnson and Truss. If the government wanted to boost the economy then getting interest rates, or at least mortgage interest rates down to 1.5-2.5% in the next year would be a good way to help the economy spring back to life, getting mortgage rates back down to 1.5% would reinject £50 billion a year back into the real economy which whilst it might have slight inflationary pressure would be far far less than the external and Brexit pressures, but it would also boost the economy. If people are also genuinely worried about debt then it would make much more sense to constrain consumer borrowing via limits on non mortgage debts than anything else. 

wheldcj

lojo1000 said:

Strummer22 said:

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

Is it not a reasonable assumption under a 'stress test' to assume someone would lose their job? 

If a mortgage would be unaffordable if someone loses their job, perhaps the house is too expensive/ LTV too high?

We seem to be in an upside down world where if the mortgage is too expensive, we aim to make the mortgage less expensive by:

- BoE/banks lowering rates
- borrowing from other sources to increase deposit/ reduce the rate
- extending the term
- taking the cheapest mortgage
- assuming everything will be okay

as opposed to assuming the house is too expensive for the applicant.

I have had a mortgage for 20+ years and will have one for 20 more.   Throughout that time I have borrowed fairly conservatively, I have never had credit card debt and look after my money sensibly albeit never having a huge amount left over to pay off the damn thing any quicker.

Throughout that time whilst I could cope with the loss of a job and unemployment for maybe a maximum of 6 months, maybe 9 at a push beyond that I would have difficulties.   I didn't have the benefit of heredity wealth so my LTV at least at the start of my home ownership had to be high.   Are you saying therefore that I shouldn't have bought the houses I have? 

Strummer22

lojo1000 said:

Strummer22 said:

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

Is it not a reasonable assumption under a 'stress test' to assume someone would lose their job? 

If a mortgage would be unaffordable if someone loses their job, perhaps the house is too expensive/ LTV too high?

We seem to be in an upside down world where if the mortgage is too expensive, we aim to make the mortgage less expensive by:

- BoE/banks lowering rates
- borrowing from other sources to increase deposit/ reduce the rate
- extending the term
- taking the cheapest mortgage
- assuming everything will be okay

as opposed to assuming the house is too expensive for the applicant.

No, it's not reasonable to assume a job loss when testing mortgage affordability.

If I am a single applicant for a mortgage, that would immediately preclude me from obtaining a mortgage.

What a silly idea.

lojo1000

wheldcj said:

lojo1000 said:

Strummer22 said:

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

Is it not a reasonable assumption under a 'stress test' to assume someone would lose their job? 

If a mortgage would be unaffordable if someone loses their job, perhaps the house is too expensive/ LTV too high?

We seem to be in an upside down world where if the mortgage is too expensive, we aim to make the mortgage less expensive by:

- BoE/banks lowering rates
- borrowing from other sources to increase deposit/ reduce the rate
- extending the term
- taking the cheapest mortgage
- assuming everything will be okay

as opposed to assuming the house is too expensive for the applicant.

I have had a mortgage for 20+ years and will have one for 20 more.   Throughout that time I have borrowed fairly conservatively, I have never had credit card debt and look after my money sensibly albeit never having a huge amount left over to pay off the damn thing any quicker.

Throughout that time whilst I could cope with the loss of a job and unemployment for maybe a maximum of 6 months, maybe 9 at a push beyond that I would have difficulties.   I didn't have the benefit of heredity wealth so my LTV at least at the start of my home ownership had to be high.   Are you saying therefore that I shouldn't have bought the houses I have? 

People can do as they wish. I'm saying that banks should consider job loss in their stress tests since people with mortgages can lose their job.

Given banks are backstopped by the taxpayer, they should be required to stress test using reasonable assumptions.

Result = less mortgages, less debt, less money supply, lower property prices, lower inflation, less inequality and less chance of a war.

lojo1000

Strummer22 said:

lojo1000 said:

Strummer22 said:

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

Is it not a reasonable assumption under a 'stress test' to assume someone would lose their job? 

If a mortgage would be unaffordable if someone loses their job, perhaps the house is too expensive/ LTV too high?

We seem to be in an upside down world where if the mortgage is too expensive, we aim to make the mortgage less expensive by:

- BoE/banks lowering rates
- borrowing from other sources to increase deposit/ reduce the rate
- extending the term
- taking the cheapest mortgage
- assuming everything will be okay

as opposed to assuming the house is too expensive for the applicant.

No, it's not reasonable to assume a job loss when testing mortgage affordability.

If I am a single applicant for a mortgage, that would immediately preclude me from obtaining a mortgage.

What a silly idea.

It would not preclude someone with a low LTV who had savings for unforeseen circumstances.  If that precludes a lot of people then so be it, house prices would fall, etc, etc.

Strummer22

lojo1000 said:

Strummer22 said:

lojo1000 said:

Strummer22 said:

@lojo1000 amazingly, the stress tests don't consider if the applicant loses their job. 

That would automatically make any mortgage unaffordable. 

Do you have a mortgage or have you had one in the past? If so, why did you feel you could take on the risk given that you could lose your job AT ANY MOMENT!?

Is it not a reasonable assumption under a 'stress test' to assume someone would lose their job? 

If a mortgage would be unaffordable if someone loses their job, perhaps the house is too expensive/ LTV too high?

We seem to be in an upside down world where if the mortgage is too expensive, we aim to make the mortgage less expensive by:

- BoE/banks lowering rates
- borrowing from other sources to increase deposit/ reduce the rate
- extending the term
- taking the cheapest mortgage
- assuming everything will be okay

as opposed to assuming the house is too expensive for the applicant.

No, it's not reasonable to assume a job loss when testing mortgage affordability.

If I am a single applicant for a mortgage, that would immediately preclude me from obtaining a mortgage.

What a silly idea.

It would not preclude someone with a low LTV who had savings for unforeseen circumstances.  If that precludes a lot of people then so be it, house prices would fall, etc, etc.

Banks can’t take savings into account. There’s nothing to stop the applicant going into a casino and blowing it all with a bet on red the day after the mortgage funds are released.

There’s a reason affordability is based on the applicant’s regular income and outgoings.