UK Mortgage Costs Risk Heading Higher Again With BOE Rate Hikes

[henry the king]

 

Best news out there, this will help to act as a drag on house prices.

And the best thing is mortgage rates are priced expecting rate cuts with the lowest margins ever.

So they literally are priced on the "best case" scenario of inflation going away and extremely high bank competition for customers. So the only way is up.

Quote

UK mortgage rates have started to head higher again, reversing a downward trend

Edited May 9, 2023 by henry the king

[NoHPCinTheUK]

When do you think higher rates will start to reflect in prices demanded from sellers? 
 

I must admit that the resilience from vendors and EAs has surprised me. The housing market is the only one which seems not to adapt to new inputs. We’re talking about 0.x moves when rates are 400% higher than a year ago. 

[“Nasty Piece of work”]

2 minutes ago, NoHPCinTheUK said:

When do you think higher rates will start to reflect in prices demanded from sellers? 
 

I must admit that the resilience from vendors and EAs has surprised me. The housing market is the only one which seems not to adapt to new inputs. We’re talking about 0.x moves when rates are 400% higher than a year ago. 

I think Joe Public, no matter how thick, is starting to link housing costs to the CoL crisis.  EA's are trying to carry on, like it does not impact them.  I don't see Joe making the link until 2024 - they are that dim.

[henry the king]

24 minutes ago, NoHPCinTheUK said:

When do you think higher rates will start to reflect in prices demanded from sellers? 
 

I must admit that the resilience from vendors and EAs has surprised me. The housing market is the only one which seems not to adapt to new inputs. We’re talking about 0.x moves when rates are 400% higher than a year ago. 

There are a lot of factors, obviously 6.5% earnings rises and savings paying 4% means that 0% HPI is actually a hefty fall. Vs earnings (so in "real" earnings terms) I believe out of the last 20 data points of NW/HF there has only been two rises vs earnings. In 20 data points.

Housing prices are also based on precedent so once a house sells for 450k the vendor will try and get 450k again...but sooner or later more people will break and want to sell for less just to sell and then prices come down quicker.

Also supply is up 66% and demand is down 42%. That will soon impact prices. Supply has only just recovered really. Literally only recently has it actually got back to close to where it should be pre-covid (not entirely yet too). We are talking the last few months it recovering.

Edited May 9, 2023 by henry the king

[henry the king]

It is just funny that you see stuff like this:

Quote

“Demand is likely to continue to recover as mortgage interest rates fall, with some buyers currently holding off in the hope of securing a more attractive mortgage deal later on in the year,” estate agent Savills said in its latest market update.

This is their business and they are still just hopelessly wrong. Mortgage rates are rising and people aren't holding off because there is the hope of securing a cheaper deal later. They are holding off because they literally cannot afford a house due to the mortgage rates and house prices. Which means demand isn't going to recover. And supply is up A LOT.

So low demand and high supply. Recipe for price falls.

[henry the king]

5 minutes ago, “Nasty Piece of work” said:

I think Joe Public, no matter how thick, is starting to link housing costs to the CoL crisis.  EA's are trying to carry on, like it does not impact them.  I don't see Joe making the link until 2024 - they are that dim.

You can see on Nationwide's latest index that Uk house price to earnings ratio has fallen sharply over the last year and is nearing back to 2015 levels. If we get another 6 months of 0% HPI and 3% wage growth over that period then we will be close to 2019 levels.

That is the graph which matters. It peaked during covid at about 7x earnings and is now down to about 6x.

[NoHPCinTheUK]

I saw an advert from AMEX, 450% APR. 
 

 

[henry the king]

Swap rates and gilt yields are much higher than can support 4% mortgage rates.

I expect mortgage rates to continue to rise, probably fairly quickly. 

Pretty nice for us all here that mortgage rates have started to rise again!

Edited May 9, 2023 by henry the king

[fellow]

I think this is the end of the "back to normal" delusion.

[steve99]

1 minute ago, fellow said:

I think this is the end of the "back to normal" delusion.

