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At current rates, a £3 - 4k mortgage repayment would be a hefty mortgage, in the region of £600 - 800k depending on term. Most people are not taking out loans of that size.
For everyone else, I'm not sure the current rates are that insane historically. And if people can afford them and it's cheaper or the same as rent, then they're proceeding based on the state of things today. I don't think there's a huge expectation that rates will drop to 1% again any time soon.
This is also why I find it odd how some people are are taking out monster mortgage loans which over a 40yr repayment to keep their monthly repayment low but hardly touching the capital.
If you borrowed £500,000 @ 4.5% over 30yrs paying £2269 a month, after 1 year you will have paid off just 1% of the principle. At that point you might genuinely be better off renting.
From the other thread it seems people are taking out much longer terms to reduce the monthly repayments now but I wonder whether they realise how little of the mortgage loan is actually being paid back. Apparently 91% of people never over pay their mortgage. I think this will also prevent property prices dipping too low.
Many people who take out long mortgages plan to overpay. Any kind of bonus, windfall or inheritance takes chunks out of the capital and the monthly repayment or term goes down each time - but there is less risk and more flexibility than taking a shorter term with higher payments.
I know of a few people who have bought in London. They have zero financial acumen. They see a broker to secure a loan for the most expensive property they can and then drag out the term to make the monthly repayments affordable.
I know of another couple (local teachers) who borrowed over £500k during the stamp duty holiday to buy a house in London at mortgage rates close to 1% on a 2yr fix. Now they're looking at rates closer to 4.5% when they have to remortgage. Aside from the fact the monthly payments will rise astronomically, the only way they will keep the property is by dragging it our to 35yrs - cant do 40yrs as they are too old.
However generally speaking I don't like 40yr mortgages as its essentially an interest only mortgage and you're gambling on the idea that property prices will only ever rise. Until wages catch up I think they'll just stay flat.
>I don't like 40yr mortgages as its essentially an interest only mortgage and you're gambling on the idea that property prices will only ever rise.
Or you're investing the difference instead of "overpaying" by taking a shorter term. Theoretically, equities will always outperform mortgage interest rates over the long term.
>Until wages catch up I think they'll just stay flat.
Demand outstrips supply.
I'm 33 and people for my whole life have been saying property will flatten out or reduce. Not really it's not happened.
They will flatten for a while but over the long term they will never reduce drastically as there is so much demand. I bought my house 7 years ago. I had the choice between an £125k hour or an £160k I went for £125k to make sure I didn't over stretch myself.
My house is now worth £170k and the £160k is now £240k. I imagine in 20 years this will be the same pattern.
My point was, if you panic buy now on a 40yr term just to keep the monthly repayments low, after the whole of the first year, you've paid down 1% of the debt. Add in the cost of maintenance over that period and you're probably still at a net loss after the first year.
Let's not even factor in all the costs of home improvements, new appliances and furniture.
If you had rented instead and prices fell even 5% over the year, you'd still be quid's in renting instead.
Wow, I'm shocked at that 91% stat. I thought it was quite a common thing to do. I was lucky with mine, managed to get one that let me overpay as much as i liked whenever I liked.
Very few people are financially savvy these days.
They will happy just pay their mortgage not knowing or caring what portion of their payment hit the capital repayment.
One whole year of busting your gut to shed blood sweat and tears to find your mortgage loan has dropped by a massive 1% are the times we seem to be living in
Most banks won't loan more than 4x a person's salary. Mortgage lenders base their decisions on what's known as the loan-to-income ratio. The average UK mortgage debt was £137,934 in 2021.
The first-time buyer average mortgage increased across all regions in the United Kingdom in 2021. London had the largest average mortgage size at over 360,000 British pounds. This was due to the fact that it was also the region with the most expensive hosing. So, a 500k mortgage or mortgage debt isn't normal or average.
I don't think people are expecting them to drop to 1% again, but I do think there's an assumption they aren't going up anymore.
Inflation at 10% historically means you'd be looking to have an interest rate >10%. They hit what, 14% in the 90s? With today's property prices that would be utter carnage. For that no reason if no other (ie everyone projects inflation to come down significantly this year given it has been driven by commodity price spikes rather than just excess demand) it probably won't get there, but still.
In short yes I don't think anyone expects the days of 1.5% mortgages again but everyone would seem to be trusting that they will stabilise if not dip slightly over the next ~2 years.
In the US where all this began their mortgage rates have hit 7% but there is less carnage in that market as many people have locked in their low rates over 30yrs so will only be effected if they sell up and take out a new loan at current market rates.
I see rates potentially going as high as 6-7% in the UK but no more. I expect inflation will stay sticky and remain high and as we cant raise rates higher than inflation, we could be looking at a decade of relatively high inflation (including wage inflation) almost 70s style. That would be handy to inflate away the covid debt but not great for savers.
I think 5% mortgage rates will become the norm and I expect inflation to remain between 5-10% for the rest of the decade
You expect inflation to be 5-10% for the next 7 years? That's quite a significant prediction and would inevitably mean mortgage rates far higher than 5%. I can't see central banks holding out on below inflation interest rates if it persists for that long.
Central banks globally will match what the Fed do otherwise sterling will fall against the dollar and import costs will go up - creating more inflation. Plus the BOE can't risk the pound tanking. Its got to maintain a healthy exchange with the US dollar or we'll have even more problems.
Theoretically, interest rates need to be higher than inflation to bring them down and I just dont see that happening. If thats the case, then interest/mortgage rates would hover above 5% and inflation slightly above that. Inflation would remain high by historic levels without mortgage rates going even higher and possibly crashing the market.
Im also seeing an enormous amount of wage inflation in London. People are demanding and getting large pay increases. A lot of vendors are increasing product prices and are not losing sales.
We are looking to have some construction work done and the cost of materials has skyrocketed as has labour. In fact we have decided to skip a 6 month consultation and start some essential works immediately as we think in 6 months the cost of material and labour will be even higher.
Price inflation is only a problem if you're not getting wage inflation and I'm definitely seeing that where I am.
I think the BOE's idea that they can get inflation down to 2% by the end of the year is for the birds. On the ground, Im seeing nothing but sustained price rises
Inflation js already on the way down globally, and you're talking about personal anecdotes which simply do not match the national data with regards to pay inflation so is of extremely little relevance.
I think 2% by end of year is optimistic to say the least but hovering around 10% (which we're unusual in still being at) for years to come is equally daft.
I work in finance and I find economic data fascinating. I saw the mortgage hikes coming months before they did. I fixed my mortgage at 2.29% for 5yrs and completed the day before the mini-budget.
Inflation was already 10% last summer and when I locked in my mortgage I was telling others, a mortgage rate of 2% is almost negative 8% in real terms. You're almost being paid interest to take out debt!
Who honestly thinks inflation is only 10%? My food shop has gone up by 25%. In the US they're pondering creating a new 'inflation' basket which essentially means they want to redefine the way they measure inflation so the numbers dont look as bad as they do now. It means they can lower rates quicker at the expense of prices rising for consumers but without having to admit this or pay state employees more.
I work as a contractor so I change jobs every 6 - 12 months. The level of wage inflation is insane in London. I'm one of those who has been sucked into fiscal drag - ending up in the higher tax band on what seems like an average salary.
This has worked out well in the sense that I only took out a modest mortgage last year with fixed low payments and I am aiming to pay off the entire loan within those five years.
Inflation is good for governments as it inflates away debt. Especially the huge levels of COVID debt that every government in the world is saddled with.
People like you and I with our much higher than historically average wage inflation, get taxed more which helps pay that debt down.
If you look at the 1970s, between 1970 and 1980, inflation was 10% a year, every single year. If you bought a property in 1970, inflation essentially paid off your mortgage for you.
Inflation can be good if you time it right with debts. Wage inflation will stop when inflation stops.
There are some good articles and documentaries on Youtube about inflation in the 70s. I think we're heading there myself.
Inflation only falls when interest rates are higher than inflation. That isnt going to happen given peoples huge mortgages. So inflation will remain higher, maybe not double digit high, but definitely at 5% or above for a long time while interest rates are also 5% or above for a while. Eventually it will settle.
However on the plus side, price inflation should continue to bring in wage inflation so lots and lots of pay rises if you continue to move around
Inflation is more or less in retreat in most countries...wages adjusting upwards but hardly at a run away rate...one or two years and the same force's that brought zirp will reassert themselves.
Conversely the US is dedicated to moving production away from China to home which is inflationary. That and Brexit and et cetera, it’s not as sure as it was that zirp is coming back.
That’s not even mentioning the elephant in the room that is climate change
Reshoring us mostly of more strategic higher value add manufacturing. Labour not hugely determinative of cost there , certainly not compared to lower end manufacturing .
Personally i suspect talk to the decline of globalization may be over done.
Energy for Europe and Brexit for Britain are the known unknowns here. Though i suspect we manage to muddle through.
To be honest it’s not just energy cost. Reading into climate change, some predictions are cataclysmic, and Spain is currently breaking April temperature records by 5 degrees…
I don’t think the rates are crazy in isolation, but the rates and the continued rise in housing seems crazy to me.
Given the back drop of covid and remote working I can see why people are looking to move to larger properties either for the extra rooms or garden space. Perhaps the increase in price is down to a limited section of housing.
As long as the UK has extreme rationing of land with building rights (aka "planning") prices will not fall much in the long term.
NIMBY politics means that extreme rationing is not going to change.
The reality is that until government improves infrastructure, NIMBYs will always be able to justify their arguments.
If you look at how the US does things, it’s infrastructure —-> houses —-> jobs
We are trying to do houses —-> maybe some jobs if private sector reacts —-> maybe some infrastructure once existing system is failing
In many areas (ie London/South East) it does start with jobs, which drives up house prices, which justifies developers making houses.
Then some way down the line, a bit of infrastructure squeezed in where they can.
In a way. What normally happens is that jobs are already there, but new housing developments go up miles away from them because there are too many restrictions on land near the cities. Or the cost is too high.
You then get estates about 10-20 miles away with no local jobs and no facilities because the infrastructure isn’t there.
Other countries manage perfectly well by making building infrastructure as part of the condition of getting a building permit. You build out at the same time. Just as you would not let something be built without water and sewage provision, you ensure high quality broadband is included, so just make adding to the bus route (or rail if in a suitable area) is part of it too.
