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The problem is where the pain is concentrated. It’s certainly not those who can afford it.
^ This.
Deciding who has the most pain though is difficult, because there are a very vocal bunch of wealthier home owners and lazy reporting that would have you believe that hundreds of thousands will be homeless shortly and the housing market will collapse etc. When we are speaking of homeowners of valuable properties earning significantly more than average and currently enjoying the fruits of that wealth - and very reluctant to give that up.
Handing more money to asset owners who don’t need it isn’t going to lower prices is it?
And some of these people are shouting loudly and not taking no for an answer.
Overall, I feel our standard of living will take a hit (as it has for many less well off already) for the middle and more earners, and I also feel that a very different approach is needed to move where the money is flowing by using tax rather than interest rates.
I also feel that a very different approach is needed to move where the money is flowing by using tax rather than interest rates
Increasing the higher rate of tax would be the most efficient/effective way to curb inflation.
But its hardly a vote winner and the Governments approach has always been to blame others (Europe, immigrants, BoE) than make difficult decisions.
Especially when Starmer can state he doesn't agree with the tax rises and will reverse them. Whether he is lying or not is irrelevant, he is not exactly known for his integrity.
whilst this is hitting middle earners more, isn't that because the target needs to be consumers of the things that are inflating (goods and services)? The cost of foreign holidays and caviar isn't the problem, so whacking costs up on the top 1% (of whom there aren't very many) won't make a significant difference to inflation
whilst this is hitting middle earners more
Its not though.
Only 30% of the population have a mortgage and its going to hit those who have large amounts of debt and are unlucky enough to be coming to the end of their fixed deal. These are likely to be first time buyers who bought their house 2 years ago.
From a personal point of view (as a middle earner), I was fortunate/lucky enough to take out a 5 year fixed, 18 months ago. Increasing interest rates has zero affect on my finances and my ability to consume. Fingers crossed it sorts itself out over the next 3.5 years...
I have been pondering this a bit. It seems to me the issue here is house price inflation and the recent historically low interest rates not the rise to 5% - the house price inflation and the low interest rates combined have led to folk taking on huge mortgages that are too difficult to pay once we come out of the low interest rates we have enjoyed the last 15 years or so. the last 15 years are out of line with the historical trend. Too many folk either from desperation to buy or from forgetting that interest rates can and are likely to rise are now in unsustainable positions. When I bought my flat in 92 ish interest rates were around 6% which was low compared to the previous couple of decades but I made sure I could afford it if interest rates rose as I remembered double digit interest rates. They of course continued to drop.
Hose price inflation seems to have taken that away from folk - they felt they had to mortgage to what they could afford in payments at the low interest rates so a rise back towards what has been normal historically has left folk in a horrid position.
In 1970 my parents bought a really nice house for what was around a years salary for him as a well paid public servant. sold 4 years later for 4x the price.
I bought in 92 for 2.5 times my nurses salary. its now worth 10X the salary for the same job. I could not take that job in Edinburgh now there is simply nowhere I could afford to live - rental or buying anywhere near where I worked. ( I have looked - even the burbs are out of reach price wise. - ex council flat in pilton might be possible)
Of course back in the 70s and for a while after inflation was higher which actually made paying off a mortgage easier as wages rose but the amount owed did not so your mortgage payments dropped as a % of your income
How we get out of this mess is much harder to see. Static house prices and sustained inflation could over time reduce the multiples of salary needed to buy but that ratio of average salary to average house price needs to drop back to 2.5 or so, so that would take many years of pain. A house price crash would do the job but at a huge cost to many folk. A massive house building programme will reduce inflationary pressures on house prices as would rent controls but again will take many years to bring houses back to affordable
I can remember established folk saying how sorry they were for young folk starting out on the "housing ladder" when we had to pay 2.5 times income for a property as they paid 1X. By heck tho young folk now I really feel for - even if you have two folk earning average wage anything in an expensive area is miles out of reach. two nurses could not buy my flat.
Surely as few new folk enter the housing market there has to be a correction? Its just unsustainable
sorry rather rambling thoughts
https://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/
And more importantly what items are increasing due to high demand and which of those items demand will be lowered due to interest rate rises? It is none isn't it....
Another one here who recognises the fortune/luck in taking a 5yr fix when we moved a year ago. We're quite frugal in terms of lifestyle and are saving as much as we can every month with interest rates what they are, in order to pay off a large chunk of the mortgage before the 5yr fix ends (First Direct unlimited overpayments allowed).
Whilst we're both in good health and earning, we'll hammer away - the current situation just shows how people can find themselves with little control and that is terrifying.
Having moved from a leasehold flat with the associated management company, ground rent, external wall insulation (EWS1) stress thrown in over the years, it's incredible the difference having more control over things makes. People just want a secure home, and are happy to pay for it. But it's a sh1t situation where those renting are having to fork out a higher and higher percentage of their pay in an attempt to regain some sense of security. Someone asked why people don't protest, well I can imagine people are utterly drained of any energy, and using up what fumes they have left for a situation that is unlikely to register on those who wield power feels understandably pointless.
a few % drop in house prices is neither her nor there. We need a 75% drop relative to wages
Mortgage crisis: UK lenders agree to 12-month grace period on repossessions
matt_outandaboutFull Member
Not just the UK of course:
as with all these stories about price drops, it’s somewhat meaningless unless you can see the total number of sales. 2008-2010 saw significant drops, but didn’t result in a crash as everyone stopped moving. This, in theory should be different as this time rates are going up, not down and so it should exacerbate the situation, but without those numbers, it’s somewhat meaningless.