After over 20 years of this?  I hope so

[NoHPCinTheUK]

11 minutes ago, fellow said:

I think this is the end of the "back to normal" delusion.

The end will be when EAs will see their P45s. Only then those who will still have a job will wake up. 

[Gurgle]

5 hours ago, NoHPCinTheUK said:

When do you think higher rates will start to reflect in prices demanded from sellers? 
 

I must admit that the resilience from vendors and EAs has surprised me. The housing market is the only one which seems not to adapt to new inputs. We’re talking about 0.x moves when rates are 400% higher than a year ago. 

Rates being 400% higher isn't quite the right stat is it?  Surely it needs to be how much higher in % terms monthly payments are because rates are 400% higher.

£100k @ 1% = £377 per month

£100k @ 5% = £585 per month

So payments are 55% higher.  Not saying you're wrong but 400% is slightly misleading.

[Unmoderated]

5 hours ago, henry the king said:

You can see on Nationwide's latest index that Uk house price to earnings ratio has fallen sharply over the last year and is nearing back to 2015 levels. If we get another 6 months of 0% HPI and 3% wage growth over that period then we will be close to 2019 levels.

That is the graph which matters. It peaked during covid at about 7x earnings and is now down to about 6x.

Very good points. With payrises and inflation as they are existing homeowners have been handed a real cut in the real value of the outstanding debt. There's a penalty to be paid when they remortgage of course but most won't find it so bad. 

1 hour ago, fellow said:

I think this is the end of the "back to normal" delusion.

What is normal? Where are we heading? I'd have thought we'd end up like Japan with an ever growing older population being disinflationary. I think what we're seeing right now is a blip and inflation will be back under 5% by end of year. 

4 minutes ago, Gurgle said:

Rates being 400% higher isn't quite the right stat is it?  Surely it needs to be how much higher in % terms monthly payments are because rates are 400% higher.

£100k @ 1% = £377 per month

£100k @ 5% = £585 per month

So payments are 55% higher.  Not saying you're wrong but 400% is slightly misleading.

Totally agree. 400% is sensationalist and what really matter is the monthly cost. I tend to find that most mortgages would be affordable with rates going from 1% to 4% or 5%. 1% rates were really quite a narrow window. I got lucky with mine but only as I remortgaged in 2021. Prior to that I was 2% for two year fixed. Taking the longer term view of coming off my existing fixed rate in early 2027 and comparing to the 2% I was paying a couple of years ago I think the actual % of my take home pay going on my mortgage will be lower. 

I guess though this is really having the sharpest impact on the FTB end of the market. 

[cbathpc]

The tories are so ******ed with this. 

[msi]

1 minute ago, cbathpc said:

The tories are so ******ed with this. 

BuT lAbOuR....ABbOT....CoRbYn....

[Aidan Ap Word]

1 hour ago, Gurgle said:

Rates being 400% higher isn't quite the right stat is it?  Surely it needs to be how much higher in % terms monthly payments are because rates are 400% higher.

£100k @ 1% = £377 per month

£100k @ 5% = £585 per month

So payments are 55% higher.  Not saying you're wrong but 400% is slightly misleading.

Well, only if you don't understand how mortgages and compound interest work (which, to be fair, most folks in the UK don't, most of them don't care) ...

Comparing 1% to 4%: interest payments in first year 983 GBP to 3956 GBP - so actually it is 400% ... 5 minutes at https://www.mortgagecalculator.uk/ demonstrates this.

Though in in terms of actual interest rates for 10% based mortgages ... bottomed out at 2% and settled currently at about 5.5% ... so an increase of 225% ... but for 75% LTV that bottomed out at about 1% and up to +- 5.5 so that 550% ...

Of course, in America where frequently people mortgage once for the whole period of ownership of the home ... this would be made clearer to them/more obvious to the buyer ... but over here in Blighty they do everything they can to obfuscate this (not least of which the likes of money super market dot com (etc) proudly proclaim the cost of the fixed term mortgage as a sort order).