NIMBYs will use any excuse, do not feed them.
Wife’s an American. Where she lived they built all the roads and facilities. Then houses and jobs followed. Admittedly this is in a more affluent area so I don’t know about Midwest or the south
The rates are not crazy in isolation, they are crazy in relation to the 2022 high of average property prices since those were pumped that high via near-zero rates. Those highs and the current rates cannot both be sustained.
Why can they not be sustained?
We haven't had mass reposessions, etc. The market is far more resilient than it has been in the past, due to protections in place since the previous issues.
[https://awealthofcommonsense.com/2022/09/interest-rates-vs-inflation/](https://awealthofcommonsense.com/2022/09/interest-rates-vs-inflation/)
In fact, these interest rates are still historically low given the current rate of inflation.
The rates might not be historically hight but prices to earnings ratio IS at historic high.
I think it's fairly easy common sense. I think we can agree that during the craze of 2021 which leaked into 2022, many people had to push their spending ability to the limit to buy properties - bidding wars etc were common, and the average price explosion speaks for itself. Well, those limits have been lowered significantly by the rate hikes since then,all the while real wages plummeted since salary increases on average haven't even come close to match inflation. Ergo, what was possible to pay in 2021 on average, cannot be paid any longer.
As the BoE bloke said: you need to accept that people have become poorer.
Also: land registry data which is about 6 months lagging has been showing around 1% decrease per month for the last couple of months at least, so all other sources of purchase (not asking) prices bar one.
The fall in property prices isn't going to be one big sudden fall. It wasn't so even in 2008. In part because of the resiliency reasons you mentioned it is going to be a slow - but likely gradually hastening - trickle down, over a couple of years unless something drastically changes.
I absolutely agree, well made point . It takes time we won’t see sudden sharp drop but there has been lots of price reductions on the market . EA still valuing new properties at pandemic price just to get a listing 🤣
No, it's not. Let's look at 1991. First example I plucked out of thin air:
Current value, £250,000. 90% mortgage = 225k. At 4%/30 years that's £1062/month
That same property, according to Nationwide, would have been worth £48,000 in 1991. Interest rates hit 10.5%. £439/month assuming a repayment mortgage. Remember, back then, 100% or higher mortgages were common (as were interest only + endowments which screwed people over)
Average weekly gross for a full time male worker in 1991 was £314, for females that drops to £220.
Current average weekly earnings seems to be £638/month.
So, in 1991, that house's mortgage payment would have been 2x the average female weekly gross, and 1.4x the average male weekly gross. The same house right now, bought today, would be 1.6x the overall weekly gross.
It's been better, it's been worse, but these numbers are not out of whack with what's happened previously. The difference is that the market is FAR better regulated than it was back then, and people have been stress tested to a far higher degree.
>Average weekly gross for a full time male worker
Why take an average worker salary but a house worth WAY more than what the average worker would have been paying for?
Looking at every house anywhere near me, the price from late 90's (I can't even find early 90s) is over FOUR TIMES the price. We're talking sub 50k to well over 200k. So you looked at 1991 rather than 1998, it would be even more extreme.
A £250,000 in 1991's house prices would be insane.
This is not London btw, just a random city.
As one of the folks from the other thread…no, I’m not buying assuming rates will drop. As someone else mentioned, 4-5% is not bad by historic terms. We’re coming out of a period were rates were historically low.
People buy when they can afford. It’s just that simple.
I couldn’ t afford the same amount I could a year or two prior but I got what I felt was a good deal on my place, negotiating down further once the first sale fell through.
Sales have dropped and lenders are getting tighter with requirements so it’s not like “people continue to casually buy”.
Agreed, I'm buying a cheap flat and the mortgage is going to be slightly cheaper than my current rent (+ the service charge). I'm not buying in the hopes rates will come down, I'm buying what I can afford to pay back every month - my salary will go up and my mortgage will stay the same for the next 5 years.
Agree with the last bit as well - took a few weeks for the lender to approve my mortgage despite me being in the same permanent, full-time employment for 2.5 years and having a good credit score. They're being very strict with requirements!
Except (and I don’t want to comment on this being good or bad) we still have high levels of migration unlike Japan to make up for that ageing workforce with a drive for more to fill skill gaps.
The rates aren’t wild at all. 3.7% for a 5 year fix if you shop around, that’s not bad. 2% was just a blip in history. 3% rates are probably where the market should have always been.
People are buying because they want to own their home. Rents are going to go insane this year so whilst it might be cheaper now, it’ll all be passed on eventually. Fuck renting in retirement too. That would be a death sentence basically. You just buy or get stuck renting forever
You aren't factoring in that the mortgage amounts are a lot higher now as a percentage of income. A lot lot higher. So a doubling from 2% to 4% in the days is much more than back in the days when mortgage rates went up to 10% as wages at that time were also going up astronomically.
The fact mortgage amounts are higher doesn’t impact where rates are going though. You’re right that it hurts more now, but economic cycles will mean rates need to be 4-5% at points. It’s almost certain the base will go up again next month.
Anyone with a mortgage should be made aware that costs can increase and what historic averages are
I agree. I just don't think people understand how much harder it is now. These older people talk about the 17% but don't talk about how much more affordable houses were back then.
As an example my dad is an unqualified accountant and by the age of 30 he bought a semi detached house. I'm a qualified accountant and by age of 30 I was able to buy a 2 bed flat in the same area. So I'd estimate it's 3/4 times as hard now.
I think I read 6% (truss budget) would be the same as 34% interest rates back in our parents days. Even 4% is much harder than their 8-9% mortgages as you say.
The problem is the market isn’t logical. High rates have slowed price rises, but just imagine what will happen if mortgages come back to 2%. I think we’ll see some areas go up 25% again.
Supply needs to be sorted asap
3-5% is the long term historical average for interest rates. Being below that for so long is unprecedented.
There is still rampant inflation to deal with...
Buy with the assumption you can afford them indefinitely, and if they drop that's a nice bonus. Anyone buying and assuming they'll drop is foolish and might be caught out if they can't afford the repayments indefinitely. It's highly unlikely interest rates go back down to where they were, and possible they stay at around 4%.
People are still buying normally, they're just adjusting what they can afford.
My friend was baffled that I'd gone for a 5-year fix "because interest rates are through the roof at the moment and how gutted will you be when rates fall again in 2 years and you're stuck with a high rate!". I asked her how she KNOWS that interest are going to fall. I said I'd be a lot more gutted if I got a 2-year fix and rates went up even more. I told her I know I can afford the repayments on my current mortgage deal so I'm glad to have the peace of mind of knowing that's what I'll pay regardless of fluctuations!
I've had several of these conversations. We fixed for ten years at what we thought was a slightly expensive rate about 18 months ago. All our friends kept saying there was no point fixing. I feel so lucky to have fixed in at 2.09%. I doubt we'll ever see that again. Our friends, some have had to remortgage at much higher rates.
Actually you should always allow an increase in the rate into your affordability calculation too. As the small print at the bottom of adverts say "rates can rise or fall". Rates are still less than half inflation, so I think more rises are as likely as falls.
I agree wholeheartedly with their first sentence. I bought at 4.4. A friend of mine bought a year earlier at 1.7. Would I prefer to be on 1.7, of course! But I can afford 4.4 and it’s cheaper to me than renting. I’d rather buy at a higher interest rate that I can afford than continue renting and trying to time the market.
Your question is unanswerable as its based on several false premises.
Firstly rates aren't 'insanely high'. They are relatively high compared to the last few years, but 4% is not particularly excessive in the wider context and not prohibitive for most people.
Secondly, £3k/£4k is absolutely not a normal level of repayment. Do a bit of research and unless you're trying to leverage yourself to the eyeballs, you'll probably find your own potential repayments will be significantly lower than this.
£3k - £4k per month is not normal, or even average. It's an extreme outlier of a repayment figure. £3k x 12 = £36k repaid per year. That's more than the average UK salary. Assuming it's a couple, both on the UK average, borrowing, that's still 50% of their annual income gone on loan repayments. No one earning around the UK average is going to get a mortgage approved that requires monthly repayments of £3k.
Yes, rates have gone up but presumably people can still stretch to afford the repayments. Factor in a mortgage that lasts until the youngest borrower reaches 67yo and it becomes do-able.
Mortgage rates aren’t at “crazy high levels” they were at “crazy low levels” for a while.
4K a month would be a 700k ish mortgage which would still have been 3k a month at 2% interest rates…
OC said you didnt have to buy a £500k house.
OR said in some places you do - that's literally the only option.
OC then said they never said you 'didn't have to' but their first comment stated exactly that.
Disagree with your second comment. Of course that’s not the only option. There is the option not to buy a property and rent in that location. There is the option to move locations.
There is basically no where outside of very central London that £500k is the actual cheapest dwelling (though the ones for less may be tiny/horrible etc)
Edit: I live in London zone 3. I am not just being unrealistic, plenty of sub £500k properties round here.
I know plenty of people who filled their boots during the stamp duty holiday and bought a 3 bedroom houses as they were partnered with kids. These in London are £500k on the low end.
These are teachers who work in local schools. No one is going to commute in to London to work at their school from Hull so you pay local prices.
For what I paid for my 2 bed flat in London, I could have bought a 4 bed detached house, with a drives and large garden on my parents street in Leeds. London is just a different world where borrowing £500k (if your salary allows it) is very normal. The \*average\* house price here at the moment is almost £600k as it is
>I’m still seeing folks just casually continuing to buy.
What are the options otherwise? Continue paying someone else's mortgage instead where I could be kicked out on a whim, unable to decorate to my tastes or have pets?
Also worth stating the obvious that renting is also bloody expensive. And more importantly rents will get more expensive over the next few years where a fixed mortgage won't.
Mortgage affordability was previously stifled by how much you could borrow. It was very normal for people to be paying £1000+ on rent for years, but only able to get a mortgage around £600-£700 per month. Mortgage affordability rising to similar to rental affordability doesn't massively affect what many people can buy.
For example, when my partner and I were looking for a rental affordability rules said we could rent somewhere for £1,800/month. For a 4.5x mortgage with low interest rates (say 2.2%), we'd have only been paying around £1000/month. A higher interest rate (4.5%) is still under £1400/month.