TJ - totally agree with you. I'd add that the historical income multiples you are talking about are for a single earner, worst case it used to be 2.5 - 3 x main income and 1 x second income. For the last 25 years or more it's all been based on a multiple of joint salary, this has a massive knock on effect to family life (or lack thereof)
When the government bailed out the banks in 2008 they create huge moral hazard, they should have let bad businesses (banks) go to the wall, house prices drop, and things get back to normal. Instead they compounded the problem by printing money and dropping rates to near 0%, making things more "affordable" and encouraging people to over-borrow and over-spend. We aren't here by accident, we are here because of ****less short termism with politicians more interested in re-election and keeping their snouts in the trough than doing the right thing.
As painful as it will be we really need to accept that fact that as a nation we are poorer and we need to cut our cloth accordingly. More state support will just kick the can further down the road and make the end result even more painful.
I know some here think that borrow and spend is the answer, and appreciate their point of view, but I don't agree with it.
Well if it's not sorted in a year's time we will be screwed.....
Of course back in the 70s and for a while after inflation was higher which actually made paying off a mortgage easier as wages rose but the amount owed did not so your mortgage payments dropped as a % of your income
This is it - my folks bought in 1980 for about 3.5x salary. The high inflation of the 80s was very tough, but it meant that by 1990 the mortgage was absolutely peanuts (a few months salary). So when dad lost his job that recession, we didn't lose the house.
Fast forward to 2015, I bought for about 8x salary. In 2025, the original purchase price of 220k is likely to still be around 6 years worth of my salary....
More state support will just kick the can further down the road and make the end result even more painful.
In what way would state support be worse than not supporting people?
You simply seem to be justifying goverment choices as a means to ruin people's life - as the best choice.
If the government can make a mess of things it should be on the hook for putting it right - because the market as a tool isn't working.
Let's stop pretending that we only have it good for the very wealthy and everyone else should suck it up.
In what way would state support be worse than not supporting people?
State support for people that really need it is one thing, I’ve no objection to that. Trouble is 15 years of ZIRP has encouraged people to over borrow and spend. It was foolish to think that interest rates could stay so low for ever, yet people based possibly the largest financial decision they will ever make on that assumption. A lot of people seem to have been living lives they cannot afford, government support for these people would simply support the entitlement and assumption that there are no consequences to poor decisions.
You simply seem to be justifying goverment choices as a means to ruin people’s life – as the best choice.
Of course I’m not, but I strongly object to those of us who have lived within our means being used to bail out those who chose not to. How about the generations who will be paying higher taxes with a lower standard of living, don’t they deserve some consideration?
If the government can make a mess of things it should be on the hook for putting it right – because the market as a tool isn’t working.
Of course it should, but how exactly? Conjuring up money and giving it away has led in part to the inflation we now see, and the weakening of our currency. More of the same won’t help. I don’t believe the market has been allowed to operate as a market for a long time (if ever) - constant government intervention to maintain the illusion of never ending growth hasn’t helped so what makes you think more of the same would? Surely it’s naive to think that we should be able to see constant growth? Sometimes you need a contraction to remove dead wood and allow new growth based on something real.
Let’s stop pretending that we only have it good for the very wealthy and everyone else should suck it up
I think we all need to suck it up. There is absolutely an imbalance and growing gap between rich and poor, and that needs to correct, but the game is rigged in their favour and always has been. Taking more from the rich won’t solve everything, there are too many structural issues that need to be corrected. We all need to take some responsibility for ourselves, not just find the next teat to suck on, or pocket to pick.
In answer to the OP - our 5 year fix ends later this year so mortgage repayments will go up considerably. Along with the rest of the cost of living increases we will feel it but we’ll be OK largely because we have been careful with money, chose the house we could afford rather than the one we really wanted, etc. We will tighten our belts a bit more when we need to.
It was foolish to think that interest rates could stay so low for ever, yet people based possibly the largest financial decision they will ever make on that assumption.
Why?
I bought my house 6 years ago with a mortgage rate of 1.5 have remortgaged once since at 2.04
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years, infact every single person I have ever had a conversation with were saying your stupid to not buy a house.
It's not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
We were at that tipping point when our mortgage had reduced to an amount that allowed us to save a chunck of money every few months, and lob this at the capital. We liked the effect it was having, seeing the monthly payment drop noticably each time we did this.
Obviously this has stopped happening. We are still saving, but paying off a bit of the capital seems to just leave the repayment static as the rate increases keep pushing it up.
It’s not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
That’s quite a naive outlook. It’s fairly common knowledge how historically low interest rates have been since 2008.
People making money arranging mortgages are not going to try and talk you out of it.
I bought in 2007ish at 4.99%. That’s not ancient history.
Obviously the problem is that at today’s prices, at that same interest rate I couldn’t buy this house on my current wages. So something is broken.
