Mortgage rate skyrocket

[Blown2CV]

like many others have done over the last couple of years, i am facing a mortgage renewal where the rate is looking like it's going to be hugely higher than my current. We are 4.5 years into a 5 year fixed at 1.29%, and the prevailing rates for our sort of parameters are around the mid 4s. That means about a 35% payment hike.

I know there is probably little that can be done and maybe i just need to be thankful for the time in the sun we've had... but i thought i would ask on here what is the best way to manage this.

I am assuming that given fixed rates are higher than variable right now, the market is assuming further base rate rises are expected, so despite the additional cost it may be better to re-fix but i guess the variables are the period and... well maybe that's it.

or avoid fixing now and just hope for it to improve?? I can't see it, but then maybe...?

Any thoughts please? Sorry if this topic has been done to death.

Edited by Blown2CV on Sunday 7th June 12:01

[gotoPzero]

My gut feeling is inflation might double top in summer 27.. especially if oil remains around $100.

The US 10Y has been flirting with 5% for 3 years. Last time it did that was 2003-2006...

Suppose no one really knows. A single tweet from the orange one can impact your mortgage rate, sadly.

[gangzoom]

I don't think anyone knows. We fixed for 7 and 10 years on 2 parts of the mortgage when rates were 1.5-2%. I remember there was talk of negative rates etc, so at the time it seemed like a risk fixing for so long.

The higher your debt the bigger the impact of rate rises on your repayments, eg: A change from 1.5-4.5% on a £100k loan over 3 years is about £10k in difference. A £500k loan over the same period that rate change equates to £45k in difference.

My plan was to simply clear as much for the mortgage as possible when the fixed rate ends, but luckily we are in a position now to essentially be able to pay each part off in full once the rate ends, which essentially will leave us mortgage free.

Prior to the mad low rates from a few years ago anything around 4% was pretty normal, and even 5-6% I seem to remember wasn't deemed that high.

[Tisy]

gangzoom said:

Prior to the mad low rates from a few years ago anything around 4% was pretty normal, and even 5-6% I seem to remember wasn't deemed that high.

Yes, this ^. Anything under 5% is "cheap", historically, for the most part. A rate of 4.5% should be perfectly serviceable unless you've been really dumb and maxed yourself out at 1.29% without any contingency and the foolish assumption that the rate would never return to its norm. If the latter then looks like the options are

a ) renting out some rooms to make up the shortfall
b ) extending the term until the monthlies become affordable.
c ) selling and renting

Whichever option, you'll be put on the expensive SVR if you no longer meet the affordability criteria.

[Blown2CV]

the affordability criteria really isn't an issue as we have decent income. The issue is more that no one wants their mortgage payment rising as much as the payment on a pretty nice new car, regardless of their income.

[Jamescrs]

I fixed my rate in the low 4’s in September 2024 and I was worried I was making a mistake at that point on a 5 year deal. At the moment I don’t see rates dropping below that for the remainder of the fix I have over the next 3 years.

I’m
More concerned that before my next deal there is another GE and people will be silly enough to vote in Reform then things really go to st.

[Tisy]

Blown2CV said:

the affordability criteria really isn't an issue as we have decent income. The issue is more that no one wants their mortgage payment rising as much as the payment on a pretty nice new car, regardless of their income.

True enough, but everyone who isn't a complete potato and posseses more than 2 IQ knew that the rates at that level were never going to last and would return to historical norms. It shouldn't be coming as a shock.

[helmutlaang]

My first mortgage had a rate of 8.4% and that was considered normal. This was 1994

My last fix finished last year and was 1.80%. My new fix is 4.25% and has made a difference of around £70pm on a 55k loan.

[Blown2CV]

Tisy said:

Blown2CV said:

the affordability criteria really isn't an issue as we have decent income. The issue is more that no one wants their mortgage payment rising as much as the payment on a pretty nice new car, regardless of their income.

