How are we supposed to afford an 40% increase in mortgage payments...this can't go on!

Rjhsteel

When we bought our new home in May 2022, the mortgage rate was 1.44%. With the mortgage rate atm we will be paying close to 40% more a month! 

How the hell is that affordable? Do they want people to hand back their homes? 

Wonka_2

No - but affordability is a joint responsibility and it was fairly clear in May '22 that interest rates/cost of living was only going one way - presumably your lender felt you had enough flex in your income to be able to absorb.

Out of interest where does the 40% increase bring you on the mortgage vs income ratio ? 

If it's becoming an issue then you create an SOA and look at where savings can be made 

lvm

As brutally horrible as the current situation is and this is in no way going to help, the rates available now are probably around or only slightly higher than what the affordability check will have stress tested you on so while it doesn’t allow you to live a luxurious lifestyle in most cases, most should be able to sustain mortgage payments.

Obviously other factors could destroy this eg maternity leave, loss of job, higher than normal increase in costs.

Most people in the same boat unfortunately 

DullGreyGuy

In May 22 the BoE Base Rate was at a historic low. This was caused initially be 2008's events and subsequently Covid. It was inevitable the rate would eventually rise again. Just before the crash the rate was 5.75% so higher than what it is today and still very low compared to the 15% of 1980s.

Over 25 years of an average new mortgage it was inevitable that it was going to go up from the historic low and based on history the rates today arent out of the ordinary, if anything they are still lower than the average in my lifetime. 

We are still below the mortgage insterest rates experienced in the 80s even when you factor in the fact people now borrow much more than back then. So unfortunately there is precident of this and higher rates.

What was your plan when rates returned to normal? Up to what percentage interest did you consider when buying?

The very idea of moving interest rates is to squeeze affordability and stop further borrowing to reduce demand and therefore stop inflation... obviously only really works if demand is whats driving up the prices to start with but BoE doesnt have many other tools.

dunstonh

How are we supposed to afford an 40% increase in mortgage payments...this can't go on!

you always knew this day was coming.  That is why mortgage brokers and lenders warned you about it when you took the mortgage out.

When we bought our new home in May 2022, the mortgage rate was 1.44%. With the mortgage rate atm we will be paying close to 40% more a month! 

The long term average mortgage rate is closer to 7%.   So, expecting the lowest rates in 300 years to remain in place and not move up was a bit naive.

What was your plan for when the return to the historic average was going to happen? 
What is your plan for when interest rates could go to double digits? (i.e. 6% is unaffordable then how is 10% or 15% going to work for you)

How the hell is that affordable? Do they want people to hand back their homes? 

If it is not affordable, then they should look to sell the house and move back somewhere within their budget.

coypondboy

Anyone who bought a flat under help to buy or shared ownership in London and other city centres over past 7 yrs unlikely to have made any money and mat have fallen in price what will happen when they come to re-mortgage if don't meet the affordability criteria and end up on lenders SVR which could be 9% next year?

lojo1000

Rjhsteel said:

When we bought our new home in May 2022, the mortgage rate was 1.44%. With the mortgage rate atm we will be paying close to 40% more a month! 

How the hell is that affordable? Do they want people to hand back their homes? 

I don't understand that in little over 1 year there are people who cannot afford their mortgage.

You have not indicated that your personal circumstances have changed so what the hell were the banks doing when they extended these loans?

If mortgage rates can go from 8% to 4% in 2008 then why did the banks not think they could go the other way in the same amount if time? 

fiish

What kind of mortgage deal are you on? If you're on a fix, you have time to prepare. Even with a 2 year fix you would have almost a year to get yourself financially ready, if you start today.

penners324

Aren't you still on a fixed rate?

Ryan_Holden

Everyone saying things like "what did the OP expect when things returned to normal" seems to forget that not everyone in the country paid attention to or took interest in the base interest rate, especially when it was so low and static for probably most of a lot of new buyer's adult lives.

Show a little empathy by realising that not everyone is as financially astute as they should be.

Rjhsteel, get a lodger. It will suck to share your home but you can earn up to £7500 from lodger rent (called a licence fee) and not have to pay any tax on it. Spareroom.co.uk is a good source for lodgers. Then, in a couple of years of giving up a bit of space the world may be more settled.

lojo1000

Ryan_Holden said:

not everyone is as financially astute as they should be.

It has nothing to do with finance. All you need do is appreciate that a number can go up as well as down. Does that really require a financial mindset?