Either prices need to reset or wages grow. The trouble with prices crashing is, as I’ve found out in 2008 you end up in negative equity and have to pay whatever rate the bank wants, as others won’t take on the debt. It’s kind of lose lose for the less well off.
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years,
Really? I don't disbelieve you but thats outrageous. I remember when 6% was a low interest rate and all my financial decisions were based on being able to pay if rates climbed again
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years, infact every single person I have ever had a conversation with were saying your stupid to not buy a house
They’re selling you a product - it’s up to you to do the research. Interest rates have never been stagnant.
It’s not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
No company is doing that. Your fix is still fixed after which you're on the svr, exactly like your paperwork said you would be
A lot of people seem to have been living lives they cannot afford, government support for these people would simply support the entitlement and assumption that there are no consequences to poor decisions.
Which were the poor decisions? To keep buying food despite rising prices? To keep children warm despite rising heating costs? To keep a roof over their heads in times of higher rents and higher house prices?
I would be surprised if any *reputable* lender didn't stress test mortgage applications; yes, you're ok at today's Y% but could you afford 2Y%?
How?
If not, what will you do?
Rachel Reeves with not a clue about the ability of government to control its own back. Or any interest in it.
Https://twitter.com/TheMendozaWoman/status/1671780756681637892?t=goXG2zGoK30KrPZx9YunsQ&s=19
This constant accepting of the failing status-quo - no matter how it effects the people is mind blowing.
Of course I’m not, but I strongly object to those of us who have lived within our means being used to bail out those who chose not to. How about the generations who will be paying higher taxes with a lower standard of living, don’t they deserve some consideration
Given the source of all net money creation is the government/BoE - who do you think is subsidising who?
People who pay higher taxes do not fund the other people. It's a Neoliberal myth designed to keep wealthy people with their wealth, and give them importance.
The Government (BoE) is the monopoly creator of money - the taxes you pay were previously spent government money. A private individual cannot create money - try it - you'd have someone at your house before you say counterfeit.
Money circulation is two sources. Commercial bank money (which are made up of loans and done with license of the BoE) commercial banks have accounts at the BoE. When they make a loan there s a liability so it has to be paid back. So there is no net money creation from a commercial bank.
All other new money is from the BoE. It's the simply the monopoly issued of the pound. It funds you.
The last time I remortgaged was not that long after 2008 when getting a mortgage was not that easy. I was going for a 3x salary for an LTV 40% mortgage and had to bring in my wife's salary before I could get it and was even questioned about some of my outgoings down to £20. A pain in the arse at the time but I would call that responsible lending.
Of course it should, but how exactly? Conjuring up money and giving it away has led in part to the inflation we now see, and the weakening of our currency. More of the same won’t help. I don’t believe the market has been allowed to operate as a market for a long time (if ever) – constant government intervention to maintain the illusion of never ending growth hasn’t helped so what makes you think more of the same would? Surely it’s naive to think that we should be able to see constant growth? Sometimes you need a contraction to remove dead wood and allow new growth based on something real
The COVID stimulus package was largely income replacement and was not responsible for the source of this inflation. There is no evidence to support this.
And neither is their a direct link between government spending and currency speculation.
The USA had a massive government spending stimulus - what did it do - strengthened the economy and the dollar strength went on a massive run.
Recently it's cooled off a bit and the pound has gained a bit of strength.
Currency markets simply go up and down based on speculation. There is no real control of that given traders will make money on both directions based on a trend. If you watch the way Forex works - lots of traders simply trade tends and not fundamentals. Not sure how ultimately this is a good indicator of anything.
The mistake is to assume the current framework we have for monetary policy is the correct one and we should simply adhere to it.
The government could simply decide on different targets within the economy and target investment in infrastructure and enable to resources and work force.
As it stands we have a government that is only concerned in keeping the financial markets stable at the behest the real economy (consumers, workers, state services, infrastructure.)
The evidence is all around for interest income flowing into assets -money is flowing back into crypto again. That's definitely excess money.
I don't understand why more of the electorate aren't asking the government why are you serving up a system that doesn't work?
I mean, who was the last person you talked to that was enjoying the benefits of the UK government?
It must be such a small number of people - the rest of us simply bumble around going on about how we need to suck it up apparently because they can't do anything.
That's nonsense - the economy could be reorganised for much better outcomes.
The BoE could simply be told not to keep increasing rates for a start.
People who pay higher taxes do not fund the other people. It’s a Neoliberal myth designed to keep wealthy people with their wealth, and give them importance.
It would help if you explained what would happen if the high tax payers stopped paying tax if those taxes are not funding anything (in a roundabout way)
Would/should the government continue to spend the same amount of money knowing that it has lost £140 billion from just the top 10% for example?
Which were the poor decisions? To keep buying food despite rising prices? To keep children warm despite rising heating costs? To keep a roof over their heads in times of higher rents and higher house prices?
I posted similar 6 months ago when this was coming and was called condescending.
