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

IMO no! Doesn’t affect us as mortgage free, but have two children trying (& failing) to get on property ladder - another a school teacher still earning pretty low income and will be in 4th year of teaching after Sept and just cannot see how pushing us into recession is in any way justified or helpful - still what do I know 🤷🏻‍♀️🤷🏻‍♀️

Norah

Agreed. People could cut out non-essentials.

I don't think comparing 7% mortgage interest (if that is indeed correct) to 17% interest is helpful - 5-8% seems rather normal.

But just as you are looking at them and seeing their choices as non-essential, dont you see that they will be looking at you - when they are not too busy having a life - and thinking that your choices are also non-essentials, because they are not essential to them.

Who made you, and others on here, the arbiter of these things?

rosie1959

Katie59

A BoE rate of 5% means variable mortgage rates of 7% maybe more, if that is unaffordable homeowners need to go onto interest only for a couple of years. It just extends the mortgage for that time, bank are happy to do that because the last thing they want is prices falling and negative equity.

In current circumstances raising rates is not going to cure inflation.

The average mortgage rate over time has been 7%.
Lenders rarely offer interest only mortgages to the private buyer except in certain circumstances.
Interest only is mainly used for buy to let landlords this market has now tanked due to the ratio of rental income against the cost of the loan.
Lenders may well offer longer repayment terms.
Many are still on fixed rates so the full impact will only be felt over time.

It has been suggested by the various financial advisers that appear on tv that one way to with payment problems is to ask to switch to interest only for a period.

It's not strictly true that interest only applies just to the buy to let market. Some years ago, when a friend developed throat cancer and couldn't work, his partner switched to an interest only loan. She then extended the loan so that they could also buy a house in France. The only problem with that was that when she reached 70 she had to repay the full loan, even though they were meeting the repayments since both of them were still working. so they sold the French house - at a decent profit - and repaid the loan.

Why no prices and incomes policy?

I think the market has already taken a downturn, judging by what I see when indulging my Rightmove habit. Houses sticking, prices reduced , in the case of one house I’ve been watching by £150k, still sticking. New houses are faring no better, with generous incentives being wheeled out. You have to have something pretty special nowadays for it to be snapped up quickly - as with an old bungalow in a very upmarket nearby seaside village. Fabulous location, bungalow on its last legs, a really wonderful building plot for just shy of £1m. Sold within 24 hours.

ronib

Can anyone hazard a guess as to how high the interest rate will rise and will the housing market take a downturn? Or are the large house builders land banking as it’s unprofitable to build at the moment?

www.theguardian.com/business/2023/may/03/interest-rates-increase-federal-reserve

Nobody knows the future of the rates, here or in America.

Germanshepherdsmum

Well Maizie, this parent doesn’t have a feckless child. He’s done very well for himself, by himself . As has his wife. Far better off than I was at his age.

So have both my boys, much, much, better off than I was at their age. My daughter is going through a divorce right now so things are different there, but she’s doing okay.
We had huge difficulties financially during our early years of marriage whilst bringing up small children, but one reason was that I took time out for a few years to raise them. I went back to work when my youngest was five. I know about struggling to pay a mortgage because that’s exactly what we did. But we got through it and so will most of today’s younger people. They may have to cut back on things just as we did, but this time will pass.

As I said Dinahmo* in some instances lenders will do intrest only and as you said your friends did this a few years ago which may not be the same now lenders have really tightened their criteria.
Having been married to a long suffering Mortgage Broker he is about ready to retire.

The English banks should do what the French banks do, that is if a loan is for 25/30 years and the bank rate is at 2% that is what the lender signs for, for the whole period.. Not for one or two / five years but the whole period.

Although the Guardain has quoted that ‘the average 30-year mortgage rate in France is still 3.5%,’ both my French SiLs were able to remortgage when the bank rate went down to about 2%, keeping in mind that the French bank cannot adjust it upwards.

It is as if the English banks are treating people in a feudal system, these lords of money are saying ‘how dare the subjects get freedom from our clutches’.
It is the same with leasehold, only granting freehold at a price.

maddyone

Germanshepherdsmum

Well Maizie, this parent doesn’t have a feckless child. He’s done very well for himself, by himself . As has his wife. Far better off than I was at his age.

So have both my boys, much, much, better off than I was at their age. My daughter is going through a divorce right now so things are different there, but she’s doing okay.
We had huge difficulties financially during our early years of marriage whilst bringing up small children, but one reason was that I took time out for a few years to raise them. I went back to work when my youngest was five. I know about struggling to pay a mortgage because that’s exactly what we did. But we got through it and so will most of today’s younger people. They may have to cut back on things just as we did, but this time will pass.

Of course people cut back, live sensibly, don't purchase what they don't need and can't afford. This will all work out as it did years ago.

