Increasing the interest rate to 5%, is this really the fairest way to slow inflation?

Norah

Good examples and explanation, M0nica.

As M0nica articulately notes, new interest only impacts the balance still due. Many people will owe little, many may still owe quite a bit, each figured to their own new payment. Not all setting on one day.

Not a household budget disaster for all mortgage holders.

No, but there’s a disproportionate impact on younger people who are much more likely to have a long term left on their mortgage, and will have extended themselves more in terms of salary multiplication as house prices have risen. If for example you wanted to move from a flat to a house and take out an additional mortgage for the difference you would be thinking very hard about doing that at the moment. There are quite a few threads on Mumsnet where people have relayed their additional mortgage payments when their current deals come to an end, and it is frightening - £500 a month more was one quoted.

Good examples and explanation, M0nica.

As M0nica articulately notes, new interest only impacts the balance still due. Many people will owe little, many may still owe quite a bit, each figured to their own new payment. Not all setting on one day.

Not a household budget disaster for all mortgage holders.

Mortgage rates do not go up equally at the same time. They did in the days of 25 year variable rate interest mortgages, but not now.

How much any mortgage payment will go up will depend on the mortgage rate when the mortgage was negotiated, how long the fix was for and what the rate will be when it needs to be renegotiated.

Assuming that most mortgages are repayment mortgages, it will also depend on how far through the overall 25 years length of a mortgage you are.

Monthly mortgage payments are a mix of interest rate and capital repayment and to keep the monthly payment even, in the early years each monthly payment is nearly all interest with only a small amount of capital paid back, but this changes as the mortgage progresses and by the time you reach year 20, most of the monthly payment is capital repayment, a figure falling fast and the interest payment proportion is quite small.

So if 2 people both have £100,000 mortgages, currently paying 3% interest, due to go up to 6% in September but one is in year 2 of their mortgage, while the other is in year 22 of the mortgage, the person in year 2 of their mortgage will face a substantial rise in their monthly payments because with so much capital still to be repaid, the interest payable on nearly £100,00 will be high.

For the person in year 22, they will probably have repaid at lest half their mortgage, probably 60%, £60,000, so the new interest rate will be calculated on the £40,000 capital outstanding, which will be much less than the interest on nearly £100,000 the person in year 2 of their mortgage will pay, so the second person's interest payment will go up, proportionately much less, and this will affect their overall household budgets much less.

DaisyAnneReturns

Norah

"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they?

1.4 million fixed-term mortgages set to expire in 2023. Why do you think they can't go up?

DaisyAnneReturns And now you have added a question mark it is, indeed, a question. Originally it was a statement.

I began by asking a question, it was always a question, I didn't change from a statement to a question. You changed it to a statement.

I did leave off the all in my first question.

Surely I could ask - it seemed improbable, to me, that all the outstanding 5 year fixed mortgages would reset at once. Because they can't/don't - some reset prior to the rates going up.

Don't attempt twisting my questions, of course you may find mine stupid questions. All can see what I inarticulately asked. Twice.

This is very informative.
www.uswitch.com/mortgages/mortgage-statistics/

To be more specific, the average for mortgage rates- new and for new term.
commonslibrary.parliament.uk/research-briefings/sn02802/

Mortgage rates were whatever people had signed up to!

Germanshepherdsmum

Bank rate last October was 2.25%. It only rose to 5% this month.

Mortgage rate, I should have clarified what I meant, sorry.

It changed as we moved into service industries foxie. We seemed to necome a country that traded money and monetary products, and there was a more, more, more attitude.

The trading and manufacture of goods seemed to fall into the background.

SporeRB

I came across an online government data which stated that the increases in interest rates up to December 2022 will add 60% to the mortgage payment.

So if you are paying £600 per month under a 2 or 3 years fixed term, the mortgage payment will increase by at least £360 once the fixed term expires and you move to the variable rate this year.

Don’t you have to pay a hefty penalty if you try to re mortgage before the fixed term ends?

Yes, often around the £1K mark, I believe. When we had a mortgage, the rules around how much you could borrow were so much tighter in relation to multiples of salary, especially the second income. We didn't have student debts to pay off, an energy crisis and childcare costs were relatively low, it was still a struggle when interest rates peaked in the 90's but we never had any fear about being able to get through it but there are people out there now who are very worried, families with children who don't have a bank of mum and dad to go to, families and pensioners in private rented accommodation with limited fixed incomes who are facing big rent hikes and older people who have used their pension pot to become buy to let landlords who have much bigger outgoings than they thought and see their pension income diminishing. In some ways it's easier to talk about "numbers" but the numbers are real people and although I've had my struggles in the past I genuinely wouldn't wish that on anyone.

Norah

DaisyAnneReturns

I asked a question. I didn't make a claim.

I do question "All 5 year fixed mortgages can't go up this moment, can they?" All have different dates of signature, I'd think.

Norah:
"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they.

Norah:
I didn't say that.
All 5 year fixed mortgages can't go up this moment, can they?