Those that genuinely need support because they cannot eat or heat should be supported. But how many are at that point because when they had spare cash as a result of low interest rates instead of creating a rainy day pot or paying down mortgage it got spent, on cars and holidays and whatever else. And now are exposed. It wasn't hard to understand, any money expert, eg Martin Lewis types, would advise on a pot of accessible savings, so those that could but haven't done that are naive at best, wilfully culpable in some cases.
I'm sympathetic to those in need but a question has to be asked about what is behind that before simply bailing out to allow them to do it all again.
Yes, aware that the same story could be pointed at bank bailouts too!!
All other new money is from the BoE. It’s the simply the monopoly issued of the pound. It funds you.
Agree that the BoE create and manage the currency, but I don’t agree that the BoE funds me by creating/managing the money supply. Surely, even in it’s current form, money is the medium through which we exchange labour and other things of value (typically the result of labour). I fund myself through my labour, and by paying taxes I fund public services and others in society who are less well off. If the BoE simply increase the money supply (via QE to support banks and government borrowing) then they are devaluing my labour.
the taxes you pay were previously spent government money
Agree, and this is part of the problem I have. The government simply cannot and should not keep spending money we don’t have. The money they are spending today and have spent over previous years will have to be repaid by the younger generations, who also carry the burden of debt from higher education. If somebody borrowed more than they could realistically afford to buy an overpriced house, why should the generation who have mostly been priced out of home ownership be forced to pay that persons mortgage via increased taxes and government “support”?
I realise there is an argument that a country’s finances can be run differently to those of a household, but the constant issuance of more and more debt hasn’t done us much good over the years in my opinion. We’ve just had a bigger credit card, which at some point will need to be paid off. The fiat money system has been a complete disaster.
I bought my house 6 years ago with a mortgage rate of 1.5 have remortgaged once since at 2.04
Not once during any meeting was I told that I am taking a risk here and I should really be budgeting for rates to be at least 3 times as high in the coming years, infact every single person I have ever had a conversation with were saying your stupid to not buy a house.
It’s not out fault that these companies have invented and sold us products that we have entered Into, for them to just tear up the contracts and hike up the prices
You took out a mortgage for 25 years, did you not think to look and see what rates had been like for the previous 25 years? I’m sorry for your situation, but this is part of the problem. If it’s not your fault, whose fault is it? If you got hit by a car crossing the street because you didn’t look, would that be somebody else’s fault for not telling you to check for traffic? Sorry if that sounds harsh but society today seems to encourage entitlement without consequences. That in itself is a structural issue and a much longer conversation that will derail the thread even further!
Any details on this tinkering approach to giving interest only mortgage payments for 6 months (the biggest clue yet there might be a general election in the autumn?)
I want to do the maths on this for my own mortgage. Of course only works if rates are due to come down at the end of it.
The COVID stimulus package was largely income replacement and was not responsible for the source of this inflation. There is no evidence to support this.
I’m referring more to the QE used to bail out the banking system in 2008, and the subsequent dropping of interest rates to drive demand (household borrowing and spending).
The USA had a massive government spending stimulus – what did it do – strengthened the economy and the dollar strength went on a massive run.
The dollar is the global reserve currency so not sure a direct comparison with them is right. They are also less exposed to external forces because they are more self sufficient in food and energy production amongst many other things.
I don’t understand why more of the electorate aren’t asking the government why are you serving up a system that doesn’t work?
Because a large part of the electorate do not understand economics. It’s certainly not taught to a good enough standard in school. Also consider how best to control people? Keep them distracted by things like debt to be repaid and arguing with each other about the colour of the rosette they wear. The system that is in place serves the powers that be perfectly, and they have dumbed down the population sufficiently that few question it.
I’m sympathetic to those in need but a question has to be asked about what is behind that before simply bailing out to allow them to do it all again.
+1
I’m referring more to the QE used to bail out the banking system in 2008, and the subsequent dropping of interest rates to drive demand (household borrowing and spending).
Well yeah that Q/E was used badly. But not the Q/E itself. Its what they do with the money.
However was not inflationary.
. I fund myself through my labour, and by paying taxes I fund public services and others in society who are less well off. If the BoE simply increase the money supply (via QE to support banks and government borrowing) then they are devaluing my labour.
But you don't.
Where did you get the money to pay your taxes?
It has to come from somewhere and you didn't create it
So given the Government is the monopoly creater of UK pounds etc.
Agree, and this is part of the problem I have. The government simply cannot and should not keep spending money we don’t have. The money they are spending today and have spent over previous years will have to be repaid by the younger generations, who also carry the burden of debt from higher education.
The government (and it's agents) is the only source of money. No other institution has the power to create UK money.
Future generations don't pay back government debt. The national debt is a record of all money issued by the government not taxed back. Without it there would be no cash in the private sector.
Any details on this tinkering approach to giving interest only mortgage payments for 6 months (the biggest clue yet there might be a general election in the autumn?)
No, but suspect we are thinking the same! Probably kicking the can down the road, generate a pre-election feel good factor, and then either win and figure it out, or let the next lot take the blame.
No, but suspect we are thinking the same! Probably kicking the can down the road, generate a pre-election feel good factor, and then either win and figure it out, or let the next lot take the blame.