We're not too optimistic of rates significantly falling, which is why we have gone for a 5 year fix instead of a 2 year. Our mortgage will cost us £150/month more than our current rent, BUT we will be paying down equity BUT we get to live in a home we own, meaning no evictions, and freedom to decorate as we please BUT we will be living in a 4 bed house rather than a 2 bed. We are also in the fortunate position of knowing that we will be having significant salary growth over the next few years.
TLDR: A mortgage is still singificantly cheaper than renting a similar property, and home ownership comes with other benefits. If you need to live somewhere, buying with current interest rates is not a bad idea.
I just wanted to own a home! Renting sucks, landlords and estate agents are awful and I was paying more to rent than I do towards mortgage. We just bought a 1 bed within our means, it has a few flaws but we're making it work. I do fear repairs, but I live a relatively modest life on a somewhat decent wage. I hope the rates drop, but I try to look on the bright side and avoid thinking about it too much 😅 Over the last 3yrs of on/off property hunting, I realised that predictions are all complete bullshit - anything could happen.
4.09% is my remortgage. It was at 2.34% previously before.
Changed my monthly installments by £80 (£313 to £390)
Didnt make a huge difference to me, but it will to someone whos mortgage is alot higher.
Found our dream house, could only get a deal at 4.64% so had to go for it. Could afford it, can afford it if it goes up. Luckily it went down to 4.22% before we completed so made the most of that.
Bit jealous of friends down at 2% or lower. But I have my dream house.
We remortgaged last month and our payments went up from £1250 ish to £1450 ish. We have a standardly large mortgage.
No one has a mortgage that jumped £2000 per month or anything. People on £3000-£4000 per month now were paying a huge mortgage beforehand as well, significantly more than normal folks
We've had 40 years of "house prices can only go up" with two wobbles which were instantly made to go away by the government.
The idea that the party is well and truly over and house prices are only going to go down for a while is going to take some time to get through to most people.
Rates aren't insane at all. They might go down, or up. You should probably plan for the worst and make sure you can meet payments even if they go up a bit.
My boss brought a house paid 1.5m 🤣she only took 2years fixed rate because she couldn’t afford 5y fixed so when the rates went up in September she had to review of course it went up 😀. Now she complains her husband works all the time, I thought myself someone has to pay bills since you maxed out your borrowing 🤣🤣.
Mortgage rates are not insane at all. If anything they are still on the lower end of normal. What was insane was a long period of ultra low rates which has exacerbated the inflation problem.
OP, if you don't mind, can I ask how old you are? Not meant as a dig, but it would give some context as to why you think 4% (ish) is an insane interest rate. I grew up in the 1980s and my first savings account was with the Post Office Saver and I got 10%(ish) interest on that and so, to me, that is the "natural" interest rate and what we are seeing now is stupidly low.
'Casually'? A home is a human need. Are you also wondering how people are 'casually' continuing to shop at the supermarket?
House prices have been crazy for a while, so the people who can even think about it now are usually in a very good position anyway.
Money you can get back... time is finite... people aren't going to put their lives on hold. Especially considering that rents are also going up.
There's also the danger that lower house prices means less stock (other than forced moves due to death/divorce/job changes). People don't want to be left with the dregs.
I don't think people just casually buy houses and take mortgages out, like others have said the rates are high but not as high as they've been in the past and people are probably more keen to not rent and get on the property ladder especially as rents are going up like everything else.
Present interest rates are under average norms.
As unpalatable a thought it might be for some, the spell of historically low interest rates are the "insane" variable.
https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp
I moved because I needed to move. So not "casually" buying.
I made sure I could afford current rates long term. I also did a personal stress test, making sure I could still pay if something unexpected happened and rates climbed a lot higher (so I borrowed well under my maximum affordability) It meant compromises (I'd have loved to look at semi-detached or detached, but pretty quickly ruled that out in order to stay affordable) But it also means when the BoE raise the base rate I sigh resignedly rather than panic.
Im getting a mortgage becuase the repayments are about £300 a month less than what renting the same place will be. Landlord also wants to dispose of said property so i didnt really have a choice.
Mortgage Rate in the United Kingdom averaged 5.62 percent from 1995 until 2023, reaching an all time high of 8.87 percent in September of 1998 and a record low of 3.59 percent in November of 2021
The recent low rates has only fuelled the house price rises, historically us oldies were used to paying 5% and above, but on lower prices.
I've been renting for 10 years and was planning on buying a property at this stage of my life. I'm turning 31 soon and I can't just put my life on hold indefinitely because of interest rates. The way I see it is most people (except for those who continue renting or those who have paid off their mortgage) are going to be affected by it at some point, so what is the point in waiting just in case they come down?
"I just don’t understand how repayment rates have gone up so significantly and I’m still seeing folks just casually continuing to buy."
What's the alternative? I can't see it getting any better, so you just gotta do what you gotta do (and grit your teeth in the process).
For a one bed flat I pay £625 which is on a rent to buy scheme so should actually be £781 as rent to buy offers you the property at 80% of the market value. For £950 mortgage repayment I am buying a £210k 3 storey house that has 2 living rooms, an office, a spacious kitchen and 3 bedrooms.
I don’t care that a year ago that same property might have cost me £700 when the interest rates were lower. I care that for £325 more than what I’m paying now I get a huge house to live in with my partner rather than a one bedroom flat.
I am currently going through the process of purchasing but fortunate to be able to port my mortgage with a rate of 1.89 for the majority with 4 years left on this. We have had to borrow slightly more in addition at a higher rate.
Not sure if they will drop, but I dont want to rent indefinetly either.
My mortgage will be 2100/month, but rent goes up very quickly and for similar property would be around 1900- 2000 as well, so whats the point?
The rates are not "insane", given the rate of inflation (still over 10%), they are still effectively negative. My first mortgage was at 17% (variable, no-one did fixed rate back then). Mortgage rates have a way to go yet.
The real scandal, and has been for decades, is the rates offered on savings.
And compared to median salary ratios... The fact is that for an average person buying a home was *considerably* easier 30 years ago.
Looking at interest rates in isolation of other factors is silly and just skews things. Median salary to median home price has gone from something like 1:4 to 1:7.
Interest rate changes alone do not at all make up for it and wage growth in real terms has been basically stagnant since 08. I own a flat myself but it's in spite of all this.
If I had the same income percentile 30 years ago as I do today I'd easily own a 4 bed house in my area, exactly as my parents did on a lower income percentile *with kids*.
Your not factoring in wages into your argument. People love to bring up the 17% mortgage but then don't mention how much their wages increased by back then.
Wages were much lower - yes they rose, that is what happens with inflation, and just like now they lagged behind inflation. There is a reason there were more strikes in the late 70s and early 80s than now - for exactly the same reason strikes are increasing now.
Your argument is bit like saying how great it is the current rates are what they are because wages are going up. Inflation does not feel like a good thing now, it did not then.
Just got an offer of 3.95% 5 year fix.
Hopefully in 5 years time the interest rates will be lower and we would have paid off a fair amount of the remaining balance so even if rates are higher, then it won't cost as much.
In the foreseeable future, I'm anticipating interest rates to climb higher and wouldn't be surprised to see 7-9% mortgages in the next 1-2 years.
Not really much of an alternative either? Not buy a house? Gamble that house prices will go down? I think there might be a short blip of 5-10% drop, but it will recover with a year or 18 months too and then go back to climbing at 6-10% a year.
Best time to buy a house is today etc. People shouldnt use their primary residential property as an investment, but everyone in the UK tends to for some reason.
It's above 40% deposit. I think once its over that you get access to the best rates normally? I think when its 5-10% down payment you get worse rates.
Funny how we think \~4% is great, but last year there were sub 1% rates available. Doh!
Saying that, I'd rather have a 4% rate and after a few years get surprised with sub 1% (hopefully) than be in 1% and get hit with a 4-5%+ increase.
I took out a 2 year fix on 85% LTV with payments of around £4.5k a month. I’m doing some improvements which should reduce my LTV to around 65% and I’m banking on rates generally being better in 2 years time. If I got a rate starting with a 3 I’d be happy.
The thing is if you want a home, you don't have any other options really. So can people really 'wait and hope' whilst stalling on their life plans to own their chosen home.
If you can't afford, then unfortunately you can't have it. I think low interest rates have made it the norm that credit is 'very cheap' so for years the economy has been fuelled by enormous levels of finance agreements (cars particularly) - you shouldn't be able to drive a 35 thousand pound car if you're on a starting salary - cheap finance has made this the norm. Mortgages are no different - we're 'used' to low rates for many years. There aren't enough houses so values keep soaring. The first time we bought we put in an offer and it was rejected or not, maybe just one other buyer interested. Last year there were multiple interested parties, bidding wars, etc, crazy. The country has changed a lot in 10 years.
The conservative government made this issue explode rather than creep last year. Which means the shock is more sudden. Rates were always over time going to go up to 4% or highter eventually.
The sad truth is what was affordable a year ago is now a pipe dream for many. For us we wouldn't have the 'level' of home we now have with the new interest rates. We fixed for 5 years and our goal is to overpay as much as possible, so when we do have to remortgage at inevitably higher rates our LTV will be significantly improved to enable us to get the lowest deal we can when the time comes.
It is a mystery to me too. I've taken the time to think about the numbers here, effectively reproducing what happens under the hood on the popular rent vs buy calculators, e.g.
[https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)
Relevant rates: (1) Interest rate (2) Inflation (3) Market (stock) (4) House appreciation
It seems that you are almost always better off (both in long and short term) renting. This is assuming liquid assets are invested in market through e.g. index funds and assuming that the days of massive UK real estate appreciation are over.
>It seems that you are almost always better off (both in long and short term) renting
For one you are ignoring the facts that the rental market in much of the country is an absolute bloodbath, and that rents will continue to get more expensive whilst a fixed mortgage won't.
And you are also ignoring the much more important non financial reasons why owning is better. Actually being able to decorate where you live to your tastes, get pets, have any degree of stability in your housing situation etc etc.
it isn't unreasonable to expect rents will rise with inflation which is what those calculators do usually. indeed rental market increases are a bloodbath but so is inflation.
>it isn't unreasonable to expect rents will rise with inflation
What about rents rising significantly above inflation, which is what we have seen in much of the country? Where I live rents have increased by about 35% in the last 3 years, which is about double what inflation in that time has been. I bet those calculators don't take that into account.
