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

Altior

michaels said:

TerryDuckworth said:

BikingBud said:

annabanana82 said:

It's been interesting talking to colleagues about this.

Colleague 1 - mid to late 50's late divorcee, had to take a long term mortgage to retirement age. About to come off a fixed rate mortgage of 2%, looking at 6% come October as they hadn't realised they could lock in a deal early. Electric also cqme off a fix so energy bill has doubled. Food bill has also increased significantly, despite this they will be able to manage, but not without a small change to current lifestyle - already lives quite cheaply.

Colleague 2 part of young couple, mortgage rate is under 2% also expires end of the year. They think low interest rates are normal and likely fall by the end of the year. They've bought a fitted kitchen on credit, had a fancy garden office on credit, have alluded to further debt. Their heads are seemingly buried in the sand, as they booked a £2k holiday on impulse and on the credit card. Their mortgage was taken out over 40 years, so limited to extend the term. Despite them both earning fully throughout covid they still took the mortgage holiday. 

40 year mortgage surely means house not affordable!

But their further behaviour is symptomatic of the wider UK issues, we, form the Government down are credit junkies.

It's easy money! 

House prices always go up, so we'll always have equity...........won't we?

Debt will always inflate away............won't it?

You're stupid not to!!

I think you are onto something here BikingBud.

I have just been playing around with some figures on a mortgage calculator and comparing the rates that we had over 2 years ago at around 2.5% interest rate on a 300k mortgage over 25 years with a 10% deposit. I have also entered the same mortgage on a 6% interest rate over 40 years.

As you can see the monthly payments on a 40 year mortgage are £274 more. But what is really scary is the total payment over the full term of the mortgage. Over 25 years it is £363,379 and over 40 years it is £713,379 which is nearly double. So a £300,000 property now would cost you twice as much when you factor in all of the extra interest you would have to pay.

             

Thing is all these figures are in 'today's money; terms.  Probably the 2% example you should assume average inflation of 1.5% and the 6% scenario, inflation of 5%.  Discount all the future cashflows accordingly and the picture changes.

Many people also fail to factor in the utility of the savings now for deferred saving later.

We tend to need less money as we get further on into our life cycle as an adult. 

This is particularly applicable to anyone feeling crushed/struggling to cope comfortably now. 

We have to do what suits us (and our personalities) best, my approach is to have the smallest mortgage repayment possible, at the lowest rate possible, and push repaying the capital as far out as possible. Others like to sacrifice everything now to pay the mortgage off within 10 years. Or there is something in the middle. 

What swings it for me is that capital is very illiquid when held in a domestic property that I'm also living in. So I put as little capital as I can into it. 

Should I need to, I can always reduce the LTV (or wipe it out). 

TerryDuckworth

michaels said

Our monthly is going from 490pm on our old sub 2% fix to 1125pm on our new 4.5% fix starting October that we were lucky to lock in at the end of May, so proportionately a much larger increase.

Sorry to hear this. That is some jump in mortgage payments. I do hope you can cope with these higher payments. I hate to think how many people who are not going to be able to cope, especially after hearing a lot of stories on the news and radio channels over the last couple of weeks.

It looks like these higher interest rates could be detrimental to our economy.

valten

TerryDuckworth said:

michaels said

Our monthly is going from 490pm on our old sub 2% fix to 1125pm on our new 4.5% fix starting October that we were lucky to lock in at the end of May, so proportionately a much larger increase.

Sorry to hear this. That is some jump in mortgage payments. I do hope you can cope with these higher payments. I hate to think how many people who are not going to be able to cope, especially after hearing a lot of stories on the news and radio channels over the last couple of weeks.

It looks like these higher interest rates could be detrimental to our economy.

It's the wrong medicine to tackle the current inflationary issues and will make things worse. It's not the 70s any more. 

With the proportion of mortgage holders being less and less compared to those who own outright and the lag caused by fixed rates I don't think it's fit for purpose as the only tool to tackle inflation. Especially in the current circumstances. Eventually I suspect the government and BoE will realise this and try something else but only after many people have lost their homes.

ader42

TerryDuckworth said:

I think you are onto something here BikingBud.

I have just been playing around with some figures on a mortgage calculator and comparing the rates that we had over 2 years ago at around 2.5% interest rate on a 300k mortgage over 25 years with a 10% deposit. I have also entered the same mortgage on a 6% interest rate over 40 years.

As you can see the monthly payments on a 40 year mortgage are £274 more. But what is really scary is the total payment over the full term of the mortgage. Over 25 years it is £363,379 and over 40 years it is £713,379 which is nearly double. So a £300,000 property now would cost you twice as much when you factor in all of the extra interest you would have to pay.

             

This is how it used to be in the 80s and 90s: paying double when you add up all the interest. So a 40 year mortgage now is same as a 25 year one was back then. 

