Advice: Interest Rates going up and house prices going down

BendyTaffies

I’m reading that interest rates are going up to help stop inflation, which is among the stubborn in the west. This dramatically affects people with mortgages. There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west, as a direct cause of higher interest rates and presumably just the wonderful state the country is in.

We bought our house during lockdown and didn’t overstretch thankfully! Our mortgage is fixed for another two years, but I’m still getting anxious and want to make sure I know exactly what to do when the time comes. If house prices come down, to the point that we’re potentially in negative equity, and mortgage interest rates are really high, what is the best thing to do now to combat that?

km1500

the best thing to do now is to drastically cut  back your spending. Either save the money or preferably overpay on your mortgage.

obviously I don't know what you spend your money on but items like subscriptions, pay TV, travel, going out, drinks, new clothes etc come to mind

MFWannabe

BendyTaffies said:

I’m reading that interest rates are going up to help stop inflation, which is among the stubborn in the west. This dramatically affects people with mortgages. There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west, as a direct cause of higher interest rates and presumably just the wonderful state the country is in.

We bought our house during lockdown and didn’t overstretch thankfully! Our mortgage is fixed for another two years, but I’m still getting anxious and want to make sure I know exactly what to do when the time comes. If house prices come down, to the point that we’re potentially in negative equity, and mortgage interest rates are really high, what is the best thing to do now to combat that?

Don’t get anxious and panic! You have 2 years left on your fix and no one knows what is going to happen 
In the meantime are you able to make overpayments at all? Even a small amount? 

You could make monthly overpayments 
You could save the money and make overpayment when current fix ends 
Cut back on non essential spending 

When you have 6 months before your fix is up start looking what deals are about then 

MultiFuelBurner

BendyTaffies said:

I’m reading that interest rates are going up to help stop inflation, which is among the stubborn in the west. This dramatically affects people with mortgages. There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west, as a direct cause of higher interest rates and presumably just the wonderful state the country is in.

We bought our house during lockdown and didn’t overstretch thankfully! Our mortgage is fixed for another two years, but I’m still getting anxious and want to make sure I know exactly what to do when the time comes. If house prices come down, to the point that we’re potentially in negative equity, and mortgage interest rates are really high, what is the best thing to do now to combat that?

A few things which need clarifying

1) You have 2 years of your fix left so presumably you are 3 years into a 5 year repayment fixed mortgage and have been nicely chipping away. What did you borrow.and.over how long if you don't mind answering that? What was your LTV?

2) The good news is if you bought in the summer of 2020 and in all likelihood (unless it was an estate new build) is that the house value would have risen 15-20%.

3) Even if house prices drop 20% in the next year and with you repaying your mortgage not just the interes you will not.hit negative equity.

4) Your mortgage company will issue you a statement each year and you can see how much equity you are adding to your property.

Have a look at your statements, look how much your property might be worth now and hopefully that will remove some of your anxiety.

In 18 months time book an appointment with a mortgage broker to discuss your next mortgage.

badger09

BendyTaffies said:

I’m reading that interest rates are going up to help stop inflation, which is among the stubborn in the west. This dramatically affects people with mortgages. There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west, as a direct cause of higher interest rates and presumably just the wonderful state the country is in.

We bought our house during lockdown and didn’t overstretch thankfully! Our mortgage is fixed for another two years, but I’m still getting anxious and want to make sure I know exactly what to do when the time comes. If house prices come down, to the point that we’re potentially in negative equity, and mortgage interest rates are really high, what is the best thing to do now to combat that?

Negative Equity only matters if you have to sell and have no choice over timing of the sale. 
Sensible things to do as others have suggested, is to cut back on luxury or frivolous spending, and consider overpaying on your mortgage OR saving what you could afford to overpay, in a high interest account, until your fixed rate ends, then pay off a chunk so you have a lower LTV when you remortgage. 

GDB2222

https://www.bankofengland.co.uk/statistics/yield-curves

Check the nominal forward rates curve. These are the rates the government pays to borrow. Retail borrowers pay more.

MobileSaver

BendyTaffies said:

There’s also an expectation that the U.K. is going to suffer the worst housing crash in the west,

I don't know where you got that idea from, can you share some of the respected sources predicting such a thing?

Most of the UK housing market players are predicting at worst a drop of 10% over the next few years and pretty much everyone expects house prices to be higher than they are now in just four years time...

rigolith

theartfullodger said:

Remind me, who's been in charge these last 13 years - ??

( Repeating myself...) in November 1979 under Thatcher's iron handbag BoE base rate hit 17%. I had a for then large mortgage.  But was "lucky " as my building society only required 15%...

Painful 

Nothing compared to what is coming. You have no idea. Since 1990 house prices have risen by an average of about 350% in the UK, and much more in some areas.

Wages haven't increased nearly that much though. Maybe 100-120% during that time.

The gap between now and 1979 is even bigger.

So your 15% was just a fraction of the 5% people are faced with today, let alone what is to come.

Boomers really have no idea. No idea at all.

rigolith

GDB2222 said:

https://www.bankofengland.co.uk/statistics/yield-curves

Check the nominal forward rates curve. These are the rates the government pays to borrow. Retail borrowers pay more.

The government rate is skewed at the moment by the "moron tax", as Robert Peston likes to call it. I.e. it pays more because it's been catastrophically stupid recently, with Liz Truss' mini budget, and the lenders are not convinced that the government has fully recovered from that madness.

So what I'm asking is how different are current retail rates, compared to how they were historically? Obviously we are paying higher rates right now, but will the gap return to normal? Seems unlikely in the timeframe that the OP is considered. There will be an election next year and lenders will probably wait to see what happens with that before making major changes.

SootySweep1

Hi
Can you make overpayments against your mortgage ? Or put some money into a saving account & use that to pay off some of your mortgage when you switch to a new deal.

gazfocus

I read that if you're currently on a low interest rate with your fixed mortgage, your best option would be to squirrel away as much as you can into a high interest rate savings account (there's a few that are 4-5% now), then when your fixed term comes to an end, make a lump sum overpayment to your mortgage and then move onto a new fixed rate.

There's no point overpaying your mortgage at the moment because the interest rate is low so you'd 'earn more' in a savings account by comparison.