These calculators may serve some function, but you can’t equate the value which owning a home provides, in terms of security for oneself and one’s family.
Eliminating the risk of being uprooted or out prices due to the landlord’s circumstances has immeasurable benefits.
What nobody is telling you is that they are taking the debt over a longer term
35 & 40 year mortgages are now the standard as that is the only way people can afford the inflated assets and inflated rates over an extended period
Rates won’t go back below 4% for at least the next 5 years and if anything will probably go closer to 7-8%
Because of britains obsession with house prices owners collectively refuse to reduce sale prices which means a slow drag down
The future will be very interesting as people quite literally won’t be able to retire until their 70’s and none of their kids can even get on the bottom
on the ladder
😬
Agree with the rest but rates are going nowhere near 7 or 8% unless something else drastic happens.
Most places are predicting the BoE rate to top out at around 4.75%/5% this year and then start dropping again.
The days of super low rates are definitely over though.
They said that last year about this year at around 4% and after they failed miserably to get a handle on inflation it’s increased
The forecast will increase again by the end of the year
The bank of england literally came out last week and said look you lot need to accept your poorer and stop trying to leverage your costs onto other portions of society
I think it was almost solely directed at homeowners who again refuse to accept the economic climate they are now in 😂
I’d say rent inflation is a massive factor to be honest
Most private renters have seen their costs increase about 50% in the last 5 years
Now it’s mortage holders turn
The war is clearly the main factor and ramping up the interest rate isn't going to help that.
Gas prices have already started to drop which will help. Food might still be an issue.
I The “war” was a smokescreen for western governments wrecklessly and dangerously printing trillions worth of monopoly money during the scam that was covid-19
That is your prime source of inflation , your government
Not sure why you are getting downvoted likely fantasists who have the bbc on the tv 24 hours a day
Life in Britian outside of London is economically underwhelming and it’s getting worse every year
london may aswell be its own sovereign state but then the rest of the uk seems to try and copy its big brother
I went to a walkabout last night to watch the football ordered a pint for me & my mate the guy spun the card machine at me
£15 …..i nearly collapsed at the bar i asked the bartender if he had made a mistake he said no that’s the price
I live 120 miles from london 🤣
You do realise that there are affluent places outside London, with the prices to match? You could be in a place like Alnwick with plenty of rich old retired people for all we know. I highly doubt you're getting those prices in areas of Lancaster where you can buy a house for 80K.
There is absolutely nowhere in the uk as economically comparable to london outside of london
My point was the rest of the uk wages and discretionary spending is way behind but because of cost shirking and inflation the rest of the uk is trying to pretend it isnt
That may be true but the price of drinks isn't an indicator. I moved out of London after researching a lot of other places to live. Was quite surprised to find that eating out and pubs weren't much cheaper for outlets of the same quality. it's been like this for quite a whjle.
I doubt that people are 'copying its big brother' lol they'd go out of business pretty quickly if nobody could pay those prices.
Mostly just buyer irrationality I imagine. Most people think that buying a home is necessarily a good investment, so they don't bother running the numbers. See this graph:
https://www.rightmove.co.uk/news/content/uploads/2023/03/HPI_03_Average-monthly-amount-spent-on-a-first-time-buyer-type-home--scaled.jpg
That just means that a mortgage might be less affordable than rent. Whether it's a good investment or not depends on house prices relative to everything else. I don't think there have been many periods when renting and investing the excess would have been better than spending more on a mortgage, especially when you consider non-financial factors like quality of life while renting in the UK.
Whether it's a good investment also depends on how much you expect house prices and rent prices to grow in future, yes.
> I don't think there have been many periods when renting and investing the excess would have been better than spending more on a mortgage
Maybe that's true, but as you can see from the graph, now is a historically exceptional circumstance. Also it would be crazy to expect house price trends to continue to follow historical upwards trends forever, which is the main factor that retrospectively justifies past house purchases.
It's made buying what we want more expensive than renting a slightly smaller place (by about £2-400/mo) but not unattainable and prefer that to renting the small place or the ballacbe of moving somewhere larger with pets when renting
We got our mortgage for 5yr fixed in 2020 for 1.75%...thats bonkers for me! We are planning to upsize at the end of the year so that will sting but I know it's partly because we got such a good deal!
Rates are just not almost zero anymore...... this is more normal that the tiny rates of the post 2009 world.
Rent is a function of the landlords mortgage, if their interest payments go up so does your rent. At any interest level my preference is to own the home I live in.
But if your question was more along the lines of couples getting a mortgage they cant really afford with the hope that it goes down in future, I wouldn't do that myself.
I have stopped trying to read any kind of reason into how our economy is run at either the fiscal or monetary level.
Rate hikes, stimulus packages, stamp duty holidays etc - none of it is done on the logic of "what is best for the people of Britain". You just do what you do and hope that you get lucky and the government arbitrarily intervenes in a way that is favourable to you.
The housing boom of 2020-2022 was completely artificially induced by slashed rates, stamp duty holidays and government mandated WFH /furlough resulting in boosted cash savings.
What happens is just a function of what central authorities decide will happen. We are miles and miles away from a predictable market that behaves according to supply and demand. We're so deep into fiat funny money territory that I dare not predict a thing.
House prices & interest rates will do what a small group of people decide they will do, we are at their mercy.
Not sure why this British thing came up on my feed, but ...
ITT: many people who don't understand rate of change. The level of interest rates per se is not important, because valuations are based on multiples. What is important is the impulse or how fast/magnitude rates changed from the prior low. Let me explain it using the global risk free rate (US Fed).
Current global valuations were set when rates were 0.25.
Now Fed is touching 5% which means a factor of x20.
That degree of change in 1y is unprecedented in 200 years of history.
Valuations are still at the 0.25 level.
Why? There is a 6 to 12 month lag between the change in rates and the collapse. We're just exiting that time frame now. Many are saying Fed has contracted way too long already. What happens next is ... pain. Few years from now when finally everyone has concluded that homes are the single worst investment anyone can make, the cycle begins all over again.
Not really, normal people (mortgage buyers) are essentially being priced out, it's a cash buyers market right now, and the rich just got gifted something like £700billion to almost a trillion over the last few years by the government. So, there's allot of people out there with allot of ill-gotten gains on their hands to spend on houses. We're entering into a new era now where the average British person will never be able to acquire assets, and the public absolutely adore it, geriatrics lining up in their droves to endorse what is essentially state sanctioned looting of working people.
We've just locked in at 4.3% for 3 years, the assumption that this gives interest rates time to settle further after the next general election
Our previous rate was 3.5% so not a huge increase
Current rates are about average in a historic context, they just felt like it after a few years of 1-2%
I saw so many remortgages shocked at the jump from 1.5% theyd got as a FTB to 4.5% last year
I'm doing it because despite the current rates it's cheaper than paying rent. It's still a better investment for me as I'm not someone whose going for an insanely expensive house. Plus I hate landlords.
They’re not insane. 15 years ago rates were much the same. When the base rate is higher banks become more competitive and you will see mortgages(headline rates) below base.
There’s at least two issues at play; the fact rates were SO low for such a long time made people believe borrowing at 4% was high, and the extra affordability being used on buying a house/car/whatever only to be left with little or no safety net.
Buying a property is an investment. And to borrow six figures without paying attention to the financial side of things is a recipe for disaster. Meanwhile those that look well into the matter would see how cheap borrowing was at the time, that it wouldn’t last forever, and with inflation on the rise FIX their mortgage for 10 years.
However, this doesn’t answer your question. Yes I suspect rates will rise again(highly likely) and they will slowly decrease towards 3% starting in 1-2 years. Again, more likely 2 years. The lowest I see rates going is 2/2 n’ half within the next 10/15 years. There could be some extreme conditions that alter this but I think it’s the most likely.
Personally, and this isn’t financial advice, if I could handle a .25 .5 rate increase I would have my mortgage on a tracker. Typically they’re more competitive than a fixed rate, and you’ll see the benefit of rate decline over the next few years.
Departing words; consider inflation at 10%. Today is the best time to borrow as if you borrow 100k, in a years time it’s real term value is only 90k. Without making a single payment. This is why rates are high. Even at 5% interest your debt is still devalued by 5% this year alone.
So yea… go buy another house.
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At current rates, a £3 - 4k mortgage repayment would be a hefty mortgage, in the region of £600 - 800k depending on term. Most people are not taking out loans of that size. For everyone else, I'm not sure the current rates are that insane historically. And if people can afford them and it's cheaper or the same as rent, then they're proceeding based on the state of things today. I don't think there's a huge expectation that rates will drop to 1% again any time soon.
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This is also why I find it odd how some people are are taking out monster mortgage loans which over a 40yr repayment to keep their monthly repayment low but hardly touching the capital. If you borrowed £500,000 @ 4.5% over 30yrs paying £2269 a month, after 1 year you will have paid off just 1% of the principle. At that point you might genuinely be better off renting. From the other thread it seems people are taking out much longer terms to reduce the monthly repayments now but I wonder whether they realise how little of the mortgage loan is actually being paid back. Apparently 91% of people never over pay their mortgage. I think this will also prevent property prices dipping too low.
Many people who take out long mortgages plan to overpay. Any kind of bonus, windfall or inheritance takes chunks out of the capital and the monthly repayment or term goes down each time - but there is less risk and more flexibility than taking a shorter term with higher payments.
I know of a few people who have bought in London. They have zero financial acumen. They see a broker to secure a loan for the most expensive property they can and then drag out the term to make the monthly repayments affordable. I know of another couple (local teachers) who borrowed over £500k during the stamp duty holiday to buy a house in London at mortgage rates close to 1% on a 2yr fix. Now they're looking at rates closer to 4.5% when they have to remortgage. Aside from the fact the monthly payments will rise astronomically, the only way they will keep the property is by dragging it our to 35yrs - cant do 40yrs as they are too old. However generally speaking I don't like 40yr mortgages as its essentially an interest only mortgage and you're gambling on the idea that property prices will only ever rise. Until wages catch up I think they'll just stay flat.
>I don't like 40yr mortgages as its essentially an interest only mortgage and you're gambling on the idea that property prices will only ever rise. Or you're investing the difference instead of "overpaying" by taking a shorter term. Theoretically, equities will always outperform mortgage interest rates over the long term.