"vs" (at 4%, or 400% ("4 times") 1%)

Edited May 9, 2023 by Aidan Ap Word

[Gurgle]

2 hours ago, Unmoderated said:

Very good points. With payrises and inflation as they are existing homeowners have been handed a real cut in the real value of the outstanding debt. There's a penalty to be paid when they remortgage of course but most won't find it so bad. 

What is normal? Where are we heading? I'd have thought we'd end up like Japan with an ever growing older population being disinflationary. I think what we're seeing right now is a blip and inflation will be back under 5% by end of year. 

Totally agree. 400% is sensationalist and what really matter is the monthly cost. I tend to find that most mortgages would be affordable with rates going from 1% to 4% or 5%. 1% rates were really quite a narrow window. I got lucky with mine but only as I remortgaged in 2021. Prior to that I was 2% for two year fixed. Taking the longer term view of coming off my existing fixed rate in early 2027 and comparing to the 2% I was paying a couple of years ago I think the actual % of my take home pay going on my mortgage will be lower. 

I guess though this is really having the sharpest impact on the FTB end of the market. 

Or anyone who borrowed on the limit to be honest. There are many people who subscribe to the view that you should borrow as much as you possibly can / buy the most expensive house you possibly can as wages tend to go up and what you feel is tough now will not feel as bad in 5 years.  That’s all good and well in times of low inflation but not so much now.  People’s wages are not increasing in line with inflation on average.  Not even close

[henry the king]

3 minutes ago, Gurgle said:

Or anyone who borrowed on the limit to be honest. There are many people who subscribe to the view that you should borrow as much as you possibly can / buy the most expensive house you possibly can as wages tend to go up and what you feel is tough now will not feel as bad in 5 years.  That’s all good and well in times of low inflation but not so much now.  People’s wages are not increasing in line with inflation on average.  Not even close

I'd say most people think like this.

And these are the people who are about to be crushed given pay rises aren't keeping pace with inflation AND interest rates are surging on mortgages.

Swap rates are actually higher than quite a lot of mortgage rates. That isn't sustainable, mortgage rates will rise over the next few months.

 

Edited May 9, 2023 by henry the king

[Gurgle]

1 hour ago, Aidan Ap Word said:

Well, only if you don't understand how mortgages and compound interest work (which, to be fair, most folks in the UK don't, most of them don't care) ...

Comparing 1% to 4%: interest payments in first year 983 GBP to 3956 GBP - so actually it is 400% ... 5 minutes at https://www.mortgagecalculator.uk/ demonstrates this.

Though in in terms of actual interest rates for 10% based mortgages ... bottomed out at 2% and settled currently at about 5.5% ... so an increase of 225% ... but for 75% LTV that bottomed out at about 1% and up to +- 5.5 so that 550% ...

Of course, in America where frequently people mortgage once for the whole period of ownership of the home ... this would be made clearer to them/more obvious to the buyer ... but over here in Blighty they do everything they can to obfuscate this (not least of which the likes of money super market dot com (etc) proudly proclaim the cost of the fixed term mortgage as a sort order).

"vs" (at 4%, or 400% ("4 times") 1%)

Whether or not people understand compound interest is irrelevant.  What is relevant is whether they can afford the payments.  Even by your posted examples the total cost of the loan goes from £123,061 -> £168,351 which is actually only a 36.8% increase in total cost.  I don’t understand the point of your post and the numbers you presented.  Looking at interest alone is irrelevant.  
 

Edited to add that you used 1% and 4% not 1% and 5% which would represent the 400% increase in rate and which is what I used. That would mean my calculation above is not aligned with my original post but it’s still not going to be close to 100s% increase in costs

Edited May 9, 2023 by Gurgle

[Timm]

31 minutes ago, Gurgle said:

(...)

Looking at interest alone is irrelevant.  
(...)

I agree with your point that it is the cost of servicing the mortgage that is important, but there are lots of people who are on interest only and I would say that they are likely to be the margins that set the market.

Lets assume that most people on interest only (apart from BTL) are on IO because they can't really afford to be repaying the capital. Those are the very people who will actually be seeing these eye gouging X00% rises in their monthly cost. They now need to exit the market and exit it fast, before it breaks them.

