What are 'ultra low' interest rates?

daivid

Whilst the interest rates were near 0 during covid how many people could actually fix a mortgage at less than 1%?

I think under 1.5% is ultra low, under 2.5% low and under 4% a decent rate historically. As others have said current rates may feel high to new(ish) borrowers they are nothing compared to the 1980s - some years I got savings interest of 15% I assume mortgage rates would have been higher still.

mrsplinter

The Bank of England has been setting interest rates since 1694. In the last 329 years the only time the rate has been lower than 2% has been Jan 2009 to Sept 2022, so anything less than 2% seems an ultra-low base rate.

The MSE article on mortgage interest rates says tracker mortgage rates are normally 0.5-2%. I gather fixed rates tend to be higher. That suggests that a mortgage rate under 4% is exceptional.

This article seems to back this up with figures for building society mortgage rates dating back to the mid-19th century. They never went below 4% until the financial crisis when the base rate was slashed to near-zero in 2008/09.

https://www.bankofengland.co.uk/-/media/boe/files/statistics/bankstats-articles/2015/historical-sources-of-mortgage-interest-rate-statistics---bankstats-article.pdf

Exodi

Admiral_Barbarossa said:

Mortgages are always hard when you first take them out, you ride out the storm, because when its settles again, you are in a better position.

I think the biggest reason they are hardest when you first take them out, is because the amount borrowed is fixed.

Let's say you're earning £3000, paying a mortgage of £1000 a month and rents are £1000.

In 10 years (assuming the interest rates stay the same, and inflation and wage increases at 2%), your wage might be £3657, rents might now be £1219, but you are still paying £1000 a month.

In another 10 years, your wage might now be £4458, rents might now be £1486, but you are still paying £1000 a month.

Whenever I hear of people talking about their '£500 mortgage' I always scratch my head trying to work out whether they live in a shoe-box, but more often than not, they're just quite far into a mortgage and reaping the benefits.

MarcMCFC1986

Exodi said:

Admiral_Barbarossa said:

Mortgages are always hard when you first take them out, you ride out the storm, because when its settles again, you are in a better position.

I think the biggest reason they are hardest when you first take them out, is because the amount borrowed is fixed.

Let's say you're earning £3000, paying a mortgage of £1000 a month and rents are £1000.

In 10 years (assuming the interest rates stay the same, and inflation and wage increases at 2%), your wage might be £3657, rents might now be £1219, but you are still paying £1000 a month.

In another 10 years, your wage might now be £4458, rents might now be £1486, but you are still paying £1000 a month.

Whenever I hear of people talking about their '£500 mortgage' I always scratch my head trying to work out whether they live in a shoe-box, but more often than not, they're just quite far into a mortgage and reaping the benefits.

Yeah - you can only assume wages are going to go up, but they certainly aren't going up in line with inflation at the moment. 

It would be nice if in 15 years time people will think I'm 'really lucky' to have bought a house that was 'only £267k' and I 'only' have to pay £1,400 a month because wages have increased so much that £1,400 seems a pittance.

But, at the moment - things look very bleak! 

Sg28

Exodi said:

Admiral_Barbarossa said:

Mortgages are always hard when you first take them out, you ride out the storm, because when its settles again, you are in a better position.

I think the biggest reason they are hardest when you first take them out, is because the amount borrowed is fixed.

Let's say you're earning £3000, paying a mortgage of £1000 a month and rents are £1000.

In 10 years (assuming the interest rates stay the same, and inflation and wage increases at 2%), your wage might be £3657, rents might now be £1219, but you are still paying £1000 a month.

In another 10 years, your wage might now be £4458, rents might now be £1486, but you are still paying £1000 a month.

Whenever I hear of people talking about their '£500 mortgage' I always scratch my head trying to work out whether they live in a shoe-box, but more often than not, they're just quite far into a mortgage and reaping the benefits.

Thats great in theory but in reality most people will move at least once to upsize and use the increased earnings to borrow more to fund it. 

Thats what I did. Bought first house in 2013, but was actually worse off after upsizing in 2018 and upping the borrowing and increasing the term. Also it didnt help that kids came along and the wife went part time!

MarcMCFC1986

Sg28 said:

Exodi said:

Admiral_Barbarossa said:

Mortgages are always hard when you first take them out, you ride out the storm, because when its settles again, you are in a better position.

I think the biggest reason they are hardest when you first take them out, is because the amount borrowed is fixed.

Let's say you're earning £3000, paying a mortgage of £1000 a month and rents are £1000.

In 10 years (assuming the interest rates stay the same, and inflation and wage increases at 2%), your wage might be £3657, rents might now be £1219, but you are still paying £1000 a month.

In another 10 years, your wage might now be £4458, rents might now be £1486, but you are still paying £1000 a month.

Whenever I hear of people talking about their '£500 mortgage' I always scratch my head trying to work out whether they live in a shoe-box, but more often than not, they're just quite far into a mortgage and reaping the benefits.

Thats great in theory but in reality most people will move at least once to upsize and use the increased earnings to borrow more to fund it. 

Thats what I did. Bought first house in 2013, but was actually worse off after upsizing in 2018 and upping the borrowing and increasing the term. Also it didnt help that kids came along and the wife went part time!

Yeah this is where I'm at now - 15 month old, and due to childcare costs my girlfriend works part-time. We'd love another baby but we'd never afford the maternity leave!

The country is on its a*$e.

y3andy

RogerPensionGuy said:

My guess is bank rate will go to 6/6.25% by January 24, hover around that value, then late 24 or early 25 it will slide down slowly and get to about the 5% long-term historical value for a long time. 

My thoughts are the same. Maybe slightly lower than 5% long term due to the amount of debt around nowadays but not back to what we've seen the last 15 years. Unless another financial crisis hits us - then they will have the excuse to reduce lower.