[Finance] What should the government do about the coming base rate mortgage hike time bomb?

[Mustafa II]

800,000 people up for renewal next year.

I personally know people who simply won't be able to afford the increase. They're ones of many I'm sure.

Tax breaks? Government subsidies? Or should they just allow the crisis to play out?

 

[Wardy's twin]

On my travels, I see lots of new builds going up. Pretty much every town and village. The countries economy is too reliant on this sector (work from architects at the beginning all the way through to DIY stores at the end). I am not sure there is much capacity for more.

I also have issues with BTLs. We all know may new builds will be taken up this way, so the level of available property to buy does not rise in proportion to ne homes, thus pushing prices up.

I fear it could go tits up.

The new builds should be focussed on the lower end of the market not the top end , this will mean less people looking to rent making BTL less attractive and would mean potentially smaller mortgages for people buying. The latest development in Woodingdean is looking to provide £1m+ houses not the £200-£250k houses the area needs.

 

[spongy]

I'm not sure what to do right now. We got our first mortgage 18 months ago so we need to get looking at a new one.

As it stands it looks like we are going to have a £300 a month increase.

And that money is basically our disposable income right now per month. And only because our mortgage was £250 cheaper than the rent we were paying when we got it so it's going to be back to how we were.

I was tentatively hoping I could buy a new (used) car this year as my car is now 17 years old and has cost me £2k over the last 2 mot's just so I can get to work.

Nervous times for me.

Just trying to figure out if we should fix for 2 or 5 years.

It's a shame that first time buyers are only offered a 2 year deal when they take one out.

 

[Westdene Seagull]

Indeed. I’m far from convinced that raising base rates is having anything but a minuscule effect on reducing inflation. Maybe the policy will only start to have a real effect once it has hit the mortgages of far more people, which isn’t a pleasant prospect. Can only hope that the spike in inflation isn’t prolonged.

That's because raising interest rates doesn't have any effect on the current inflation but the BoE doesn't have anything other than this tool at it's disposal and will continue to use it despite plenty of evidence it isn't working.

This inflation is caused mainly by the Ukraine war and government policy ( see the Truss mini-budget ) and the effect it has of energy and food prices. People over spending 'spare' cash on stuff they don't really need - something raising interest rates is meant to combat - ISN'T the issue here. So the BoE can keep raising interest rates but it won't make a jot of difference. People are having to spend what they don't really have on essentials.

This inflation could partly have been avoided if UK governments ( of all colours ) had bothered to invest in making the UK energy self sufficient - and we can absolutely be that if we invest in wind and tide power. But instead they decided to import cheap coal and buy cheap power from abroad. Privatisation of energy was the worst thing that Thatcher did. Don't get me wrong, I'm all for privatisation of the correct industries - Telecoms for example - but energy should never happened. Let's take Canada for example. All energy is produced by the government. The country is entirely self sufficient for energy - Putin could invade the whole of Europe and it wouldn't touch their energy prices. There is even a law to prevent any yearly increases being a maximum of 2%. If the UK had nationalised energy and was self sufficient then we wouldn't have this issue at the moment. As an aside, Canada's inflation rate currently stands at 4.4%.

From a mortgage perspective the government should take drastic action. Create a mortgage only interest rate and force lenders to only lend at a set percentage - say 3%. You get a mortgage and the interest rate is fixed for the WHOLE term of the mortgage - no ups or downs. Borrowers would know where they stand for 25/30 years.

 

[maltaseagull]

Less of a problem when the mortgage was on a house that cost a tenth of what the same house would cost today.

I was on much lower wages so pro rata actually.

 

[Herr Tubthumper]

From a mortgage perspective the government should take drastic action. Create a mortgage only interest rate and force lenders to only lend at a set percentage - say 3%. You get a mortgage and the interest rate is fixed for the WHOLE term of the mortgage - no ups or downs. Borrowers would know where they stand for 25/30 years.

It’s an interesting point about long term fixes. I have three years on my current deal BUT I’m being offered a new 10 year fix to start when the current one ends. In effect, this is a 13 year fix and the rate for the new 10 years is 3.99%.

 

[Westdene Seagull]

It’s an interesting point about long term fixes. I have three years on my current deal BUT I’m being offered a new 10 year fix to start when the current one ends. In effect, this is a 13 year fix and the rate for the new 10 years is 3.99%.

And there's the perfect example. I take out a personal loan for let's say a car and the interest is fixed for 3 or 5 years. Mortgages should be the same. After all, the bank have to borrow the money at the beginning to cover the mortgage - it's up to them if they decide to only borrow the money for five years and take the chance of getting better borrowing rate late on - as a mortgage customer I want certainty for the whole loan term.

 

[Uncle C]

This is not a popular view as it does not play well with the lefties.