So many people have huge mortgages as house prices have outstripped wages colossally. This is what makes the interest rises so much worse than when they were up to 15%. One of the reasons that people suffered so much before is they were being offered loans for more than their houses were worth which in today's market, just doesn't happen. I know my son was already paying a higher interest because until they purchased their old house, they were unaware that someone had taken out a couple of loans in his wife's name and then defaulted. Despite paying their other bills and mortgage diligently every month, their mortgage provider would not allow them to remortgage and being desperate not to lose the house they wanted, they took out a higher rate mortgage until they could get their credit rating corrected. Then rates started to go up and so they waited to see if they could come down before remortgaging but they just keep going up. Despite both of them earning decent salaries, they are starting to struggle. I can't imagine how other families on lesser incomes are managing.

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

In those days people didn’t expect the government to help them with everything 4allweknow. We took it on the chin and economised as necessary.

Whilst I agree that todays “essential” spending is a far cry from our day, and I agree people could cut down, mobile phones are fairly essential these days, indeed we don’t have a landline, and contract phones are often better value long term than pay monthly, as for other things if people are working hard then it’s their choice to have their hair and nails done etc. I do agree that there might be some wriggle room but I do feel so sorry for those young people who struggled to get on the property ladder in the first place, some of whom will be despairing

4allweknow

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

The percentage of their income families committed to the their mortgages was much less in the past. If you were lucky it was 3 times chief earner and 1 times second salary maximum loan. Now it’s is 4.5-6 times joint income. That makes a big difference.

Casdon

4allweknow

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

The percentage of their income families committed to the their mortgages was much less in the past. If you were lucky it was 3 times chief earner and 1 times second salary maximum loan. Now it’s is 4.5-6 times joint income. That makes a big difference.

Perhaps bank regulations should lower percentages as before?

Perhaps people should wait to buy?

MaizieD

GrannyGravy13

It is possible to complain about interests rate increases whilst being able to afford the more expensive mortgage and unessentials

They are not mutually exclusive.

You are always the voice of reason, GG13.

I just get cross 👿

Thanks from me too GrannyGravy.

Norah

Casdon

4allweknow

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

The percentage of their income families committed to the their mortgages was much less in the past. If you were lucky it was 3 times chief earner and 1 times second salary maximum loan. Now it’s is 4.5-6 times joint income. That makes a big difference.

Perhaps bank regulations should lower percentages as before?

Perhaps people should wait to buy?

Maybe, but it’s too late for people who already have mortgages. I can’t imagine a worse case scenario financially than having your house repossessed or being made bankrupt because you can’t pay off your debts.

Listening to someone talking about this the other day, he mentioned that in the US they quite commonly have mortgages where the interest is agreed, at the beginning, for the whole term. I imagine that might make it more expensive to start with but would bring great piece of mind throughout the length of the mortgage.

Casdon

Norah

Casdon

4allweknow

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

The percentage of their income families committed to the their mortgages was much less in the past. If you were lucky it was 3 times chief earner and 1 times second salary maximum loan. Now it’s is 4.5-6 times joint income. That makes a big difference.

Perhaps bank regulations should lower percentages as before?

Perhaps people should wait to buy?

Maybe, but it’s too late for people who already have mortgages. I can’t imagine a worse case scenario financially than having your house repossessed or being made bankrupt because you can’t pay off your debts.

Agreed.

Re-introducing cautious regulations may not help those who have already over extended. I've no idea, as we had no 15-17% mortgage (ours was a 5% mortgage), what happened in those years as to bankruptcy?

DaisyAnneReturns

Listening to someone talking about this the other day, he mentioned that in the US they quite commonly have mortgages where the interest is agreed, at the beginning, for the whole term. I imagine that might make it more expensive to start with but would bring great piece of mind throughout the length of the mortgage.

The US banks do have fixed interest start to finish, if one selects. We had a holiday home in the US, recently sold, rates fixed for 15 years. Brilliant.

Norah

Casdon

4allweknow

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

The percentage of their income families committed to the their mortgages was much less in the past. If you were lucky it was 3 times chief earner and 1 times second salary maximum loan. Now it’s is 4.5-6 times joint income. That makes a big difference.

Perhaps bank regulations should lower percentages as before?

Perhaps people should wait to buy?

People who don't buy are normally paying exorbitant rents (curtailing the saving for a house for which the prices are shooting up faster than they can save and savings with very low interest rates) but even worse, there is no guarantee of continued tenure. If you have a child with special needs or your children attend school, you have no guarantee you will be able to stay within the catchment area.

Apologies for this being a bit vague (just been stung by a wasp 🐝 on my finger, could have been worse as I was in the loo 🤣)

I heard an interview I think it was Rachel
Reeves announcing that the Labour Party would have a rescue plan for those who’s mortgages had increased.

Surely this would be anti productive, regards to the reason rates have increased (take money out of general circulation) wouldn’t it be better all round to put pressure on the B of E to reduce the base rate?

Sorry about the sting!

It seems counterproductive to me. But then Labour want people to think they have some magic wand.

Jeremy Hunt is meeting mortgage lenders this afternoon, which sounds like a more sensible than a ‘rescue plan’.

We’re mortgage free and are looking forward to receiving a better rate of interest on our savings accounts rather than the miserable rates over the past ten or so years.