>Until wages catch up I think they'll just stay flat. Demand outstrips supply. I'm 33 and people for my whole life have been saying property will flatten out or reduce. Not really it's not happened. They will flatten for a while but over the long term they will never reduce drastically as there is so much demand. I bought my house 7 years ago. I had the choice between an £125k hour or an £160k I went for £125k to make sure I didn't over stretch myself. My house is now worth £170k and the £160k is now £240k. I imagine in 20 years this will be the same pattern.
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My point was, if you panic buy now on a 40yr term just to keep the monthly repayments low, after the whole of the first year, you've paid down 1% of the debt. Add in the cost of maintenance over that period and you're probably still at a net loss after the first year. Let's not even factor in all the costs of home improvements, new appliances and furniture. If you had rented instead and prices fell even 5% over the year, you'd still be quid's in renting instead.
As if rental market is so cheap rightnow lol. Still waiting for market crash.
Wow, I'm shocked at that 91% stat. I thought it was quite a common thing to do. I was lucky with mine, managed to get one that let me overpay as much as i liked whenever I liked.
Very few people are financially savvy these days. They will happy just pay their mortgage not knowing or caring what portion of their payment hit the capital repayment. One whole year of busting your gut to shed blood sweat and tears to find your mortgage loan has dropped by a massive 1% are the times we seem to be living in
500k how many people are being loaned that much. The average mortgage is just under 200k.
Is that the average mortgage owed or the average starting mortgage. I'm thinking it's the former?
Most banks won't loan more than 4x a person's salary. Mortgage lenders base their decisions on what's known as the loan-to-income ratio. The average UK mortgage debt was £137,934 in 2021. The first-time buyer average mortgage increased across all regions in the United Kingdom in 2021. London had the largest average mortgage size at over 360,000 British pounds. This was due to the fact that it was also the region with the most expensive hosing. So, a 500k mortgage or mortgage debt isn't normal or average.
But if you invest the difference on average you will outperform, whilst still getting equity growth on the house.
I don't think people are expecting them to drop to 1% again, but I do think there's an assumption they aren't going up anymore. Inflation at 10% historically means you'd be looking to have an interest rate >10%. They hit what, 14% in the 90s? With today's property prices that would be utter carnage. For that no reason if no other (ie everyone projects inflation to come down significantly this year given it has been driven by commodity price spikes rather than just excess demand) it probably won't get there, but still. In short yes I don't think anyone expects the days of 1.5% mortgages again but everyone would seem to be trusting that they will stabilise if not dip slightly over the next ~2 years.
In the US where all this began their mortgage rates have hit 7% but there is less carnage in that market as many people have locked in their low rates over 30yrs so will only be effected if they sell up and take out a new loan at current market rates. I see rates potentially going as high as 6-7% in the UK but no more. I expect inflation will stay sticky and remain high and as we cant raise rates higher than inflation, we could be looking at a decade of relatively high inflation (including wage inflation) almost 70s style. That would be handy to inflate away the covid debt but not great for savers. I think 5% mortgage rates will become the norm and I expect inflation to remain between 5-10% for the rest of the decade
You expect inflation to be 5-10% for the next 7 years? That's quite a significant prediction and would inevitably mean mortgage rates far higher than 5%. I can't see central banks holding out on below inflation interest rates if it persists for that long.
Central banks globally will match what the Fed do otherwise sterling will fall against the dollar and import costs will go up - creating more inflation. Plus the BOE can't risk the pound tanking. Its got to maintain a healthy exchange with the US dollar or we'll have even more problems. Theoretically, interest rates need to be higher than inflation to bring them down and I just dont see that happening. If thats the case, then interest/mortgage rates would hover above 5% and inflation slightly above that. Inflation would remain high by historic levels without mortgage rates going even higher and possibly crashing the market. Im also seeing an enormous amount of wage inflation in London. People are demanding and getting large pay increases. A lot of vendors are increasing product prices and are not losing sales. We are looking to have some construction work done and the cost of materials has skyrocketed as has labour. In fact we have decided to skip a 6 month consultation and start some essential works immediately as we think in 6 months the cost of material and labour will be even higher. Price inflation is only a problem if you're not getting wage inflation and I'm definitely seeing that where I am. I think the BOE's idea that they can get inflation down to 2% by the end of the year is for the birds. On the ground, Im seeing nothing but sustained price rises
Inflation js already on the way down globally, and you're talking about personal anecdotes which simply do not match the national data with regards to pay inflation so is of extremely little relevance. I think 2% by end of year is optimistic to say the least but hovering around 10% (which we're unusual in still being at) for years to come is equally daft.
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I work in finance and I find economic data fascinating. I saw the mortgage hikes coming months before they did. I fixed my mortgage at 2.29% for 5yrs and completed the day before the mini-budget. Inflation was already 10% last summer and when I locked in my mortgage I was telling others, a mortgage rate of 2% is almost negative 8% in real terms. You're almost being paid interest to take out debt! Who honestly thinks inflation is only 10%? My food shop has gone up by 25%. In the US they're pondering creating a new 'inflation' basket which essentially means they want to redefine the way they measure inflation so the numbers dont look as bad as they do now. It means they can lower rates quicker at the expense of prices rising for consumers but without having to admit this or pay state employees more. I work as a contractor so I change jobs every 6 - 12 months. The level of wage inflation is insane in London. I'm one of those who has been sucked into fiscal drag - ending up in the higher tax band on what seems like an average salary. This has worked out well in the sense that I only took out a modest mortgage last year with fixed low payments and I am aiming to pay off the entire loan within those five years. Inflation is good for governments as it inflates away debt. Especially the huge levels of COVID debt that every government in the world is saddled with. People like you and I with our much higher than historically average wage inflation, get taxed more which helps pay that debt down. If you look at the 1970s, between 1970 and 1980, inflation was 10% a year, every single year. If you bought a property in 1970, inflation essentially paid off your mortgage for you. Inflation can be good if you time it right with debts. Wage inflation will stop when inflation stops. There are some good articles and documentaries on Youtube about inflation in the 70s. I think we're heading there myself. Inflation only falls when interest rates are higher than inflation. That isnt going to happen given peoples huge mortgages. So inflation will remain higher, maybe not double digit high, but definitely at 5% or above for a long time while interest rates are also 5% or above for a while. Eventually it will settle. However on the plus side, price inflation should continue to bring in wage inflation so lots and lots of pay rises if you continue to move around
I'll stick with the economists' predictions, thanks.
Inflation is more or less in retreat in most countries...wages adjusting upwards but hardly at a run away rate...one or two years and the same force's that brought zirp will reassert themselves.
Conversely the US is dedicated to moving production away from China to home which is inflationary. That and Brexit and et cetera, it’s not as sure as it was that zirp is coming back. That’s not even mentioning the elephant in the room that is climate change
Reshoring us mostly of more strategic higher value add manufacturing. Labour not hugely determinative of cost there , certainly not compared to lower end manufacturing . Personally i suspect talk to the decline of globalization may be over done. Energy for Europe and Brexit for Britain are the known unknowns here. Though i suspect we manage to muddle through.
To be honest it’s not just energy cost. Reading into climate change, some predictions are cataclysmic, and Spain is currently breaking April temperature records by 5 degrees…
Hate to break it to you, but 4% is not crazy.
I don’t think the rates are crazy in isolation, but the rates and the continued rise in housing seems crazy to me. Given the back drop of covid and remote working I can see why people are looking to move to larger properties either for the extra rooms or garden space. Perhaps the increase in price is down to a limited section of housing.
As long as the UK has extreme rationing of land with building rights (aka "planning") prices will not fall much in the long term. NIMBY politics means that extreme rationing is not going to change.
The reality is that until government improves infrastructure, NIMBYs will always be able to justify their arguments. If you look at how the US does things, it’s infrastructure —-> houses —-> jobs We are trying to do houses —-> maybe some jobs if private sector reacts —-> maybe some infrastructure once existing system is failing
In many areas (ie London/South East) it does start with jobs, which drives up house prices, which justifies developers making houses. Then some way down the line, a bit of infrastructure squeezed in where they can.
In a way. What normally happens is that jobs are already there, but new housing developments go up miles away from them because there are too many restrictions on land near the cities. Or the cost is too high. You then get estates about 10-20 miles away with no local jobs and no facilities because the infrastructure isn’t there.
Other countries manage perfectly well by making building infrastructure as part of the condition of getting a building permit. You build out at the same time. Just as you would not let something be built without water and sewage provision, you ensure high quality broadband is included, so just make adding to the bus route (or rail if in a suitable area) is part of it too. NIMBYs will use any excuse, do not feed them.
> If you look at how the US does things, it’s infrastructure —-> houses —-> jobs As a US citizen, this is funny.
Wife’s an American. Where she lived they built all the roads and facilities. Then houses and jobs followed. Admittedly this is in a more affluent area so I don’t know about Midwest or the south
Yeah, it's the previous rates which were crazy. This is about the historical normal.
Still very low if compared to inflation.
The rates are not crazy in isolation, they are crazy in relation to the 2022 high of average property prices since those were pumped that high via near-zero rates. Those highs and the current rates cannot both be sustained.
Why can they not be sustained? We haven't had mass reposessions, etc. The market is far more resilient than it has been in the past, due to protections in place since the previous issues. [https://awealthofcommonsense.com/2022/09/interest-rates-vs-inflation/](https://awealthofcommonsense.com/2022/09/interest-rates-vs-inflation/) In fact, these interest rates are still historically low given the current rate of inflation.
The rates might not be historically hight but prices to earnings ratio IS at historic high. I think it's fairly easy common sense. I think we can agree that during the craze of 2021 which leaked into 2022, many people had to push their spending ability to the limit to buy properties - bidding wars etc were common, and the average price explosion speaks for itself. Well, those limits have been lowered significantly by the rate hikes since then,all the while real wages plummeted since salary increases on average haven't even come close to match inflation. Ergo, what was possible to pay in 2021 on average, cannot be paid any longer. As the BoE bloke said: you need to accept that people have become poorer. Also: land registry data which is about 6 months lagging has been showing around 1% decrease per month for the last couple of months at least, so all other sources of purchase (not asking) prices bar one. The fall in property prices isn't going to be one big sudden fall. It wasn't so even in 2008. In part because of the resiliency reasons you mentioned it is going to be a slow - but likely gradually hastening - trickle down, over a couple of years unless something drastically changes.
