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munimula

Ftb Warning! Your're Mortgage Interest Rate Will Be 6.75%+

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To all aspiring FTBs out there.

Last weeks interest rate rise to 4.75% will cap house prices as the rises in interest rates upto 4.75% in 2004 did.

In fact when interest rates last hit 4.75% there were the signs of some small falls in house prices and stagnation in large parts of the country. In fact, since rates last hit 4.75% the total UK debt has grown by around 20%, shouldered by a minority of people, we are less able to cope with 4.75%.

Interest rates are on the rise again, houses are unaffordable and the effect of interest rate rises is likely to be a reduction in house prices.

If you buy a house today it it totally conceivable that it will fall in value, perhaps only 5% but if you buy with a 100% mortgage you will be in negative equity.

Think about what this means before you buy.

A lot of people don't seem to realise that this will mean that you can't remortgage with another bank. You won't be able to switch to another fixed rate or tracker deal as your house will be worth less than the money you require to pay back your current lender.

What does this mean for you?

It means that your mortgage will be transferred to the banks Standard Variable Rate (SVR) and to give you an example - Halifax have just increased their SVR to 6.75%.

So if you're looking at tracker rates of 4.5% now you could end up on a rate of 6.75% within the next 2-3 years.

A 50% increase in your mortgage repayments.

Think about this carefully.

Could you afford a 50% increase in your repayments?

In fact it is likely to be more. More interest rate rises are almost certain and Halifax put up their SVR only days after the interest rate rise last week. In 2-3 years time it would be totally realistic to expect SVR rates to be above 7%.

Edited by munimula

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To all aspiring FTBs out there.

Last weeks interest rate rise to 4.75% will cap house prices as the rises in interest rates upto 4.75% in 2004 did.

In fact when interest rates last hit 4.75% there were the signs of some small falls in house prices and stagnation in large parts of the country. In fact, since rates last hit 4.75% the total UK debt has grown by around 20%, shouldered by a minority of people, we are less able to cope with 4.75%.

Interest rates are on the rise again, houses are unaffordable and the effect of interest rate rises is likely to be a reduction in house prices.

If you buy a house today it it totally conceivable that it will fall in value, perhaps only 5% but if you buy with a 100% mortgage you will be in negative equity.

Think about what this means before you buy.

A lot of people don't seem to realise that this will mean that you can't remortgage with another bank. You won't be able to switch to another fixed rate or tracker deal as your house will be worth less than the money you require to pay back your current lender.

What does this mean for you?

It means that your mortgage will be transferred to the banks Standard Variable Rate (SVR) and to give you an example - Halifax have just increased their SVR to 6.75%.

So if you're looking at tracker rates of 4.5% now you could end up on a rate of 6.75% within the next 2-3 years.

A 50% increase in your mortgage repayments.

Think about this carefully.

Could you afford a 50% increase in your repayments?

In fact it is likely to be more. More interest rate rises are almost certain and Halifax put up their SVR only days after the interest rate rise last week. In 2-3 years time it would be totally realistic to expect SVR rates to be above 7%.

Are these figures really true (I am hopeless at maths)

- if so this is information which really needs to be heeded.

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Halifax's standard variable rate is 6.75% now today. They'll give you a mortgage at that rate now if you want it. No fees, no tie in.

But in practice nobody takes a mortgage at the SVR unless they have money to burn and can't be bothered to ask the building society for the best deal on offer when the fixed rate period runs out.

If you are the kind of person who prefers a fixed rate, when your fixed rate runs out you simply pay another fee and fix again. Chances are the fixed rate on offer will always be much better than the SVR.

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you could end up on a rate of 6.75% within the next 2-3 years.

A 50% increase in your mortgage repayments.

Think about this carefully.

Could you afford a 50% increase in your repayments?

In fact it is likely to be more. More interest rate rises are almost certain and Halifax put up their SVR only days after the interest rate rise last week. In 2-3 years time it would be totally realistic to expect SVR rates to be above 7%.

Not quite true (unless you have an interest-only / endowment mortgage). The interest portion of your monthly payment will double, but the repayment element should remain the same.

The split of your monthly payment between interest and capital will vary depending on how long the period of your mortgage is and how early into the mortgage you are. The capital portion could be anything from 25% to 75% of your monthly amount - and in the early years of a longer term (20-25 year) mortgage is likely to be around 30% ish.

Mathematical semantics aside, I agree that SVRs are likely to be around the 6.5%- 7.5% and that's a big increase to absorb in anyone's book.

