Mortgage Deal of 1.85% end this time next year. Should I be doing anything now?

simon_or

I don't agree with your reasoning or conclusions, but that's your opinion, fair enough. Imho house price to income ratios is definitely one of the factors that impacts your mortgage size and how much of your household income goes into paying that.

Do look up impact of interest rates on disposable income as well over the decades, all the data is out there. Lower interest rates with a bigger mortgage can work out to be as much of a burden as a higher rate on a smaller mortgage.

Altior said:

House price to income is based on one income, and the status of the market at the time of the snapshot. It does not take into account interest rates for example. This equation was completely different, even for someone buying property a few years ago. If they bought 10 years ago, it's wholly irrelevant. 

As it happens, these stats don't take into account huge regional variations within the UK, and the London/SE effect massively distorts the averages. It would have been an interesting data set to dig into, if it exists. As, as I allude to, so much has changed, over that period. 

It actually goes a long way to explaining why house prices are so high now, compared to what they relatively were a few decades ago. Lower interest rates meant more of the repayment could go on the capital (the total repayment however being the same, meaning percentage of income used on housing staying static). 

Altior

It's not really an opinion. When I bought my property I had to do shared equity as I could not buy in my area outright at the time (before htb was launched, I could have bought outright with htb, them's the breaks). Now I have half my income spare after fixed costs, and have staircased to 100%. House price to income only impacts people who have not yet bought and considering buying, it is completely irrelevant to me (or anyone else who already has a mortgage) now. These are extremely blunt ratios anyway (at the headline). The stat you referenced (% of housing costs of total household income) would definitely be more relevant (but still blunt at the headline).

Nobody noticed when it went in one direction (lower interest meaning lower proportion of income spent on servicing mortgage). Now it has flipped, anyone renewing will notice. It is what the housing market needed for many years, (but painful for anyone at the sharp end). 

In a previous career of mine we called it 'spend'. Many people have an amount they are willing to spend on a certain thing, say for example annual holiday, 2k. If the cost of holidays in general goes up, they will need to go to a cheaper resort or country. They still spend 2k. If they could do 2 weeks 5* in the Maldives for 2k, they would go to the Maldives. Housing was a bit similar, but on a bigger scale. The cost of servicing a mortgage went down, hence they could buy more property for the same spend. Now the reverse is true. If we see rates at 6-8% for the next ten years, the purchase price of property will become more affordable (relatively). But the shift happens over years, and the nature of politics means that it is unlikely to be left to the market. 

simon_or

Wages have gone up far far slower than house prices have over the past decades, so your logic doesn't make sense to me.

Sorry, a lot of what you've quoted is anecdotal, based on your experience and how you see the world. Nothing wrong with that, that's your truth, and that's fair enough.

Plenty of people who bought a house during the low interest rate period noticed it because the price they paid for a house (and the size of the mortgage) had ballooned accordingly due to the low interest rates. There was no free ride, lower rates on a bigger mortgage. Swings and roundabouts 

Altior said:

It's not really an opinion. When I bought my property I had to do shared equity as I could not buy in my area outright at the time (before htb was launched, I could have bought outright with htb, them's the breaks). Now I have half my income spare after fixed costs, and have staircased to 100%. House price to income only impacts people who have not yet bought and considering buying, it is completely irrelevant to me (or anyone else who already has a mortgage) now. These are extremely blunt ratios anyway (at the headline). The stat you referenced (% of housing costs of total household income) would definitely be more relevant (but still blunt at the headline).

Nobody noticed when it went in one direction (lower interest meaning lower proportion of income spent on servicing mortgage). Now it has flipped, anyone renewing will notice. It is what the housing market needed for many years, (but painful for anyone at the sharp end). 

In a previous career of mine we called it 'spend'. Many people have an amount they are willing to spend on a certain thing, say for example annual holiday, 2k. If the cost of holidays in general goes up, they will need to go to a cheaper resort or country. They still spend 2k. If they could do 2 weeks 5* in the Maldives for 2k, they would go to the Maldives. Housing was a bit similar, but on a bigger scale. The cost of servicing a mortgage went down, hence they could buy more property for the same spend. Now the reverse is true. If we see rates at 6-8% for the next ten years, the purchase price of property will become more affordable (relatively). But the shift happens over years, and the nature of politics means that it is unlikely to be left to the market. 

