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I hadn't realised that it's only very recently that the UK mortgage market became overwhelmingly fixed-rate (media.kbin.social)

submitted 1 year ago by theinspectorst@kbin.social to c/ukeconomy

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[–] theinspectorst@kbin.social 4 points 1 year ago

Back in 1978, the only sort of mortgage in the UK was a variable rate mortgage. Household finances were tied at the hip to the macro policy toolkit. In fact, they were a large part of the monetary policy transmission mechanism. Policymakers sought to tame inflation by squeezing the finances of all indebted households such that it forced down other spending, cooling the economy.

[...]

The last proper rate-hiking cycle in the UK was over fifteen years ago.

Back then, the UK mortgage market still overwhelmingly consisted of variable rate mortgages tied at the hip to changes in Bank Rate. So when Bank Rate rose from 4.5 per cent to 5.75 per cent, mortgage rates rose from 5.2 per cent to 6.1 per cent. Almost everyone with a mortgage got squeezed, and squeezed in pretty much real time.

[–] snacks 3 points 1 year ago (2 children)

we bought last year at the end of the low rate period, fixed for 5. Its been a worrying few months but actually we have been very lucky. We have to accept the fact that we borrowed at historic lows, and the upcoming renewal in 4 years will likely be more expensive; we have to accept the average over the life of the borrowing. This reality isnt made clear in the application process, they borrow on past performance of your savings and salaries. But the flip side of that coin is it was now or never, as we both hit 40 to buy first time. We certainly dont want to be paying off debt when retired, and millions likely will be.

The problem as always is theres loads of housing but in the wrong parts of the country. If government really pushed it they could take the weight off of londons economy and provide incentives to move; subsidies for travel, EV subsidies, tax relief etc. The stranglehold is that so many mortgages in london depend on ever increasing value as savings rates are abysmal compared to property value increase. Normal people can get their heads round easy money but its bitten the last 5 or 6 governments on the arse because we cant escape the loop without bankrupting or repossessions on a massive scale.

these are my thoughts and they is mine

[–] theinspectorst@kbin.social 3 points 1 year ago (1 children)

This reality isnt made clear in the application process, they borrow on past performance of your savings and salaries.

A couple of things to bear in mind.

Until last August, mortgage lenders were required to stress test borrowers to check they could continue to repay in the event of a three percentage point increase in rates - that rule at least used to act as a check on people getting completely caught out by rising rates on a go-forward basis.

The other thing to remember is that (abstracting from wider rate changes) your mortgage rate ought to come down over time as you remortgage, as your loan-to-value ratio will improve each month because of your repayments. In a rising rate environment, that at least gives some offset to the rate increases. I'm coming to the end of a 5yr fix but my LTV bracket has improved enough over that period that my monthly mortgage payments ought not to increase horrifically if I do remortgage for another 5yrs.

[–] snacks 3 points 1 year ago (1 children)

All things being equal, we should be ok. What would you do today? I had a chat with a taxi driver last week about his daughter waiting to get a better rate. I suspect it’s very difficult to time anything like this perfectly, you’re always going to potentially lose out if you fix today for 5, but that safety means you can get that equity paid down for 5.

[–] theinspectorst@kbin.social 2 points 1 year ago (1 children)

I expect to go 5yr again because I know I can afford it and I'm risk averse.

Paying up for a 2yr fix now followed by a cheaper 3yr fix when it expires might work out cheaper overall (if rates do come down in 2025/6 as people expect) but there's enough uncertainty in the economy/politics/geopolitics that I'd prefer not to take the chance.

[–] Senseibu 2 points 1 year ago* (last edited 1 year ago)

Mine 5 yr fix ends in early 2027, I think if rates are still high I’ll only fix for 2 years next time, it’s a dice roll but I think eventually we will stabilise around 3-3.5% base rate

[–] mark 2 points 1 year ago (1 children)

There are massive incentives to move. You can get the same house for less than half the price of a London house all over the country.

If that vast financial incentive doesn't make people move out of London then Government subsidies never will.

[–] snacks 4 points 1 year ago (1 children)

right but its about jobs. nobody wants to move too far for work, itll be retirement age movers who will potentially move away from cities, or from south to north. Big employers need incentives to up sticks, its not entirely the fault of the South East worker if they cant take advantage of low house prices in Hull.

[–] mark 3 points 1 year ago* (last edited 1 year ago) (2 children)

Yeah, it's complicated. It's about friendships, it's about jobs, it's about nightlife and events and transport, ...

I work for a big tech employer in Coventry. We'd be very happy if some of the London/South-East based employees wanted to move here. And we're within easy commuting distance of a number of towns and villages as well as the city itself. And we're only an hour from London on the train - hardly the back of beyond.

If people actually want to move, it is perfectly possible for them to do so right now. If they don't, for any one of a number of reasons, it is their choice. But it is very naive to imagine that Government subsidies would help when simple economics already provides a subsidy worth hundreds of thousands of pounds.

[–] snacks 3 points 1 year ago

yes i get you. I dont think I am naive but hey, lets not get off track! Government support isnt just about subsidy as you point out. Its clearly a percieved lack of options, people dont think they can make the move for all the reasons. Half the problem we had moving last year was making time to view houses in areas we dont live near. Theres clearly an opportunity for someone to speak to those local councils and make a database, maps, information packs to help prospective movers like us to understand certain things - but in this case the private market is still heavily lopsided, and thats a good way to start with subtle government intervention. Decent estate agents are almost as rare as rocking horse shit, they simply wont help you even if they wanted to!

[–] Senseibu 3 points 1 year ago* (last edited 1 year ago)

My employers office is in London, I visit a few times a month and the rest of the time I work at home in the northwest. Really hit the jackpot of jobs for myself. 1hr 47mins to London on the west coast mainline. When I visit I can get the 6.30am train and be at the office before 9