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Not quite true (unless you have an interest-only / endowment mortgage). The interest portion of your monthly payment will double, but the repayment element should remain the same.

The split of your monthly payment between interest and capital will vary depending on how long the period of your mortgage is and how early into the mortgage you are. The capital portion could be anything from 25% to 75% of your monthly amount - and in the early years of a longer term (20-25 year) mortgage is likely to be around 30% ish.

Mathematical semantics aside, I agree that SVRs are likely to be around the 6.5%- 7.5% and that's a big increase to absorb in anyone's book.

appreicated, but I made the assumption based on interest only mortgage.

But frankly, that's what you've got to get to get a house these days so probably applies to most FTBs and the 50% increase is at today's SVR rates - likely to be more in the very near future.

This is a very valid point to raise.

It is a highly likely scenario that FTBs will find themselves in during the next few years as 5-10% falls as a minimum are highly probable and I don't expect at today's prices there are many FTBs buying with more than 5-10% deposits.

We are told that 50% of average FTB take home pay goes on mortgage. This would suggest that there are many paying 50%+ on their mortgages.

Imagine this scenario;

IO mortgage costing you £600 on the house you buy today. 95% LTV mortgage on 4.5% 2-year tracker. Your take home pay is £1200 so the mortgage is 50% of your take home pay (Not a bad example of an FTB buying today). Today you've got £600 left after your mortgage, you aren't flush but manage to get by. £100 goes on house bills, £200 goes on running your car and paying off the loan. You've got £75 a week left to live on.

In 2 years time your house has fallen 10% in value. You've lost your deposit and 5% of the value of your house. You can't remortgage with another bank so you move to the SVR mortgage, mortgage payment is now £900 based on 6.75%.

How are you going to live on £300?

Rough example, but a very likely scenario that will hit many FTBs with little equity cushion

Edited by munimula

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In 2 years time your house has fallen 10% in value. You've lost your deposit and 5% of the value of your house. You can't remortgage with another bank so you move to the SVR mortgage, mortgage payment is now £900 based on 6.75%.

So stay with your current bank and switch to whatever is their best deal available in 2 years time. Possibly 5.25% tracker @ £700pm.

If you've kept up with average wage increases at 4% pa your wages will have gone up from £1,200 to £1,300

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If you've kept up with average wage increases at 4% pa your wages will have gone up from £1,200 to £1,300

What if wages don´t go up so much?

Umemplyoment is low at the moment - but employers can have a field day keeping wages down when unemplyoment is high

India is starting to take away some of the service jobs the UK excelled at (China has been more of a threat to manufacturing only)

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If you've kept up with average wage increases at 4% pa your wages will have gone up from £1,200 to £1,300

Outside of government, who's getting wage increases of 4% per annum?

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So stay with your current bank and switch to whatever is their best deal available in 2 years time. Possibly 5.25% tracker @ £700pm.

If you've kept up with average wage increases at 4% pa your wages will have gone up from £1,200 to £1,300

Do you know that is is possible to switch if you are in NE. If you switch will you have to undergo a price survey?

In today's climate the average person is lucky to get inflationnary pay rises, and with inflation heading towards 3% you won't be any better off.

I excluded pay rises on the basis that I excluded inflation to compare like for like.

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but the best available deal won't be available to you if you are in negative equity (the banks best deals are reserved for those who are borrowing less than the value of the house against which the loan is secured. You'll have to go with whatever deal the bank offers you (which will probalbly be it's crappy standard rate), or re-mortgage on a sub-prime rate with a lender who will lend over 100% LTV. Either way, you'll be looking at a significant increase in payments.

So stay with your current bank and switch to whatever is their best deal available in 2 years time. Possibly 5.25% tracker @ £700pm.

If you've kept up with average wage increases at 4% pa your wages will have gone up from £1,200 to £1,300

but the best available deal won't be available to you if you are in negative equity (the banks best deals are reserved for those who are borrowing less than the value of the house against which the loan is secured. You'll have to go with whatever deal the bank offers you (which will probalbly be it's crappy standard rate), or re-mortgage on a sub-prime rate with a lender who will lend over 100% LTV. Either way, you'll be looking at a significant increase in payments.

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If you stay with the same lender then you would only need to have a survey if you want to increase the size of you loan. If you are just switching deals then no survey is required.

ONS statistics show average wages rising at more or less 4% pa. Personally I have had 2% rises for several years but business has picked up so much in the last 12 months and we were all rewarded with 5% rises.

