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

Sarah1Mitty2

TheAble said:

The line that's currently often pedalled is "nobody wants repossessions - it's not in the bank's interest to repossess". But is that really true? If a guy's got a 50% LTV that he's stopped making repayments on then as a bank I would absolutely want to be repossessing that (bank's not going to be making a loss at 50% LTV) and re-lending the money at market rate to someone who IS going to pay.

Well yes, lower house prices would mean more lending for the banks, but we would need a correction first and that is not going to be pleasant for those already with mortgage debt.

lojo1000

TheAble said:

The line that's currently often pedalled is "nobody wants repossessions - it's not in the bank's interest to repossess". But is that really true? If a guy's got a 50% LTV that he's stopped making repayments on then as a bank I would absolutely want to be repossessing that (bank's not going to be making a loss at 50% LTV) and re-lending the money at market rate to someone who IS going to pay.

True - but the situation at a macro level now is employment is high. When you have a job, you can always make a payment of some level. so for the banks they seem to think, let's extend the term since the holder can cover the interest rather than if we collectively (all the banks) start foreclosing then we create a rush of sellers and collapse what security we do have.

If employment falls then the situation will likely change. The banks have no choice but to foreclose.

In my mind, the banks will be underreporting losses now with the consent of the govt and BoE. If under normal business, holders were needing to extend and go on interest only then the accounting bods would say we need to up our loss provisions since we have actual evidence of lower capacity of holders to repay - they are not repaying what they agreed.

But with this explicit agreement of all concerned, the banks can extend (oh we're only doing it 'cos the govt asked us to) and pretend there has been no credit loss to account for.

There will therefore not be large loss provisions in their quarterly reporting to market and FCA and we all just pretend there is no issue - and the hoped for result is there is no confidence hit to Joe Public.

.....unless employment falls.

If banks have less capacity to make new loans 'cos they're still stuck in these 'bad' loans then there may be less net debt being created - less debt=less growth=less confidence - (unless we have a productivity miracle in the next 12 months)

sevenhills

michaels said:

sevenhills said:

MattMattMattUK said:

Reducing VAT to 5% would cost the exchequer around £140 billion per annum, meaning the national debt would reach 200% of GDP within 16 years.

The idea of tax cuts to improve the current position is economically illiterate, as equally illiterate as the idea that a £16 billion pa tax rise can clear a £2.6 trillion debt when the deficit is running at over £230 billion pa.

Who is suggesting tax cuts "to improve the current position"?

An increase in VAT to help pay down government debt would have the same effect as increasing interest rates, but it would affect more people than just mortgage holders that are not on a fixed deal.

Increasing VAT would squeeze people's spending, I am sure you could adjust the numbers to make them work?

The problem with increasing VAT is it is included in the CPI so for the first 12 months after any increase it will push up the headline CPI and thus lead to higher pay demands.  Hence income tax being the better tool for the job.  With fiscal tightening you get double bubble benefit as the govt then has less to spend on interest for debt servicing and rates on debt may be lower as there is less default risk if the debt trajectory is more sustainable.

Pay demands often quote RPI inflation, which includes mortgage costs, so both interest rate increases and VAT increases affect wage rises.

TerryDuckworth

weddingringman said:

TerryDuckworth said:

steve866 said:

tony863 said:

Prior to reading the last few pages of this thread I convinced myself a tracker mortgage might be worth the punt being around half a percent lower than fixed. My finger in the air feeling was that the rate would peak around 5-5.5% and then fall steadily back down to 2 or 3%.

Having now read some of the recent comments am I right in guessing the higher rates are here to stay? I appreciate it's a crystal ball moment, but maybe the better question is - would anyone opt for a 2yr tracker mortgage right now? 

I would be careful taking advice from this thread, some people have agendas! Personally if I wanted a 2 year deal I’d fix because I wouldn’t expect rates to come down drastically within 2 years so wouldn’t lose out on much. I’d be considering whether I’d need to fix for longer if rates could keep increasing. Depends on fees / early repayment charges / other factors of course.