Agreed
<p style="text-align: center;">I realise there is an argument that a country’s finances can be run differently to those of a household, but the constant issuance of more and more debt hasn’t done us much good over the years in my opinion. We’ve just had a bigger credit card, which at some point will need to be paid off. The fiat money system has been a complete disaster.<span style="text-align: center;">That's because the governments don't spend the deficit on the things we need as a society.</span></p>
It never needs to be paid off and the government can always meet its obligations.
Remember when Osborne tried to pay off the debt. It's called austerity. And they made hash of it.
I am one of the fortunate to be mortgage free. But do have a buy to let. Its fixed for another year at 1.5. I have 6 x cover at the moment, so using tje surplus to pay down the capital.
There's still 60k outstanding but that will reduce with a lump sum in January ad ypu can drop 10% off per annum.
Then will look at the cost of paying it off entirely, there is a fee. V remortgage on a 5 yr fix, with a lump sum thrown in to reduce the interest to approx 1/4 of the rental. Giving a sensible cover.
Tennant pays about £150 pcm below market rate as hes longterm, on a low, but agreed, annual increase of 4%
Where did you get the money to pay your taxes?
The money itself is just the medium of exchange, it could be a magic bean rather than a £5 note. My employer gave me a handful of magic beans in return for my labour, which helped them create something of value which they sold to someone for two handfuls of magic beans.
I then give the government some of my beans so that they can fix the roads or give some to somebody else, who could then exchange their magic beans for bread and milk.
Problem here is that there are people in the middle of those transactions who spend my beans badly, or simply steal some. Magic beans can’t be grown, that’s what makes them magic.
What’s important is the labour that the bean represents, not the bean itself. Now start creating magic beans out of thin air, and your beans start to represent future labour, not past.
It never needs to be paid off and the government can always meet its obligations
If the government can always meet it’s obligations why do they keep asking me for more of my salary, and why are public services in such a dire state? Is the answer to borrow more money?
Is the answer to borrow more money?
I said yesterday I'm not an economist so don't understand really, but my understanding is yes as long as there is stuff to spend it on and people to do it. So building roads, or hospitals, or whatever..... not to just boost richness of what's already happening.
Is that right?
We have stuff to spend it on - problem is we don't have the people to do it?
Is that right?
Depends on your point of view! I don’t think it’s right, but that’s just my opinion. I do agree that the entire national debt never has to be paid back, but I think there needs to be a ceiling on what we borrow.
Saturday calls, have a good weekend all.
when I say is that right - I mean is my understanding / very distilled version of MMT right. Not whether MMT is actually correct.
The fiat money system has been a complete disaster.
Short memories. The gold standard plunged the world into depression and blocked economic development outside core western countries. There are obviously some negatives associated with fiat money in that during the era of fiat money wealth inequality has exploded, but that's mostly down to policy rather than the money system itself. The fiat money system can be managed differently to how it is now, and that's what all the debate around MMT is about. Reverting back to an antiquated system which isn't fit for purpose in the modern globalised world would be a catastrophe. We'd be back to beggar-thy-neighbour trade wars, deflation, and ultimately war.
My understanding is that MMT is Keynes on steroids - the main difference being how much you can spend without increasing inflation and about repayment of government debt
In our case right now inflation is not being driven by wages hence MMT adherents think unlimited money can be spent by governments without either causing inflation or devaluation of the currency while Keynesians would be a lot more cautions but still spend to stimulate the economy
But my understanding of economics is very superfical so this may be wrong and "ask 3 economists the same question get 3 different answers"
I'm sure rone will be along to give a lecture on this 🙂 There is some stuff on Wiki
TJ is pretty close. Not paying back the national debt, or rather, not needing to, is not the same as MMT, which really argues that there could be more money pushed into the system to stimulate growth.
While you don't need to pay back the national debt, you can just push old debt down the road and use inflation to make it negligible. But you can't put too much in else you risk devaluing existing money too much, and you get inflation. Looking back, after a decade of low interest rates, low inflation and low growth austerity and the political mission to pay back debt looks not too clever, and one reason for the UK's stagflation. However I guess that's the downside of owning your own currency and having to bail out all the banks that your economy uses as a source of wealth.
If you thing fiat money has been a disaster, you should bear in mind if you'd stuck with the gold standard, noone on this thread, or at least a lot less , would be here as almost noone would be rich enough own a computer. If you need gold backed money (or whatever) you are totally limiting the max wealth in an economy, limiting how it can grow, and money will very much tend to gravitate to the rich, making everyone else poorer.
That’s quite a naive outlook. It’s fairly common knowledge how historically low interest rates have been since 2008.
People making money arranging mortgages are not going to try and talk you out of it.I bought in 2007ish at 4.99%. That’s not ancient history.
Hmmmm. For many people badly affected by this rate increase, 2007 is ancient history.
I bought my first house in 2014, in 2007 I was too busy riding bikes and going to the union to care about interest rates.
Yes, when buying we were all told to expect interest rate rises - and I didn't particularly stretch myself so I'm ok for now. For many people my age though, all we have ever known is low interest rates - so this is a much bigger shock than it will be for the, err, more advanced of age among us.
So - genuine question.
Yes, when buying we were all told to expect interest rate rises – and I didn’t particularly stretch myself so I’m ok for now.