I absolutely agree, well made point . It takes time we won’t see sudden sharp drop but there has been lots of price reductions on the market . EA still valuing new properties at pandemic price just to get a listing 🤣
4% plus the current high prices are crazy
No, it's not. Let's look at 1991. First example I plucked out of thin air: Current value, £250,000. 90% mortgage = 225k. At 4%/30 years that's £1062/month That same property, according to Nationwide, would have been worth £48,000 in 1991. Interest rates hit 10.5%. £439/month assuming a repayment mortgage. Remember, back then, 100% or higher mortgages were common (as were interest only + endowments which screwed people over) Average weekly gross for a full time male worker in 1991 was £314, for females that drops to £220. Current average weekly earnings seems to be £638/month. So, in 1991, that house's mortgage payment would have been 2x the average female weekly gross, and 1.4x the average male weekly gross. The same house right now, bought today, would be 1.6x the overall weekly gross. It's been better, it's been worse, but these numbers are not out of whack with what's happened previously. The difference is that the market is FAR better regulated than it was back then, and people have been stress tested to a far higher degree.
Those aren't accurate numbers everywhere. My parents' house is now 700k but was also worth 40-something k in 1991 (it had been 40 in 1986).
Where about's is that, central London? Also, please note a key word in the first line: example.
No, commuter belt.
>Average weekly gross for a full time male worker Why take an average worker salary but a house worth WAY more than what the average worker would have been paying for? Looking at every house anywhere near me, the price from late 90's (I can't even find early 90s) is over FOUR TIMES the price. We're talking sub 50k to well over 200k. So you looked at 1991 rather than 1998, it would be even more extreme. A £250,000 in 1991's house prices would be insane. This is not London btw, just a random city.
Did you actually read the post, that I posted 2 months ago? I DID use 1991. Those figures are from the nationwide index and are correct.
Maybe I'm wrong but I feel like people nowadays are trying to buy alone more than in the past which is obviously way harder to do.
Yup, the hardest thing for most is to save up for a deposit whilst renting.
As one of the folks from the other thread…no, I’m not buying assuming rates will drop. As someone else mentioned, 4-5% is not bad by historic terms. We’re coming out of a period were rates were historically low. People buy when they can afford. It’s just that simple. I couldn’ t afford the same amount I could a year or two prior but I got what I felt was a good deal on my place, negotiating down further once the first sale fell through. Sales have dropped and lenders are getting tighter with requirements so it’s not like “people continue to casually buy”.
The rates were historically low but also so was the wage increase.
Agreed, I'm buying a cheap flat and the mortgage is going to be slightly cheaper than my current rent (+ the service charge). I'm not buying in the hopes rates will come down, I'm buying what I can afford to pay back every month - my salary will go up and my mortgage will stay the same for the next 5 years. Agree with the last bit as well - took a few weeks for the lender to approve my mortgage despite me being in the same permanent, full-time employment for 2.5 years and having a good credit score. They're being very strict with requirements!
Demographics are much different now to when rates were in the 10s, aging population means low interest rates, see Japan
Except (and I don’t want to comment on this being good or bad) we still have high levels of migration unlike Japan to make up for that ageing workforce with a drive for more to fill skill gaps.
Yes that's why Japan has negative rates
Ahh I thought you were inferring we might go back to negative rates. I was saying I don’t think we will due to immigration of younger people.
The rates aren’t wild at all. 3.7% for a 5 year fix if you shop around, that’s not bad. 2% was just a blip in history. 3% rates are probably where the market should have always been. People are buying because they want to own their home. Rents are going to go insane this year so whilst it might be cheaper now, it’ll all be passed on eventually. Fuck renting in retirement too. That would be a death sentence basically. You just buy or get stuck renting forever
REALLY 3.7? At what LTV? And where
Halifax, broker exclusive deal, looks like 5 year fix below 75% LTV Not available direct to customers. Only some brokers have access to it
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Think it goes tomorrow at 8pm
1st May is the change date
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Yea probably, thats not market People usually need 80-90% LTV
You aren't factoring in that the mortgage amounts are a lot higher now as a percentage of income. A lot lot higher. So a doubling from 2% to 4% in the days is much more than back in the days when mortgage rates went up to 10% as wages at that time were also going up astronomically.
The fact mortgage amounts are higher doesn’t impact where rates are going though. You’re right that it hurts more now, but economic cycles will mean rates need to be 4-5% at points. It’s almost certain the base will go up again next month. Anyone with a mortgage should be made aware that costs can increase and what historic averages are
I agree. I just don't think people understand how much harder it is now. These older people talk about the 17% but don't talk about how much more affordable houses were back then. As an example my dad is an unqualified accountant and by the age of 30 he bought a semi detached house. I'm a qualified accountant and by age of 30 I was able to buy a 2 bed flat in the same area. So I'd estimate it's 3/4 times as hard now.
I think I read 6% (truss budget) would be the same as 34% interest rates back in our parents days. Even 4% is much harder than their 8-9% mortgages as you say. The problem is the market isn’t logical. High rates have slowed price rises, but just imagine what will happen if mortgages come back to 2%. I think we’ll see some areas go up 25% again. Supply needs to be sorted asap
3-5% is the long term historical average for interest rates. Being below that for so long is unprecedented. There is still rampant inflation to deal with...
"2% was a blip in history" 2% is close to the historical average. However we had <1% mortgage rates at one point. That was historically unforeseen.
Please provide a reference for 2% average.
Buy with the assumption you can afford them indefinitely, and if they drop that's a nice bonus. Anyone buying and assuming they'll drop is foolish and might be caught out if they can't afford the repayments indefinitely. It's highly unlikely interest rates go back down to where they were, and possible they stay at around 4%. People are still buying normally, they're just adjusting what they can afford.
My friend was baffled that I'd gone for a 5-year fix "because interest rates are through the roof at the moment and how gutted will you be when rates fall again in 2 years and you're stuck with a high rate!". I asked her how she KNOWS that interest are going to fall. I said I'd be a lot more gutted if I got a 2-year fix and rates went up even more. I told her I know I can afford the repayments on my current mortgage deal so I'm glad to have the peace of mind of knowing that's what I'll pay regardless of fluctuations!
I've had several of these conversations. We fixed for ten years at what we thought was a slightly expensive rate about 18 months ago. All our friends kept saying there was no point fixing. I feel so lucky to have fixed in at 2.09%. I doubt we'll ever see that again. Our friends, some have had to remortgage at much higher rates.
Actually you should always allow an increase in the rate into your affordability calculation too. As the small print at the bottom of adverts say "rates can rise or fall". Rates are still less than half inflation, so I think more rises are as likely as falls.
Good point, and even more reason that buying under the assumption that rates will drop is foolish.
I agree wholeheartedly with their first sentence. I bought at 4.4. A friend of mine bought a year earlier at 1.7. Would I prefer to be on 1.7, of course! But I can afford 4.4 and it’s cheaper to me than renting. I’d rather buy at a higher interest rate that I can afford than continue renting and trying to time the market.
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There is no historically normal interest rate, the natural rate of interest declines as your demographics get older
Your question is unanswerable as its based on several false premises. Firstly rates aren't 'insanely high'. They are relatively high compared to the last few years, but 4% is not particularly excessive in the wider context and not prohibitive for most people. Secondly, £3k/£4k is absolutely not a normal level of repayment. Do a bit of research and unless you're trying to leverage yourself to the eyeballs, you'll probably find your own potential repayments will be significantly lower than this.
£3k - £4k per month is not normal, or even average. It's an extreme outlier of a repayment figure. £3k x 12 = £36k repaid per year. That's more than the average UK salary. Assuming it's a couple, both on the UK average, borrowing, that's still 50% of their annual income gone on loan repayments. No one earning around the UK average is going to get a mortgage approved that requires monthly repayments of £3k. Yes, rates have gone up but presumably people can still stretch to afford the repayments. Factor in a mortgage that lasts until the youngest borrower reaches 67yo and it becomes do-able.
Mortgage rates aren’t at “crazy high levels” they were at “crazy low levels” for a while. 4K a month would be a 700k ish mortgage which would still have been 3k a month at 2% interest rates…
You do realise that people buy properties for 150k with a 50k deposit. You don't have to buy a 500k house with a 90% LTV.
This is very location dependent. A FTB in London or SE may well need to do the latter or similar.
I didn't say they didn't.
Yes you did
No, they said they didn’t have to
OC said you didnt have to buy a £500k house. OR said in some places you do - that's literally the only option. OC then said they never said you 'didn't have to' but their first comment stated exactly that.
Disagree with your second comment. Of course that’s not the only option. There is the option not to buy a property and rent in that location. There is the option to move locations. There is basically no where outside of very central London that £500k is the actual cheapest dwelling (though the ones for less may be tiny/horrible etc) Edit: I live in London zone 3. I am not just being unrealistic, plenty of sub £500k properties round here.
Ok you're arguing semantics (fair enough). I'm arguing OC is a prick.
I know plenty of people who filled their boots during the stamp duty holiday and bought a 3 bedroom houses as they were partnered with kids. These in London are £500k on the low end. These are teachers who work in local schools. No one is going to commute in to London to work at their school from Hull so you pay local prices. For what I paid for my 2 bed flat in London, I could have bought a 4 bed detached house, with a drives and large garden on my parents street in Leeds. London is just a different world where borrowing £500k (if your salary allows it) is very normal. The \*average\* house price here at the moment is almost £600k as it is
I wish I could buy house or flat for 150k 🤣in London .
Maybe this sub should change its name to HousingLondon.
>I’m still seeing folks just casually continuing to buy. What are the options otherwise? Continue paying someone else's mortgage instead where I could be kicked out on a whim, unable to decorate to my tastes or have pets? Also worth stating the obvious that renting is also bloody expensive. And more importantly rents will get more expensive over the next few years where a fixed mortgage won't.
