[Finance] Base rate increase.

[Weststander]

It's amazing how 4% now seems high. Sadly I'm old enough to have had mortgage in the 80's when I had a 5 year deal at 8% and inflation was poor then too. How times change.

Mine, for a few months under hopeless Major/Lamont, peaked at 15.75%. It was awful.

But the differences then - house prices were 1/6th of those now in Brighton and lending multiples were almost always more sensible.

 

[Sarisbury Seagull]

Isn't that like being really happy to tell everyone you only have 17 broken bones left to heal after your car crash in October which left you with 45 newly broken bones?

No not really.

When you consider that a lot of residential fixed rate deals are now between 2% and 3% lower than they were in October, the monthly repayments are a lot more affordable and realistic for people than they were in October and November. A lot of my clients are now buying/moving when in October and November it just wasn’t an option.

 

[beorhthelm]

I really fail to understand how this curbs the current inflation problem. Inflation is not being driven by things that an interest rate rise will impact. It will stop spending certainly because this just makes a terrible situation for people that are already struggling far worse.

basically they have to. firstly BoE job is to control inflation and if they didnt raise rates while inflation went up, every one would scream at them to raise rates. secondly the US is raising rates, so BoE need to raise to keep the £ reasonably stable. no rises and £ sinks and that would increase inflation. US expected to get do at least 5% this year, we need to be keeping up or a bit ahead of that.

also rates are about more than simple mortgage savings rates, they feed into business investment decisions, keeping rates up means some lower amount of investment, lowering demand. yep they goes against government intended policy, thats the tightrope they walk.

 

[ropey9]

That really happened in the early/mid 90's in huge numbers. You might recall?

I guess so, don't remember the strikes being as widespread, nor the cost of living being as bad. I was still at university so didn't really take much notice as I could still afford to go to the pub .

Not quite old enough / or really too aware to appreciate it, I do remember negative equity being quite a big thing. Maybe it was more widespread but i can only really remember it being a housing collapse.

 

[abc]

Base rates at 4 to 5 % are still historically incredibly low. I am sure there are plenty on here who will remember rates in excess of 15%. The challenge with low base rates is that it makes borrowing cheap and easy to service. A long period of low interest rates has enabled people to take out ever bigger mortgages which has fuelled house prices (and vice versa).

Those that warned that interest rates will eventually climb so be careful to keep some headroom in your mortgage/household budget were largely ignored and thus even the current low interest rates are creating real problems for some. But its unfair to be too harsh on such people because the pressure to 'get on the housing ladder', partly driven by the very high cost of the alternative (renting), has been and remains intense. Perhaps those that had the ability to fix at low rates (but thought they would take the risk of not doing so ) deserve a little less sympathy but those who did so and are now coming to their end of terms, must be really frustrated.

The global economy is based on excessive debt - household consumer and governmental. Excessive debt is never sustainable and this becomes more apparent when interest rates rise. The balance between the incentive to save (high interest rates) and to spend/borrow (low interest rates) is always going to be challenging but I think has gone far too far in favour of borrowing in the past few decades and will come, or is already coming, home to roost.

Unfortunately, as always, it those on the lowest incomes and in most need of help that will suffer the most

 

[dazzer6666]

That really happened in the early/mid 90's in huge numbers. You might recall?

We moved to Sussex in 1991, sold our house in Devon with negative equity - house bought in 89 had plummeted in value - and started here with a mortgage of 110% of the property purchase price with an interest rate of around 10%.

 

[Weststander]

I guess so, don't remember the strikes being as widespread, nor the cost of living being as bad. I was still at university so didn't really take much notice as I could still afford to go to the pub .

Not quite old enough / or really too aware to appreciate it, I do remember negative equity being quite a big thing. Maybe it was more widespread but i can only really remember it being a housing collapse.

ITN at 10pm every Friday (Trevor McDonut) gave the week's repossession numbers and jobs lost by major company collapses/restructuring

 

[beorhthelm]

and ECB has just done the same 0.5% rise.

 

[pb21]

The global economy is based on excessive debt - household consumer and governmental. Excessive debt is never sustainable and this becomes more apparent when interest rates rise.

 

[mejonaNO12 aka riskit]

It's amazing how 4% now seems high. Sadly I'm old enough to have had mortgage in the 80's when I had a 5 year deal at 8% and inflation was poor then too. How times change.

Genuinely sorry if I've misunderstood your post but I get easily triggered by this comment when people mean it in all seriousness. Do you actually mean it was financially more difficult to own a house in the 80's with higher rates than it is now with the 'lower' rates?

 

[Weststander]

Base rates at 4 to 5 % are still historically incredibly low. I am sure there are plenty on here who will remember rates in excess of 15%. The challenge with low base rates is that it makes borrowing cheap and easy to service. A long period of low interest rates has enabled people to take out ever bigger mortgages which has fuelled house prices (and vice versa).

Those that warned that interest rates will eventually climb so be careful to keep some headroom in your mortgage/household budget were largely ignored and thus even the current low interest rates are creating real problems for some. But its unfair to be too harsh on such people because the pressure to 'get on the housing ladder', partly driven by the very high cost of the alternative (renting), has been and remains intense. Perhaps those that had the ability to fix at low rates (but thought they would take the risk of not doing so ) deserve a little less sympathy but those who did so and are now coming to their end of terms, must be really frustrated.

The global economy is based on excessive debt - household consumer and governmental. Excessive debt is never sustainable and this becomes more apparent when interest rates rise. The balance between the incentive to save (high interest rates) and to spend/borrow (low interest rates) is always going to be challenging but I think has gone far too far in favour of borrowing in the past few decades and will come, or is already coming, home to roost.

