Pre crash mortgage rates?
Discussion
I appreciate your concern as to the long term borrowing costs of a mortgage today. However given the current bank rate of 0.5% which has never existed in the past (ever) I do question whether historic rates can be an indicator for future rates. I can remember bank rates in the past of over 12%. Who knows whether they will be repeated? Or possibly exceeded? I personally doubt it. But literally no one predicted bank rate falling to 0,5% at any time in the last 100 years. Literally no one. But fall to that rate they did. Not far from the point where there is no return on money. Which begs the question.
Where will rates go. Not am easy conundrum. Providing you have adequate income cover to service your proposed borrowing I would not expect you to get into difficulty with repayments on the loan. Predicting the future rates cannot offer you any more protection. Borrowing at 60% must enhance the security of your position. I would take the risk. In essence I think your position with a 60% mortgage and adequate income levels will protect you in every reasonable economic position. No one has protection beyond that.
Where will rates go. Not am easy conundrum. Providing you have adequate income cover to service your proposed borrowing I would not expect you to get into difficulty with repayments on the loan. Predicting the future rates cannot offer you any more protection. Borrowing at 60% must enhance the security of your position. I would take the risk. In essence I think your position with a 60% mortgage and adequate income levels will protect you in every reasonable economic position. No one has protection beyond that.
Steffan said:
I appreciate your concern as to the long term borrowing costs of a mortgage today. However given the current bank rate of 0.5% which has never existed in the past (ever) I do question whether historic rates can be an indicator for future rates. I can remember bank rates in the past of over 12%. Who knows whether they will be repeated? Or possibly exceeded? I personally doubt it. But literally no one predicted bank rate falling to 0,5% at any time in the last 100 years. Literally no one. But fall to that rate they did. Not far from the point where there is no return on money. Which begs the question.
Where will rates go. Not am easy conundrum. Providing you have adequate income cover to service your proposed borrowing I would not expect you to get into difficulty with repayments on the loan.
Effectively we are suffering negative rates, the patient is super sick if he/she cannot cope with 1% or 2% base rates.Where will rates go. Not am easy conundrum. Providing you have adequate income cover to service your proposed borrowing I would not expect you to get into difficulty with repayments on the loan.
Steffan, wasn't the highest rate 15% in 1990 - albeit for a very short time & 17% in 1980
fido said:
5-6% .. I think. To be honest I think a lot of people will be screwed at far lower levels.
But as I recall, when rates were 5-6% it wasn't too hard to get a rate at or even below that level. Whereas with rates at 1-0.5%, only mortgagors who were locked into trackers pre crash get anything like that rate now. Mermaid said:
Steffan, wasn't the highest rate 15% in 1990 - albeit for a very short time & 17% in 1980
BoE base rate history (back to 1975) ... http://www.bankofengland.co.uk/boeapps/iadb/repo.a...Date Changed
Thu, 03 Jul 1980 16.0000
Thu, 15 Nov 1979 17.0000
Wed, 13 Jun 1979 14.0000
bigandclever said:
Mermaid said:
Steffan, wasn't the highest rate 15% in 1990 - albeit for a very short time & 17% in 1980
BoE base rate history (back to 1975) ... http://www.bankofengland.co.uk/boeapps/iadb/repo.a...Date Changed
Thu, 03 Jul 1980 16.0000
Thu, 15 Nov 1979 17.0000
Wed, 13 Jun 1979 14.0000
One thing that is different this time round is the spread between the Bank Rate and mortgage rates. It's difficult to work out exactly where it was in the past but anecdotally:
http://moneyfacts.co.uk/tips/mortgages/dont-just-c...
The maximum tracker rate at 16.25% at a time when the base rate was 14.875% gives a spread of 1.375%. I'd take a guess that mortgages were tracking somewhere around 1% over base rate at the time given the two examples, but it is just a guess.
Currently a standard tracker (looking to be around 4% on a base rate of 0.5%) has a spread of 3.5% on it; the banks are making quite a bit more on lending now than they were in the past. Assuming we get back to the 5% area, that would mean tracker rates at 8.5%. That's pretty damn high.
http://moneyfacts.co.uk/tips/mortgages/dont-just-c...
The maximum tracker rate at 16.25% at a time when the base rate was 14.875% gives a spread of 1.375%. I'd take a guess that mortgages were tracking somewhere around 1% over base rate at the time given the two examples, but it is just a guess.
Currently a standard tracker (looking to be around 4% on a base rate of 0.5%) has a spread of 3.5% on it; the banks are making quite a bit more on lending now than they were in the past. Assuming we get back to the 5% area, that would mean tracker rates at 8.5%. That's pretty damn high.
Mermaid said:
Steffan said:
I appreciate your concern as to the long term borrowing costs of a mortgage today. However given the current bank rate of 0.5% which has never existed in the past (ever) I do question whether historic rates can be an indicator for future rates. I can remember bank rates in the past of over 12%. Who knows whether they will be repeated? Or possibly exceeded? I personally doubt it. But literally no one predicted bank rate falling to 0,5% at any time in the last 100 years. Literally no one. But fall to that rate they did. Not far from the point where there is no return on money. Which begs the question.
Where will rates go. Not am easy conundrum. Providing you have adequate income cover to service your proposed borrowing I would not expect you to get into difficulty with repayments on the loan.
Effectively we are suffering negative rates, the patient is super sick if he/she cannot cope with 1% or 2% base rates.Where will rates go. Not am easy conundrum. Providing you have adequate income cover to service your proposed borrowing I would not expect you to get into difficulty with repayments on the loan.