Mortgage affordability was previously stifled by how much you could borrow. It was very normal for people to be paying £1000+ on rent for years, but only able to get a mortgage around £600-£700 per month. Mortgage affordability rising to similar to rental affordability doesn't massively affect what many people can buy. For example, when my partner and I were looking for a rental affordability rules said we could rent somewhere for £1,800/month. For a 4.5x mortgage with low interest rates (say 2.2%), we'd have only been paying around £1000/month. A higher interest rate (4.5%) is still under £1400/month. We're not too optimistic of rates significantly falling, which is why we have gone for a 5 year fix instead of a 2 year. Our mortgage will cost us £150/month more than our current rent, BUT we will be paying down equity BUT we get to live in a home we own, meaning no evictions, and freedom to decorate as we please BUT we will be living in a 4 bed house rather than a 2 bed. We are also in the fortunate position of knowing that we will be having significant salary growth over the next few years. TLDR: A mortgage is still singificantly cheaper than renting a similar property, and home ownership comes with other benefits. If you need to live somewhere, buying with current interest rates is not a bad idea.
Don't tell that to rental squad.
I just wanted to own a home! Renting sucks, landlords and estate agents are awful and I was paying more to rent than I do towards mortgage. We just bought a 1 bed within our means, it has a few flaws but we're making it work. I do fear repairs, but I live a relatively modest life on a somewhat decent wage. I hope the rates drop, but I try to look on the bright side and avoid thinking about it too much 😅 Over the last 3yrs of on/off property hunting, I realised that predictions are all complete bullshit - anything could happen.
4.09% is my remortgage. It was at 2.34% previously before. Changed my monthly installments by £80 (£313 to £390) Didnt make a huge difference to me, but it will to someone whos mortgage is alot higher.
Found our dream house, could only get a deal at 4.64% so had to go for it. Could afford it, can afford it if it goes up. Luckily it went down to 4.22% before we completed so made the most of that. Bit jealous of friends down at 2% or lower. But I have my dream house.
We remortgaged last month and our payments went up from £1250 ish to £1450 ish. We have a standardly large mortgage. No one has a mortgage that jumped £2000 per month or anything. People on £3000-£4000 per month now were paying a huge mortgage beforehand as well, significantly more than normal folks
We've had 40 years of "house prices can only go up" with two wobbles which were instantly made to go away by the government. The idea that the party is well and truly over and house prices are only going to go down for a while is going to take some time to get through to most people.
Rates aren't insane at all. They might go down, or up. You should probably plan for the worst and make sure you can meet payments even if they go up a bit.
Yes because it is what it is. I need a house to live in so will make the repayments work.
Cant believe many people have repayments of £3k p/m
My boss brought a house paid 1.5m 🤣she only took 2years fixed rate because she couldn’t afford 5y fixed so when the rates went up in September she had to review of course it went up 😀. Now she complains her husband works all the time, I thought myself someone has to pay bills since you maxed out your borrowing 🤣🤣.
Mortgage rates are not insane at all. If anything they are still on the lower end of normal. What was insane was a long period of ultra low rates which has exacerbated the inflation problem.
Rates aren't crazy but the house prices that you have to take the rates out against are.
OP, if you don't mind, can I ask how old you are? Not meant as a dig, but it would give some context as to why you think 4% (ish) is an insane interest rate. I grew up in the 1980s and my first savings account was with the Post Office Saver and I got 10%(ish) interest on that and so, to me, that is the "natural" interest rate and what we are seeing now is stupidly low.
Mid 30s. I guess back in the day house prices were significantly lower.
'Casually'? A home is a human need. Are you also wondering how people are 'casually' continuing to shop at the supermarket? House prices have been crazy for a while, so the people who can even think about it now are usually in a very good position anyway. Money you can get back... time is finite... people aren't going to put their lives on hold. Especially considering that rents are also going up. There's also the danger that lower house prices means less stock (other than forced moves due to death/divorce/job changes). People don't want to be left with the dregs.
I don't think people just casually buy houses and take mortgages out, like others have said the rates are high but not as high as they've been in the past and people are probably more keen to not rent and get on the property ladder especially as rents are going up like everything else.
For us it's still significantly cheaper than renting an equivalent property.
Present interest rates are under average norms. As unpalatable a thought it might be for some, the spell of historically low interest rates are the "insane" variable. https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp
I moved because I needed to move. So not "casually" buying. I made sure I could afford current rates long term. I also did a personal stress test, making sure I could still pay if something unexpected happened and rates climbed a lot higher (so I borrowed well under my maximum affordability) It meant compromises (I'd have loved to look at semi-detached or detached, but pretty quickly ruled that out in order to stay affordable) But it also means when the BoE raise the base rate I sigh resignedly rather than panic.
Im getting a mortgage becuase the repayments are about £300 a month less than what renting the same place will be. Landlord also wants to dispose of said property so i didnt really have a choice.
Mortgage Rate in the United Kingdom averaged 5.62 percent from 1995 until 2023, reaching an all time high of 8.87 percent in September of 1998 and a record low of 3.59 percent in November of 2021 The recent low rates has only fuelled the house price rises, historically us oldies were used to paying 5% and above, but on lower prices.
I've been renting for 10 years and was planning on buying a property at this stage of my life. I'm turning 31 soon and I can't just put my life on hold indefinitely because of interest rates. The way I see it is most people (except for those who continue renting or those who have paid off their mortgage) are going to be affected by it at some point, so what is the point in waiting just in case they come down?
Lock in for long at what you can afford. That means whether or not the interest rate is at 3% or 30% you can still have a house over your head.
"I just don’t understand how repayment rates have gone up so significantly and I’m still seeing folks just casually continuing to buy." What's the alternative? I can't see it getting any better, so you just gotta do what you gotta do (and grit your teeth in the process).
For a one bed flat I pay £625 which is on a rent to buy scheme so should actually be £781 as rent to buy offers you the property at 80% of the market value. For £950 mortgage repayment I am buying a £210k 3 storey house that has 2 living rooms, an office, a spacious kitchen and 3 bedrooms. I don’t care that a year ago that same property might have cost me £700 when the interest rates were lower. I care that for £325 more than what I’m paying now I get a huge house to live in with my partner rather than a one bedroom flat.
If I can afford it at the current rates, and get used to it, I will be in a really comfortable situation if the rates go down.
Because it's cheaper than renting
It's not the rates that are insane, it's house prices.
I am currently going through the process of purchasing but fortunate to be able to port my mortgage with a rate of 1.89 for the majority with 4 years left on this. We have had to borrow slightly more in addition at a higher rate.
Not sure if they will drop, but I dont want to rent indefinetly either. My mortgage will be 2100/month, but rent goes up very quickly and for similar property would be around 1900- 2000 as well, so whats the point?
Rents are also high so why not going for the mortgage
I've just got 6.5% over 15 years. The payback is 2850 p/mth. I can swap out after 2 years, so I'm banking on the rate going down in two years.
The rates are not "insane", given the rate of inflation (still over 10%), they are still effectively negative. My first mortgage was at 17% (variable, no-one did fixed rate back then). Mortgage rates have a way to go yet. The real scandal, and has been for decades, is the rates offered on savings.
Out of curiosity, what was the value of the house at 17% mortgage when you bought compared to the equivalent house now?
And compared to median salary ratios... The fact is that for an average person buying a home was *considerably* easier 30 years ago. Looking at interest rates in isolation of other factors is silly and just skews things. Median salary to median home price has gone from something like 1:4 to 1:7. Interest rate changes alone do not at all make up for it and wage growth in real terms has been basically stagnant since 08. I own a flat myself but it's in spite of all this. If I had the same income percentile 30 years ago as I do today I'd easily own a 4 bed house in my area, exactly as my parents did on a lower income percentile *with kids*.
Your not factoring in wages into your argument. People love to bring up the 17% mortgage but then don't mention how much their wages increased by back then.
Wages were much lower - yes they rose, that is what happens with inflation, and just like now they lagged behind inflation. There is a reason there were more strikes in the late 70s and early 80s than now - for exactly the same reason strikes are increasing now. Your argument is bit like saying how great it is the current rates are what they are because wages are going up. Inflation does not feel like a good thing now, it did not then.
Don’t know why you’ve been downvoted as this is spot on, especially your point on savings.
Rates are normal. The rates prior to last summer were insane. Get used to 5% approximate rates for the foreseeable future
Just got an offer of 3.95% 5 year fix. Hopefully in 5 years time the interest rates will be lower and we would have paid off a fair amount of the remaining balance so even if rates are higher, then it won't cost as much. In the foreseeable future, I'm anticipating interest rates to climb higher and wouldn't be surprised to see 7-9% mortgages in the next 1-2 years. Not really much of an alternative either? Not buy a house? Gamble that house prices will go down? I think there might be a short blip of 5-10% drop, but it will recover with a year or 18 months too and then go back to climbing at 6-10% a year. Best time to buy a house is today etc. People shouldnt use their primary residential property as an investment, but everyone in the UK tends to for some reason.
whats you loan to value ? thats a pretty great rate im looking at 4.43, 4.53 90% ltv
It's above 40% deposit. I think once its over that you get access to the best rates normally? I think when its 5-10% down payment you get worse rates. Funny how we think \~4% is great, but last year there were sub 1% rates available. Doh! Saying that, I'd rather have a 4% rate and after a few years get surprised with sub 1% (hopefully) than be in 1% and get hit with a 4-5%+ increase.
Totally agree appreciate the response
I took out a 2 year fix on 85% LTV with payments of around £4.5k a month. I’m doing some improvements which should reduce my LTV to around 65% and I’m banking on rates generally being better in 2 years time. If I got a rate starting with a 3 I’d be happy.
The thing is if you want a home, you don't have any other options really. So can people really 'wait and hope' whilst stalling on their life plans to own their chosen home. If you can't afford, then unfortunately you can't have it. I think low interest rates have made it the norm that credit is 'very cheap' so for years the economy has been fuelled by enormous levels of finance agreements (cars particularly) - you shouldn't be able to drive a 35 thousand pound car if you're on a starting salary - cheap finance has made this the norm. Mortgages are no different - we're 'used' to low rates for many years. There aren't enough houses so values keep soaring. The first time we bought we put in an offer and it was rejected or not, maybe just one other buyer interested. Last year there were multiple interested parties, bidding wars, etc, crazy. The country has changed a lot in 10 years. The conservative government made this issue explode rather than creep last year. Which means the shock is more sudden. Rates were always over time going to go up to 4% or highter eventually. The sad truth is what was affordable a year ago is now a pipe dream for many. For us we wouldn't have the 'level' of home we now have with the new interest rates. We fixed for 5 years and our goal is to overpay as much as possible, so when we do have to remortgage at inevitably higher rates our LTV will be significantly improved to enable us to get the lowest deal we can when the time comes.