And now you have added a question mark it is, indeed, a question. Originally it was a statement.

I apologise for not realising someone, anyone, would even question whether all mortgages could go up in one particular moment. Hopefully, you now feel your question has been answered.

Bank rate last October was 2.25%. It only rose to 5% this month.

Just to clarify, the interest rate has been above 5% since October 2022, so millions of mortgagees whose terms had expired in that period are already paying much higher rates, the risk is that it will rise further still.

DaisyAnneReturns

I asked a question. I didn't make a claim.

I do question "All 5 year fixed mortgages can't go up this moment, can they?" All have different dates of signature, I'd think.

I came across an online government data which stated that the increases in interest rates up to December 2022 will add 60% to the mortgage payment.

So if you are paying £600 per month under a 2 or 3 years fixed term, the mortgage payment will increase by at least £360 once the fixed term expires and you move to the variable rate this year.

Don’t you have to pay a hefty penalty if you try to re mortgage before the fixed term ends?

Germanshepherdsmum

I know your figure was for the whole of the year. Do you think I didn’t check? We are halfway through the year. Some fixes will have ended earlier in the year and some people will have taken a proactive approach before their fix ended. It’s abundantly clear to me that Norah was saying that all mortgage rates won’t go up right now - as they won’t. No wriggling at all, no erroneous statement and no claim that black is white.

"Do you think I didn’t check?"

That seemed quite likely.

I know your figure was for the whole of the year. Do you think I didn’t check? We are halfway through the year. Some fixes will have ended earlier in the year and some people will have taken a proactive approach before their fix ended. It’s abundantly clear to me that Norah was saying that all mortgage rates won’t go up right now - as they won’t. No wriggling at all, no erroneous statement and no claim that black is white.

Germanshepherdsmum

A fair number would have expired and been reset during the preceding days of the year Daisy - we’re half way through it -so I don’t think your maths necessarily prove a point. Not everyone waits until the gun is held to their head. Did Norah say she is a Conservative or did you just assume that she is? I didn’t notice any such admission.

I should check the figures before making the accusation if I was you GSM. The figure I gave was the average daily amount for the whole of 2023. Of course the fixes that ended earlier are unlikely to be affected by this rise.

You can wriggle as much as you like in your support of Norah's claim that "... mortgages can't go up right now, can they?" It is simply not true. I'm not really sure why she made the claim or why you found the need to try and say black was white, in the face of an obviously erroneous statement.

A fair number would have expired and been reset during the preceding days of the year Daisy - we’re half way through it -so I don’t think your maths necessarily prove a point. Not everyone waits until the gun is held to their head. Did Norah say she is a Conservative or did you just assume that she is? I didn’t notice any such admission.

Norah

DaisyAnneReturns

Norah

"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they?

1.4 million fixed-term mortgages set to expire in 2023. Why do you think they can't go up?

I didn't say that.

All 5 year fixed mortgages can't go up this moment, can they?

I rather think this is a case of Conservatives playing smoke and mirrors in an effort to, yet again, let their incompetent government off hook. Why do you do it? These people are muppets only less cuddly.

If 1.4 million fixed mortgages are set to expire in 2023 then an average of 3,836 expired yesterday, the same today and the same tomorrow.

How much more "now" do you need it to be for those it is going to happen to, every day the interest rates are up. What difference will it make that the whole amount will not all go up at one single moment? I cannot imagine anyone ever thought they would!

DaisyAnneReturns

Norah

"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they?

1.4 million fixed-term mortgages set to expire in 2023. Why do you think they can't go up?

I didn't say that.

All 5 year fixed mortgages can't go up this moment, can they?

DaisyAnneReturns

Norah

"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they?

1.4 million fixed-term mortgages set to expire in 2023. Why do you think they can't go up?

I think the relevant words are ‘right now’. It rather depends on exactly when your fixed rate will end, does it not?

Doodledog

Yes, I dare say. I've been there, and it was grim.

I don't know the answers - it's galling to think that inflation is at least in part caused by something I vehemently didn't want, and I wish could be reversed, too. It's wrong that any group should be expected to pay a disproportionate proportion of the cost of that.

That's what makes me angry Doodledog. One sector of society is being forced to pay to (allegedly) "solve" the country's inflation.

I'm glad I'm not one of them. My landlord doesn't have a mortgage and is the best landlord ever - he's only put my rent up once (£25 a month) since I've been living here (10 years). I don't have any debts either and my meagre savings are making a few pounds interest.

Nevertheless, I am concerned about the country and this isn't a good way to bring down inflation. I'm not even sure that the house price bubble will burst without increasing the supply of housing, which won't happen while developers see house prices coming down. The state needs to intervene to build.

Norah

"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they?

1.4 million fixed-term mortgages set to expire in 2023. Why do you think they can't go up?

"Around 90% of mortgages are fixed – predominantly for five years – a huge sea change compared to 10+ years ago when most were on variable rates." Curious, mortgages can't go up right now, can they?