Unfortunately, as always, it those on the lowest incomes and in most need of help that will suffer the most

Regarding government debt, many want us to borrow far more, the arguments being:
1.To investment in more high speed rail, new roads, technology, green solutions.
2. Our state debt to annual GDP ratio is relatively low at 95%, compared to many competitors:

Japan 262%
Italy 151%
US 128%
Spain 119%
France 113%
Canada 113%

 

[abc]

Genuinely sorry if I've misunderstood your post but I get easily triggered by this comment when people mean it in all seriousness. Do you actually mean it was financially more difficult to own a house in the 80's with higher rates than it is now with the 'lower' rates?

An interesting question which one probably cant answer because so many other factors will have come in to play over the space of c.40 years, including inflation. The real hammer for mortgagees in the '80s was the massive hike in interest rates (mortgage rates up to c.17%) which caused a housing crash, negative equity and/or inability to meet payments, and many people lost their homes. I am not sure that 'owning' a mortgaged house has ever been easy or without considerable risk - now or in the 80s

 

[abc]

Regarding government debt, many want us to borrow far more, the arguments being:
1.To investment in more high speed rail, new roads, technology, green solutions.
2. Our state debt to annual GDP ratio is relatively low at 95%, compared to many competitors:

Japan 262%
Italy 151%
US 128%
Spain 119%
France 113%
Canada 113%

I don't know what is a 'sustainable' level of debt to be fair, but 95% of GDP worries me. Borrowing more and more is easy until you cant afford to pay it back. Thatcher argued that the same rules applied to national budgeting and household budgeting - ie don't spend more than you can afford. Today there are those that argue that a country can borrow as much as it likes as theoretically it will never be required to pay it back. But the interest still has to be paid by the taxpayer. I suspect the right place is somewhere between the two

 

[The Antikythera Mechanism]

I bought my first house in 1980. New two bed terrace in Durrington. £11,295.00 and my parents gave me the £1,295.00 deposit so I had a £10,000.00 mortgage which was 4x my £2,500.00 pa salary. I can't remember the exact interest rate, I think 14%, but the monthly payments were £90, so approx 50% of my take home pay. It was a struggle as I recall it.

 

[Deleted member 37369]

We moved to Sussex in 1991, sold our house in Devon with negative equity - house bought in 89 had plummeted in value - and started here with a mortgage of 110% of the property purchase price with an interest rate of around 10%.

I also moved to Sussex in 1991 ... not from as far as you though ... Hampshire/Dorset border for me.

I worked for a building society at the time. There weren't as many fixed rate mortgages at the time ... most people were on lenders standard variable rate which peaked at 15.4% when it all went t*ts up!! As others have said though, property prices were so much lower relative to today.

 

[dazzer6666]

I also moved to Sussex in 1991 ... not from as far as you though ... Hampshire/Dorset border for me.

I worked for a building society at the time. There weren't as many fixed rate mortgages at the time ... most people were on lenders standard variable rate which peaked at 15.4% when it all went t*ts up!! As others have said though, property prices were so much lower relative to today.

True, but moving from Devon to Sussex was awkward for us, prices were much higher for an equivalent place here then. We sold for around £45k and paid around £80k for somewhere pretty similar.

 

[Deleted member 37369]

True, but moving from Devon to Sussex was awkward for us, prices were much higher for an equivalent place here then. We sold for around £45k and paid around £80k for somewhere pretty similar.

Oh absolutely I was meaning more about the issue of interest rates relative to property prices and average mortgages people are needing to take out.

I just did a quick Google to check my facts re the 15.4% ... the rate was correct but it was actually a bit before 1991 (Feb to Dec 1990).

15-years since the peak of mortgage rates

It has been 15 years since the peak of mortgage rates, one major change has been the introduction of fixed rate mortgages.

www.mpamag.com

EDIT: The heading says 15 years since peak as the article was written in 2005.

 

[schmunk]

I bought my first house in 1980. New two bed terrace in Durrington. £11,295.00 and my parents gave me the £1,295.00 deposit so I had a £10,000.00 mortgage which was 4x my £2,500.00 pa salary. I can't remember the exact interest rate, I think 14%, but the monthly payments were £90, so approx 50% of my take home pay. It was a struggle as I recall it.

This article says the average full time salary in 1980 was £6,000 p.a., meaning you were earning about 42% of that.

12ft

12ft.io

Given the current equivalent is ca. £33,000 that means you would be buying a house today whilst earning a salary of about £13,750 - not far above minimum wage.

That would also mean you'd be borrowing £55,000 against a property costing £71,000.

Let's have a look at two bed terraces in Durrington now: https://www.rightmove.co.uk/propert...e&mustHave=&dontShow=&furnishTypes=&keywords=

Nothing available under £250,000...

Do you see the problem now?

 

[Live by the sea]

Still historically low . I remember being told in the UK you could get 10% in a one year fixed rate bond . Sounds like Easy money . Any chance interest rates might keep going up !

 

[The Antikythera Mechanism]

This article says the average full time salary in 1980 was £6,000 p.a., meaning you were earning about 42% of that.

12ft

12ft.io

Given the current equivalent is ca. £33,000 that means you would be buying a house today whilst earning a salary of about £13,750 - not far above minimum wage.

That would also mean you'd be borrowing £55,000 against a property costing £71,000.

Let's have a look at two bed terraces in Durrington now: https://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=REGION^69787&maxBedrooms=2&minBedrooms=2&radius=0.5&sortType=1&propertyTypes=detached,semi-detached,terraced&includeSSTC=false&mustHave=&dontShow=&furnishTypes=&keywords=

Nothing available under £250,000...

Do you see the problem now?

I didn’t say that I don’t see the problem now, as I certainly do. I was just giving my own experience of being a first time buyer. My salary was low at the time as I was on the ladder to a senior position after qualifying. It increased x 5 by 1985.