True enough, but everyone who isn't a complete potato and posseses more than 2 IQ knew that the rates at that level were never going to last and would return to historical norms. It shouldn't be coming as a shock.

it's not a fking shock, but it's still unwelcome, do you get what i am saying or not?

[Blown2CV]

Jamescrs said:

I fixed my rate in the low 4 s in September 2024 and I was worried I was making a mistake at that point on a 5 year deal. At the moment I don t see rates dropping below that for the remainder of the fix I have over the next 3 years.

I m
More concerned that before my next deal there is another GE and people will be silly enough to vote in Reform then things really go to st.

well i think we will surely see a change of government and therefore some impact on financial markets, yes.

[Blown2CV]

FWIW I asked perplexity to analyse the available data and opinions about UK interest rates and come up with a sort of considered likelihoods matrix. It said the most likely is a rate drop from the current.

[gangzoom]

Tisy said:

Blown2CV said:

the affordability criteria really isn't an issue as we have decent income. The issue is more that no one wants their mortgage payment rising as much as the payment on a pretty nice new car, regardless of their income.

True enough, but everyone who isn't a complete potato and posseses more than 2 IQ knew that the rates at that level were never going to last and would return to historical norms. It shouldn't be coming as a shock.

It was however an massive opportunity if you could manage the repayment plan/risk and reduce the debt borrowed before the fixed rate expired. I wish we took out more lending in hindsight, we remortgaged at sub 1.5% to part fund the building works we had done, I now have the equivalent capital sitting in Cash ISAs earning 4%+ and with inflation essentially erroding the mortgage debt. It really was a mad period of 'Free money' interms of below inflation borrowing.

If a similar situation was to appear again I would be taking a bigger risk interms of borrowing at a cheap rate and using that borrowing on some kind of captial/physical asset (Excluding cars which just depreciate).

[Blue_star]

Considering inflation is imported and we make interest payments at great cost I reckon its better we reduce rates. But unlike the fed, boe doesnt care about economic growth

[Blown2CV]

neither does the current government.

[Simbu]

The argument about rates being historically low doesn't hold water when you also consider that house prices as a multiplier of household income has also almost inversely correlated and is historically high.

The market is a bit stuck in this trend now. If interest rates shoot up to 8%+ there are going to be a great deal of borrowers that cannot afford their mortgages or need to extend their terms significantly. Which will trash the economy.

[Blown2CV]

but it's not the only lever / result, and this is why economics is hard.

we have somehow sustained the unsustainable for quite a long time.

[Blue_star]

Id love to pay 15% interest on 1980ies prices of property as opposed to 4% on todays

[Sheepshanks]

Blue_star said:

Id love to pay 15% interest on 1980ies prices of property as opposed to 4% on todays

Yeah, but you have to have the 1980's salary as well.

[Jakey123]

Tisy said:

Yes, this ^. Anything under 5% is "cheap", historically, for the most part. A rate of 4.5% should be perfectly serviceable unless you've been really dumb and maxed yourself out at 1.29% without any contingency and the foolish assumption that the rate would never return to its norm. If the latter then looks like the options are

a ) renting out some rooms to make up the shortfall
b ) extending the term until the monthlies become affordable.
c ) selling and renting

Whichever option, you'll be put on the expensive SVR if you no longer meet the affordability criteria.

'Historically' house prices werent so high either. So its swings and roundabouts.

Boomers bang on about ~10% interest rates being 'normal' but forget house price vs income multiples were so much lower in that period of time.
It was easy to be dumb because of the massively loose lending and rapid house price inflation rewarding 'dumb' behaviour. I.e making lots of paper wealth.

Normal is very difrerent depending on your age and location in the country.

[8-P]

Without stating the obvious this is a national problem for most. All I can assume is that most people either have a lot less disposable income, have extended their term from say 15 years back to 20, paid a chunk off, sold up etc. I suspect the first two in many cases or a mix of.

I paid a chunk off and over pay just to get it back to where it was and to keep me on track(fortunately only for 5 years more) but either way I have less savings, less monthly disposable and am paying way more interest than last year.