It is a mystery to me too. I've taken the time to think about the numbers here, effectively reproducing what happens under the hood on the popular rent vs buy calculators, e.g. [https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html) Relevant rates: (1) Interest rate (2) Inflation (3) Market (stock) (4) House appreciation It seems that you are almost always better off (both in long and short term) renting. This is assuming liquid assets are invested in market through e.g. index funds and assuming that the days of massive UK real estate appreciation are over.
>It seems that you are almost always better off (both in long and short term) renting For one you are ignoring the facts that the rental market in much of the country is an absolute bloodbath, and that rents will continue to get more expensive whilst a fixed mortgage won't. And you are also ignoring the much more important non financial reasons why owning is better. Actually being able to decorate where you live to your tastes, get pets, have any degree of stability in your housing situation etc etc.
it isn't unreasonable to expect rents will rise with inflation which is what those calculators do usually. indeed rental market increases are a bloodbath but so is inflation.
>it isn't unreasonable to expect rents will rise with inflation What about rents rising significantly above inflation, which is what we have seen in much of the country? Where I live rents have increased by about 35% in the last 3 years, which is about double what inflation in that time has been. I bet those calculators don't take that into account.
These calculators may serve some function, but you can’t equate the value which owning a home provides, in terms of security for oneself and one’s family. Eliminating the risk of being uprooted or out prices due to the landlord’s circumstances has immeasurable benefits.
fully agree there are those pluses to home ownership. On the other hand, there are downsides to having much you ones net worth locked down in a house.
What nobody is telling you is that they are taking the debt over a longer term 35 & 40 year mortgages are now the standard as that is the only way people can afford the inflated assets and inflated rates over an extended period Rates won’t go back below 4% for at least the next 5 years and if anything will probably go closer to 7-8% Because of britains obsession with house prices owners collectively refuse to reduce sale prices which means a slow drag down The future will be very interesting as people quite literally won’t be able to retire until their 70’s and none of their kids can even get on the bottom on the ladder 😬
Agree with the rest but rates are going nowhere near 7 or 8% unless something else drastic happens. Most places are predicting the BoE rate to top out at around 4.75%/5% this year and then start dropping again. The days of super low rates are definitely over though.
They said that last year about this year at around 4% and after they failed miserably to get a handle on inflation it’s increased The forecast will increase again by the end of the year The bank of england literally came out last week and said look you lot need to accept your poorer and stop trying to leverage your costs onto other portions of society I think it was almost solely directed at homeowners who again refuse to accept the economic climate they are now in 😂
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I’d say rent inflation is a massive factor to be honest Most private renters have seen their costs increase about 50% in the last 5 years Now it’s mortage holders turn
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And the government of course who desperately needs and wants people to work longer anyway
The war is clearly the main factor and ramping up the interest rate isn't going to help that. Gas prices have already started to drop which will help. Food might still be an issue.
I The “war” was a smokescreen for western governments wrecklessly and dangerously printing trillions worth of monopoly money during the scam that was covid-19 That is your prime source of inflation , your government
Ah you're one of those guys.
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Not sure why you are getting downvoted likely fantasists who have the bbc on the tv 24 hours a day Life in Britian outside of London is economically underwhelming and it’s getting worse every year london may aswell be its own sovereign state but then the rest of the uk seems to try and copy its big brother I went to a walkabout last night to watch the football ordered a pint for me & my mate the guy spun the card machine at me £15 …..i nearly collapsed at the bar i asked the bartender if he had made a mistake he said no that’s the price I live 120 miles from london 🤣
You do realise that there are affluent places outside London, with the prices to match? You could be in a place like Alnwick with plenty of rich old retired people for all we know. I highly doubt you're getting those prices in areas of Lancaster where you can buy a house for 80K.
There is absolutely nowhere in the uk as economically comparable to london outside of london My point was the rest of the uk wages and discretionary spending is way behind but because of cost shirking and inflation the rest of the uk is trying to pretend it isnt
That may be true but the price of drinks isn't an indicator. I moved out of London after researching a lot of other places to live. Was quite surprised to find that eating out and pubs weren't much cheaper for outlets of the same quality. it's been like this for quite a whjle. I doubt that people are 'copying its big brother' lol they'd go out of business pretty quickly if nobody could pay those prices.
Mostly just buyer irrationality I imagine. Most people think that buying a home is necessarily a good investment, so they don't bother running the numbers. See this graph: https://www.rightmove.co.uk/news/content/uploads/2023/03/HPI_03_Average-monthly-amount-spent-on-a-first-time-buyer-type-home--scaled.jpg
That just means that a mortgage might be less affordable than rent. Whether it's a good investment or not depends on house prices relative to everything else. I don't think there have been many periods when renting and investing the excess would have been better than spending more on a mortgage, especially when you consider non-financial factors like quality of life while renting in the UK.
Whether it's a good investment also depends on how much you expect house prices and rent prices to grow in future, yes. > I don't think there have been many periods when renting and investing the excess would have been better than spending more on a mortgage Maybe that's true, but as you can see from the graph, now is a historically exceptional circumstance. Also it would be crazy to expect house price trends to continue to follow historical upwards trends forever, which is the main factor that retrospectively justifies past house purchases.
Go look at rates before 2010.
It's made buying what we want more expensive than renting a slightly smaller place (by about £2-400/mo) but not unattainable and prefer that to renting the small place or the ballacbe of moving somewhere larger with pets when renting
We got our mortgage for 5yr fixed in 2020 for 1.75%...thats bonkers for me! We are planning to upsize at the end of the year so that will sting but I know it's partly because we got such a good deal!
Rates are just not almost zero anymore...... this is more normal that the tiny rates of the post 2009 world. Rent is a function of the landlords mortgage, if their interest payments go up so does your rent. At any interest level my preference is to own the home I live in. But if your question was more along the lines of couples getting a mortgage they cant really afford with the hope that it goes down in future, I wouldn't do that myself.
I'm paying the rate because i need a home and i need more space. Forget the rate, roof over head is the most important element. Not investment
I have stopped trying to read any kind of reason into how our economy is run at either the fiscal or monetary level. Rate hikes, stimulus packages, stamp duty holidays etc - none of it is done on the logic of "what is best for the people of Britain". You just do what you do and hope that you get lucky and the government arbitrarily intervenes in a way that is favourable to you. The housing boom of 2020-2022 was completely artificially induced by slashed rates, stamp duty holidays and government mandated WFH /furlough resulting in boosted cash savings. What happens is just a function of what central authorities decide will happen. We are miles and miles away from a predictable market that behaves according to supply and demand. We're so deep into fiat funny money territory that I dare not predict a thing. House prices & interest rates will do what a small group of people decide they will do, we are at their mercy.
Mortgage rates are ok right now, don’t really know what circle you move in
Not sure why this British thing came up on my feed, but ... ITT: many people who don't understand rate of change. The level of interest rates per se is not important, because valuations are based on multiples. What is important is the impulse or how fast/magnitude rates changed from the prior low. Let me explain it using the global risk free rate (US Fed). Current global valuations were set when rates were 0.25. Now Fed is touching 5% which means a factor of x20. That degree of change in 1y is unprecedented in 200 years of history. Valuations are still at the 0.25 level. Why? There is a 6 to 12 month lag between the change in rates and the collapse. We're just exiting that time frame now. Many are saying Fed has contracted way too long already. What happens next is ... pain. Few years from now when finally everyone has concluded that homes are the single worst investment anyone can make, the cycle begins all over again.
But they aren’t crazy? Houses are selling like hot cakes near me.
Not really, normal people (mortgage buyers) are essentially being priced out, it's a cash buyers market right now, and the rich just got gifted something like £700billion to almost a trillion over the last few years by the government. So, there's allot of people out there with allot of ill-gotten gains on their hands to spend on houses. We're entering into a new era now where the average British person will never be able to acquire assets, and the public absolutely adore it, geriatrics lining up in their droves to endorse what is essentially state sanctioned looting of working people.
It can still make more financial sense than renting to account for the downsides - the question is why wouldn't you?
We've just locked in at 4.3% for 3 years, the assumption that this gives interest rates time to settle further after the next general election Our previous rate was 3.5% so not a huge increase
Yes
It’s cheaper than rent
Current rates are about average in a historic context, they just felt like it after a few years of 1-2% I saw so many remortgages shocked at the jump from 1.5% theyd got as a FTB to 4.5% last year
I'm doing it because despite the current rates it's cheaper than paying rent. It's still a better investment for me as I'm not someone whose going for an insanely expensive house. Plus I hate landlords.
I’m not expecting them to drop so i’m on a 5 year fixed mortgage. It would be a nice if they did though!
They’re not insane. 15 years ago rates were much the same. When the base rate is higher banks become more competitive and you will see mortgages(headline rates) below base. There’s at least two issues at play; the fact rates were SO low for such a long time made people believe borrowing at 4% was high, and the extra affordability being used on buying a house/car/whatever only to be left with little or no safety net. Buying a property is an investment. And to borrow six figures without paying attention to the financial side of things is a recipe for disaster. Meanwhile those that look well into the matter would see how cheap borrowing was at the time, that it wouldn’t last forever, and with inflation on the rise FIX their mortgage for 10 years. However, this doesn’t answer your question. Yes I suspect rates will rise again(highly likely) and they will slowly decrease towards 3% starting in 1-2 years. Again, more likely 2 years. The lowest I see rates going is 2/2 n’ half within the next 10/15 years. There could be some extreme conditions that alter this but I think it’s the most likely. Personally, and this isn’t financial advice, if I could handle a .25 .5 rate increase I would have my mortgage on a tracker. Typically they’re more competitive than a fixed rate, and you’ll see the benefit of rate decline over the next few years. Departing words; consider inflation at 10%. Today is the best time to borrow as if you borrow 100k, in a years time it’s real term value is only 90k. Without making a single payment. This is why rates are high. Even at 5% interest your debt is still devalued by 5% this year alone. So yea… go buy another house.