[Gurgle]

2 hours ago, Timm said:

I agree with your point that it is the cost of servicing the mortgage that is important, but there are lots of people who are on interest only and I would say that they are likely to be the margins that set the market.

Lets assume that most people on interest only (apart from BTL) are on IO because they can't really afford to be repaying the capital. Those are the very people who will actually be seeing these eye gouging X00% rises in their monthly cost. They now need to exit the market and exit it fast, before it breaks them.

True.  Do you have stats on how many people that might be.   Can’t even fathom why anyone would “buy” a house on IO which is why I never even considered that tbh. 

[Armus]

Crashy crashy.

On other ‘mainstream’ forums I visit people are talking about mortgage rates and BoE going back to normal, “When do you think it will happen?”, “Might be a while until inflation is back below 2%”, etc.

[henry the king]

Just now, Armus said:

Crashy crashy.

On other ‘mainstream’ forums I visit people are talking about mortgage rates and BoE going back to normal, “When do you think it will happen?”, “Might be a while until inflation is back below 2%”, etc.

Mortgage rates are climbing because swap rates and gilt yields, and BoE base rate expectations, have broken aggressively higher and this time it looks like it will last.

The delussion of rate cuts back to 0% (which is what Bailey has been hinting at) seems to have finally been blown out of the water and you can see mortgage rates increasing across a range of providers.

[Lagarde's Drift]

4 hours ago, Gurgle said:

Whether or not people understand compound interest is irrelevant.  What is relevant is whether they can afford the payments.  Even by your posted examples the total cost of the loan goes from £123,061 -> £168,351 which is actually only a 36.8% increase in total cost.  I don’t understand the point of your post and the numbers you presented.  Looking at interest alone is irrelevant.  
 

Edited to add that you used 1% and 4% not 1% and 5% which would represent the 400% increase in rate and which is what I used. That would mean my calculation above is not aligned with my original post but it’s still not going to be close to 100s% increase in costs

It is super duper important. The higher interest payments highlight the lower equity in the latter which leads to all sorts of ramifications, increased exposure to job loss, moving house, HPC, etc.

But of course, ppl only see the monthly cost, and not the lifetime cost, and only then in purely £.

[Aidan Ap Word]

11 hours ago, Lagarde's Drift said:

16 hours ago, Gurgle said:

Whether or not people understand compound interest is irrelevant.  What is relevant is whether they can afford the payments.  Even by your posted examples the total cost of the loan goes from £123,061 -> £168,351 which is actually only a 36.8% increase in total cost.  I don’t understand the point of your post and the numbers you presented.  Looking at interest alone is irrelevant.  
 

Edited to add that you used 1% and 4% not 1% and 5% which would represent the 400% increase in rate and which is what I used. That would mean my calculation above is not aligned with my original post but it’s still not going to be close to 100s% increase in costs

Expand  

It is super duper important. The higher interest payments highlight the lower equity in the latter which leads to all sorts of ramifications, increased exposure to job loss, moving house, HPC, etc.

But of course, ppl only see the monthly cost, and not the lifetime cost, and only then in purely £.

@Gurgle that people don't understand that money itself has a price is a fundamental pillar of many of modern society's challenges.

From the implications of US Debt ceilings, the implications of (or not!!!!) negative equity, the price of fuel or energy, taxation, QE and HTB, and the utter panic when only sentiment changes and it causes a run on the bank(s) (commercial (SVB) or retail (Northern Rock)) ... and soooo much more.

And then ther is inter-generational tensions caused by Boomers moaning that the price of squashed avocado sandwiches is why people can't afford the basic need of housing ... when they make near zero difference to the saving of an eye-watering  deposit ...

... and then - if I can be excused a "meme" reference - there is Liar Loans and their impact on those who just want to add value, have a decent life and provide a stable foundation for their children.

So it is true that people currently only think about the affordability of the pay check in the next (say) 6 months ... but their inability to understand financial risk means that we have broadsheet papers bleeting about "save the home-moaners" who were allowed to take loans for hundreds of thousands of pounds with no understanding of the fundamentals of mathematics.