Many people that own a property, piled in when interest rates were at record lows and with little regard for the future inevitable rises. During this time many will have been quietly, and others not so quietly, basking in profits of up to hundreds of thousands of pounds. Now with a facing wing they are expecting the Government to bale them out. This is my definition of the entitlement that pervades modern society.

 

[KZNSeagull]

With regards to long term fixes, I heard Martin Lewis on the radio the other day basically saying any predictions about future interest rates is guesswork, whilst the IMF have said that they expect interest rates to go back to pre pandemic levels eventually they have not put a timeframe on it and any future shock could changed that immediately. Whilst he didn't say as much he was strongly hinting that the best course of action would be to fix for as long as possible so at least you know what your largest outgoing is going to be for as long as possible, particularly if your disposable income has been vastly eroded.

 

[WATFORD zero]

I'm not sure what to do right now. We got our first mortgage 18 months ago so we need to get looking at a new one.

As it stands it looks like we are going to have a £300 a month increase.

And that money is basically our disposable income right now per month. And only because our mortgage was £250 cheaper than the rent we were paying when we got it so it's going to be back to how we were.

I was tentatively hoping I could buy a new (used) car this year as my car is now 17 years old and has cost me £2k over the last 2 mot's just so I can get to work.

Nervous times for me.

Just trying to figure out if we should fix for 2 or 5 years.

It's a shame that first time buyers are only offered a 2 year deal when they take one out.

If you haven't already, PM @Uncle Spielberg

 

[Westdene Seagull]

This is not a popular view as it does not play well with the lefties.

Many people that own a property, piled in when interest rates were at record lows and with little regard for the future inevitable rises. During this time many will have been quietly, and others not so quietly, basking in profits of up to hundreds of thousands of pounds. Now with a facing wing they are expecting the Government to bale them out. This is my definition of the entitlement that pervades modern society.

I'm right of centre and even I don't believe people should be left in limbo for such a commitment. Hence the need to ensure interest is fixed for the length of the loan.

 

[beorhthelm]

House prices vs income. How affordable are UK homes?

Are houses getting more or less affordable in the UK compared to salaries and how much would a house cost now if prices increased at the same rate as salaries?

www.avtrinity.com

"The history of house price affordability UK over the past 40 years.
House price affordability is simply the number of times the average salary needs to be multiplied to buy the average house. For example, in 1983 the average house price was £26,000 and the average salary was £8,528. Therefore, it would take 3 times the average salary to buy the average house.

In 1993 the average house price was £56,000 and the average salary was £17,784. Therefore, it would take also 3.1 times the average salary to buy the average house.

In 2003 things got more expensive as the average house price was £125,000 and the average salary was £21,124. Therefore, it would now take 5.9 times the average salary to buy the average house.

In 2013, affordability took another hit as the average house price was now £165,000 but the average salary was only £27,011. Therefore, it would take 6.1 times the average salary to buy the average house.

In 2023 (figures from 2022), house affordability took another turn for the worse as the average house price rose to £280,000 and the average salary had only risen to £33,000. Therefore, it would take 8.5 times the average salary to buy the average house."

its distorting whats happening, average comparisons between salary and property are not directly correlated and ignore a ton of factors. people on average wages dont typically buy average price property, and never have. they buy at the lower end of the market, usually on their own. later in life, with a partner, they buy a bigger property. a couple today earning just above average would get that average house price on a multiple 4x.

the multiple that banks allow has gone up, which means people can afford to borrow more and do so. that combined with low interest rates have made higher loans more affordable, and pushed up prices in a market with restricted supply.

the lower end of the market is then stuffed, because the same factors, lack of supply and higher demand (more people, singles, BTL converge more here).

 

[WATFORD zero]

That's because raising interest rates doesn't have any effect on the current inflation but the BoE doesn't have anything other than this tool at it's disposal and will continue to use it despite plenty of evidence it isn't working.

This inflation is caused mainly by the Ukraine war and government policy ( see the Truss mini-budget ) and the effect it has of energy and food prices. People over spending 'spare' cash on stuff they don't really need - something raising interest rates is meant to combat - ISN'T the issue here. So the BoE can keep raising interest rates but it won't make a jot of difference. People are having to spend what they don't really have on essentials.

This inflation could partly have been avoided if UK governments ( of all colours ) had bothered to invest in making the UK energy self sufficient - and we can absolutely be that if we invest in wind and tide power. But instead they decided to import cheap coal and buy cheap power from abroad. Privatisation of energy was the worst thing that Thatcher did. Don't get me wrong, I'm all for privatisation of the correct industries - Telecoms for example - but energy should never happened. Let's take Canada for example. All energy is produced by the government. The country is entirely self sufficient for energy - Putin could invade the whole of Europe and it wouldn't touch their energy prices. There is even a law to prevent any yearly increases being a maximum of 2%. If the UK had nationalised energy and was self sufficient then we wouldn't have this issue at the moment. As an aside, Canada's inflation rate currently stands at 4.4%.

