The rising cost of living

[Genie]

3 minutes ago, paul514 said:

They won't go back up to the previous normal rates.

Inflation is high right now, a crash is coming and they will drop the rates again.

What will crash?

I think at most the housing market will plateau. 

The economy will tick along or improve as we move out of covid so it won’t need such drastic action either.

 

[snowychap]

7 hours ago, ml1dch said:

Looks like the UK might have gone and f***** it (more depressing-looking graphs on the thread).

 

Upper end of the fan has CPI at 12%+ by October - when the next expected price cap increase comes in for gas & electric. Not sure about the subsequent quick fall to 9% by March 2023.

Blimey, I remember starting a thread on here a fair few years ago with the title 'CPI 5% by Christmas?' (Thread mainly populated by @Gringo(late), @tonyh29, @bickster, @blandyand a few other fellow saddos/geeks ).

The worry of those times looks very tame.

[markavfc40]

I read something earlier that interest rates being 1% means they are now at a 13 year high but prior to those 13 years 1% would be a 300 year low.

When I got my first mortgage in 1998 I got a five year fixed at something like 6%. Ten or so years prior to that my old man was paying around 15% interest.

I think the big difference now though is where as back when I got my first mortgage I was only allowed to borrow something like 3 times my wage, one times my future wife's, you can now borrow five or six times your combined salary which means people have taken on more debt relative to their earnings than you used to be able to years ago. Therefore a relatively small increase in interest rates is obviously going to hit hard. 

I'd be very surprised if they increase by any more than another 0.5 - 1% over the next year which is obviously unfortunately still going to hurt for a lot of people. 

[Mozzavfc]

9 minutes ago, markavfc40 said:

I read something earlier that interest rates being 1% means they are now at a 13 year high but prior to those 13 years 1% would be a 300 year low.

When I got my first mortgage in 1998 I got a five year fixed at something like 6%. Ten or so years prior to that my old man was paying around 15% interest.

I think the big difference now though is where as back when I got my first mortgage I was only allowed to borrow something like 3 times my wage, one times my future wife's, you can now borrow five or six times your combined salary which means people have taken on more debt relative to their earnings than you used to be able to years ago. Therefore a relatively small increase in interest rates is obviously going to hit hard. 

I'd be very surprised if they increase by any more than another 0.5 - 1% over the next year which is obviously unfortunately still going to hurt for a lot of people. 

People aren't taking on the additional debt because they want to. The housing market is so broken, that people are being pushed into taking on more and more debt just to get a toe on the property ladder. I had to really spell it out to my parents that for the majority of people out there, the type of family home that they purchased at my age is well out of reach

Edited May 5, 2022 by Mozzavfc

[Mandy Lifeboats]

Turkish inflation is now 70% with interest rates at 14%.  

I suppose that's COVID and Russia/Ukraine devastating their tourist industry?????

[paul514]

1 hour ago, Genie said:

What will crash?

I think at most the housing market will plateau. 

The economy will tick along or improve as we move out of covid so it won’t need such drastic action either.

 

The economy will crash, the housing market only crashes when banks restrict lending as demand is so high

[paul514]

39 minutes ago, Mozzavfc said:

People aren't taking on the additional debt because they want to. The housing market is so broken, that people are being pushed into taking on more and more debt just to get a toe on the property ladder. I had to really spell it out to my parents that for the majority of people out there, the type of family home that they purchased at my age is well out of reach

It always will be broken until there is enough houses for everyone 

[sidcow]

Some friends of mine bought a new house literally the month before the big property crash of the 90's.  At first they were devestated. 

They had massive negative equity but were on a variable rate and then the interest rates started the big decline. They had geared up to be paying £x amount per month and the monthly payments just spiraled down and down. They just kept paying their originally budgeted payments and paid the mortgage off inside 10 years. 

So although they had a paper loss on the house (obviously now totally eclipsed) they saved a **** ton of money in the long run. 

Edited May 5, 2022 by sidcow

[villan-scott]

7 hours ago, TheAuthority said:

A lot of you are talking about variable rate mortgages.

Did folks in the UK not have the option to get 30 year fixed loans recently when the rates were at historic lows?

They are coming, but not popular yet. I work for a mortgage lender that offers up to 40 year fixes. 