Altior

My anecdote wasn't evidence, it was a simple example to demonstrate how the income to house price ratio is irrelevant to anyone who is already a home owner. 

I'm trying to explain that house prices are not connected to the current cost of housing compared to their income for most people (only those in the market to buy for 1st time). And failing  

Altior

Thanks CSI, yes. My responses were in the context of the assertion that property costs (ie servicing monthly mortgage/rent) were a lot cheaper as a proportion of household income, 30 years ago to now. I don't know if that is true or not, the data would be interesting to peruse. But it's not really connected to the current house price to income multiple snapshot. 

simon_or

Yes, and I can quote the example of my father who worked a single working class job his whole life and could buy a small terraced house in Hackney with that which in his latter years earned more in house price appreciation than his employed income! Someone working the same job in London couldn't dream of buying anything similar within inside zone 4 these days. It's just an example to show that in a lot of cases housing was far more affordable back in the day.

I see your point but like I said I don't agree with your underlying arguments. Perhaps I'm not as knowledgeable as you. Tbh, to me it's more to do with differing worldviews than anything else

Altior said:

My anecdote wasn't evidence, it was a simple example to demonstrate how the income to house price ratio is irrelevant to anyone who is already a home owner. 

I'm trying to explain that house prices are not connected to the current cost of housing compared to their income for most people (only those in the market to buy for 1st time). And failing  

K_S

vibez said:

My mortgage deal of 1.85% end this time next year. Should I be doing anything now apart from saving like a madman?

At the current rates, i'm going to see a £300 increase. Considering I've only got £400 disposable income at the moment, times are going to be very hard or even impossible if the rates climb any higher. I've already reviewed all my finances and cut back as much as I can.

Extending is out of the window as i'm already mortgaged up to my retirement date.

I have £20k in an ISA, so that will give me roughly £1000, which will cover my first 3 months on the new rate.

@vibez I don’t have much to add beyond what people have already said -

— extending term with your current lender (check what they are offering under the mortgage charter. You can do this now, don’t have to wait for next year.

- when it comes to remortgage time, look at moving lenders for a longer term if your lender is restrictive (70 is usual minimum)

- There are lenders like Nationwide and Virgin that will lend up to 75 even if your retirement age is below 75, as long as you are paying into a pension.

- if things get really tight at the switch, assess whether you want to make use of the 6 month interest only option to give yourself some breathing space 

- start looking as early as you can. It might be that you can’t move lenders if affordability is tight, it might be useful to know this sooner rather than later.

jimjames

vibez said:

Just realised my state retirement age is 68 and not 65, so I guess there is a little wriggle room there.

The state retirement age might be 68 but there's no rule that says you HAVE to retire. Many people carry on working so there isn't a fixed date that you have to stop even if you are drawing your pension.

ACG

vibez said:

Thanks. I guess I can rule out switching mortgage now to prevent any further increase? Hate to be £300 out of pocket with today's rates but £500 this time next year.

In terms of savings accounts, if I go over the £1000 tax free interest limit, do they just tax the interest on the portion over £1000? and not the full amount?

Just realised my state retirement age is 68 and not 65, so I guess there is a little wriggle room there.

Final question. The mortgage charter option of 6 months interest only - would I do that on my current deal or the new one in a year? How likely is a provider to let someone change to interest only within the first couple of months?

I dont know if your last question has been answered, there have been a lot of posts since. 
The mortgage charter is a short term fix, reducing your payments to interest only for 6 months is not going to save you a lot of money. 

If you are thinking of going on to the new deal and then doing that, my suggestion would be to sell up. All this does is buy you a little bit of time. 

As for when you should do it, you are currently on a low rate - this is the time to be overpaying while you can. The lower your balance is when the time comes means the lower your repayments will be. 

For the savings questions sorry I dont think I am allowed to answer that question. Im not sure so dont want to risk any come back. 

MWT

vibez said:

In terms of savings accounts, if I go over the £1000 tax free interest limit, do they just tax the interest on the portion over £1000? and not the full amount?

There is a detailed explanation here: https://www.gov.uk/apply-tax-free-interest-on-savings

In short, yes, it is the margin over the allowance that gets taxed, but the allowance isn't a simple £1,000, it can be higher or lower depending on your earnings...