From a mortgage perspective the government should take drastic action. Create a mortgage only interest rate and force lenders to only lend at a set percentage - say 3%. You get a mortgage and the interest rate is fixed for the WHOLE term of the mortgage - no ups or downs. Borrowers would know where they stand for 25/30 years.

What you say about energy and it's effect on inflation together with long term fixed mortgages I agree with completely. However, I believe (and I'm not alone) energy is only one of the two biggest drivers behind the current inflation rates and subsequent interest rate rises, the second of which is completely within the Government's control.

Brexit to blame for rising inflation, says former Bank of England governor

You may of course disagree

 

[Westdene Seagull]

What you say about energy and it's effect on inflation I agree with completely, but I believe (and I'm not alone) it is one of the two biggest drivers behind the current inflation rates and subsequent interest rate rises, the second of which is completely within the Government's control.

Brexit to blame for rising inflation, says former Bank of England governor

You may, of course, disagree

Forgive me if I struggle to believe the dinosaur of the BoE governor who STILL believes raising interest rates will fight inflation

 

[WATFORD zero]

Forgive me if I struggle to believe the dinosaur of the BoE governor who STILL believes raising interest rates will fight inflation

He speaks very highly of you

 

[Westdene Seagull]

He speaks very highly of you

I'm sure he does but my track record in IT is probably far better than his in running the BoE !

 

[beorhthelm]

...

This inflation could partly have been avoided if UK governments ( of all colours ) had bothered to invest in making the UK energy self sufficient - and we can absolutely be that if we invest in wind and tide power. But instead they decided to import cheap coal and buy cheap power from abroad. ... From a mortgage perspective the government should take drastic action. Create a mortgage only interest rate and force lenders to only lend at a set percentage - say 3%. You get a mortgage and the interest rate is fixed for the WHOLE term of the mortgage - no ups or downs. Borrowers would know where they stand for 25/30 years.

we are self sufficent for energy (compared to neighbours) except we killed coal first for cost then for environment. noly used for emergency use now. most our electic comes from our gas, wind (upto 50% on a good day) and nuclear. a small % is imported, mostly because we dont want to burn so much gas or any coal. the energy price problem is due to a synthetic market to promote wind and solar when that was not economical against gas. make the market pay for the price of the most expensive marginal production, wind, otherwise no one would buy it. they never considered what happend if this relation was inverted. thats what happens with manufactured markets, they fudge up when conditions change.

what do we reckon might happen if they start meddleing around in mortgage market? if mortgages are fixed at 3% and rates are 4%, who will lend to home buyers?

back to the inflation, the country least affected by energy inflation was France with their massive fleet of nuclear power. government told them to keep prices flat and could as they didnt need to buy in the raw material. we bought gas from the producers. unless you nationalise all the producers, state would still have to rise or subsdise prices. even then you still put the higher market price on the books so affected by price rise elsewhere. unless you live in country cut off from international market forces, you will alwasy be affected by international market forces.

 

[Berty23]

Don't you think that the tenant will suffer worse than the landlord if they are evicted? The landlord would have to sell the property and bank the proceeds, but the tenant would be homeless.

Maybe the government could purchase at a very reduced rate off the landlord and tenant stays. Then the government actually gets an asset which can be sold for profit. So the landlord loses out but the tenant stays out and the government gets something for its money rather than just pumping up a balloon. Or maybe tenants can get first refusal? Lots of different options. I just can’t see why people who think they are genius by getting other people to pay for their assets should be saved the moment it gets difficult. If people did not spread themselves so thinly to maximise returns then they could absorb this. Whatever happened to living within your means?

 

[Herr Tubthumper]

Many people that own a property, piled in when interest rates were at record lows and with little regard for the future inevitable rises. During this time many will have been quietly, and others not so quietly, basking in profits of up to hundreds of thousands of pounds. Now with a facing wing they are expecting the Government to bale them out. This is my definition of the entitlement that pervades modern society.

This is my definition of a gross generalization.

 

[Uncle Spielberg]

Look at an option of extending the mortgage term if possible, lenders go to age 70 generally but some go to age 75, look at reverting part to interest only if you can, look at a 2 or 3 year rate, or a rate with no early redemption penalties and review again in 2 to 3 years and revert back to repayment or reduce term back then if ratees are more afforable. Not ideal but better than defaulting on your mortgage payments. This is generic and each case needs a full factfind to give appropriate advice

 

[Uncle C]

Forgive me if I struggle to believe the dinosaur of the BoE governor who STILL believes raising interest rates will fight inflation

So what actions would?