There is no ERC penalty if they want to move house, and clear the mortgage and go with another lender. Also, no ERC for life events for instance divorce and and a transfer of equity

There would be an ERC for those who stay in the property and remortgage for a better rate, or ‘rate chase’ as I call it. This has always been the lifeblood of the mortgage adviser in the UK, so 2 and 5y fixes are the norm, and they earn their corn from the procuration fee paid by the lender. 

For those interested have a look at Kensington Mortgages and the Flexi Fix for term product. 
 

https://www.kensingtonmortgages.co.uk/intermediaries/products/residential-lending/flexi-fixed-for-term

We are intermediary only so you’ll need a mortgage adviser to be able to access the product. 

Edited May 5, 2022 by villan-scott

[sidcow]

1 minute ago, villan-scott said:

They are coming, but not popular yet. I work for a mortgage lender that offers up to 40 year fixes. 

There is no ERC penalty if they want to move house, and clear the mortgage and go with another lender. There would be an ERC for those who stay in the property and remortgage for a better rate, or ‘rate chase’ as I call it. Also, no ERC for life events for instance divorce and and a transfer of equity. 

For those interested have a look at Kensington Mortgages and the Flexi Fix for term product. 
 

https://www.kensingtonmortgages.co.uk/intermediaries/products/residential-lending/flexi-fixed-for-term

We are intermediary only so you’ll need a mortgage adviser to be able to access the product. 

WTF. People actually borrow money over 40 years now? 

[Xela]

Just now, sidcow said:

WTF. People actually borrow money over 40 years now? 

Why not? People will be working for 50 years now. 

[Genie]

3 minutes ago, sidcow said:

WTF. People actually borrow money over 40 years now? 

It’s a way around the high prices, spread it over longer to get the monthly payment down.

£250k @2% over 25 years, £1060 a month. Total cost £318k.

£250k @2% over 40 years, £757 a month, but total cost £363k.

 

Edited May 5, 2022 by Genie

[villan-scott]

1 minute ago, sidcow said:

WTF. People actually borrow money over 40 years now? 

Afraid so. If a first time buyer at 25 borrows for 40 years it helps reduce the monthly outgoings and helps affordability. Takes them to 65 and still at working age. Age at end of term is capped at 70 for us so not everyone can get 40 year terms. 

[sidcow]

Just now, Xela said:

Why not? People will be working for 50 years now. 

Because 25 years was the standard for mortgage borrowing.  That and only borrowing 3 times joint or 2.5 times single income. 

I can't help thinking that house price inflation is driven as much by willingness to lend larger amounts and over longer periods as much as the housing shortage. It just raises the ceiling more and more. 

[ml1dch]

16 minutes ago, villan-scott said:

This has always been the lifeblood of the mortgage adviser in the UK, so 2 and 5y fixes are the norm, and they earn their corn from the procreation fee paid by the lender. 

Procuration fee. A procreation fee sound fun, but very different!

[villan-scott]

Just now, ml1dch said:

Procuration fee. A procreation fee sound fun, but very different!

Auto correct is not always a friend yes a procuration fee. Definitely no procreation fee! 

[markavfc40]

1 hour ago, Mozzavfc said:

People aren't taking on the additional debt because they want to. The housing market is so broken, that people are being pushed into taking on more and more debt just to get a toe on the property ladder. I had to really spell it out to my parents that for the majority of people out there, the type of family home that they purchased at my age is well out of reach

I totally agree. My eldest daughter is just in the process of buying her first house (a few weeks away from completion) and is buying it on her own and even with the help of family in putting down a really good deposit, and as she is buying from a family member so she has got it below market value, she has still had to take on a mortgage 5 times her salary over 40 years for what is very much a first time buyers house.  On the upside though she secured her mortgage deal before the two recent rate rises. 

[paul514]

26 minutes ago, Genie said:

It’s a way around the high prices, spread it over longer to get the monthly payment down.

£250k @2% over 25 years, £1060 a month. Total cost £318k.

£250k @2% over 40 years, £757 a month, but total cost £363k.

 

However the money is worth less due to inflation with the extra 15 years.....
 

[Genie]

8 minutes ago, paul514 said:

However the money is worth less due to inflation with the extra 15 years.....
 

True, but I’d also assume the interest rate for 40 years is much higher than what you’d get for 25 or less. 

[paul514]

1 minute ago, Genie said:

True, but I’d also assume the interest rate for 40 years is much higher than what you’d get for 25 or less. 

Probably true, but most people who fix every 2-5 years anyway.

Also most people will move several times in those 40 years too.