Steffan, wasn't the highest rate 15% in 1990 - albeit for a very short time & 17% in 1980
In making an assessment of a property purchase in the UK, currently, a mortgage of 60% with adequate interest cover should definitely be a reasonable risk. Unless the entire market collapses. In which case there will be some form of government support for borrowers because all the borrowers would be put at risk in this event and the system itself would be at risk. We know the government cannot allow that and therefore some support mechanism would have to be found. That seems to be the reality of the current situation to me and I think such a purchase must be an excellent bet: subject to the valuation supporting this view. I would recommend this purchase IF that is where the OP wants to buy.
davepoth said:
One thing that is different this time round is the spread between the Bank Rate and mortgage rates. It's difficult to work out exactly where it was in the past but anecdotally:
http://moneyfacts.co.uk/tips/mortgages/dont-just-c...
The maximum tracker rate at 16.25% at a time when the base rate was 14.875% gives a spread of 1.375%. I'd take a guess that mortgages were tracking somewhere around 1% over base rate at the time given the two examples, but it is just a guess.
Currently a standard tracker (looking to be around 4% on a base rate of 0.5%) has a spread of 3.5% on it; the banks are making quite a bit more on lending now than they were in the past. Assuming we get back to the 5% area, that would mean tracker rates at 8.5%. That's pretty damn high.
But they won't. At 5% there's a market for buying into money that would allow lenders to offer 4-4.5% fixed on two-three year deals. Right now there is zero market for anything analogous. http://moneyfacts.co.uk/tips/mortgages/dont-just-c...
The maximum tracker rate at 16.25% at a time when the base rate was 14.875% gives a spread of 1.375%. I'd take a guess that mortgages were tracking somewhere around 1% over base rate at the time given the two examples, but it is just a guess.
Currently a standard tracker (looking to be around 4% on a base rate of 0.5%) has a spread of 3.5% on it; the banks are making quite a bit more on lending now than they were in the past. Assuming we get back to the 5% area, that would mean tracker rates at 8.5%. That's pretty damn high.
The bottom line is that a rise in interest rates will not spell trouble unless you are truly locked into a base rate tracker, can't get out of it at a price you can afford, and can't afford any material upward movement in rates.
Greg66 said:
But they won't. At 5% there's a market for buying into money that would allow lenders to offer 4-4.5% fixed on two-three year deals. Right now there is zero market for anything analogous.
The extra spread on the mortgage rates prices in the increased risk of default and shaky bank finances that is inherent in the market we have at the moment, and I can't see a rate increase causing that to improve. We will not see rates below base rate again for a long while IMO. Greg66 said:
The bottom line is that a rise in interest rates will not spell trouble unless you are truly locked into a base rate tracker, can't get out of it at a price you can afford, and can't afford any material upward movement in rates.
Millions of people are in exactly that situation, mortgaged up to the hilt in a house that may well be near the top of the market, and likely to fail the affordability tests if they attempt to remortgage. davepoth said:
Greg66 said:
But they won't. At 5% there's a market for buying into money that would allow lenders to offer 4-4.5% fixed on two-three year deals. Right now there is zero market for anything analogous.
The extra spread on the mortgage rates prices in the increased risk of default and shaky bank finances that is inherent in the market we have at the moment, and I can't see a rate increase causing that to improve. We will not see rates below base rate again for a long while IMO. Greg66 said:
The bottom line is that a rise in interest rates will not spell trouble unless you are truly locked into a base rate tracker, can't get out of it at a price you can afford, and can't afford any material upward movement in rates.
Millions of people are in exactly that situation, mortgaged up to the hilt in a house that may well be near the top of the market, and likely to fail the affordability tests if they attempt to remortgage. In short if the borrower seeks less than 60% and has adequate interest cover on the current rates and the valuation stacks this must be a worthwhile purchase. Otherwise we are really crystal ball gazing when no one in fact anticipated such a low base rate in the last one hundred years before it was thrust upon us. Very possibly longer.
Steffan said:
I agree entirely that this is essentially a systemic problem in the UK housing market relating to the very large numbers of borrowers excessively borrowed when compared to CMV. I think a way will be found to resolve this by the Treasury. No UK politician of any party will accept wholesale repossessions and the massive housing need growth that would throw onto the public sector and a solution will be found. That is why I think seeking to estimate what interest rates are going to rise to is an ineffective way to try and assess the inherent risk to the borrower.
In short if the borrower seeks less than 60% and has adequate interest cover on the current rates and the valuation stacks this must be a worthwhile purchase. Otherwise we are really crystal ball gazing when no one in fact anticipated such a low base rate in the last one hundred years before it was thrust upon us. Very possibly longer.
As I see it, Help to Buy is the key. The government can increase the help they provide to prop up the mortgage market as much as they want, but surely it's not a sustainable option? In short if the borrower seeks less than 60% and has adequate interest cover on the current rates and the valuation stacks this must be a worthwhile purchase. Otherwise we are really crystal ball gazing when no one in fact anticipated such a low base rate in the last one hundred years before it was thrust upon us. Very possibly longer.
Take away London and the south east from house prices and the rate of price increase is 3.1% this year. Average wage increases are 3.5% this year. That's fairly healthy; houses are becoming more affordable by that measure, It will take a long time for prices to adjust back to the historical average at that rate however, and that is not going to be quick enough to be done before interest rates have to go up.
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