What did you do with the money that you weren't stretched with? Have you overpaid so you are reducing the impact of the rate rises with a lower capital element, or do you have a pot that you can use to buffer, say 3-6mo of salary as ML would suggest? Or did it all get spent?
Because what I object to a little bit is people that weren't careful, didn't heed advice, spent it all on fancy stuff and lease cars and expensive holidays.... and now it has happened, as we were told it would, are expecting to be bailed out. I didn't - my wife wanted us to extend and have a bling open plan kitchen like you see on the property TV programs but if we had, I'd be ****ed now. I don't object to help for those in need, and I know there are millions of renters on poor wages - this complaint isn't aimed at them - but people have to help themselves as well.
(and I know that as you say without having seen it first hand warnings don't have quite the same impact)
I don't think thats what has happened for most folk in the difficult situation of struggling to pay their mortgage
Its more they have taken on huge mortgages that they can only just afford at low interest rates - so no surplus. Interest rate rises take them into difficulties
house prices are so high and the pressure to buy so great that for many the only way to buy was to mortgage to the hilt. 15 years of low interest rates led to complacency
Yes, when buying we were all told to expect interest rate rises – and I didn’t particularly stretch myself so I’m ok for now. For many people my age though, all we have ever known is low interest rates – so this is a much bigger shock than it will be for the, err, more advanced of age among us
We are the same age. +/- I have always been acutely aware that rates have to rise. And although I wasn't directly affected by 2007 the 1980s and black Wednesday in 1992 I'm aware of them and the devastating effects they had on peoples lives.
While. I know it's not your style - chosing to not educate and bury your head in the sand on what is likely to be your biggest financial decision of your life is unwise and for those people who have ignored the signs and mortgaged to the moon I have minimal sympathy.
There are several reasons why they could end up in this situation even when educated on the situation through bad timing and family needs I appreciate and for those people I have sympathy for and think the governemnt should help since they have been instrumental in getting us here.
I don’t think thats what has happened for most folk in the difficult situation of struggling to pay their mortgage
You say most, I'd say many or even some, and yes i have sympathy for them where the multiple of salary is higher now than it was.
But there are many (or some, but probably not most 😉 ) that aren't in that situationand yet still now find themselves over-committed because they didn't listen or take the warnings seriously.
chosing to not educate and bury your head in the sand on what is likely to be your biggest financial decision of your life is unwise and for those people who have ignored the signs and mortgaged to the moon I have minimal sympathy.
They wanted to buy a house and with house prices so stupidly high it is the only option. Yes it was a risk to get a big mortgage assuming interest rates would never rise but in the long run they will be better off than if their money went to a landlord every month.
Yes it was a risk to get a big mortgage assuming interest rates would never rise but in the long run they will be better off than if their money went to a landlord every month.
That is only so because our rental market is also fubar. for many of these folk renting would have been the sensible option if we had secure tenancies of decent standard housing at sensible rents - like in much of europe
They wanted to buy a house and with house prices so stupidly high it is the only option. Yes it was a risk to get a big mortgage assuming interest rates would never rise but in the long run they will be better off than if their money went to a landlord every month.
Indeed and for everyone of those who have just recently joined the market (see also my post where I said bad timing and family needs) there will be multiples of people with equity who have been climbing the ladder and getting the house of their dreams so their children can live their best life that face being left swimming with no pants on when the tides gone out.
I know I've spoken to a number of people in my industry who are genuinely shitting them selves as they didn't see this happening this quickly and are sitting with a 2 year fix coming to an end and facing 4 figure per month mortgage increases.
What did you do with the money that you weren’t stretched with? Have you overpaid so you are reducing the impact of the rate rises with a lower capital element, or do you have a pot that you can use to buffer, say 3-6mo of salary as ML would suggest? Or did it all get spent?
I wasn't really posting about my specific circumstances, I was just trying to give an alternate viewpoint to the 'it should have been really obvious this would happen' side. Personally, I saved a chunk rather than paying off extra on the mortgage. I work in a relatively volatile industry and I sleep better knowing I can live off my savings for a while.
For many people my age, the market in our (financial) lifetime has taught us that rates only ever go down. As an example, when I bought my first house I was very aware that interest rates might rise, so I fixed at 5 years at something like 4% (at the time a good deal). I got burned, because all the rates did was fall for that 5 year period! Since then I have only fixed for 2 years at a time and, until now, rates have only ever gone down. I've just remortgaged (again 2 year fixed) at 4.39%, so my payments have gone up to £933/month from £750/month. I can cope with that, but I can completely sympathise with those who can't. Having only ever seen rates fall, I can't blame them for thinking things would stay that way.
TJ - you keep going on about rental prices in Europe, but it’s clear that you actually don’t have a clue. Yes, average rental prices are lower, but that’s because rates for people already renting don’t rise. But for anyone starting out or for those needing to move, private rental rates are defined by the housing price. Rental rates in Paris, Munich, Toulouse, Hamburg, Berlin are all similar or higher than London, Bristol, etc.
Almost everyone that’s just started out on a mortgage finds in harder in the first few years. Even if the mortgage rate is cheaper, there are things you have to cover which you don’t when renting. Maintenance, etc.