Some people back then used the wifes salary to double the mortgage payment, so that the mortgage got paid off in 7 years instead of 25.

I even remember Amway seminars selling their MLM wares based on this premise - a second job to overpay the mortgage. 

michaels

It is a good point, real interest rates now are lower than they were 2 years ago when the rate was 2% - and this is true in comparison to wage inflation not just CPI.

So if you have the cash flow to afford the headline nominal rates you will actually be in a much better position in 5 years time than if we still had 2% mortgage rates and 2% wage inflation - mortgage debt to salary ratio will be well down. And if house prices have stagnated in nominal terms then affordability for up-sizing will be very good.

lojo1000

Mortgages rates: Fresh round of rises imposed by lenders

https://www.bbc.co.uk/news/business-66051704

If banks are being asked to defer foreclosures (more risk/less lending capacity) and increase savings rates (lower margins) as they are by the govt - what do you think they will do with their mortgage rates? Raise them. And not just in response to higher swap rates but in response to the profit squeeze being imposed on them elsewhere.

Breaking point for the economy is coming if inflation does not move down quickly from here (and i mean sub 3%). Banks are facing credit losses and slowing, if not falling, revenues.

Either banks will tighten lending standards even more or raise lending rates (which will be easier as the number of mortgage products contract).

And yet the government is working against what inflation and the BoE needs. The govt is actually 'telling' banks they need to extend and pretend yet again. The effect of this is to maintain the money supply/ not allow debts to be repaid which otherwise would (either borrowers find the money somehow or the banks foreclose).

By artificially maintaining the money supply at a higher, artificial level, the government is going to put unwanted, upward pressure on inflation.

My prediction however is inflation falls (though slower than if the govt wasn't interfering) as the economy contracts, slowly at first, then very fast as everyone says - "oh, so here it is, they said there would be a recession some time".

The BoE however tries to be cautious, not wanting to cut rates too fast and stoke inflation again and create another speculative bubble ('cos all they really care about is how they're perceived and this will be the talking next point). So they cut too slowly and the economy contracts hard.

Then the BoE relents (or the govt takes back control) and they cut hard. Then we get one final almighty, speculative, hyperinflation bubble and currency dies.

You didn't hear it here first. Many have predicted this for decades now since 2008 (me since 2001). It has taken an incredibly long time to play out. It moves so slowly you don't even see it coming.

Strummer22

lojo1000 said:

My prediction however is inflation falls (though slower than if the govt wasn't interfering) as the economy contracts, slowly at first, then very fast as everyone says - "oh, so here it is, they said there would be a recession some time".

The BoE however tries to be cautious, not wanting to cut rates too fast and stoke inflation again and create another speculative bubble ('cos all they really care about is how they're perceived and this will be the talking next point). So they cut too slowly and the economy contracts hard.

Then the BoE relents (or the govt takes back control) and they cut hard. Then we get one final almighty, speculative, hyperinflation bubble and currency dies.

You didn't hear it here first. Many have predicted this for decades now since 2008 (me since 2001). It has taken an incredibly long time to play out. It moves so slowly you don't even see it coming.

Is this somehow different to the boom and bust we've endured since time immemorial?

What does 'currency dies' even mean?

naf123

Thanks for the insight Lojo. So what would you advise someone who has 25 more years left, and their low interest fix ends in April 2024.....

lojo1000

naf123 said:

Thanks for the insight Lojo. So what would you advise someone who has 25 more years left, and their low interest fix ends in April 2024.....

I wouldn't advise. I and people like me are still in the minority. This has all taken a lot longer than I ever imagined. So read widely and take your own advice.

lojo1000

Strummer22 said:

lojo1000 said:

My prediction however is inflation falls (though slower than if the govt wasn't interfering) as the economy contracts, slowly at first, then very fast as everyone says - "oh, so here it is, they said there would be a recession some time".

The BoE however tries to be cautious, not wanting to cut rates too fast and stoke inflation again and create another speculative bubble ('cos all they really care about is how they're perceived and this will be the talking next point). So they cut too slowly and the economy contracts hard.

Then the BoE relents (or the govt takes back control) and they cut hard. Then we get one final almighty, speculative, hyperinflation bubble and currency dies.

You didn't hear it here first. Many have predicted this for decades now since 2008 (me since 2001). It has taken an incredibly long time to play out. It moves so slowly you don't even see it coming.

Is this somehow different to the boom and bust we've endured since time immemorial?

What does 'currency dies' even mean?

It's all part of the same longer cycle. But the amplification gets wider each time as the stimulus needs to be more each time due to the cumulative debt (due to not letting the last cycle contract fully) and lack of productivity (due to allowing otherwise unprofitable firms to survive by cutting rates artificially low).

"Currency dies" - this thread is not supposed to be a discussion of the foundations of an economy but suffice to say, with hyperinflation it is not prices which are rising in value so much as the currency falling in value.