If inflation gets a hold wage rises will go up at more than 4% pa as more people demand inflation busting increases. This is why interest rates are increased, putting people out of work, creating more demand for job vacancies that arise, in turn pushing wages downwards.

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If you stay with the same lender then you would only need to have a survey if you want to increase the size of you loan. If you are just switching deals then no survey is required.

ONS statistics show average wages rising at more or less 4% pa. Personally I have had 2% rises for several years but business has picked up so much in the last 12 months and we were all rewarded with 5% rises.

If inflation gets a hold wage rises will go up at more than 4% pa as more people demand inflation busting increases. This is why interest rates are increased, putting people out of work, creating more demand for job vacancies that arise, in turn pushing wages downwards.

Really? Fair enough then, maybe that'd work. I must say, I'd be really suprised if in a scenario where house prices are gerenally falling lenders did not insist on a valuation before agreeing to remortgage, (I mean, they may not be nice, but they're not stupid are they, and I can't see them charitably offering unsecured loans out of the goodness of their hearts), but I stand corrected if you've got an inside track on this. On the basis that you're right I guess that really would be a weight off the minds of any over-stretched FTB's out there.

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Imagine this scenario;

IO mortgage costing you £600 on the house you buy today. 95% LTV mortgage on 4.5% 2-year tracker. Your take home pay is £1200 so the mortgage is 50% of your take home pay (Not a bad example of an FTB buying today). Today you've got £600 left after your mortgage, you aren't flush but manage to get by. £100 goes on house bills, £200 goes on running your car and paying off the loan. You've got £75 a week left to live on.

In 2 years time your house has fallen 10% in value. You've lost your deposit and 5% of the value of your house. You can't remortgage with another bank so you move to the SVR mortgage, mortgage payment is now £900 based on 6.75%.

How are you going to live on £300?

Imagine is the key word; pure fantasy, in my opinion :)

In your example, a 600pcm IO mortgage would equate to a loan of something like 155K. The 1200 take home pay suggests your imaginery buyer is on 20k. That means he has taken a mortgage of 7.75 times his salary. And you think this is the norm? :blink:

Really, things have not got to that stage

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Imagine is the key word; pure fantasy, in my opinion :)

In your example, a 600pcm IO mortgage would equate to a loan of something like 155K. The 1200 take home pay suggests your imaginery buyer is on 20k. That means he has taken a mortgage of 7.75 times his salary. And you think this is the norm? :blink:

Really, things have not got to that stage

well actually things have got exactly to this.

the difference is that many couples are making the purchase on a joint salary and yet haven't yet discovered how they are going to manage when they start to have kids.

my sister and her boyfriend, just taken out £190K mortgage, Each earns fractionally more - approx £25K each. You could call them Mr and Mrs average.

Fine you say, but what happens when they have kids? £25K salary and £190K mortgage. And before you say their wages could rise - he's 35 and she's 29 and they aren't expecting big salary increases now.

And before you point out that my sister could go back to work, in the 'real' world if she does then most of her salary will go on childcare.

So, there you go, a 'real' world example, and probably quite a typical one of exactly how bad things are.

OK, they will always manage to pay the mortgage but will this be at the expense of having a family?

Edited by munimula

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well actually things have got exactly to this.

the difference is that many couples are making the purchase on a joint salary and yet haven't yet discovered how they are going to manage when they start to have kids.

my sister and her boyfriend, just taken out £190K mortgage, Each earns fractionally more - approx £25K each. You could call them Mr and Mrs average.

Fine you say, but what happens when they have kids? £25K salary and £190K mortgage. And before you say their wages could rise - he's 35 and she's 29 and they aren't expecting big salary increases now.

And before you point out that my sister could go back to work, in the 'real' world if she does then most of her salary will go on childcare.

So, there you go, a 'real' world example, and probably quite a typical one of exactly how bad things are.

OK, they will always manage to pay the mortgage but will this be at the expense of having a family?

That's about the size of it, my sister is moving to South Carolina because there is absolutely no way she could afford to have a child in the UK on her and hubby's wages and have any sort of quality of life.

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So stay with your current bank and switch to whatever is their best deal available in 2 years time. Possibly 5.25% tracker @ £700pm.

If you've kept up with average wage increases at 4% pa your wages will have gone up from £1,200 to £1,300

sorry spoke to my mortgage/bank mate and he insists that in a falling market especially to a person with little equity a re-valuation is necesaary regardles of whether or not it is with the same lender.

If the value of the asset has dropped they need to know they will get their money back if the borrower defaults. They are not a charity they are in the business of making money.

Check it out yourself - ask your own bank what its policy is.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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