The situation today isn’t the same as 20-30 years ago. Even forgetting house prices for a moment. Public transport is more expensive, food, insurance, etc are more expensive, there are more necessities, internet, phones, etc. childcare is much more expensive and for many people who’ve moved to work, not available through family. Council tax has dramatically outstripped wages over than last 20y.
Each of these may only represent small percentage differences, but somethinged, their effects are substantial.
And before anyone chimes in about latest phones, subscription services, flash cars, etc. I remember my parents and most of our circle renting TVs from Radio Rentals, buying things from Catalogues such as Freemans and Kay’s and still going on holiday quite frequently.
As for cars, I wonder how many people lease simply BECUASE they can’t afford the outright payment. I’m sure there are many who rent nicer than they should, but truthfully, most of what I see are bottom of the range BMWs, Audis, but that’s probably because that’s what I notice.
But trying to get this back on topic. Average house price in the UK is £285k. Average wage is £33k. Assuming a 5% deposit, that’s £271k. That’s 4.1x JOINT income. In old money that would be over 7.5x the primary earner. This isn’t aspirational purchasing, it’s average.
Now assuming those people are approaching the end of their first term, their first rate would’ve been around 4%, so a payment of £1471 over 25y. Let’s assume also that they extended the term to match previous rental rates so a 30y term is £1200/m. Let’s assume a single child with childcare at a (very reasonable) £600 a month done through salary sacrifice and a pension contribution of 8% also through salary sacrifice. Joint take home is £3400 a month. Mortgage is £1200, council tax £300, utilities £250-£300, food £600 (family of 3 with you child) insurance and digital, £80. Car fuel, tax insurance, £100.
That’s £2600/m in just bills. This assumes no other debts, no cars, no student loans. Anyone with their first child AND first house knows this is rubbish, but hey ho.
Now, let’s assume your house is worth exactly what you paid 2 years ago (first up and now down) so at best you can secure the same 95% LTV mortgage. The new 2y fixed rate is 6.35%. That’s £1734 an increase of £534. That family now has less than £300 a month as a buffer assuming very generous circumstances.
My experience is that wages don’t always track well with house prices per region. House prices are often driven by small import or small wealthy group factors, which means that to stay in a particular region, that initial borrowing/income has to be stretched. Bristol for example. The average house price is £395k, but the average wage is only £35k, so the ratio is now 5.7, the repayment is now £1550 at 4%, at £2300 at 6.35%
the Bristol family are now in the RED by £235.
TJ – you keep going on about rental prices in Europe, but it’s clear that you actually don’t have a clue.
apart from its not just prices its security and actually I have family members renting at controlled prices in Amsterdam ( who took on the tenancy only a couple of years ago) and also family members who are landlords in Amsterdam one of the most expensive cities in the world.
Not all rents are controlled in Amsterdam - there are two / three classes of rental once again its not just prices - its security and quality of accommodation
On prices you are conflating 2 things. Non controlled rental prices cannot be put up much during the course of the tenancy and controlled rentals that have a fixed ceiling - even for a new tenancy
If you rent in the Netherlands - controlled tenancy or not you know two things - no no fault evictions and no severe price rises. If you live in a rent controlled tenancy it will also be cheap. if its a non controlled one it will not be - but you know that you cannot be hit with huge rises and also that you cannot be evicted unless you are at fault
Edit - my family members whoa re landlords have just had to reduce their rent on their non controlled flat because a tightening of regulations mean they cannot let it to so many tenants.
But we’re not in the Netherlands and this is as helpful to the thread as fairy wings on a cement truck. I specifically tried to put the thread back on track with my last post and you have unhelpfully detailed it with posts that’re less than helpful.
You seem to have spare time, please go start a thread on rent control, add real facts (not anecdotes) and let’s have a discussion on it and how we can perhaps take action on it, other wise it’s just a huge waste of time.
Back on topic and related to my previous post, times are different and the assumption that all/most young people are being financially reckless by choice is as myopic as assuming that everyone that voted for Brexit is a gammon, moron or racist.
Remember when Osborne tried to pay off the debt. It’s called austerity. And they made hash of it.
Only one chancellor in recent times has paid off debt and not made a complete pigs ear of it. Gordon Brown made the last of the lend-lease payments to USA and freed us of our obligations to them.
The current mob are trying to get us indebted to the monster again. For the avoidance of doubt there is no "Special Relationship" it's more a financial abuse thing as seen in some marriages/relationships.
No - but if we had rent controls it would help the situation in the UK - its an example of how there are other ways to do things. You also said I didn't have a clue in a very derogatory manner so I am supposed to not explain where my knowledge comes from?
The very weak laws on rentals in the UK have a strong bearing on the housing market
1) buy to let can be very profitable so pushing up house prices
2) Insecure tenancies pushes people into buying so leads to over extended mortgage holders and guess what - contributes to house price rises
If we want to understand how we got to where we are and how to solve the issues rental market is a huge part of that
No need to be so offensive dude 🙂
If you rent in the Netherlands – controlled tenancy or not you know two things – no no fault evictions and no severe price rises. If you live in a rent controlled tenancy it will also be cheap. if its a non controlled one it will not be – but you know that you cannot be hit with huge rises and also that you cannot be evicted unless you are at fault
And yet many dutch colleagues when I worked there were very vocal about how shit being trapped renting was due to high property prices.
