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

weddingringman

TerryDuckworth said:

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.

It’s because property in the UK has made millions of people literally millionaires. Whether that’s the broken and unethical BTL model, or it’s simply generations of people that've lived in larger houses that came to be worth eye-watering sums by todays standards. 

Add to that 20 years of Sarah Beeny, Kirsty & Phil brainwashing everyone into believing that accelerating house price increases were a good thing - it’s resulted in grossly overinflated prices that’ve ultimately over exposed the a small proportion of over-leveraged home owners. 

If we revert back to more normal rates of 5-6%, then people have huge incentive to steadily work their way up to a larger family property when the time is right. Buying something smaller and more affordable, to add value to and accrue equity in before trading up. That’s a more sustainable, safer way for people to manage a mortgage but there’s been no incentive for some to do that in recent years with such cheap borrowing. 

weddingringman

sevenhills said:

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 they’re perogative.

I’m on my 5th mortgage deal / fix and I’ve always taken each of those decisions very seriously. Sometimes I’ve opted for 5 years as I did last year, other times I felt 2 years was smarter and more strategic.

TerryDuckworth

Altior said:

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. 

I have just done a calculation of a mortgage for £405,000 on a 90% LTV taken out 2 years ago at 2% interest rate.

Property value	£450,000		Total payments	£514,983.02
Down payment	£45,000 (10%)		Total interest	£109,983.02
Principal	£405,000		Start date	January 2021
Interest	2%		End date	December 2045
			Years	25
			Payment	£1,716.61
			Expenses	£0.00
			Total payment	£1,716.61

Year	Interest	Principal	Balance
2021	£7,984.78	£12,614.54	£392,385.46
2022	£7,730.17	£12,869.15	£379,516.31

Now if they were to renew now for example on a 23 year mortgage at 6% interest rate their outstanding balance is 
£379,516.31

Property value	£376,192		Total payments	£694,457.31
Down payment	£0		Total interest	£318,265.31
Principal	£376,192		Start date	January 2023
Interest	6%		End date	December 2045
			Years	23
			Payment	£2,516.15
			Expenses	£0.00
			Total payment	£2,516.15

You can see the monthly payment has jumped up by £800 a month. I think what he was saying he might have to go interest only or extend the period of his mortgage. What would concern me is the vast amount of interest he would be paying over the longer term. I suppose this would be a sensible option to bring his payments down in the hope that interest rates come down but I suppose none of us have a crystal ball.

Altior

It played a part, weddingringman, but parts of the UK are still relatively affordable.

The pumping of asset prices due to interest rates on the floor, 'money printing' and globalisation means that the entire western world, especially English speaking, is open to anyone with means.

This is the phenomenon evidenced right across the English speaking western world (in the desirable parts particularly).

Unless something radical happens, we aren't ever going to see the type of property vs income multiples in desirable areas/countries seen pre globalisation. No matter how much building happens. 

Altior

TerryDuckworth said:

Altior said:

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. 

I have just done a calculation of a mortgage for £405,000 on a 90% LTV taken out 2 years ago at 2% interest rate.

Property value	£450,000		Total payments	£514,983.02
Down payment	£45,000 (10%)		Total interest	£109,983.02
Principal	£405,000		Start date	January 2021
Interest	2%		End date	December 2045
			Years	25
			Payment	£1,716.61
			Expenses	£0.00
			Total payment	£1,716.61

Year	Interest	Principal	Balance
2021	£7,984.78	£12,614.54	£392,385.46
2022	£7,730.17	£12,869.15	£379,516.31

Now if they were to renew now for example on a 23 year mortgage at 6% interest rate their outstanding balance is 
£379,516.31

Property value	£376,192		Total payments	£694,457.31
Down payment	£0		Total interest	£318,265.31
Principal	£376,192		Start date	January 2023
Interest	6%		End date	December 2045
			Years	23
			Payment	£2,516.15
			Expenses	£0.00
			Total payment	£2,516.15

You can see the monthly payment has jumped up by £800 a month. I think what he was saying he might have to go interest only or extend the period of his mortgage. What would concern me is the vast amount of interest he would be paying over the longer term. I suppose this would be a sensible option to bring his payments down in the hope that interest rates come down but I suppose none of us have a crystal ball.

We don't know the facts to be specific, just educated guessing.

