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

lojo1000

Strummer22 said:

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 completes.

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

"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 completes."

- other than plain common sense.

If people want to scrimp and save for a deposit and make the mortgage payment, that is their business.

I would suggest it is sensible to plan for reasonable outcomes and that would suggest the saver has savings in the bank and the bank considers the possibility of the applicant losing their job.

Strummer22

lojo1000 said:

Strummer22 said:

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 completes.

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

"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 completes."

- other than plain common sense.

If people want to scrimp and save for a deposit and make the mortgage payment, that is their business.

I would suggest it is sensible to plan for reasonable outcomes and that would suggest the saver has savings in the bank and the bank considers the possibility of the applicant losing their job.

So the bank has to do a psychological evaluation of the applicants to determine their level of common sense and general mental stability too? Getting a bit Big Brothery, isn’t it?

lojo1000

Strummer22 said:

lojo1000 said:

Strummer22 said:

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 completes.

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

"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 completes."

- other than plain common sense.

If people want to scrimp and save for a deposit and make the mortgage payment, that is their business.

I would suggest it is sensible to plan for reasonable outcomes and that would suggest the saver has savings in the bank and the bank considers the possibility of the applicant losing their job.

So the bank has to do a psychological evaluation of the applicants to determine their level of common sense and general mental stability too? Getting a bit Big Brothery, isn’t it?

No, as pointed out above, banks do not consider savings in their test. I understand that and appreciate the information.

It is however sensible for the applicant to have savings in the bank for unforeseen circumstances.

The bank should include risk of job loss in their stress test.

But it would also make sense if the bank required a applicant to hold a minimum cash balance in their account with the bank and penalise them through a higher rate if the balance fell below that level. Alternatively, use the cash to take a lower LTV.

steve866

lojo1000 said:

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".

Yes, the stress test should be that the applicant has enough saved up to cover mortgage payments until the end of the entire term incase they lose their job. Oh wait…

Aberdeenangarse

BoE predicted March inflation figure to be 9.20% so another prediction they got wrong. Inflation will be nowhere near 2% - 3% predicted by the end of the year. I guess we’ll just have to accept high interest rates for the foreseeable future.

Allan Monks, senior economist at JP Morgan, said: “Risks to our 4.75pc terminal forecast are shifting to the upside.”

The data is particularly significant because governor of the Bank of England Andrew Bailey had said that February’s surprisingly high inflation figures were a “one off”, Mr Monks said.

lojo1000

steve866 said:

lojo1000 said:

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".

Yes, the stress test should be that the applicant has enough saved up to cover mortgage payments until the end of the entire term incase they lose their job. Oh wait…

Maybe just borrow max 50% LTV?

Maybe pledge to keep 6m of outgoings as cash/cash equivalents with the bank?

Maybe only borrow 3x your income?

Doesn't sound unreasonable to me.

london21

Interest rate going up next month but will start coming down towards December onwards.

Inflation still high.

IAMIAM

I am sensing we are going to 4.5% then 4.75% then maybe back down to 4% next spring earliest. The BOE isn't going to go from 0.1% up to 4.5%/5% and then suddenly drop it to 2% at Christmas. There is going to be a period of stability with the BOE rate for 3-6 months before reduction increments commence. 

Which will take it to around 3% in 18-24 months in my opinion.

I am glad I have switched to fixing, as trackers will go to circa 5% in the next couple of months

IAMIAM

I have monitored bank rates for nearly 18 months now. Following todays updates and historical changes. Many banks have dropped to get business over the previous fortnight. Barclays have done this to become top table but their service levels are 0% at the minute. Call queues are in excess of an hour with no execution only available. 

The rest of lenders are all hovering around the same with 0.01% differential.

Over the next month, 2 year and 5 year fixes will increase again not drop, but trackers will now decrease. 

lojo1000

My sense is that a lot of providers will withdraw from the market as they will not themselves be able to get the funding as the money supply continues to contract.

Those remaining will price according to risk in a market with falling money supply; i.e. money is more expensive.

The spread between central bank rates and those offered for property will be much wider than we've seen in the last 10 years.