Seems the ideals are different dependant on which side of the spoon you live.
Yes - my family are on both sides of this. My nephew earning good money can not afford to buy. Fortunately he has the option of secure rental at a reasonable prtce instead - an option not available here
interest rate rises are making money for the wealthy. so, in order to push down inflation those with means and no mortgages will actually have MORE money to spend.
re all the over extending bollocks. of course there are some. but they are in the minority and to just focus on them 'because you chose to not get a nice kitchen' is completely missing the bigger picture.
when I took our mortgage I budgeted at 7%. it wouldn't be comfy but doable. I did not factor it would go up so fast. that bills would double/ triple. that inflation would be 10% and my salary only go up 3.5%. all inside 12months. this is what is screwing families. not because they leased a new audi. such a narrow envious viewpoint.
would I have made some different decisions had I had a crystal ball? probably. can I go back, no. just glad I didn't upgrade the 14 plate kia or press go on the garden project this year as planned. some people will have really been caught with thier pants down due to the speed and timing of it all. they've been given no time to address the situation and the factors are mostly outside of their control
re all the over extending bollocks. of course there are some. but they are in the minority and to just focus on them ‘because you chose to not get a nice kitchen’ is completely missing the bigger picture.
I'm not 'focussing' on them, I already said I have sympathy and support for those that have been caught out for reasons beyond. Just also reflecting I don't have the same sympathy for those that walked in to it by wilful ignorance or blind stupidity. It is possible to do both
BTW I don't think 'help' for mortgage owners is what is needed either (then again I was also against paying people's salaries during lockdowns...)
what I think needs to be addressed os that the whacking up of interest rates so fast will do little to curb inflation because of the nature of it and will cause a lot of unnecessary pain to mortgage holders and renters
I don't know on that, depends if you think interest rates will curb spending or not - and frankly I'm not sure as so much for many/most is spending on bills and groceries.
But play 'lets pretend' for now and assume it does....this creeping rate rises is like boiling a frog, each month we can shave a few quid and not really change behaviour. Maybe a bigger hike a year ago might have shocked behaviour change, as indeed ending of fixed rate deals will
BTW I don’t think ‘help’ for mortgage owners is what is needed either
Goverment help, I agree, but bank helps should be enshrined. Banks are arguably the ones that have created this from 2000-now using debt as new money, the reap the profits of boom and bust with equal measure and the wealthy get wealthier and the poor get poorer.
Banks perhaps should be made to account for some of the debt on their books by swallowing some of the interest rate rises (for a time) to prevent rapid rises and an unfair split between lending and borrowing rates existing.
when I took our mortgage I budgeted at 7%. it wouldn’t be comfy but doable. I did not factor it would go up so fast. that bills would double/ triple. that inflation would be 10% and my salary only go up 3.5%. all inside 12months. this is what is screwing families. not because they leased a new audi. such a narrow envious viewpoint.
I think this shows just how shit it can be. DT78 seems to have made sensible decisions and been cautious and its still hurting. Those that didn't make good decisions will be really screwed
I think we need to be really careful tho about looking at this from a point of view of those deserving of help ( because they were cautious and still in a bit of trouble) and those undeserving because they made poor decisions ( from our point of view)
One thing that strikes me is that this pain is shared very unequally what is it? - only 30% have mortgages and only 20% of them will be facing unaffordable rises ( so I have read) so its some hundreds of thousands of folk being badly affected ( plus those who will be facing huge rent rises or eviction) and for some of them that financial pressure is going to be crippling
The penny is dropping. Expect a u-turn on no help for mortgage holders very soon. Probably after the July by-elections when they get eviscerated in safe seats.
One Tory MP called on the government to look at “politically unpalatable” options to help spread the pain of tackling inflation away from mortgage holders, such as slashing state-backed support for the wealthy.
The rate rises will curb spending, but what it will first do is increase debt as people struggle to adapt/cope. Then, when people are utterly trapped by repayments of every kind and their only hope is pay rises to service debt or restructuring (mortgage add on, debt management, etc). They’re perpetually trapped never managing to rise out of it until their circumstances change (children in school, job move with substantial pay rise, inheritance). And then there’s this assumption that people are recklessly spending.
*Cynic hat on*
the mortgage price rises are affecting tory voters disproportionately and making it harder to hold onto the seats in the byelections
some discussion here that might be interesting
*Cynic hat on*
No cynicism required, it’s just cold hard reality. Tory MPs are finally figuring out that the people they’re throwing to the wolves are their own voters.
Agreed it's a Tory voter targeted impact at present.
The issue is that the tax hikes many are also suggesting are as unpalatable and our politicians have shown time and time again they don't have the vision or integrity to do what's in the best interests of a nation.
<p style="text-align: center;">Jesus.
Labour have the same answers. Nothing.</p>
https://twitter.com/SaulStaniforth/status/1672878214790742017?t=I06y7HqIPkVUDgbJ6c5T6Q&s=19
The swell of 'left-wing' British savers must be euphoric.
thats also nonsense is it not? Savers rates have gone up.