However we can conclude (in my view), that the household income must have been substantial compared to the median, and the increase comfortably accommodated.

6% rate at some point during the 25 year term was almost inevitable. It's amazingly lucky that people have been able to take advantage of abnormally low interest rates for such a long time, but the party is over.  

TerryDuckworth

Altior said:

TerryDuckworth said:

Altior said:

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. 

I have just done a calculation of a mortgage for £405,000 on a 90% LTV taken out 2 years ago at 2% interest rate.

Property value	£450,000		Total payments	£514,983.02
Down payment	£45,000 (10%)		Total interest	£109,983.02
Principal	£405,000		Start date	January 2021
Interest	2%		End date	December 2045
			Years	25
			Payment	£1,716.61
			Expenses	£0.00
			Total payment	£1,716.61

Year	Interest	Principal	Balance
2021	£7,984.78	£12,614.54	£392,385.46
2022	£7,730.17	£12,869.15	£379,516.31

Now if they were to renew now for example on a 23 year mortgage at 6% interest rate their outstanding balance is 
£379,516.31

Property value	£376,192		Total payments	£694,457.31
Down payment	£0		Total interest	£318,265.31
Principal	£376,192		Start date	January 2023
Interest	6%		End date	December 2045
			Years	23
			Payment	£2,516.15
			Expenses	£0.00
			Total payment	£2,516.15

You can see the monthly payment has jumped up by £800 a month. I think what he was saying he might have to go interest only or extend the period of his mortgage. What would concern me is the vast amount of interest he would be paying over the longer term. I suppose this would be a sensible option to bring his payments down in the hope that interest rates come down but I suppose none of us have a crystal ball.

We don't know the facts to be specific, just educated guessing.

However we can conclude (in my view), that the household income must have been substantial compared to the median, and the increase comfortably accommodated.

6% rate at some point during the 25 year term was almost inevitable. It's amazingly lucky that people have been able to take advantage of abnormally low interest rates for such a long time, but the party is over.  

Thanks for your input. How does mortgage stress testing really work? I have heard so many conflicting views on this one.

Without me sounding too rude when you say the party is over what does this mean?

Altior

What was the mortgage stress test?
The affordability stress test was implemented in 2014 to make sure that the 2008 financial crisis could not happen again.

The 2008 crisis was a result of banks lending more money than borrowers could afford to repay, leading to a housing market crash.

The affordability stress test was designed to prevent people from getting loans that they could not viably pay back. The idea was to calculate borrowers’ ability to meet monthly payments at the current interest rate, and to ensure that should rates go up, borrowers would still be able to continue with their payments.

Here it was:

Following the Bank of England’s Stability Report in 2017, lenders are required to stress test mortgages at 3% above the rate at which fixed or capped rate loans will revert or 3% above the lender’s Standard Variable Rate (SVR). If the SVR of a lender is say 4.75% then the stress test might be conducted assuming a notional interest rate of 7.75%.

Sea_Shell

But it's only ever a spot check at the time of borrowing.

Nothing to stop someone overstretching their outgoings after the deal's done.   Either through bad luck or design.

Altior

The party was being able to borrow at effective negative interest rates. 


This of course, has been conveniently forgotten by all economic commentators, even the ones I generally value the opinion of. 

TerryDuckworth

Altior said:

What was the mortgage stress test?
The affordability stress test was implemented in 2014 to make sure that the 2008 financial crisis could not happen again.

The 2008 crisis was a result of banks lending more money than borrowers could afford to repay, leading to a housing market crash.

The affordability stress test was designed to prevent people from getting loans that they could not viably pay back. The idea was to calculate borrowers’ ability to meet monthly payments at the current interest rate, and to ensure that should rates go up, borrowers would still be able to continue with their payments.

Here it was:

Following the Bank of England’s Stability Report in 2017, lenders are required to stress test mortgages at 3% above the rate at which fixed or capped rate loans will revert or 3% above the lender’s Standard Variable Rate (SVR). If the SVR of a lender is say 4.75% then the stress test might be conducted assuming a notional interest rate of 7.75%.

So I can imagine if someone has taken out a mortgage rate out at 2% they will be stress tested to 5%. So it looks like many people may have gone over the 3% extra threshold. I suppose with the cost of everything that could be a double blow with all of this inflation. Let us hope interest rates don't go higher but seeing the news lately it looks like they might go  even higher.