Thanks for that Steve. Reading your post I will be very cautious when taking advice off anyone on here. 

People are just tired of generations of people that actively support and attempt to prop-up house prices that are wholly unaffordable for many people now.

I watched rates being slashed during the pandemic and surprise surprise - house prices rocketed. People borrowing record multiples at record lows, and at the same time having the audacity to only fix for 2 years because it’s £20 cheaper per month than a more secure 5 year fix. 

Now that the gambles not paid off, people are crying out for mortgage support which would cost the tax payer billions, continue to prop up house prices, and cause inflation in itself.

In 10 years time I want to help my kids buy a house so I’m afraid we need a house price correction. 

I have been having a good read over some of the posts on here and it seems if anyone mentions a house price correction or crash they get shot down. I am no economist but from what I have been seeing on the news recently it looks like we could be heading into a crisis. 

I was talking with a work colleague the other week and their 2-year fixed rate is up for renewal soon and they were saying that their payments could shoot up from £1,500 to £2,500 per month. The only way they could bring this payment down is to take a longer term mortgage or go interest only.

Altior

Out of interest Terry, what was the ballpark household annual salary that the loan was based on ?

TerryDuckworth

Altior said:

Out of interest Terry, what was the ballpark household annual salary that the loan was based on ?

To be honest I don't know how much he is earning but what I do know he hasn't had a pay rise in the last 3-4 years as I know the company is now struggling as they have already started layoffs. What I can tell you he took a 25 year mortgage on a 2 year fixed rate. I think he said he originally had a 2% interest rate. He said the property was 450k and he put 10% down.

Altior

Thanks, so if he took out the maximum LTV, looking at around £5K-£6K take home, per month (before pensions, any child benefit, comp car etc)

Leaving £2.5K-£3.5K AFTER mortgage costs. Most people have less than that before their housing costs.

I just wanted to add some context, not picking on you personally. 

TerryDuckworth

Altior said:

Thanks, so if he took out the maximum LTV, looking at around £5K-£6K take home, per month (before pensions, any child benefit, comp car etc)

Leaving £2.5K-£3.5K AFTER mortgage costs. Most people have less than that before their housing costs.

I just wanted to add some context, not picking on you personally. 

Sorry, I forgot to mention he is married and his wife also works. I am not sure if they have any other debt but I do get the impression he is rather tight or very careful because he doesn't seem to have any spare money. I could be totally wrong as he might have a big hidden nest egg somewhere. 

sevenhills

TerryDuckworth said:

What I can tell you he took a 25 year mortgage on a 2 year fixed rate. I think he said he originally had a 2% interest rate. He said the property was 450k and he put 10% down.

I took out a ten year fix rate mortgage five years ago, people preferred to gamble on rates remaining low, so opted for two and five year fixes.
They are still gambling with short term fixes, which is their perogative.

Altior

TerryDuckworth said:

Altior said:

Thanks, so if he took out the maximum LTV, looking at around £5K-£6K take home, per month (before pensions, any child benefit, comp car etc)

Leaving £2.5K-£3.5K AFTER mortgage costs. Most people have less than that before their housing costs.

I just wanted to add some context, not picking on you personally. 

Sorry, I forgot to mention he is married and his wife also works. I am not sure if they have any other debt but I do get the impression he is rather tight or very careful because he doesn't seem to have any spare money. I could be totally wrong as he might have a big hidden nest egg somewhere. 

I am pretty confident that if we were able to dig deeper, we would find some kind of casual recklessness, overspending or laissez-faire attitude.

To get to £2.5K repayment on a 25yr mortgage at a typical rate of circa 5.5% means that there is a sizeable loan. To get a sizable loan, borrowers had to have a commensurate sizeable household income at the time of application. 

This is why home loans are only given out at circa 4-5 times income, when people could probably cope with double that. To build in plenty of headroom and tolerance for an increased future borrowing cost, or tangible change in circumstances.